FILE NO. 33-10830
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM N-1A
__________________________________________________
POST-EFFECTIVE AMENDMENT NO. 8
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. 270.24e-2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Title of Share Proposed Proposed
securities Amount Maximum maximum Amount of
being being offering aggregate registration
registered registered price per offering* fee
share
Reserve Account 44,410 $12.80 $290,000 $100
Portfolio
U.S. Government/ 54,507 $13.45 $290,000 $100
High Quality
Securities Portfolio
Income and Growth 170,100 $16.06 $290,000 $100
Portfolio
</TABLE>
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 April 16, 1996.
*Calculation of the proposed maximum offering price has been made pursuant to
Rule 24e-2.
During its fiscal year ended December 31, 1995, the Reserve Account Portfolio
redeemed 60,357 shares of beneficial interest. During its current fiscal year,
the Portfolio used 38,603 shares it redeemed during its fiscal year ended
December 31, 1995, for a reduction pursuant to Rule 24f-2(c).
The Reserve Account Portfolio currently is registering 44,410 shares, which is
equal to the remaining 21,754 shares redeemed during its fiscal year ended
December 31, 1995, plus 22,656 shares.
During its current fiscal year, the Reserve Account Portfolio filed no other
post-effective amendments for the purpose of reduction pursuant to Rule 24e-
2(a).
During its fiscal year ended December 31, 1995, the U.S. Government/High
Quality Securities Portfolio redeemed 72,806 shares of beneficial interest.
During its current fiscal year, the Portfolio used 39,860 shares it redeemed
during its fiscal year ended December 31, 1995, for a reduction pursuant to
Rule 24f-2(c).
The U.S. Government High/Quality Securities Portfolio, currently is
registering 54,507 shares which is equal to the remaining 32,946 shares
redeemed during its fiscal year ended December 31, 1995, plus 21,561 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).
During its fiscal year ended December 31, 1995, the Income and Growth
Portfolio redeemed 330,477 shares of beneficial interest. During its current
fiscal year, the Portfolio used 178,434 shares it redeemed during its fiscal
year ended December 31, 1995, for a reduction pursuant to Rule 24f-2(c).
The Income and Growth Portfolio, currently is registering 170,100 shares which
is equal to the remaining 152,043 shares redeemed during its fiscal year ended
December 31, 1995, plus 18,057 shares.
During its current fiscal year, the Income and Growth 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 29, 1996 for its most
recent fiscal year ended December 31, 1995.
It is proposed that this Post-Effective Amendment will become effective on
April 29, 1996 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 Reinvestment 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 29, 1996, 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 29, 1996.
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' Equity Income 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.
FINANCIAL HIGHLIGHTS
(for a share of beneficial interest in each series outstanding throughout each
period):
The following information for the seven-year period ended December 31, 1995
has been audited in conjunction with the annual audit of the financial
statements of Smith Barney Variable Account Funds by KPMG Peat Marwick LLP,
independent auditors. The 1995 financial statements and the independent
auditors' report thereon appear in the December 31, 1995 Annual Report to
shareholders.
<TABLE>
<CAPTION>
Income From Investment Operations Distributions
Ratios to Average Net Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C><C><C> <C>
Note: For EDGAR Purposes please read headings down to correspond to financial
information across the columns. For example, Year Ended is 1995, 1994, 1993,
etc; Net Asset Value, Begin. of year is $13.05, 14.39, 14.36, etc.
Year Ended
Net Asset Value, Begin. of Year
Income From Investment Operations:
Net Investment Income
Net Realized and Unrealized Gain(Loss) on Investment
Total Income from Operations
Distributions From:
Net Investment Income
Net Realized Gains
Total Distributions
Net Asset Value, End of Year
Total Return
Net Assets, End of Year(000s)
Ratios to Average Net Assets:
Expenses
Net Investment Income
Portfolio Turnover Rate
INCOME AND GROWTH PORTFOLIO
1995(2) $13.05 $0.45 $3.12 $3.57 $(0.44) $(0.94) $(1.38) $15.24 27.35%** $29,782 0.77% 2.77%46.26%
1994 14.39 0.39 (0.86) (0.47) (0.39) (1.02) (1.41) 13.05 (3.12) 27,484 0.75 2.49 40.41
1993 14.36 0.57 2.02 2.59 (0.57) (1.45) (2.02) 14.93 18.61 30,638 0.75 3.59 70.39
1992 13.76 0.49 1.09 1.58 (0.50) (0.48) (0.98) 14.36 11.48 26,501 0.84 3.43 57.49
1991 10.93 0.59 2.82 3.41 (0.58) - (0.58) 13.76 31.34 23,764 0.61 4.61 31.86
1990 12.66 0.64 (1.70) (1.06) (0.67) - (0.67) 10.93 (8.37) 16,819 0.50 5.86 17.27
1989(a) 12.50 0.20 0.14 0.34 (0.18) - (0.18) 12.66 2.68+ 13,346 0.50* 6.43* 8.21
U.S. GOVERNMENT/HIGH QUALITY SECURITIES PORTFOLIO
1995 12.46 0.94 1.20 2.14 (0.94) 0.00 (0.94) 13.66 17.20 4,856 0.87 6.36 0.00
1994 13.35 0.84 (0.89) (0.05) (0.84) - (0.84) 12.46 (0.35) 4,838 0.76 5.87 36.33
1993 13.44 0.88 (0.08) 0.80 (0.87) (0.02) (0.89) 13.35 5.91 5,450 0.74 6.09 4.06
1992 13.45 0.88 0.05 0.93 (0.89) (0.05) (0.94) 13.44 6.91 5,516 0.93 6.34 11.10
1991 12.74 0.93 0.67 1.60 (0.87) (0.02) (0.89) 13.45 12.58 4,883 0.67 7.05 12.42
1990 12.54 0.83 0.19 1.02 (0.82) - (0.82) 12.74 8.11 3,600 0.50 8.31 5.69
1989(b) 12.50 0.34 0.04 0.38 (0.34) - (0.34) 12.54 3.01+ 2,151 0.50* 8.31* -
RESERVE ACCOUNT PORTFOLIO
1995 12.39 0.73 0.38 1.11 (0.74) (0.05) (0.79) 12.71 8.83 2,315 0.97 5.30 16.98
1994 12.75 0.59 (0.34) 0.25 (0.58) (0.03) (0.61) 12.39 1.99 2,528 0.86 4.77 81.28
1993 12.86 0.69 (0.10) 0.59 (0.69) (0.01) (0.70) 12.75 4.67 2,615 0.98 4.90 -
1992 13.08 0.78 (0.15) 0.63 (0.78) (0.07) (0.85) 12.86 4.82 2,974 1.01 5.41 18.41
1991 12.66 0.86 0.48 1.34 (0.89) (0.03) (0.92) 13.08 10.64 3,132 0.65 6.61 23.90
1990 12.55 0.93 0.11 1.04 (0.93) - (0.93) 12.66 8.30 2,740 0.50 7.66 7.65
1989(c) 12.50 0.36 0.05 0.41 (0.36) - (0.36) 12.55 3.26+ 2,008 0.50* 8.28* -
</TABLE>
(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 expenses of any Portfolio exceed 1% of
the average daily net assets for any year.
(2) New SEC disclosure guidelines require that average commissions be
calculated for the current year only. For the year ended December 31,
1995, average commissions paid on equity security transactions for the
Income and Growth Portfolio were $0.07.
(a) From July 20, 1989 (commencement of operations) to December 31, 1989.
(b) From July 31, 1989 (commencement of operations) to December 31, 1989.
(c) From August 2, 1989 (commencement of operations) to December 31, 1989.
+ Not annualized, as the result may not be representative of the total
return for the year.
* Annualized
** Amount has been restated from the December 31, 1995 Annual Report.
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-the-counter 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. 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
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
interest-paying 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). At least 65% of the
Portfolio's assets will at all times be invested in equity securities. The
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 non-dividend 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 Depository 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.")
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 Prime-2 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 short-term
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 three-month 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 short-term 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"), 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
0.77%, 0.87% and 0.97%, 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 Trustees, 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, James Conroy is responsible for management of the U.S.
Government/High Quality Securities Portfolio and Patrick Sheehan is
responsible for 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 eight years and
currently manages over $250 million in assets. Mr. Conroy is Vice President
of the Manager and is responsible for managing the day-to-day operations of
the U.S. Government Securities Portfolio, including the making of investment
decisions. In addition, Mr. Conroy has also served as Vice President and
Investment Officer of Smith Barney Managed Governments Fund Inc. since
February 1990 and as First Vice President and Investment Officer of Smith
Barney Government Securities Fund since its inception in March 1984. 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, 1996 the Manager had aggregate assets under the
management of approximately $69 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 pass-through
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 Depository 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 agreed-
upon 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 29, 1996
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 29, 1996 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
Additional
Information
Trustees and Officers
2 - 4
Investment Policies
4 - 6
Investment Restrictions
6 - 8
Performance Information
8 - 9
Determination of Net Asset Value
9
Redemption of Shares
9
Custodian
10
Independent Auditors
10
The Fund
10 - 11
Management Agreements
11 - 13
Voting Rights
13
Financing Statements
13
Appendix-Ratings of Debt
Obligations
14 - 15
TRUSTEES AND OFFICERS
*JESSICA M. BIBLIOWICZ, President and Trustee
Executive Vice President of Smith Barney Inc. ("Smith Barney"); Director of
twelve investment companies associated with Smith Barney, President of thirty-
nine investment companies associated with Smith Barney; President and Chief
Executive Officer of Smith Barney Mutual Funds Management, Inc. ("SBMFM" or
the "Manager"). Prior to January 1994, Director of Sales and Marketing for
Prudential Mutual Funds; Prior to September 1991, Director, Salomon Brothers
Inc.; 36.
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; 78.
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); 73.
PAUL HARDIN, Trustee
Professor of Law at 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; Formerly, Chancellor of the
University of North Carolina at Chapel Hill, University of North Carolina; 64.
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.; 71.
*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; Chairman of the Manager; Chairman of the Board
of Smith Barney Strategy Advisors Inc.; prior to July 1993, Senior Executive
Vice President of Shearson Lehman Brothers; Vice Chairman of the Board of
Asset Management; 62.
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); 71.
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; 65.
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;
80.
*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; 38.
*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 three investment companies associated with
Smith Barney;52.
*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; 39.
*THOMAS M. REYNOLDS, Controller and Assistant Secretary
Director of Smith Barney and Controller and Assistant Secretary of thirty-
seven investment companies associated with Smith Barney. Prior to September
1991, Assistant Treasurer of Aquila Management Corporation and its associated
investment companies; 36.
*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; 45.
On April 8, 1996, 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
Trustee 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 Trustees of the Fund are compensated by Smith Barney.
COMPENSATION TABLE
Total
Pension or Compensation Numbers of
Retirement from Fund Funds for
Aggregate Benefits Accrued and Fund Which Trustee
Compensation as part of Complex Serves Within
Name of Person from Fund Fund Expenses Paid to Trustees Fund Complex
Jessica Bibliowicz* $0 $0 $0 12
Joseph H. Fleiss 1,251 0 53,300 10
Donald R. Foley 1,551 0 56,100 10
Paul Hardin 947 0 68,200 12
Heath B. McLendon* 0 0 0 41
Francis P. Martin 1,547 0 56,100 10
Roderick C. Rasmussen 1,547 0 56,100 10
John P. Toolan 1,547 0 56,100 10
C. Richard Youngdahl 1,247 0 53,300 10
*Designates an "interested Trustee."
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 12/31/95
1 year 5 year Since Inception
Income and Growth Portfolio 27.35%** 114.28% 101.60%
U.S. Gov't/High Quality 17.20 48.87 65.79
Securities Portfolio
Reserve Account Portfolio 8.83 34.62 50.54
Portfolio Average Annual Total Returns as of
12/31/95
1 year 5 year Since
Inception
Income and Growth Portfolio 27.35% 16.46% 11.48%
U.S. Gov't/High Quality 17.20 8.28 8.19
Securities Portfolio
Reserve Account Portfolio 8.83 6.13 6.58
** Amount has been restated from the December 31, 1995 Annual Report.
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, has been selected as the Fund's independent auditors to
examine and report on the Fund's financial statements and
highlights for the fiscal year ending December 31, 1996.
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 1993, 1994 and 1995 the management fee for
the Income and Growth Portfolio was $172,583, $176,531 and
$172,705, respectively, the management fee for U.S.
Government/High Quality Portfolio was $24,973, $23,445 and $22,181
respectively, and the management fee for the Reserve Account
Portfolio was $10,894, $10,556 and $10,598 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 or for any of its
Trustees, 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 1995 the total amount of commissionable
transactions was $24,287,488, $9,694,629 (39.92%) of which was
directed to Smith Barney and $14,592,859 (60.08%) 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
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%
1995 $41,731 $15,990 38.3% $ -0- -0-% $25,741 61.7 %
The Board of Trustees 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 Trustees 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 8, 1996,
Nationwide Life Insurance Co. owned 1,878,349 (100%) of the
outstanding shares of the Income and Growth Portfolio, 313,396
(100%) of the outstanding shares of the U.S. Government/High
Quality Securities Portfolio, and 181,297 (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, 1995 Annual Report to
Shareholders a copy of which is furnished with this Statement of
Additional Information:
Independent Auditors' Report
Statements of Assets and Liabilities as of December
31, 1995
Schedules of Investments as of December 31, 1995
Statements of Operations for the year ended December
31, 1995
Statements of Changes in Net Assets for the years
ended December 31, 1995 and 1994
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; well-established 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.
PART C Other Information
Item 24 . Financial Statements and Exhibits
Location In:
(a) Financial Statements Part A Part B
Annual
Report
Statements of Assets and Liabilities
as of December 31, 1995 -- *
Statements of Operations for the
year ended December 31, 1995 -- *
Statements of Changes in Net Assets for
the years ended December 31, 1995 and 1994 -- *
Notes to Financial Statements -- *
_________________________________
*See the 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 and 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) (a) Transfer Agency Agreement between Registrant and Provident
Financial Processing Corp. is incorporated herein by reference
to Exhibit 9 to Pre-Effective Amendment No. 4.
(b) Form of Transfer Agency Agreement between Registrant and First
Data Investor Services Group, Inc. (filed herewith)
(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 (see the Annual Report to Shareholders
which is incorporated by reference in the Statement of Additional
Information)
(ii) Auditors' Consent (filed herewith)
(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.
(16) Schedule for Comparison of Performance Quotation (filed herwith)
(17) Financial Data Schedule (filed herewith)
(18) Plan 3 pursuant to Rule 18f-3 is incorporated by reference to
Exhibit 18 to Post- Effective Amendment No. 7
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 8, 1996
Income and Growth Portfolio 1
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 the Manager and Investment Adviser
See the material under the caption "Management" included in Part A
(Prospectus) of this
Registration Statement and the material appearing under the caption
"Management Agreements" 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 Smith Barney/Travelers Series Fund Inc., Smith Barney
World Funds, Inc., Smith Barney Municipal Money Market Fund Inc., Smith
Barney Muni Funds, Smith Barney Funds, Inc., Smith Barney Money Funds,
Inc., The Inefficient-Market Fund, Inc., Smith Barney Intermediate
Municipal Fund, Inc., Smith Barney Municipal Fund, Inc., High Income
Opportunity Fund Inc., Smith Barney Adjustable Rate Government Income
Fund, Smith Barney Equity Funds, Smith Barney Income Funds, Smith Barney
Massachusetts Municipals 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., 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 Natural Resources Fund Inc., Smith Barney
Investment Funds Inc., The Italy Fund Inc., Smith Barney
Telecommunications Trust, Managed Municipals Portfolio Inc., Managed
Municipals Portfolio II Inc., Managed High Income Portfolio Inc., and
Greenwich Street California Municipal Fund Inc., Smith Barney Concert
Series Inc and Smith Barney Institutional Money Market Funds Inc..
(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 First Data Investor Services Group, Inc., Exchange Place,
Boston, Massachusetts 02109-2873, will maintain the custodian and the
shareholders servicing agent records, respectively required by Section
31(a) of the Investment Company Act of 1940, as amended (the "1940
Act").
All other records required by Section 31(a) of the 1940 Actare
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 of the 1940 Act) .
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 Registrant's 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 26th day of April 1996.
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 April 26, 1996
(Heath B. McLendon) and Chief Executive Officer
/s/ Jessica Bibliowicz President
April 26, 1996
(Jessica Bibliowicz)
Joseph H. Fleiss* Trustee April 26, 1996
(Joseph H. Fleiss)
Donald R. Foley* Trustee April 26, 1996
(Donald R. Foley)
Trustee April , 1996
(Paul Hardin)
Francis P. Martin* Trustee April 26, 1996
(Francis P. Martin)
Roderick C. Rasmussen* Trustee April 26, 1996
(Roderick C. Rasmussen)
John P. Toolan* Trustee April 26, 1996
(John P. Toolan)
C. Richard Youngdahl* Trustee April 26, 1996
(C. Richard Youngdahl)
/s/ Lewis E. Daidone Treasurer and Principal
April 26, 1996
(Lewis E. Daidone) Financial Officer
*By: /s/ Christina T. Sydor
April 26, 1996
Christina T. Sydor
Pursuant to Power of Attorney
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
9(b) Form of Transfer Agency Agreement
(11) (ii) Auditor's Consent
(16) Schedule for Comparison of Performance
Quotation
(17) Financial Data Schedule
FORM OF
TRANSFER AGENCY AND REGISTRAR AGREEMENT
AGREEMENT, dated as of ___________, 1995 between Smith Barney
Fundamental Value Inc.., (the "Fund"), a corporation organized under the laws of
Maryland and having its principal place of business at 388 Greenwich Street New
York, NY 10013, and The Shareholder Services Group, Inc.Inc. (MA) (the
"Transfer Agent"), a Massachusetts corporation with principal offices at One
Exchange Place, 53 State Street, Boston, Massachusetts 02109.
W I T N E S S E T H
That for and in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and the Transfer Agent agree as follows:
1. Definitions. Whenever used in this Agreement, the following words
and phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, Partnership Agreement, or similar
organizational document as the case may be, of the Fund as the same may be
amended from time to time.
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Fund, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Fund as indicated
in a certificate furnished to the Transfer Agent pursuant to Section 4(c)
hereof as may be received by the Transfer Agent from time to time.
(c) "Board of Directors" shall mean the Board of Directors, Board
of Trustees or, if the Fund is a limited partnership, the General Partner(s)
of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time deposit, or
cause to be deposited or held under the name or account of such a custodian
pursuant to a Custodian Agreement.
(f) "Fund" shall mean the entity executing this Agreement, and if
it is a series fund, as such term is used in the 1940 Act, such term shall mean
each series of the Fund hereafter created, except that appropriate
documentation with respect to each series must be presented to the Transfer
Agent before this
Agreement shall become effective with respect to each such series.
(g) "1940 Act" shall mean the Investment Company Act of 1940.
(h) "Oral Instructions" shall mean instructions, other than Written
Instructions, actually received by the Transfer Agent from a person reasonably
believed by the Transfer Agent to be an Authorized Person;
(i) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any supplements
thereto if any, which has become effective under the Securities Act of 1933 and
the 1940 Act.
(j) "Shares" refers collectively to such shares of capital stock,
beneficial interest or limited partnership interests, as the case may be,
of the Fund as may be issued from time to time and, if the Fund is a
closed-end or a series
fund, as such terms are used in the 1940 Act any other classes or series of
stock, shares of beneficial interest or limited partnership interests that
may be issued from time to time.
(k) "Shareholder" shall mean a holder of shares of capital stock,
beneficial interest or any other class or series, and also refers to partners
of limited partnerships.
(l) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by the Transfer Agent to be an
Authorized Person and actually received by the Transfer Agent. Written
Instructions shall include manually executed originals and authorized
electronic transmissions,
including telefacsimile of a manually executed original or other process.
2. Appointment of the Transfer Agent. The Fund hereby appoints and
constitutes the Transfer Agent as transfer agent, registrar and dividend
disbursing agent for Shares of the Fund and as shareholder servicing agent
for the Fund. The Transfer Agent accepts such appointments and agrees to
perform the duties hereinafter set forth.
3. Compensation.
(a) The Fund will compensate or cause the Transfer Agent to
be compensated for the performance of its obligations hereunder in accordance
with the fees set forth in the written schedule of fees annexed hereto as
Schedule A and incorporated herein. The Transfer Agent will transmit an
invoice to the Fund as soon as practicable after the end of each calendar
month which will be detailed in accordance with Schedule A, and the Fund
will pay to the Transfer Agent the amount of such invoice within
thirty (30) days after the Fund's receipt of the invoice.
In addition, the Fund agrees to pay, and will be billed separately for,
reasonable out-of-pocket expenses incurred by the Transfer Agent in the
performance of its duties hereunder. Out-of-pocket expenses shall include, but
shall not be limited to, the items specified in the written schedule of
out-of-pocket charges annexed hereto as Schedule B and incorporated herein.
Unspecified out-of-pocket expenses shall be limited to those out-of-pocket
expenses reasonably incurred by the Transfer Agent in the performance of
its obligations hereunder. Reimbursement by the Fund for expenses incurred
by the Transfer
Agent in any month shall be made as soon as practicable but no later than
15 days after the receipt of an itemized bill from the Transfer Agent.
(b) Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedule A, a revised fee schedule executed and
dated by the parties hereto.
4. Documents. In connection with the appointment of the Transfer Agent
the Fund shall deliver or caused to be delivered to the Transfer Agent the
following documents on or before the date this Agreement goes into effect,
but in any case within a reasonable period of time for the Transfer Agent to
prepare to perform its duties hereunder:
(a) If applicable, specimens of the certificates for Shares of the
Fund;
(b) All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by the Fund;
(c) A signature card bearing the signatures of any officer of the
Fund or other Authorized Person who will sign Written Instructions or is
authorized to give Oral Instructions.
(d) A certified copy of the Articles of Incorporation, as amended;
(e) A certified copy of the By-laws of the Fund, as amended;
(f) A copy of the resolution of the Board of Directors authorizing
the execution and delivery of this Agreement;
(g) A certified list of Shareholders of the Fund with the name,
address and taxpayer identification number of each Shareholder, and the number
of Shares of the Fund held by each, certificate numbers and denominations (if
any certificates have been issued), lists of any accounts against which stop
transfer orders have been placed, together with the reasons therefore, and the
number of Shares redeemed by the Fund; and
(h) An opinion of counsel for the Fund with respect to the validity
of the Shares and the status of such Shares under the Securities Act of
1933, as amended.
5. Further Documentation. The Fund will also furnish the Transfer Agent
with copies of the following documents promptly after the same shall become
available:
(a) each resolution of the Board of Directors authorizing the
issuance of Shares;
(b) any registration statements filed on behalf of the Fund and all
pre-effective and post-effective amendments thereto filed with the Commission;
(c) a certified copy of each amendment to the Articles of
Incorporation or the By-laws of the Fund;
(d) certified copies of each resolution of the Board of Directors or
other authorization designating Authorized Persons; and
(e) such other certificates, documents or opinions as the
TransferAgent may reasonably request in connection with the performance of its
duties hereunder.
6. Representations of the Fund. The Fund represents to the Transfer
Agent that all outstanding Shares are validly issued, fully paid and
non-assessable. When Shares are hereafter issued in accordance with the terms
of the Fund's Articles of Incorporation and its Prospectus, such Shares shall
be validly issued, fully paid and non-assessable.
7. Distributions Payable in Shares. In the event that the Board of
Directors of the Fund shall declare a distribution payable in Shares, the Fund
shall deliver or cause to be delivered to the Transfer Agent written notice of
such declaration signed on behalf of the Fund by an officer thereof, upon
which the Transfer Agent shall be entitled to rely for all purposes,
certifying (i) the identity of the Shares involved, (ii) the number of
Shares involved, and (iii) that all appropriate action has been taken.
8. Duties of the Transfer Agent. The Transfer Agent shall be responsible
for administering and/or performing those functions typically performed by a
transfer agent; for acting as service agent in connection with dividend and
distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance, transfer
and redemption or repurchase (including coordination with the Custodian) of
Shares in accordance
with the terms of the Prospectus and applicable law. The operating standards
and procedures to be followed shall be determined from time to time by
agreement between the Fund and the Transfer Agent and shall initially be as
described in Schedule C attached hereto. In addition, the Fund shall deliver
to the Transfer Agent all notices issued by the Fund with respect to the
Shares in accordance with and pursuant to the Articles of Incorporation or
By-laws of the Fund or as required by law and shall perform such other
specific duties as are set forth in the
9. Record Keeping and Other Information. The Transfer Agent shall
create and maintain all records required of it pursuant to its duties
hereunder and
as set forth in Schedule C in accordance with all applicable laws, rules and
regulations, including records required by Section 31(a) of the 1940 Act. All
records shall be available during regular business hours for inspection and
use by the Fund. Where applicable, such records shall be maintained by the
Transfer Agent for the periods and in the places required by Rule 31a-2
under the 1940 Act.
Upon reasonable notice by the Fund, the Transfer Agent shall make
available during regular business hours such of its facilities and premises
employed in connection with the performance of its duties under this Agreement
for reasonable visitation by the Fund, or any person retained by the Fund
as may be necessary for the Fund to evaluate the quality of the services
performed by the Transfer Agent pursuant hereto.
10. Other Duties. In addition to the duties set forth in Schedule C, the
Transfer Agent shall perform such other duties and functions, and shall be paid
such amounts therefor, as may from time to time be agreed upon in writing
between the Fund and the Transfer Agent. The compensation for such other
duties and functions shall be reflected in a written amendment to Schedule
A or B and the duties and functions shall be reflected in an amendment to
Schedule C, both dated and signed by authorized persons of the parties hereto.
11. Reliance by Transfer Agent; Instructions
(a) The Transfer Agent will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Fund pursuant to Section 4(c). The Transfer Agent will also
have no liability when processing Share certificates which it reasonably
believes to bear the proper manual or facsimile signatures of the officers
of the Fund and the proper countersignature of the Transfer Agent.
(b) At any time, the Transfer Agent may apply to any Authorized
Person of the Fund for Written Instructions and may seek advice from legal
counsel for the Fund, or its own legal counsel, with respect to any matter
arising in connection with this Agreement, and it shall not be liable for
any action taken or not taken or suffered by it in good faith in accordance
with such Written Instructions or in accordance with the opinion of counsel
for the Fund or for the
Transfer Agent. Written Instructions requested by the Transfer Agent will be
provided by the Fund within a reasonable period of time. In addition, the
Transfer Agent, its officers, agents or employees, shall accept Oral
Instructions or Written
Instructions given to them by any person representing or acting on behalf
of the Fund only if said representative is an Authorized Person. The Fund
agrees that all Oral Instructions shall be followed within one business day
by confirming Written Instructions, and that the Fund's failure to so
confirm shall not impair in any respect the Transfer Agent's right to rely on
Oral Instructions. The Transfer Agent
shall have no duty or obligation to inquire into, nor shall the Transfer
Agent be responsible for, the legality of any act done by it upon the
request or direction of a person reasonably believed by the Transfer Agent
to be an Authorized Person.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to inquire
into, and shall not be liable for: (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be received therefor; (ii)
the legality of the redemption of any Shares, or the propriety of the amount
to be paid therefor; (iii) the legality of the declaration of any dividend
by the Board of Directors, or
the legality of the issuance of any Shares in payment of any dividend; or
(iv) the legality of any recapitalization or readjustment of the Shares.
12. Acts of God, etc. The Transfer Agent will not be liable or responsible
for delays or errors by acts of God or by reason of circumstances beyond its
control, including acts of civil or military authority, national emergencies,
labor difficulties, mechanical breakdown, insurrection, war, riots, or failure
or unavailability of transportation, communication or power supply, fire,
flood or other catastrophe.
13. Duty of Care and Indemnification. Each party hereto (the
"Indemnifying Party') will indemnify the other party (the "Indemnified Party")
against and hold it harmless from any and all losses, claims, damages,
liabilities or expenses of any sort or kind (including reasonable counsel
fees and expenses)
resulting from any claim, demand, action or suit or other proceeding
(a "Claim") unless such Claim has resulted from a negligent failure to act
or omission to act or bad faith of the Indemnified Party in the performance
of its duties hereunder. In addition, the Fund will indemnify the Transfer
Agent against and hold it harmless
from any Claim, damages, liabilities or expenses (including reasonable counsel
fees) that is a result of: (i) any action taken in accordance with Written or
Oral Instructions, or any other instructions, or share certificates
reasonably believed by
the Transfer Agent to be genuine and to be signed, countersigned or executed,
or orally communicated by an Authorized Person; (ii) any action taken in
accordance with written or oral advice reasonably believed by the Transfer
Agent to have been given by counsel for the Fund or its own counsel; or (iii)
any action taken as a result of any error or omission in any record
(including but not limited to
magnetic tapes, computer printouts, hard copies and microfilm copies)
delivered, or caused to be delivered by the Fund to the Transfer Agent in
connection with this Agreement.
In any case in which the Indemnifying Party may be asked to indemnify or
hold the Indemnified Party harmless, the Indemnifying Party shall be advised of
all pertinent facts concerning the situation in question. The Indemnified
Party will notify the Indemnifying Party promptly after identifying any
situation which it believes presents or appears likely to present a claim
for indemnification against the Indemnifying Party although the failure to
do so shall not prevent recovery by
the Indemnified Party. The Indemnifying Party shall have the option to defend
the Indemnified Party against any Claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the Indemnifying Party and
satisfactory to the Indemnified Party, and thereupon the Indemnifying Party
shall take over complete defense of the Claim and the Indemnified Party
shall sustain no further legal or other expenses in respect of such Claim.
The Indemnified Party will not confess any Claim or make any compromise in
any case in which the Indemnifying Party will be asked to provide
indemnification, except with the
Indemnifying Party's prior written consent. The obligations of the parties
hereto under this Section shall survive the termination of this Agreement.
14. Consequential Damages. In no event and under no circumstances
shall either party under this Agreement be liable to the other party for
indirect loss of profits, reputation or business or any other special
damages under any provision of this Agreement or for any act or failure
to act hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on the date first written
above and shall continue until September 2, 1994, and thereafter shall
automatically continue for successive annual periods ending on the
anniversary of the date first written above, provided that it may be
terminated by either party upon written notice given at least 60 days
prior to termination.
(b) In the event a termination notice is given by the Fund, it
shall be accompanied by a resolution of the Board of Directors,
certified by the Secretary of the Fund, designating a successor transfer
agent or transfer agents.
Upon such termination and at the expense of the Fund, the Transfer Agent will
deliver to such successor a certified list of shareholders of the Fund (with
names and addresses), and all other relevant books, records, correspondence
and other Fund records or data in the possession of the Transfer Agent, and
the Transfer Agent will cooperate with the Fund and any successor transfer
agent or agents in the substitution process.
16. Confidentiality. Both parties hereto agree that any non public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other
party, except as may be required by applicable law or at the request of the
Commission or other governmental agency. The parties further agree that a
breach of this provision would irreparably damage the other party and
accordingly agree that each of them is entitled, without bond or other
security, to an injunction or injunctions to prevent breaches of this
provision.
17. Amendment. This Agreement may only be amended or modified by a
written instrument executed by both parties.
18. Subcontracting. The Fund agrees that the Transfer Agent may, in its
discretion, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any such
Transfer Agent shall not relieve the Transfer Agent of its responsibilities
hereunder.
19. Miscellaneous.
(a) Notices. Any notice or other instrument authorized or required
by this Agreement to be given in writing to the Fund or the Transfer Agent,
shall be sufficiently given if addressed to that party and received by it at
its office set forth below or at such other place as it may from time to
time designate in writing.
To the Fund:
Smith Barney Concert Series Inc.
388 Greenwich Street, 22 Floor
New York, NY 10013
Attention:Heath B. McLendon
To the Transfer Agent:
The Shareholder Services Group
One Exchange Place
53 State Street
Boston, Massachusetts 02109
(b) Successors. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns,
provided, however, that this Agreement shall not be assigned to any person
other than a person controlling, controlled by or under common control with the
assignor without the written consent of the other party, which consent
shall not be unreasonably withheld.
(c) Governing Law. This Agreement shall be governed
exclusively by the laws of the State of New York without reference to the
choice of law provisions thereof. Each party hereto hereby agrees that (i) the
Supreme Court of New York sitting in New York County shall have exclusive
jurisdiction over any and all disputes arising hereunder; (ii) hereby
consents to the personal
jurisdiction of such court over the parties hereto, hereby waiving any defense
of lack of personal jurisdiction; and (iii) appoints the person to whom notices
hereunder are to be sent as agent for service of process.
(d) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
(e) Captions. The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hreof or otherwise affect their construction or effect.
(f) Use of Transfer Agent's Name. The Fund shall not use the
name of the Transfer Agent in any Prospectus, Statement of Additional
Information, shareholders' report, sales literature or other material relating
to the Fund in a manner not approved prior thereto in writing; provided, that
the Transfer Agent need only receive notice of all reasonable uses of its
name which merely refer in accurate terms to its appointment hereunder or
which are required
by any government agency or applicable law or rule. Notwithstanding the
foregoing, any reference to the Transfer Agent shall include a statement to the
effect that it is a wholly owned subsidiary of First Data Corporation.
(g) Use of Fund's Name. The Transfer Agent shall not use the
name of the Fund or material relating to the Fund on any documents or forms for
other than internal use in a manner not approved prior thereto in writing;
provided, that the Fund need only receive notice of all reasonable uses of
its name which merely refer in accurate terms to the appointment of the
Transfer Agent or which are required by any government agency or applicable
law or rule.
(h) Independent Contractors. The parties agree that they are
independent contractors and not partners or co-venturers.
(i) Entire Agreement; Severability. This Agreement and the
Schedules attached hereto constitute the entire agreement of the parties hereto
relating to the matters covered hereby and supersede any previous agreements.
If any provision is held to be illegal, unenforceable or invalid for any
reason, the remaining provisions shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their duly authorized officers, as of the
day and year first above written.
[A SMITH BARNEY FUND]
By: _______________
Heath B. McLendon
President
THE SHAREHOLDER SERVICES GROUP, INC.
By:__________________
Michael G. McCarthy
Vice President
A-1
Transfer Agent Fee
Schedule A
Class A shares
The Fund shall pay the Transfer Agent an annualized fee of $11.00 per
shareholder account that is open during any monthly period. Such fee shall be
billed by the Transfer Agent monthly in arrears on a prorated basis of 1/12
of the annualized fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent monthly in arrears.
Class B shares
The Fund shall pay the Transfer Agent an annualized fee of $12.50 per
shareholder account that is open during any monthly period. Such fee shall be
billed by the Transfer Agent monthly in arrears on a prorated basis of 1/12
of the annualized fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent monthly in arrears.
Class C shares
The Fund shall pay the Transfer Agent an annualized fee of $8.50 per
shareholder account that is open during any monthly period. Such fee shall
be billed by the Transfer Agent monthly in arrears on a prorated basis of
1/12 of the annualized fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent monthly in arrears.
A-2
Class D shares
The Fund shall pay the Transfer Agent an annualized fee of $9.50 per
shareholder
account that is open during any monthly period. Such fee shall be billed by the
Transfer Agent monthly in arrears on a prorated basis of 1/12 of the annualized
fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent monthly in arrears.
B-1
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct pass
through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including
all lease, maintenance and line costs
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment
and any expenses incurred in connection with such terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Record retention, retrieval and destruction costs, including, but
not limited to exit fees charged by third party record keeping vendors
- Third party audit reviews
- Insurance
- Such other miscellaneous expenses reasonably incurred by the
Transfer Agent in performing its duties and responsibilities under this
Agreement.
The Fund agrees that postage and mailing expenses will be paid on the day
of or prior to mailing as agreed with the Transfer Agent. In addition, the
Fund will promptly reimburse the Transfer Agent for any other unscheduled
expenses incurred by the Transfer Agent whenever the Fund and the Transfer
Agent mutually agree that such expenses are not otherwise properly borne by
the Transfer Agent as part of its duties and obligations under the Agreement.
C-1
Schedule C
DUTIES OF THE TRANSFER AGENT
1. Shareholder Information. The Transfer Agent or its agent shall
maintain a record of the number of Shares held by each holder of record which
shall include name, address, taxpayer identification and which shall indicate
whether such Shares are held in certificates or uncertificated form.
2. Shareholder Services. The Transfer Agent or its agent will
investigate all inquiries from shareholders of the Fund relating to Shareholder
accounts and will respond to all communications from Shareholders and others
relating to its duties hereunder and such other correspondence as may from time
to time be mutually agreed upon between the Transfer Agent and the Fund. The
Transfer Agent shall provide the Fund with reports concerning shareholder
inquires and the responses thereto by the Transfer Agent, in such form and at
such times as are agreed to by the Fund and the Transfer Agent.
3. Share Certificates.
(a) At the expense of the Fund, it shall supply the Transfer
Agent or its agent with an adequate supply of blank share certificates to meet
the Transfer Agent or its agent's requirements therefor. Such Share
certificates shall
be properly signed by facsimile. The Fund agrees that, notwithstanding the
death, resignation, or removal of any officer of the Fund whose signature
appears on such certificates, the Transfer Agent or its agent may continue
to countersign certificates which bear such signatures until otherwise
directed by Written Instructions.
(b) The Transfer Agent or its agent shall issue replacement Share
certificates in lieu of certificates which have been lost, stolen or
destroyed, upon receipt by the Transfer Agent or its agent of properly
executed affidavits and lost
certificate bonds, in form satisfactory to the Transfer Agent or its agent,
with the Fund and the Transfer Agent or its agent as obligees under the bond.
(c) The Transfer Agent or its agent shall also maintain a record of
each certificate issued, the number of Shares represented thereby and the
holder of record. With respect to Shares held in open accounts or
uncertificated form, i.e.,
no certificate being issued with respect thereto, the Transfer Agent or its
agent shall maintain comparable records of the record holders thereof,
including their names, addresses and taxpayer identification. The Transfer
Agent or its agent shall further maintain a stop transfer record on lost
and/or replaced certificates.
C-2
4. Mailing Communications to Shareholders; Proxy Materials. The
Transfer Agent or its agent will address and mail to
Shareholders of the Fund, all reports to Shareholders, dividend and
distribution notices and proxy material for the Fund's meetings of
Shareholders. In connection with meetings of Shareholders, the Transfer
Agent or its Agent will prepare Shareholder lists, mail and certify as to
the mailing of proxy materials, process
and tabulate returned proxy cards, report on proxies voted prior to meetings,
act as inspector of election at meetings and certify Shares voted at meetings.
5. Sales of Shares
(a) Suspension of Sale of Shares. The Transfer Agent or its agent
shall not be required to issue any Shares of the Fund where it has received a
Written Instruction from the Fund or official notice from any appropriate
authority that the sale of the Shares of the Fund has been suspended or
discontinued. The existence of such Written Instructions or such official
notice shall be conclusive evidence of the right of the Transfer Agent or
its agent to rely on such Written Instructions or official notice.
(b) Returned Checks. In the event that any check or other order
for the payment of money is returned unpaid for any reason, the Transfer
Agent or its agent will: (i) give prompt notice of such return to the Fund
or its designee;
(ii) place a stop transfer order against all Shares issued as a result of such
check or order; and (iii) take such actions as the Transfer Agent may from
time to time
deem appropriate.
6. Transfer and Repurchase
(a) Requirements for Transfer or Repurchase of Shares. The
Transfer Agent or its agent shall process all requests to transfer or redeem
Shares in accordance with the transfer or repurchase procedures set forth
in the Fund's Prospectus.
The Transfer Agent or its agent will transfer or repurchase Shares
upon receipt of Oral or Written Instructions or otherwise pursuant to the
Prospectus and Share certificates, if any, properly endorsed for transfer or
redemption, accompanied by such documents as the Transfer Agent or its agent
reasonably may deem necessary.
The Transfer Agent or its agent reserves the right to refuse to
transfer or repurchase Shares until it is satisfied that the endorsement on the
instructions is valid and genuine. The Transfer Agent or its agent also
reserves the right to refuse to transfer or repurchase Shares until it is
satisfied that the requested transfer or repurchase is legally authorized,
and it shall incur no liability
for the refusal, in good faith, to make transfers or repurchases which the
Transfer Agent or its agent, in
C-3
its good judgement, deems improper or unauthorized, or until it is reasonably
satisfied that there is no basis to any claims adverse
to such transfer or repurchase.
(b) Notice to Custodian and Fund. When Shares are redeemed, the
Transfer Agent or its agent shall, upon receipt of the instructions and
documents in proper form, deliver to the Custodian and the Fund or its
designee a notification
setting forth the number of Shares to be repurchased. Such repurchased shares
shall be reflected on appropriate accounts maintained by the Transfer Agent or
its agent reflecting outstanding Shares of the Fund and Shares attributed to
individual accounts.
(c) Payment of Repurchase Proceeds. The Transfer Agent or its
agent shall, upon receipt of the moneys paid to it by the Custodian for the
repurchase of Shares, pay such moneys as are received from the Custodian, all
in accordance with the procedures described in the written instruction
received by the Transfer Agent or its agent from the Fund.
The Transfer Agent or its agent shall not process or effect any
repurchase with respect to Shares of the Fund after receipt by the Transfer
Agent or its agent of notification of the suspension of the determination of
the net asset value of the Fund.
7. Dividends
(a) Notice to Agent and Custodian. Upon the declaration of each
dividend and each capital gains distribution by the Board of Directors of the
Fund with respect to Shares of the Fund, the Fund shall furnish or cause to
be furnished to the Transfer Agent or its agent a copy of a resolution of
the Fund's Board of
Directors certified by the Secretary of the Fund setting forth the date of the
declaration of such dividend or distribution, the ex-dividend date, the date of
payment thereof, the record date as of which shareholders entitled to payment
shall be determined, the amount payable per Share to the shareholders of
record as of that date, the total amount payable to the Transfer Agent or
its agent on the payment date and whether such dividend or distribution is
to be paid in Shares of such class at net asset value.
On or before the payment date specified in such resolution of the
Board of Directors, the Custodian of the Fund will pay to the Transfer Agent
sufficient cash to make payment to the shareholders of record as of such
payment date.
(b) Insufficient Funds for Payments. If the Transfer Agent or
its agent does not receive sufficient cash from the Custodian to make total
dividend and/or distribution payments to all shareholders of the Fund as of the
record date, the Transfer
C-4
Agent or its agent will, upon notifying the Fund, withhold payment to all
Shareholders of record as of the record date until sufficient cash is provided
to the Transfer Agent or its agent.
C-5
Exhibit
1
to
Schedule C
Summary of Services
The services to be performed by the Transfer Agent or its agent shall be as
follows:
A. DAILY RECORDS
Maintain daily the following information with respect to each
Shareholder account as received:
o Name and Address (Zip Code)
o Class of Shares
o Taxpayer Identification Number
o Balance of Shares held by Agent
o Beneficial owner code: i.e., male, female, joint tenant, etc.
o Dividend code (reinvestment)
o Number of Shares held in certificate form
B. OTHER DAILY ACTIVITY
o Answer written inquiries relating to Shareholder accounts
(matters relating to portfolio management, distribution of
Shares and other management policy questions will be
referred to the Fund).
o Process additional payments into established Shareholder
accounts in accordance with Written Instruction from the
Agent.
o Upon receipt of proper instructions and all required
documentation, process requests for repurchase of Shares.
o Identify redemption requests made with respect to accounts
in which Shares have been purchased within an
agreed-upon period of time for determining whether good
funds have been collected with respect to such purchase
and process as agreed by the Agent in accordance with
written instructions set forth by the Fund.
o Examine and process all transfers of Shares, ensuring that
all transfer requirements and legal documents have been
supplied.
C-6
o Issue and mail replacement checks.
o Open new accounts and maintain records of exchanges
between accounts
C. DIVIDEND ACTIVITY
o Calculate and process Share dividends and distributions as
instructed by the Fund.
o Compute, prepare and mail all necessary reports to
Shareholders or various authorities as requested by the
Fund. Report to the Fund reinvestment plan share
purchases and determination of the reinvestment price.
D. MEETINGS OF SHAREHOLDERS
o Cause to be mailed proxy and related material for all
meetings of Shareholders. Tabulate returned proxies
(proxies must be adaptable to mechanical equipment of the
Agent or its agents) and supply daily reports when
sufficient proxies have been received.
o Prepare and submit to the Fund an Affidavit of Mailing.
o At the time of the meeting, furnish a certified list of
Shareholders, hard copy, microfilm or microfiche and, if
requested by the Fund, Inspection of Election.
E. PERIODIC ACTIVITIES
o Cause to be mailed reports, Prospectuses, and any other enclosures
requested by the Fund (material must be adaptable to mechanical
equipment of Agent or its agents).
o Receive all notices issued by the Fund with respect to the Preferred
Shares in accordance with and pursuant to the Articles of
Incorporation and the Indenture and perform such other specific
duties as are set forth in the Articles of Incorporation including a
giving of notice of a special meeting and notice of redemption in
the circumstances and otherwise in accordance with all relevant
provisions of the Articles of Incorporation.
Independent Auditors' Consent
To the Shareholders and Trustees of
Smith Barney Variable Account Funds:
We consent to the use of our report dated February 15, 1996 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
April 25, 1996
New York, New York
Exhibit 16
Schedule of Performance Quotations
a) Average Annual Total Returns Pursuant to SEC Rules
SEC Formula:
P(1 + T)n = ERV
where:
P = initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods at the end
of the 1, 5 or 10 year periods (for purposes of the
following calculations, the maximum sales load has been
deducted from the initial investment in order to compute ERV).
b) Aggregate or Cumulative Total Return Pursuant to Non-Standardized
Computation
ATR = ERV - P
P
where:
P = $1,000 = initial investment
ERV = ending redeemable value of a hypothetical investment of
$1,000 made at the beginning of the 1, 5 and 10 year periods
at the end of the 1, 5 and 10 year periods (for purposes of
the following calculation, the maximum sales load has been
deducted from the initial investment in order to compute
ERV).
ATR = the aggregate total return of the investment over the
specified period
c) Current Distribution Rate
Obtained by dividing the aggregate amount of dividends declared from net
investment income for the specified number of days, by the maximum
offering price and annualizing the results.
CDR = (DAP / OFF ) * AF
where:
CDR = Current Distribution Rate
DAP = Dividend Amount Paid for Period
OFF = Maximum Offering Price
AF = Annualizing Factor
d) 30-day Yield Formula
YIELD = 2[(a - b + 1)6 - 1]
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = maximum offering price per share on last day of period
g:\funds\$sva\1996\secdocs\ex-16.doc
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