FILE NO. 33-10830
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM N-1A
__________________________________________________
POST-EFFECTIVE AMENDMENT NO. 9
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
CALCULATION OF REGISTRATION FEE
Title of Shares
securities being Being registered
Reserve Account 142,656
Portfolio
U.S. Government/ 132,537
High Quality
Securities Portfolio
Income and Growth 537,730
Portfolio
During its fiscal year ended December 31, 1996, the Reserve Account
Portfolio
redeemed 168,547 shares of beneficial interest. During its current
fiscal year, the Portfolio used 25,891 shares it redeemed
during its fiscal year ended December 31, 1996, for a
reduction pursuant to Rule 24f-2(c). The Reserve Account
Portfolio currently is registering 142,656.
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, 1996, the U.S. Government/High
Quality Securities Portfolio redeemed 158,102 shares of beneficial
interest. During its current fiscal year, the Portfolio
used 25,565 shares it redeemed during its fiscal year ended
December 31, 1996, for a reduction pursuant
to
Rule 24f-2(c). The U.S. Government High/Quality Securities Portfolio,
currently is registering 132,537.
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, 1996, the Income and Growth
Portfolio redeemed 838,437 shares of beneficial interest. During its
current
fiscal year, the Portfolio used 300,707 shares it redeemed during its
fiscal
year ended December 31, 1996, for a reduction pursuant to Rule 24f-2(c).
The
Income and Growth Portfolio, currently is registering 537,730 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 has filed its Rule 24f-2 Notice on February 21, 1997 for its
most
recent fiscal year ended December 31, 1996, as Accession Number
0000091155-97-
000086.
It is proposed that this Post-Effective Amendment will become effective
on
April 30, 1997 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 A
SMITH BARNEY VARIABLE ACCOUNT FUNDS
388 Greenwich Street
New York, New York 10013
1-800-451-2010
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 30, 1997, 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 30, 1997.
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.
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.
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,
1996 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 1996 financial statements
and the independent auditors' report thereon appear in the December 31,
1996 Annual Report to shareholders.
Income From Investment Operations
Distributions
Ratios to Average Net Assets
Net Realized Total
Net Asset and Income Dividends
Distributions Net Assets
Value, Net Unrealized From (loss) from Net from
Net Value, Net Assets Net Portfolio
Year Beginning Investment Gain (Loss) Investment Investment
Realized Total End of Total End of Year Investment
Turnover
Ended of Year Income(1) on Investment Operations Income
Gains Distributions Year Return (000's) Expenses(1)
Income Rate
INCOME AND GROWTH PORTFOLIO
1996 $15.24 0.57 $2.68 $3.25 $(0.56) $(3.24)
$(3.80) $14.69 21.02% $20,812 0.74% 2.39% 30.00%
1995 13.05 0.45 3.12 3.57 (0.44) (0.94) (1.38)
15.24 27.56 29,782 0.77 2.77 46.26
1994 14.93 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
U.S. GOVERNMENT/HIGH QUALITY SECURITIES PORTFOLIO
1996 13.66 1.22 (0.76) (0.46) (1.22) - (1.22)
12.90 3.34 2,876 0.98 6.30 13.00
1995 12.46 0.94 1.20 2.14 (0.94) - (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
RESERVE ACCOUNT PORTFOLIO
1996 12.71 1.92 (1.72) 0.20 (1.92) - (1.92)
10.99 1.57 435 1.00 4.98 -
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 4.59 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
(1) With respect to the U.S. Gov't/High Quality Securities Portfolio,
the Manager waived a portion of its fees as follows: $0.02 per
share (0.10% of average net assets) in 1992; subject to a voluntary
waiver of the fee to the extent that the aggregate expenses of any
Portfolio exceed 1.00% of the average daily net assets for any year,
and with respect to the Reserve Account Portfolio the Manager waived
all or a portion of its fees as follows: $0.15 per share (0.45% of
average net assets) in 1996, $0.01 per share (0.05% of average net
assets) in 1993 and $0.03 per share (0.34% of average net assets) in
1992, subject to a voluntary waiver of the fee to the extent that
the aggregate expenses of any Reserve Account Portfolio exceed 1.00%
of the average daily net assets for any year. In addition, the
manager reimbursed the Portfolio for $19,681 in expenses for the
year ended December 31, 1996.
In addition, if such fees were not waived and expenses reimbursed
the per shares decrease in net investment income and expense ratio
would have been $0.65 and 2.97%, respectively for the year ended
December 31, 1996.
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
Portfolios
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 (including EDRs,
CDRs and
GDRs) 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
Ratings
Group ("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
0.74%, 0.98% and 1.00%, 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 the
State of Delaware. As of March 31, 1997 the Manager had aggregate
assets
under the management in excess of $80 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.
g:\funds\$sva\1997\secdocs\prosp97.doc 11
PART B
April 30, 1997
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 30, 1997 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
forty
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.; Age 37.
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.;
Age 79.
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); Age 74.
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;
Age 65.
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.; Age 72.
*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; Age 63.
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); Age 70.
JOHN P. TOOLAN, Trustee
Retired, 13 Chadwell Place, Morristown, New Jersey 07960. Director of
ten
investment companies associated with Smith Barney. Formerly, Director
and
Chairman of the Smith Barney Trust Company, Director of Smith Barney
Holdings
Inc. and the Manager and Senior Executive Vice President, Director and
Member
of the Executive Committee of Smith Barney; Age 66.
*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; Age 39.
*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; Age 53.
*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; Age 37.
*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; Age 46.
On April 8, 1997, 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** 1,822 0 38,000 10
Donald R. Foley** 1,822 0 37,800 10
Paul Hardin 2,137 0 76,850 12
Heath B. McLendon* 0 0 0 41
Francis P. Martin 1,837 0 58,300 10
Roderick C. Rasmussen 1,837 0 58,500 10
John P. Toolan 1,837 0 58,500 10
C. Richard Youngdahl 1,837 0 58,500 10
* Designates an "interested Trustee."
** 50% Deferred Retainer only
+ 100% Deferred
*** Effective January 1, 1997, Mr. Youngdahl elected to become a
director
emeritus.
Upon attainment of age 72 the Fund's current Directors may
elect to change to emeritus status. Any directors elected or
appointed to the Board in the future will be required to change to
emeritus status upon attainment of age 80. Directors Emeritus are
entitled to serve in emeritus status for a maximum of 10 years
during which time they are paid 50% of the annual retainer fee and
meeting fees otherwise applicable to the Fund Directors, together
with reasonable out-of-pocket expenses for each meeting attended.
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
(including EDRs, CDRs and GDRs) 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, (including collars, caps, floor and swaps) 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 Ratings Group ("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 12/31/96
1 year 5 year Since Inception
Income and Growth Portfolio 21.02% 97.77% 144.38%
U.S. Gov't/High Quality 3.34 36.66 71.32
Securities Portfolio
Reserve Account Portfolio 1.57 23.59 52.91
Portfolio Average Annual Total Returns as of
12/31/96
1 year 5 year Since
Inception
Income and Growth Portfolio 21.02% 14.61% 12.73%
U.S. Gov't/High Quality 3.34 6.45 7.52
Securities Portfolio
Reserve Account Portfolio 1.57 4.33 5.89
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.).
COUNSEL
Sullivan & Cromwell serves as legal counsel to the Funds.
The Independent Directors of the Fund have selected Sullivan &
Cromwell as their legal counsel.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York
10154, has been selected as the Funds independent auditors to
examine and report on the Funds financial statements and
highlights for the fiscal year ending December 31, 1997.
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 1994, 1995 and 1996 the management fee for
the Income and Growth Portfolio was $176,531, $172,705 and
$164,890, respectively, the management fee for U.S.
Government/High Quality Portfolio was $23,445, $22,181 and $17,828
respectively, and the management fee for the Reserve Account
Portfolio was $10,556, $10,598 and $5,864 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 1996 the total amount of commissionable
transactions was $28,420,125, $10,517,899 (37.01%) of which was
directed to Smith Barney and $17,902,226 (62.99%) 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
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 %
1996 $49,776 $16,187 32.5% $ -0- -0-% $33,589
67.5%
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, 1997,
Nationwide Life Insurance Co. owned 1,203,918 (100%) of the
outstanding shares of the Income and Growth Portfolio, 190,243
(100%) of the outstanding shares of the U.S. Government/High
Quality Securities Portfolio, and 19,618 (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, 1996 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, 1996
Schedules of Investments as of December 31, 1996
Statements of Operations for the year ended December
31, 1996
Statements of Changes in Net Assets for the years
ended December 31, 1996 and 1995
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 Ratings Group. 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.
g:\funds\$sva\1997\secdocs\sai97.doc 17
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.
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, 1996 -- *
Statements of Operations for the
year ended December 31, 1996 -- *
Statements of Changes in Net Assets for
the years ended December 31, 1996 and 1995 -- *
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 is
incorporated
herein by reference to Exhibit 16 of Post Effective
Amendment No. 8
(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, 1997
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 ncluded 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
Allocation 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 30th day of April 1997.
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 30, 1997
(Heath B. McLendon) and Chief Executive Officer
/s/ Jessica Bibliowicz President
April 30, 1997
(Jessica Bibliowicz)
Joseph H. Fleiss* Trustee April
30, 1997
(Joseph H. Fleiss)
Donald R. Foley* Trustee April
30, 1997
(Donald R. Foley)
Paul Hardin* Trustee
April 30,1997
(Paul Hardin)
Francis P. Martin* Trustee April
30, 1997
(Francis P. Martin)
Roderick C. Rasmussen* Trustee April
30, 1997
(Roderick C. Rasmussen)
John P. Toolan* Trustee April
30, 1997
(John P. Toolan)
/s/ Lewis E. Daidone Treasurer and Principal
April 30, 1997
(Lewis E. Daidone) Financial Officer
*By: /s/ Christina T. Sydor
April 30, 1997
Christina T. Sydor
Pursuant to Power of Attorney
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
Auditor's Consent
Financial Data Schedule
Cover Letter to SEC
g:\funds\$sva\1997\secdocs\nia.doc
Independent Auditors' Consent
To the Shareholders and Trustees of
Smith Barney Variable Account Funds:
We consent to the use of our report dated February 12, 1997 with respect
to
the Income and Growth, U.S. Government/High Quality Securities and the
Reserve Account Portfolios 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.
KPMG Peat Marwick LLP
New York, New York
April 25, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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[INVESTMENTS-AT-COST] 16,409,993
[INVESTMENTS-AT-VALUE] 21,147,869
[RECEIVABLES] 36,727
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[OTHER-ITEMS-ASSETS] 525
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[PAYABLE-FOR-SECURITIES] 301,850
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[OTHER-ITEMS-LIABILITIES] 71,466
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[PAID-IN-CAPITAL-COMMON] 14,842,746
[SHARES-COMMON-STOCK] 1,416,734
[SHARES-COMMON-PRIOR] 1,954,464
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[DIVIDEND-INCOME] 763,758
[INTEREST-INCOME] 93,456
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[NET-INVESTMENT-INCOME] 653,611
[REALIZED-GAINS-CURRENT] 4,887,988
[APPREC-INCREASE-CURRENT] (504,598)
[NET-CHANGE-FROM-OPS] 5,037,001
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 635,559
[DISTRIBUTIONS-OF-GAINS] 3,677,164
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 184,240
[NUMBER-OF-SHARES-REDEEMED] 14,190,110
[SHARES-REINVESTED] 4,311,352
[NET-CHANGE-IN-ASSETS] (8,970,240)
[ACCUMULATED-NII-PRIOR] 2,307
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 164,890
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 203,603
[AVERAGE-NET-ASSETS] 27,384,360
[PER-SHARE-NAV-BEGIN] 15.24
[PER-SHARE-NII] 00.57
[PER-SHARE-GAIN-APPREC] 02.68
[PER-SHARE-DIVIDEND] 00.56
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[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 14.69
[EXPENSE-RATIO] 00.74
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
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[INVESTMENTS-AT-COST] 0
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[RECEIVABLES] 26,850
[ASSETS-OTHER] 422,320
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[TOTAL-ASSETS] 449,170
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[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 14,630
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[SHARES-COMMON-STOCK] 434,540
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[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 313,396
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[NUMBER-OF-SHARES-SOLD] 20,010
[NUMBER-OF-SHARES-REDEEMED] 168,547
[SHARES-REINVESTED] 5,881
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