SMITH BARNEY VARIABLE ACCOUNT FUNDS
Prospectus
April 30, 1999
The Income and Growth Portfolio seeks current income and long-term
growth of income and capital by investing primarily 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. This Portfolio currently has insufficient assets
to enable it to invest in accordance with its investment program.
The Reserve Account Portfolio seeks current income from a portfolio
of money market instruments and other high quality fixed income
obligations with limited maturities. This Portfolio currently has
insufficient assets to enable it to invest in accordance with its
investment program.
Shares of each Portfolio are offered only to
insurance company separate accounts which fund
certain variable annuity and variable life
insurance contracts. This prospectus should be
read together with the prospectus for those
contracts.
The Securities and Exchange Commission has not
approved or disapproved these securities or
determined whether this prospectus is accurate or
complete. Any statement to the contrary is a
crime.
Contents
Fund goal and main strategies
Page
The Income and Growth Portfolio
1
The U.S. Government/High Quality
Securities
Portfolio
3
The Reserve Account Portfolio
4
More on the Portfolios' investments
5
Management
6
Share transactions
7
Share price
7
Dividends, distributions and taxes
8
Financial highlights
9
The manager:
SSBC Fund Management Inc. ("SSBC") serves as the manager and selects
investments for each Portfolio. SSBC is an affiliate of Salomon Smith
Barney Inc. and subsidiary of Citigroup Inc. Citigroup businesses produce
a broad range of financial services - asset management, banking and
consumer finance, credit and charge cards, insurance, investments,
investment banking and trading - and use diverse channels to make them
available to consumers and corporate customers around the world.
You should know:
An investment in a Portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any
other government agency.
Fund goal and main strategies
The Income and Growth Portfolio
Investment objective
Current income and long-term growth of income and capital.
Key investments
The Portfolio invests primarily in dividend paying common stocks of
U.S. companies
having market capitalizations of at least $5 billion at the time of investment.
Selection process
The manager employs a two-step selection process.
First, the manager uses proprietary
models and fundamental research to find stocks that are
underpriced in the market relative to their fundamental value.
Next, the manager looks for a positive catalyst in the company's
near term outlook, which the manager believes,
would accelerate earnings.
In selecting individual companies for investment, the manager looks for the
following:
- -Low market valuations measured by the manager's valuation models
- -Above average dividend yields and established dividend records
- -Positive changes in earnings prospects because of
- - New management
- - Effective research, product development and marketing
- - A business strategy not yet recognized by the marketplace
- - Regulatory changes favoring the company
- -High return on invested capital and strong cash flow
- -Liquidity
Principal risks of investing in the Portfolio
While an investment in common stocks offers the potential for
capital appreciation, it also involves certain risks. Investors
could lose money on their investment in the
Portfolio, or the Portfolio may not perform as well as other
investments, if any of the following occurs:
? The U.S. stock market goes down.
? Value stocks or larger capitalization stocks fall temporarily
out of favor with investors.
? An adverse event depresses the value of a company's stock
held by the Portfolio.
? The manager's judgment about the attractiveness, value or
potential appreciation of a particular stock proves to be incorrect.
Portfolio performance
This bar chart indicates the risks of investing in the Portfolio
by showing changes in the Portfolio's performance from year to year.
The table shows how the Portfolio's average annual returns for
different calendar periods compare to the return of the
Standard & Poor's (S&P) 500 Index. The S&P 500 Index is an index of
widely held common stocks listed on the New York and
American Stock Exchanges and the over-the-counter
markets. Figures for the index include reinvestment of dividends.
The index is unmanaged and is not subject to management and
trading expenses as the Portfolio is. Past
performance does not necessarily indicate how the Portfolio will
perform in the future.
[BAR GRAPH]
% Total Return
1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ------ ---- ---- ---- ----
8.11% 12.50% 6.91% 5.91% -0.35% 17.20% 3.34% 5.43% 0.22%
Calendar years ended
December 31
The bar chart shows the portfolio's performance for each full calendar
year since its inception.in 1989.
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Portfolio 12.89% 16.65% 14.27%
S&P 500 Index 28.60% 24.05% 17.47
- ---------------------------------------
</TABLE>
Quarterly returns:
Highest: 15.10% in 1st quarter 1998
Lowest: -11.59% in 3rd quarter 1998
Portfolio manager
Ellen Cardozo Sonsino
Ellen Cardozo Sonsino is primarily responsible for the day-to-day
management of the Portfolio. Ms. Sonsino, an investment officer of
SSBC Fund Management Inc. and a managing director of Salomon Smith Barney,
has been with Salomon Smith Barney since 1984 and has 21 years of
investment management experience.
Fund goal and main strategies
The U.S. Government/High
Quality Securities Portfolio
Investment objective
High current income and security of principal.
Key investments
The Portfolio invests substantially all of its assets in repurchase
agreements and U.S. treasury bills. The Portfolio has insufficient
assets to invest those assets according
to the policies which have been adopted by the board of trustees
of the trust. These policies provide for the Portfolio to invest
primarily in U.S. government securities and
in U.S. corporate fixed income obligations .These policies also provide that a
substantial portion of the Portfolio's assets may be invested in
mortgage-related securities, including GNMA Certificates.
GNMA Certificates represent part ownership of
a pool of mortgage loans with the characteristic that the
timely payment of principal and interest from the pool is
guaranteed by the U.S. Government. The Portfolio does not
anticipate that it will ever grow to a sufficient size to invest
according to these policies.
Credit quality: The Portfolio invests in repurchase agreements which are fully
collaterized as to principal and interest by U.S. government securities
and money market instruments rated within the two highest rating categories
by a nationally recognized ratings agency or, if unrated, are of
equivalent quality as determined by the manager.
It may also invest in U.S. treasury bills which are rated in the
highest rating category and are guaranteed by the full faith and credit of
the U.S. government.
Principal risks of investing in the Portfolio
Because the Portfolio invests primarily in repurchase agreements and U.S.
treasury bills, the Portfolio is subject to the risks associated with
these investments. The risks associated with entering into repurchase
agreements are described on page 7 below.
Investments in U.S. treasury bills subject the fund to interest
rate risk. If interest rates increase, the price of the treasury bills
will decline reducing the value of the fund's portfolio.
Portfolio performance
This bar chart indicates the risks of investing in the Portfolio by
showing changes in the Portfolio's performance from year to year.
The table shows how the Portfolio's average annual returns for
different calendar periods compare to the return of the
Lehman Brothers GNMA Mutual Fund Index (Lehman Brothers Index).
The Lehman Brothers Index is composed of 15-year and 30-year fixed-
rate securities backed by mortgage pools of the Government National
Mortgage Association. The index is unmanaged and is not
subject to management and trading expenses as the Portfolio is.
Past performance does not necessarily indicate how the Portfolio
will perform in the future.
[BAR GRAPH]
% Total Return
1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ------ ---- ---- ---- ----
8.11% 12.50% 6.91% 5.91% -0.35% 17.20% 3.34% 5.43% 0.22%
Calendar years ended
December 31
The bar chart shows the performance of
the Portfolio's shares for each full
calendar year since its inception in
1989`
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Portfolio 0.22% 4.98% 6.5%
Lehman Brothers
Index 6.93% 7.34% 8.56%
- ---------------------------------------
</TABLE>
Quarterly returns:
Highest: 6.47% in 2nd quarter 1992
Lowest: -3.42% in 1st quarter 1992
Fund goal and main strategies
The Reserve Account Portfolio
Investment objective
Current income.
Key investments
The Portfolio invests substantially all of its assets in
repurchase agreements and U.S. treasury bills. The Portfolio has
insufficient assets to invest in accordance with the
policies which have been adopted by the board of trustees of the trust.
These policies provide for the Portfolio to invest exclusively in
money market instruments and other high quality fixed income obligations
with limited maturities. The Portfolio does not anticipate that it will
ever grow to a sufficient size to invest according to these
policies.
Credit quality: The Portfolio invests in repurchase agreements which are fully
collaterized as to principal and interest by U.S. government securities
and money market instruments rated within the two highest rating categories
by a nationally recognized ratings agency or, if unrated, are of
equivalent quality as determined by
the manager. It may also invest in U.S. treasury bills which
are rated in the highest rating category and are guaranteed by the
full faith and credit of the U.S. government.
Principal risks of investing in the Portfolio
Because the Portfolio invests primarily in repurchase agreements
and U.S. treasury bills, the Portfolio is subject to the risks
associated with these investments. The risks associated with entering
into repurchase agreements are described on page 7 below.
Investments in U.S. treasury bills subject the fund to interest
rate risk. If interest rates increase, the price of the treasury bills
will decline reducing the value of the fund's portfolio.
Portfolio performance
This bar chart indicates the risks of investing in the Portfolio
by showing changes in the Portfolio's performance from year to year.
The table shows how the Portfolio's
average annual returns for different calendar periods compare
to the return of the Salomon Brothers 1-Year Treasury Index
(Salomon Brothers Index). The Salomon Brothers
Index is composed of one 1-Year United States Treasury Bond
whose return is tracked until its maturity. The index is unmanaged
and is not subject to management and trading
expenses as the Portfolio is. Past performance does not
necessarily indicate how the
Portfolio will perform in the future.
[BAR GRAPH]
% Total Return
1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ------ ---- ---- ---- ----
8.3% 10.64% 4.82% 4.59% 1.99% 8.83% 1.57% 1.36% -0.89%
Calendar years ended December 31
The bar chart shows the performance of
the Portfolio's shares for each full
calendar year since its inception in
1989`
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Portfolio -0.89% 2.52% 4.66%
Salomon Brothers
Index 5.89% 5.66% 6.19%
- ---------------------------------------
</TABLE>
Quarterly Returns:
Highest: 3.37% in fourth quarter 1991
Lowest: -0.92% in fourth quarter 1996
Portfolio manager
SSBC employs a team of investment professionals to make the
day-to-day investment decisions for the Portfolio.
More on the Portfolios' Investments
Additional investments and investment techniques. Each portfolio describes its
investment objective and its principal investment strategies and
risks under "Portfolio
Goals and Strategies." This section provides additional information about the
Portfolios' investments and certain portfolio management techniques
the Portfolios may use. More information about the Portfolios' investments
and portfolio management techniques, some of which entail risks, is
included in the statement of additional information (SAI).
Fixed income investments. The U.S. Government/High Quality Securities
Portfolio and, to a limited extent, the Income and Growth Portfolio,
invest in fixed income securities, including bonds, notes
(as well as structured notes), mortgage-related and
asset-backed securities (The U.S. Government/High Quality
Securities Portfolio only), convertible securities, preferred stocks,
and money market instruments. Fixed income
securities may be issued by U.S. corporations; U.S. banks and U.S.
branches of foreign banks; the U.S. government, its agencies,
authorities, instrumentalities or sponsored enterprises; and state
and municipal governments.
These securities may have all types of interest rate payment
and reset terms, including fixed rate, adjustable rate, zero coupon,
contingent, deferred, payment in kind and auction rate features.
Mortgage-related securities may be issued by private companies or
by agencies of the U.S. government and represent direct or
indirect participations in, or are
collateralized by and payable from, mortgage loans secured by
real property. Asset backed securities represent participation in,
or are secured by and payable from,
assets such as installment sales or loan contracts, leases,
credit card receivables and other categories of receivables.
Investment Grade Securities. Securities are investment grade if:
? They are rated, respectively, in one of the
top four long-term rating categories
of a nationally recognized statistical rating organization.
? They have received a comparable short-term or other rating.
? They are unrated securities that the manager believes
are of comparable quality to investment grade rated securities.
If a security receives different ratings by two or more
nationally recognized ratings agencies, a Portfolio will treat
the security as being rated in the highest rating
category. A Portfolio may choose not to sell securities
that are downgraded after their purchase below the
Portfolio's minimum acceptable credit rating. The Income and
Growth Portfolio's credit quality standards also apply to
counterparties to over-the-counter derivatives contracts.
Foreign investments. The Income and Growth Portfolio may
purchase American Depositary Receipts (ADRs) which are U.S. dollar
denominated securities representing an interest
in an underlying foreign security. Because the value of an
ADR is dependent upon the market price of the underlying foreign security,
ADRs are subject to most of the risks
associated with foreign investing. Foreign countries generally
have markets that are less liquid and more volatile than markets in the U.S.
In some foreign countries, there is also less information available
about foreign issuers and markets because of
less rigorous accounting and regulatory standards than in the U.S. Currency
fluctuations could erase investment gains or add to investment losses.
Securities lending. Each Portfolio may engage in securities lending to
increase its net investment income. Each Portfolio will only lend
securities if the loans are callable by the Portfolio at any time and
the loans are continuously secured by cash or
liquid securities equal to no less than the market value,
determined daily, of the securities loaned. The risks in lending
securities consist of possible delay in
receiving additional collateral, delay in recovery of securities
when the loan is called or possible loss of collateral should the
borrower fail financially.
Repurchase Agreements. Each Portfolio may enter into repurchase agreements.
A repurchase agreement arises when a Portfolio purchases a security
and simultaneously agrees to resell it to the counterparty at an
agreed-upon future date, normally the next business day.
The Portfolio earns a rate of return on the repurchase agreement
because the resale price is higher than the purchase price. In entering into a
repurchase agreement, a Portfolio bears a risk of loss in the event that the
counterparty defaults on its obligation to repurchase the security
and the Portfolio is delayed or prevented from exercising its
rights to dispose of the security. This includes the risk of a
possible decline in the value of the security during the period
in which the Portfolio seeks to assert its rights to it, the risk of
incurring expenses associated with asserting those rights and the
risk of losing all or a part of the
income from the agreement. Each Portfolio only enters
into repurchase agreements with
commercial banks or broker-dealers considered creditworthy by the
manager and which are fully collateralized as to principal and interest
by U.S. Government securities and money market instruments.
Reverse Repurchase Agreements. The U.S. Government/High Quality
Securities Portfolio may enter into reverse repurchase agreements.
In a reverse repurchase agreement, the
Portfolio sells securities and agrees to repurchase them at a
mutually agreed upon date and price. At the time the Portfolio enters
into a reverse repurchase agreement, it will establish a
segregated account containing cash or liquid assets having a value not
less than the repurchase price (including accrued interest) that is
marked to market daily. Reverse repurchase agreements involve
several risks. These include the risk that the investments made with the
cash proceeds of the initial sale will incur losses
or otherwise generate a lower return than the interest included
in the amount of the repurchase price. They also involve the risk that
the market value of the securities
which the Portfolio is obligated to repurchase may decline below
the repurchase price
or that the counterparty may default on its obligation to resell
the securities. To the extent a fund enters into reverse repurchase
agreements to leverage its portfolio
this practice may have the effect of magnifying losses or gains.
Defensive investing: Each Portfolio may depart from its principal investment
strategies in response to adverse market, economic or
political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If a Portfolio takes a temporary defensive position,
it may be unable to achieve its investment goal.
Management
SSBC manages the investment operations of each Portfolio and receives the
following fees from each portfolio for these services.
For the year ended December 31, 1998, SSBC waived all of its
management fees and reimbursed expenses for the U.S.
Government/High Quality Securities and Reserve Account Portfolios.
Portfolio
Actual management fee
paid for the fiscal
year ended December
31, 1998
(as a percentage
of the portfolio's
average daily net
assets)
Contractual
management fee
(as a percentage
of the portfolio's
average daily net
assets)
The Income and Growth Portfolio
0.60%
0.60%
The U.S. Government/High Quality
Securities Portfolio
0%
0.45%
The Reserve Account Portfolio
0%
0.45%
Year 2000 issue. Information technology experts are concerned about
computer systems' ability to process date-related information on and after
January 1, 2000. This situation, commonly known as the "Year 2000" issue,
could have an adverse impact on the Portfolios. The managers are
addressing the Year 2000 issue for their systems. The Portfolios have
been informed by their other service providers that they are taking
similar measures. Although the Portfolios do not expect the Year 2000
issue to adversely affect them, the Portfolios cannot guarantee that their
efforts (limited to requesting and receiving reports from their service
providers) or the efforts of their service providers to correct the
problem will be successful.
Share Transactions
Availability of the Portfolios
Shares of the Portfolios are available only through the purchase of
variable annuity or variable life insurance contracts issued by insurance
companies through their separate accounts. The variable insurance
products may or may not make investments in all the Portfolios described
in this prospectus.
The interests of different variable insurance products investing in a
Portfolio could conflict due to differences of tax treatment and other
considerations. The Portfolios currently do not foresee any disadvantages
to investors arising from the fact that each Portfolio may offer its
shares to different insurance company separate accounts that serve as the
investment medium for their variable annuity and variable life products.
Nevertheless, the board of trustees intends to monitor events to identify
any material irreconcilable conflicts which may arise, and to determine
what action, if any, should be taken in response to these conflicts. If a
conflict were to occur, one or more insurance companies' separate accounts
might be required to withdraw their investments in one or more Portfolios
and shares of another Portfolio may be substituted. In addition, the sale
of shares may be suspended or terminated if required by law or regulatory
authority or is in the best interests of the portfolios' shareholders.
Redemption of shares
The redemption price of the shares of each Portfolio will be the net asset
value next determined after receipt by the Portfolio of a redemption order
from a separate account, which may be more or less than the price paid for
the shares. The Portfolio will ordinarily make payment within one business
day after receipt of a redemption request in good order, though redemption
proceeds must be remitted to a separate account on or before the seventh
day following receipt of the request in good order, except on a day on
which the New York Stock Exchange is closed or as permitted by the SEC in
extraordinary circumstances.
Share Price
Each Portfolio's net asset value is the value of its assets minus its
liabilities. Each Portfolio calculates its net asset value every day the
New York Stock Exchange is open. This calculation is done when regular
trading closes on the Exchange (normally 4:00 p.m., Eastern time). If the
New York Stock Exchange closes early, each portfolio accelerates the
calculation of its net asset value to the actual closing time.
Each Portfolio generally values its portfolio securities based on market
prices or quotations. When market prices are not available, or when the
manager believes that they are unreliable, the Portfolio may price those
securities at fair value. Fair value is determined in accordance with
procedures approved by the Portfolio's board. A Portfolio that uses fair
value to price securities may value those securities higher or lower than
another portfolio that uses market quotations to price the same
securities.
Unless there are extraordinary or unusual circumstances, the Portfolios
use the amortized cost method of valuing their money market securities
with remaining maturities of 60 days or less. Under the amortized cost
method, assets are valued by constantly amortizing over the remaining life
of an instrument the difference between the principal amount due at
maturity and the cost of the instrument to the Portfolio.
Dividends, Distributions and Taxes
Each Portfolio intends to qualify and be taxed as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986 (the
"Code"), as amended. In order to qualify to be taxed as a regulated
investment company, each Portfolio must meet certain income and
diversification tests and distribution requirements. As a regulated
investment company meeting these requirements, a Portfolio will not be
subject to federal income tax on its net investment income and net capital
gains that it distributes to its shareholders. All income and capital
gain distributions are automatically reinvested in additional shares of
the Portfolio at net asset value and are includable in gross income of the
separate accounts holding such shares. The Income and Growth Portfolio
expects distributions to be primarily from capital gain. The U.S.
Government/High Quality Securities Portfolio and the Reserve Account
Portfolio expect distributions to be primarily from income. 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.
Financial Highlights
The financial highlights tables for the fiscal years ended
December 31 are intended to help you understand the performance of
each Portfolio for the past five years. The information in the following
tables was audited by KPMG LLP, independent accountants, whose report,
along with each Portfolio's financial statements, are included in the
annual report (available upon request). Certain information
reflects financial results for a single share. Total returns represent
the rate that a shareholder would have earned (or lost) on a share of
a Portfolio assuming reinvestment of all dividends and distributions.
Income From Investment
Operations
Distributions
Ratios to Average Net
Assets
Year
Ended
Net
Asset
Value,
Beginning of
Year
Net
Investment
Income(Loss)(1)
Net
Realized and
Unrealized
Gain
(Loss)
on
Investment
Total
Income
(loss)
From
Investment
Operations
Dividends from
Net
Investment
Income
Distributions from
Net
Realized
Gains
Total
Distributions
Net
Asset
Value
, End
of
Year
Total
Return
Net
Assets
End of
Year
(000's)
Expenses
(1)
Net
Investment
Income
(Loss)
Portfolio
Turnover
Rate
INCOME AND GROWTH PORTFOLIO
1998
$17.29
$0.29
$1.87
$2.16
$(0.49)
$(4.98)
$(5.47)
$13.9
8
12.8
9%
$13,778
0.76%
1.53%
49%
1997
14.69
0.47
3.61
4.08
(0.10)
(1.38)
(1.48)
17.29
28.1
1
16,236
0.77
2.18
38
1996
15.24
0.57
2.68
3.25
(0.56)
(3.24)
(3.80)
14.69
21.0
2
20,812
0.74
2.39
30
1995
13.05
0.45
3.12
3.57
(0.44)
(0.94)
(1.38)
15.24
27.5
6
29,782
0.77
2.77
46
1994
14.93
0.39
(0.86)
(0.47)
(0.39)
(1.02)
(1.41)
13.05
(3.1
2)
27,484
0.75
2.49
40
U.S. GOVERNMENT/HIGH QUALITY SECURITIES PORTFOLIO
1998(
2)
12.66
0.03
___
0.03
(1.06)
(1.23)
(2.29)
10.40
0.22
973
1.00
0.22
0
1997
12.90
0.72
(0.02)
0.70
(0.04)
(0.90)
(0.94)
12.66
5.43
1,617
1.00
4.33
1996
13.66
1.22
(0.76)
(0.46)
(1.22)
- -
(1.22)
12.90
3.34
2,876
0.98
6.30
13
1995
12.46
0.94
1.20
2.14
(0.94)
- -
(0.94)
13.66
17.2
0
4,856
0.87
6.36
0
1994
13.35
0.84
(0.89)
(0.05)
(0.84)
- -
(0.84)
12.46
(0.3
5)
4,838
0.76
5.87
36
RESERVE ACCOUNT PORTFOLIO
1998
7.70
(0.07)
__
(0.07)
(0.27)
__
(0.27)
7.36
(0.8
9)
56
1.00
(1.00)
0
1997
10.99
.15
- -
0.15
(0.25)
(3.19)
(3.44)
7.70
1.36
97
1.00
1.59
0
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
17
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
(1) Under a voluntary fee waiver, the aggregate expenses of the Portfolios
may not exceed 1.00% of the average daily net assets for any year.
With respect to the U.S. Government/High Quality Securities
Portfolio, the investment manager waived all or a portion of its
fees in the amount of $0.05 per share (0.45% of average net assets)
in 1998 and $0.08 per share (0.49% of average net assets) in 1997. The
investment manager also reimbursed the Portfolio for $4,832 and $719
in expenses for the year ended December 31, 1998 and 1997.
In addition, if such fees were not waived and expenses reimbursed, the net
investment income per share would have been ($0.07) and $0.64
and the expense ratio would have been 1.86% and 1.49%, respectively,
for the year ended December 31, 1998 and 1997. With respect to the
Reserve Account Portfolio, the investment manager waived all or
a portion of its fees in the amount of
$0.03 per share (0.45% of average net assets)
in 1998, $1.61 per share (10.65% of average net assets) in
1997 and, $0.15 per share (0.45% of average net assets) in 1996.
The investment manager also reimbursed the Portfolio for $15,552, $19,395
and $19,861 in expenses for the years ended December 31, 1998, 1997
and 1996, respectively. If such fees were not waived and
expenses not reimbursed, the net investment income (loss) per share
would have been ($1.56), $(1.76) and $1.27 and the expense ratio would have
been
20.81%, 11.65% and 2.79%, for the years ended December 31, 1998, 1997
and 1996, respectively.
(2) Per share amounts have been calculated using the monthly
average shares method.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
ADDITIONAL INFORMATION
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about each Portfolio's investments. These reports
discuss the market conditions and investment strategies that affected each
Portfolio's performance.
Each Portfolio sends one report to a household if more than one account has
the same address. Contact your Salomon Smith Barney Financial Consultant,
dealer representative or transfer agent if you do not want this policy to
apply to you.
Statement of additional information. The statement of additional information
provides more detailed information about the Portfolios. It is incorporated
by reference into this prospectus.
You can make inquiries about the Portfolios or obtain shareholder reports or
the statement of additional information (without charge) by calling 1-800-451-
2010 or writing to Smith Barney Variable Account Funds, 388 Greenwich Street,
MF2, New York, NY 10013.
You can also review and copy the Portfolios' shareholder reports, prospectus
and statement of additional information at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. The Commission charges
a duplicating fee for this service. Information about the public reference
room may be obtained by calling 1-800-SEC-0330. You can get the same reports
and information free from the Commission's Internet web site at http:
www.sec.gov
If someone makes a statement about any of the Portfolios that is not in this
prospectus, you should not rely upon that information. The Portfolios are not
offering to sell their shares to any person to whom the Portfolios may not
lawfully sell their shares.
(Investment Company Act file no. 811-04959)
Smith Barney Variable Account Funds - 14
