<PAGE>
SMITH BARNEY VARIABLE ACCOUNT FUNDS
SEMI-ANNUAL REPORT
June 30, 2000
This report is authorized for distribution to shareholders and to others only
when accompanied or preceded by a current prospectus of the Fund.
<PAGE>
Income and Growth Portfolio
Historical Performance
<TABLE>
<CAPTION>
Net Asset Value
------------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns/(1)/
======================================================================================================================
<S> <C> <C> <C> <C> <C>
6/30/00 $10.97 $8.59 $0.17 $2.21 (0.24)%/(2)/
----------------------------------------------------------------------------------------------------------------------
12/31/99 13.98 10.97 0.24 2.59 (2.74)
----------------------------------------------------------------------------------------------------------------------
12/31/98 17.29 13.98 0.49 4.98 12.89
----------------------------------------------------------------------------------------------------------------------
12/31/97 14.69 17.29 0.10 1.38 28.11
----------------------------------------------------------------------------------------------------------------------
12/31/96 15.24 14.69 0.56 3.24 21.02
----------------------------------------------------------------------------------------------------------------------
12/31/95 13.05 15.24 0.44 0.94 27.56
----------------------------------------------------------------------------------------------------------------------
12/31/94 14.93 13.05 0.39 1.02 (3.12)
----------------------------------------------------------------------------------------------------------------------
12/31/93 14.36 14.93 0.57 1.45 18.61
----------------------------------------------------------------------------------------------------------------------
12/31/92 13.76 14.36 0.50 0.48 11.48
----------------------------------------------------------------------------------------------------------------------
12/31/91 10.93 13.76 0.58 0.00 31.34
----------------------------------------------------------------------------------------------------------------------
12/31/90 12.66 10.93 0.66 0.00 (8.37)
======================================================================================================================
Total $4.70 $18.29
======================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
Average Annual Total Returns/(1)/
Six Months Ended 6/30/00(2) (0.24)%
--------------------------------------------------------------------
Year Ended 6/30/00 (10.15)
--------------------------------------------------------------------
Five Years Ended 6/30/00 14.49
--------------------------------------------------------------------
Ten Years Ended 6/30/00 12.79
--------------------------------------------------------------------
Inception* to 6/30/00 11.89
====================================================================
Cumulative Total Return /(1)/
6/30/90 to 6/30/00 233.16%
====================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions.
(2) Total return is not annualized, as it may not be representative of the
total return for the year.
* The inception date for the Income and Growth Portfolio is July 20, 1989.
<PAGE>
Historical Performance (unaudited)
Growth of $10,000 Invested in Shares of
the Income and Growth Portfolio
vs. Standard & Poor's 500 Index*
--------------------------------------------------------------------------------
June 1990 -- June 2000
Income &
Growth S&P 500
Portfolio Index
--------- -----
6/90 10,000 10,000
12/90 9,156 9,400
12/91 12,025 12,258
12/92 13,406 13,190
12/93 15,901 14,589
12/94 15,405 14,780
12/95 19,618 20,326
12/96 23,742 24,990
12/97 30,417 33,327
12/98 34,338 42,904
12/99 33,396 51,928
6/00 33,316 51,705
--------------------------------------------------------------------------------
[_] Income and Growth Portfolio * Standard & Poor's 500 Index
--------------------------------------------------------------------------------
* Hypothetical illustration of $10,000 invested in shares at June 30, 1990,
assuming reinvestment of dividends and capital gains, if any, at net asset
value through June 30, 2000. The Standard & Poor's 500 Index is an index of
widely held common stocks traded on the New York Stock Exchange, American
Stock Exchange and Nasqaq Market. Figures for the index include
reinvestment of dividends. The index is unmanaged and is not subject to the
same management and trading expenses as a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
<PAGE>
U.S. Government/High Quality Securities Portfolio
Historical Performance
<TABLE>
<CAPTION>
Net Asset Value
------------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns/(1)/
======================================================================================================================
<S> <C> <C> <C> <C> <C>
6/30/00 $10.63 $10.48 $0.38 $0.00 2.17%/(2)/
----------------------------------------------------------------------------------------------------------------------
12/31/99 10.40 10.63 0.03 0.00 2.55
----------------------------------------------------------------------------------------------------------------------
12/31/98 12.66 10.40 1.06 1.23 0.22
----------------------------------------------------------------------------------------------------------------------
12/31/97 12.90 12.66 0.04 0.90 5.43
----------------------------------------------------------------------------------------------------------------------
12/31/96 13.66 12.90 1.22 0.00 3.34
----------------------------------------------------------------------------------------------------------------------
12/31/95 12.46 13.66 0.94 0.00 17.20
----------------------------------------------------------------------------------------------------------------------
12/31/94 13.35 12.46 0.84 0.00 (0.35)
----------------------------------------------------------------------------------------------------------------------
12/31/93 13.44 13.35 0.87 0.02 5.91
----------------------------------------------------------------------------------------------------------------------
12/31/92 13.45 13.44 0.89 0.05 6.91
----------------------------------------------------------------------------------------------------------------------
12/31/91 12.74 13.45 0.87 0.02 12.58
----------------------------------------------------------------------------------------------------------------------
12/31/90 12.54 12.74 0.82 0.00 8.11
======================================================================================================================
Total $7.96 $2.22
======================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
Average Annual Total Returns/(1)/
Six Months Ended 6/30/00/(2)/ 2.17%
----------------------------------------------------------------------
Year Ended 6/30/00 4.13
----------------------------------------------------------------------
Five Years Ended 6/30/00 3.87
----------------------------------------------------------------------
Ten Years Ended 6/30/00 5.98
----------------------------------------------------------------------
Inception* to 6/30/00 6.04
======================================================================
Cumulative Total Return/(1)/
6/30/90 to 6/30/00 78.72%
======================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions.
(2) Total return is not annualized, as it may not be representative of the
total return for the year.
* The inception date for the U.S. Government/High Quality Securities
Portfolio is July 31, 1989.
<PAGE>
Historical Performance (unaudited)
Growth of $10,000 Invested in Shares of
the U.S. Government/High Quality Securities Portfolio
vs. Lehman Brothers GNMA Index*
--------------------------------------------------------------------------------
June 1990 - June 2000
U.S. Government/ Lehman
High Quality GNMA
Securities Portfolio Index
-------------------- -----
6/90 10,000 10,000
12/90 10,493 10,657
12/91 11,813 10,828
12/92 12,630 11,630
12/93 13,376 12,396
12/94 13,329 12,210
12/95 15,621 14,290
12/96 16,143 15,082
12/97 17,019 16,520
12/98 17,057 17,606
12/99 17,493 17,945
6/00 17,872 18,684
----------------------------------------------------------
-[_]- U.S. Government/High Quality Securities Portfolio
* Lehman Brothers GNMA Index
----------------------------------------------------------
* Hypothetical illustration of $10,000 invested in shares at June 30, 1990,
assuming reinvestment of dividends and capital gains, if any, at net asset
value through June 30, 2000. The Lehman Brothers GNMA Index is an composed of
15-year and 30-year fixed-rate securities backed by mortgage pools of the
Government National Mortgage Association. The index is unmanaged and is not
subject to the same management and trading expenses as a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
value may be more or less than the original cost.
<PAGE>
Reserve Account Portfolio
Historical Performance
<TABLE>
<CAPTION>
Net Asset Value
------------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns/(1)/
==================================================================================================================
<S> <C> <C> <C> <C> <C>
6/30/00 $7.61 $7.12 $0.68 $0.00 2.44%/(2)/
------------------------------------------------------------------------------------------------------------------
12/31/99 7.36 7.61 0.00 0.00 3.40
------------------------------------------------------------------------------------------------------------------
12/31/98 7.70 7.36 0.27 0.00 (0.89)
------------------------------------------------------------------------------------------------------------------
12/31/97 10.99 7.70 0.25 3.19 1.36
------------------------------------------------------------------------------------------------------------------
12/31/96 12.71 10.99 1.92 0.00 1.57
------------------------------------------------------------------------------------------------------------------
12/31/95 12.39 12.71 0.74 0.05 8.83
------------------------------------------------------------------------------------------------------------------
12/31/94 12.75 12.39 0.58 0.03 1.99
------------------------------------------------------------------------------------------------------------------
12/31/93 12.86 12.75 0.69 0.01 4.59
------------------------------------------------------------------------------------------------------------------
12/31/92 13.08 12.86 0.78 0.07 4.82
------------------------------------------------------------------------------------------------------------------
12/31/91 12.66 13.08 0.89 0.03 10.64
------------------------------------------------------------------------------------------------------------------
12/31/90 12.55 12.66 0.93 0.00 8.30
==================================================================================================================
Total $7.73 $3.38
==================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
Average Annual Total Returns/(1)/
Six Months Ended 6/30/00/(2)/ 2.44%
--------------------------------------------------------------------------------
Year Ended 6/30/00 5.92
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 2.19
--------------------------------------------------------------------------------
Ten Years Ended 6/30/00 4.33
--------------------------------------------------------------------------------
Inception* to 6/30/00 4.56
================================================================================
Cumulative Total Return/(1)/
6/30/90 to 6/30/00 52.82%
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions.
(2) Total return is not annualized, as it may not be representative of the
total return for the year.
* The inception date for the Reserve Account Portfolio is August 2, 1989.
<PAGE>
Historical Performance (unaudited)
Growth of $10,000 Invested in Shares of
the Reserve Account Portfolio
vs. Salomon Smith Barney 1-Year Treasury Index*
--------------------------------------------------------------------------------
June 1990 - June 2000
Reserve Salomon Brothers
Account Portfolio 1-Year Treasury
----------------- ---------------
6/90 10,000 10,000
12/90 10,504 10,487
12/91 11,621 11,405
12/92 12,180 11,954
12/93 12,739 12,412
12/94 12,992 12,739
12/95 14,139 13,769
12/96 14,362 14,551
12/97 14,558 15,440
12/98 14,428 16,350
12/99 14,918 17,011
6/00 15,282 17,518
----------------------------------------------------------
-[_]- Reserve Account Portfolio
* Salomon Smith Barney 1-Year Treasury Index
----------------------------------------------------------
* Hypothetical illustration of $10,000 invested in shares at June 30, 1990,
assuming reinvestment of dividends and capital gains, if any, at net asset
value through June 30, 2000. The Salomon Smith Barney 1-Year Treasury 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 the same
management and trading expenses as a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
<PAGE>
Schedules of Investments (unaudited) June 30, 2000
INCOME AND GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
COMMON STOCK - 96.6%
================================================================================
Banking - 8.2%
4,500 Bank of America Corp. $ 193,500
6,750 Chase Manhattan Corp. 310,922
7,500 Mellon Financial Corp. 273,281
--------------------------------------------------------------------------------
777,703
--------------------------------------------------------------------------------
Conglomerates - 3.3%
6,000 General Electric Co. 318,000
--------------------------------------------------------------------------------
Consumer Products - 8.6%
5,500 Avon Products, Inc. 244,750
4,000 International Paper Co. 119,250
5,000 Kimberly Clark Corp. 286,875
9,000 Masco Corp. 162,562
--------------------------------------------------------------------------------
813,437
--------------------------------------------------------------------------------
Data Processing - 1.0%
1,900 First Data Corp. 94,288
--------------------------------------------------------------------------------
Electric Utilities - 9.4%
6,500 Duke Energy Corp. 366,438
5,000 El Paso Energy Corp. 254,688
7,000 Unicom Corp. 270,812
--------------------------------------------------------------------------------
891,938
--------------------------------------------------------------------------------
Electrical Equipment - 2.7%
4,200 Emerson Electric Co. 253,575
--------------------------------------------------------------------------------
Energy Oil Integrated - International - 10.8%
3,000 Chevron Corp. 254,438
5,000 Exxon Mobil Corp. 392,500
9,000 Williams Cos., Inc. 375,187
--------------------------------------------------------------------------------
1,022,125
--------------------------------------------------------------------------------
Energy - Refining and Marketing - 2.1%
2,400 Dow Chemical Corp. 72,450
2,918 E.I. du Pont de Nemours & Co. 127,662
--------------------------------------------------------------------------------
200,112
--------------------------------------------------------------------------------
Financial Services - 1.4%
1,200 Merrill Lynch & Co., Inc. 138,000
--------------------------------------------------------------------------------
Food Processing - 3.3%
7,000 PepsiCo, Inc. 311,062
--------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
Schedules of Investments (unaudited) (continued) June 30, 2000
INCOME AND GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
Insurance - Multi-Line - 8.8%
2,500 Chubb Corp. $153,750
1,000 CIGNA Corp. 93,500
4,000 Hartford Financial Services Group, Inc. 223,750
3,500 Marsh & McLennan Cos., Inc. 365,531
--------------------------------------------------------------------------------
836,531
--------------------------------------------------------------------------------
Manufacturing - 1.1%
3,200 Honeywell International, Inc. 107,800
--------------------------------------------------------------------------------
Metals - 1.8%
6,000 Alcoa, Inc. 174,000
--------------------------------------------------------------------------------
Multimedia - 1.4%
2,500 McGraw-Hill Cos., Inc. 135,000
--------------------------------------------------------------------------------
Office Automation & Equipment - 3.8%
5,500 Pitney Bowes, Inc. 220,000
7,000 Xerox Corp. 145,250
--------------------------------------------------------------------------------
365,250
--------------------------------------------------------------------------------
Oil Well Equipment & Services - 6.9%
6,000 BP Amoco PLC 339,375
8,000 Conoco Inc., Class A Shares 176,000
3,000 Halliburton Co. 141,563
--------------------------------------------------------------------------------
656,938
--------------------------------------------------------------------------------
Pharmaceuticals - 8.9%
5,000 American Home Products Corp. 293,750
4,300 Bristol-Myers Squibb Co. 250,475
1,200 Johnson & Johnson 122,250
3,500 Pharmacia Corp. 180,906
--------------------------------------------------------------------------------
847,381
--------------------------------------------------------------------------------
Railroads - 0.8%
2,000 Union Pacific Corp. 74,375
--------------------------------------------------------------------------------
Telecommunications - 12.3%
3,000 Alltel Corp. 185,813
6,000 AT&T Corp. 189,750
3,700 GTE Corp.* 230,325
5,922 SBC Communications, Inc. 256,127
6,000 Sprint Corp. (Fon Group) 306,000
--------------------------------------------------------------------------------
1,168,015
--------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost - $8,161,951) 9,185,530
================================================================================
See Notes to Financial Statements.
<PAGE>
Schedules of Investments (unaudited)(continued) June 30, 2000
INCOME AND GROWTH PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
========================================================================================================
REPURCHASE AGREEMENT - 3.4%
<S> <C> <C>
$320,000 Morgan Stanley Dean Witter & Co., 6.530% due 7/3/00;
Proceeds at maturity - $320,174; (Fully collateralized by
U.S. Treasury Bills, Notes and Bonds, 0.000% to 10.750%
due 7/31/00 to 11/15/08; Market value - $327,417)
(Cost - $320,000) $ 320,000
========================================================================================================
TOTAL INVESTMENTS - 100%
(Cost - $8,481,951**) $9,505,530
========================================================================================================
</TABLE>
* On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
<PAGE>
Schedules of Investments (unaudited) (continued) June 30, 2000
U.S. GOVERNMENT/HIGH QUALITY SECURITIES PORTFOLIO
FACE
AMOUNT SECURITY VALUE
--------------------------------------------------------------------------------
AGENCY DISCOUNT NOTES - 100%
$253,000 Federal National Mortgage Association Discount Note
6.510% due 7/3/00 (Cost - $252,909*) $252,909
--------------------------------------------------------------------------------
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements
<PAGE>
Schedules of Investments (unaudited)(continued) June 30, 2000
RESERVE ACCOUNT PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
==================================================================================================
AGENCY DISCOUNT NOTES - 100%
<S> <C>
$17,000 Federal National Mortgage Association Discount Note
6.510% due 7/3/00 (Cost - $16,994*) $16,994
===================================================================================================
</TABLE>
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities (unaudited) June 30, 2000
U.S. Gov't./
Income and High Quality Reserve
Growth Securities Account
Portfolio Portfolio Portfolio
=================================================================================================================
<S> <C> <C> <C>
ASSETS:
Investments, at value (Cost -- $8,481,951,
$252,909 and $16,994, respectively) $ 9,505,530 $ 252,909 $ 16,994
Cash 996 379,817 27,261
Dividends and interest receivable 14,515 --- ---
Receivable from investment manager --- 1,686 5,166
Other assets --- 43 38
----------------------------------------------------------------------------------------------------------------
Total Assets 9,521,041 634,455 49,459
----------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 64,878 --- ---
Management fees payable 4,728 --- ---
Deferred compensation 4,627 4,389 4,368
Accrued expenses 13,351 8,649 8,523
----------------------------------------------------------------------------------------------------------------
Total Liabilities 87,584 13,038 12,891
----------------------------------------------------------------------------------------------------------------
Total Net Assets $ 9,433,457 $ 621,417 $ 36,568
================================================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 1,098 $ 59 $ 5
Capital paid in excess of par value 7,787,080 610,496 39,546
Undistributed (overdistributed)
net investment income 59,543 10,862 (2,983)
Accumulated net realized gain
from security transactions 562,157 --- ---
Net unrealized appreciation of investments 1,023,579 --- ---
----------------------------------------------------------------------------------------------------------------
Total Net Assets $ 9,433,457 $ 621,417 $ 36,568
================================================================================================================
Shares Outstanding 1,098,110 59,282 5,137
----------------------------------------------------------------------------------------------------------------
Net Asset Value, per share $ 8.59 $ 10.48 $ 7.12
----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes To Financial Statements
<PAGE>
Statement of Operations (unaudited) For the Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
U.S. Gov't./
Income and High Quality Reserve
Growth Securities Account
Portfolio Portfolio Portfolio
===========================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,858 $ 18,108 $ 1,085
Dividends 110,484 --- ---
Less: Foreign withholding tax (323) --- ---
-------------------------------------------------------------------------------------------
Total Investment Income 113,019 18,108 1,085
-------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 29,827 1,508 85
Audit and legal 8,560 2,224 2,774
Shareholder and system servicing fees 8,002 7,069 7,069
Custody 889 17 51
Trustees' fees 78 776 718
Other 2,016 1,840 1,751
-------------------------------------------------------------------------------------------
Total Expenses 49,372 13,434 12,448
Less: Management fee waiver and
expense reimbursement (Note 2) --- (10,083) (12,260)
-------------------------------------------------------------------------------------------
Net Expenses 49,372 3,351 188
-------------------------------------------------------------------------------------------
Net Investment Income 63,647 14,757 897
-------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 2,547,492 --- ---
Cost of securities sold 1,985,314 --- ---
-------------------------------------------------------------------------------------------
Net Realized Gain 562,178 --- ---
-------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
of Investments:
Beginning of period 1,691,479 --- ---
End of period 1,023,579 --- ---
-------------------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (667,900) --- ---
-------------------------------------------------------------------------------------------
Net Loss on Investments (105,722) --- ---
-------------------------------------------------------------------------------------------
Increase (Decrease) in
Net Assets From Operations $ (42,075) $ 14,757 $ 897
===========================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Income and Growth Portfolio 2000 1999
================================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $63,647 $142,886
Net realized gain 562,178 1,907,792
Decrease in net unrealized appreciation (667,900) (2,309,466)
----------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Operations (42,075) (258,788)
----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (145,004) (222,147)
Net realized gains (1,907,813) (2,393,210)
----------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (2,052,817) (2,615,357)
----------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 31,084 36,670
Net asset value of shares issued for reinvestment of dividends 2,052,817 2,615,357
Cost of shares reacquired (1,466,750) (2,645,117)
----------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Fund Share Transactions 617,151 6,910
----------------------------------------------------------------------------------------------------------------
Decrease in Net Assets (1,477,741) (2,867,235)
NET ASSETS:
Beginning of period 10,911,198 13,778,433
----------------------------------------------------------------------------------------------------------------
End of period* $9,433,457 $10,911,198
================================================================================================================
* Includes undistributed net investment income of: $59,543 $140,900
================================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets (continued)
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
<TABLE>
<CAPTION>
U.S. Government/High Quality Securities Portfolio 2000 1999
==================================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $14,757 $20,012
Net realized gain --- ---
Decrease in net unrealized appreciation --- ---
----------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 14,757 20,012
----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (21,763) (2,850)
Net realized gains --- ---
----------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (21,763) (2,850)
----------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares --- 29,053
Net asset value of shares issued for reinvestment of dividends 21,763 2,850
Cost of shares reacquired (149,058) (266,347)
----------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share Transactions (127,295) (234,444)
----------------------------------------------------------------------------------------------------------------
Decrease in Net Assets (134,301) (217,282)
NET ASSETS:
Beginning of period 755,718 973,000
----------------------------------------------------------------------------------------------------------------
End of period* $621,417 $755,718
================================================================================================================
* Includes undistributed net investment income of: $10,862 $17,868
==================================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets (continued)
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Reserve Account Portfolio 2000 1999
===================================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 897 $ 1,425
Net realized gain --- ---
Decrease in net unrealized appreciation --- ---
-------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 897 1,425
-------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,172) ---
Net realized gains --- ---
-------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (3,172) ---
-------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 1 ---
Net asset value of shares issued for reinvestment of dividends 3,172 ---
Cost of shares reacquired (6,983) (15,184)
-------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share Transactions (3,810) (15,184)
-------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets (6,085) (13,759)
NET ASSETS:
Beginning of period 42,653 56,412
-------------------------------------------------------------------------------------------------------------------
End of period* $ 36,568 $ 42,653
===================================================================================================================
* Includes overdistributed net investment income of: $ (2,983) $ (708)
===================================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Variable Account Funds ("Fund"), a Massachusetts business trust,
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund is sold
exclusively for use with variable annuity contracts. The Fund consists of three
separate investment portfolios ("Portfolios"): Income and Growth, U.S.
Government/High Quality Securities and Reserve Account Portfolios. Shares of the
Fund are offered only to insurance company separate accounts that fund certain
annuity and variable life insurance contracts.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing prices on such markets;
securities for which no sales price was reported and U.S government and agency
obligations are valued at the mean between bid and ask prices; (c) securities
maturing within 60 days are valued at cost plus accreted discount, or minus
amortized premium, which approximates value; (d) dividend income is recorded on
the ex-dividend date; foreign dividend income is recorded on the ex-dividend
date or as soon as practical after the Fund determines the existence of a
dividend declaration after exercising reasonable due diligence; (e) interest
income, adjusted for accretion of original issue discount, is recorded on the
accrual basis; (f) gains or losses on the sale of securities are calculated by
using the specific identification method; (g) dividends and distributions to
shareholders are recorded on the ex-dividend date; (h) the accounting records
are maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, and income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are adjusted when reported by the custodian bank; (i) the character of
income and gains distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
December 31, 1999, reclassifications were made to the Fund's capital accounts to
reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Accordingly, for the Income & Growth
and U.S. Government/High Quality Securities Portfolio a portion of undistributed
net investment income amounting to $23 and $4 was reclassified to paid-in
capital, respectively. Net investment income, net realized gains and net assets
were not affected by this change; (j) the Fund intends to comply with the
requirements of the Internal Revenue Code of 1986, as amended, pertaining to
regulated investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes;
and (k) estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ.
<PAGE>
Notes to Financial Statements (unaudited)(continued)
2. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED PERSONS
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup Inc., acts
as investment manager of the Fund. The Income and Growth, U.S. Government/High
Quality Securities and Reserve Account Portfolios pay SSBC a management fee
calculated at the annual rates of 0.60%, 0.45% and 0.45%, respectively, on
average daily net assets. These fees are calculated daily and paid monthly. For
the six months ended June 30, 2000, SSBC waived all of its management fees and
reimbursed expenses of $8,575 and $12,175 for the U.S. Government/High Quality
Securities and Reserve Account Portfolios, respectively.
Effective June 5, 2000, Salomon Smith Barney Inc. ("SSB"), another subsidiary
of SSBH, became the Portfolios distributor replacing CFBDS, Inc. For the six
months ended June 30, 2000, SSB and its affiliates received brokerage
commissions of $107.
All officers and one Trustee of the Fund are employees of SSB.
3. INVESTMENTS
During the six months ended June 30, 2000, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
U.S. Govt.
Income and High Quality Reserve
Growth Securities Account
Portfolio Portfolio Portfolio
========================================================================
Purchases $890,340 --- ---
------------------------------------------------------------------------
Sales 2,547,492 --- ---
========================================================================
At June 30, 2000, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
U.S. Govt./
Income and High Quality Reserve
Growth Securities Account
Portfolio Portfolio Portfolio
================================================================================
Gross unrealized appreciation $2,155,387 --- ---
Gross unrealized depreciation (1,131,808) --- ---
--------------------------------------------------------------------------------
Net unrealized appreciation $1,023,579 --- ---
================================================================================
<PAGE>
Notes to Financial Statements (unaudited) (continued)
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the seller at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires maintenance of the
market value of the collateral in amounts at least equal to the repurchase
price.
5. SHARES OF BENEFICIAL INTEREST
At June 30, 2000, the Fund had an unlimited number of shares of beneficial
interest authorized with a par value of $0.001 per share. Each share represents
an equal proportionate interest and has an equal entitlement to any dividends
and distributions made by the Portfolios.
Transactions in shares of each Portfolio were as follows:
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
================================================================================
Income and Growth Portfolio
Shares sold 3,138 2,788
Shares issued on reinvestment 236,228 220,891
Shares reaquired (135,443) (214,967)
--------------------------------------------------------------------------------
Net Increase 103,923 8,712
================================================================================
U.S. Gov't./High Quality Securities Portfolio
Shares sold --- 2,794
Shares issued on reinvestment 2,077 273
Shares reaquired (13,913) (25,519)
--------------------------------------------------------------------------------
Net Decrease (11,836) (22,452)
================================================================================
Reserve Account Portfolio
Shares sold --- ---
Shares issued on reinvestment 445 ---
Shares reaquired (914) (2,063)
--------------------------------------------------------------------------------
Net Decrease (469) (2,063)
================================================================================
<PAGE>
Financial Highlights
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
Income and Growth Portfolio 2000/(1)/ 1999 1998 1997 1996 1995
================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.97 $ 13.98 $ 17.29 $ 14.69 $ 15.24 $ 13.05
----------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.08 0.16 0.29 0.47 0.57 0.45
Net realized and unrealized gain (loss) (0.08) (0.34) 1.87 3.61 2.68 3.12
----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.00 (0.18) 2.16 4.08 3.25 3.57
----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.17) (0.24) (0.49) (0.10) (0.56) (0.44)
Net realized gains (2.21) (2.59) (4.98) (1.38) (3.24) (0.94)
----------------------------------------------------------------------------------------------------------------
Total Distributions (2.38) (2.83) (5.47) (1.48) (3.80) (1.38)
----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 8.59 $ 10.97 $ 13.98 $ 17.29 $ 14.69 $ 15.24
----------------------------------------------------------------------------------------------------------------
Total Return (0.24)%* (2.74)% 12.89% 28.11% 21.02% 27.56%
----------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $9,433 $10,911 $13,778 $16,236 $20,812 $29,782
----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.99%** 1.00% 0.76% 0.77% 0.74% 0.77%
Net investment income 1.28** 1.11 1.53 2.18 2.39 2.77
----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 9% 42% 49% 38% 30% 46%
================================================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
* Total return is not annualized, as it may not be representative of the total
return for the year.
** Annualized.
<PAGE>
Financial Highlights (continued)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
U.S. Government/High
Quality Securities Portfolio 2000/(1)(2)/ 1999/(2)/ 1998/(2)/ 1997 1996 1995
================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.63 $10.40 $12.66 $12.90 $13.66 $12.46
----------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(3)/ 0.23 0.26 0.03 0.72 1.22 0.94
Net realized and unrealized gain (loss) --- --- --- (0.02) (0.76) 1.20
----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.23 0.26 0.03 0.70 (0.46) 2.14
----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.38) (0.03) (1.06) (0.04) (1.22) (0.94)
Net realized gains --- --- (1.23) (0.90) --- ---
----------------------------------------------------------------------------------------------------------------
Total Distributions (0.38) (0.03) (2.29) (0.94) (1.22) (0.94)
----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.48 $10.63 $10.40 $12.66 $12.90 $13.66
----------------------------------------------------------------------------------------------------------------
Total Return 2.17%* 2.55% 0.22% 5.43% 3.34% 17.20%
----------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 621 $ 756 $ 973 $1,617 $2,876 $4,856
----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses/(3)/ 1.00%** 1.00% 1.00% 1.00% 0.98% 0.87%
Net investment income 4.40** 2.37 0.22 4.33 6.30 6.36
----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 0% 0% 0% 43% 13% 0%
================================================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) Under a voluntary fee waiver whereby the aggregate expenses of the
Portfolio may not exceed 1.00% of the average daily net assets for any
year, the investment manager waived all or a a portion of its fees in the
amount of $0.03 per share (0.22% of average net assets) in 2000, $0.05 per
share (0.45% of average net assets) in 1999 and $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
$8,575, $16,270, $4,832 and $719 in expenses for the six months ended June
30, 2000 and the years ended December 31, 1999, 1998 and 1997,
respectively.
If such fees were not waived and expenses reimbursed, the net investment
income (loss) per share would have been $0.07, $0.00, $(0.07) and $0.64 and
the expense ratio would have been 4.01% (annualized), 3.37%, 1.86% and
1.49%, for the six months ended June 30, 2000 and the years ended December
31, 1999, 1998 and 1997, respectively.
* Total return is not annualized, as it may not be representative of the
total return for the year.
** Annualized.
<PAGE>
Financial Highlights (continued)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Reserve Account Portfolio 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $7.61 $7.36 $7.70 $10.99 $12.71 $12.39
-----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss)(3) 0.19 0.25 (0.07) 0.15 1.92 0.73
Net realized and unrealized gain (loss) --- --- --- --- (1.72) 0.38
-----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.19 0.25 (0.07) 0.15 0.20 1.11
-----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.68) --- (0.27) (0.25) (1.92) (0.74)
Net realized gains --- --- --- (3.19) --- (0.05)
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.68) --- (0.27) (3.44) (1.92) (0.79)
-----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $7.12 $7.61 $7.36 $7.70 $10.99 $12.71
-----------------------------------------------------------------------------------------------------------------------------------
Total Return 2.44%* 3.40% (0.89)% 1.36% 1.57% 8.83%
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $37 $43 $56 $97 $435 $2,315
-----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 1.00%** 1.00% 1.00% 1.00% 1.00% 0.97%
Net investment income (loss) 4.77** 2.96 (1.00) 1.59 4.98 5.30
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 0% 0% 0% 0% 0% 17%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) Under a voluntary fee waiver whereby the aggregate expenses of the
Portfolio may not exceed 1.00% of the average daily net assets for any
year, the investment manager waived all or a portion of its fees in the
amount of $0.02 per share (0.22% of average net assets) in 2000, $0.03 per
share (0.45% of average net assets) in 1999, $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 $12,175, $12,260,
$29,987, $15,552, $19,395 and $19,891 in expenses for the six months ended
June 30, 2000 and the years ended December 31, 1999, 1998, 1997 and 1996,
respectively.
If such fees were not waived and expenses reimbursed, the net investment
income (loss) per share would have been $(2.25), $(4.38), $(1.56), $(1.76)
and $1.27 and the expense ratio would have been 66.19% (annualized),
63.63%, 20.81%, 11.65% and 2.79%, for the six months ended June 30, 2000
and the years ended December 31, 1999, 1998, 1997 and 1996, respectively.
* Total return is not annualized, as it may not be representative of the
total return for the year.
** Annualized.
