<PAGE>
SMITH BARNEY VARIABLE ACCOUNT FUNDS
ANNUAL REPORT
December 31, 1999
This report is authorized for distribution to shareholders and to others only
when accompanied or preceded by a current prospectus of the Fund.
<PAGE>
Dear Shareholder:
We are pleased to provide the annual report for the Smith Barney Variable
Account Funds for the year ended December 31, 1999. This letter briefly
discusses general economic and market conditions.
Please note that the investment portfolios in Smith Barney Variable Account
Funds may be consolidated into other substantially similar existing funds. In
this regard, an application may be filed for a Securities and Exchange
Commission Order of Substitution to consolidate these portfolios. Please further
note that the U.S. Government/High Quality Securities Portfolio and The Reserve
Account Portfolio both have insufficient assets to invest in accordance with
their stated investment objectives, and we suggest that you consider contacting
your financial consultant or Nationwide at 1-800-848-6331 to arrange a transfer
of your assets from these funds to other available funds.
Market and Economic Overview
The year and the decade ended with stock market indexes around the world posting
exceptional returns. All of the major U.S. stock market indexes set new records
for 1999 and for the fifth year in a row posted double-digit returns. The 85.59%
return of the NASDAQ Composite Index 1 for the year was the best in history by a
major U.S. stock market index.
The technology sector, comprised of companies in telecommunications, the
Internet and computer hardware and software businesses, posted the biggest gains
for the year. The return of the NASDAQ Composite Index was due to the fact that
it holds the biggest percentage of technology companies among the major stock
market indexes.
Large-capitalization stocks, as measured by the Standard & Poor's 500 Index
("S&P 500") 2 (which returned 21.03% for the year), and small-capitalization
growth stocks as measured by the Russell 1000 Growth Index 3 (which advanced
33.16%), continued their unprecedented growth. The worldwide economic recovery
continued in 1999, with most foreign stock markets ending the year on a positive
note.
- -------
1 The NASDAQ Composite Index is comprised of approximately 4,500 stocks
traded over the counter. It is a value-weighted index calculated on price
change only and does not include income.
2 The Standard & Poor's 500 Index is a market capitalization-weighted measure
of 500 widely held common stocks.
3 The Russell 1000 Growth Index measures the performance of the 1,000 largest
companies in the Russell 3000 Index, which represents approximately 92% of
the total market capitalization of the Russell 3000 Index.
1
<PAGE>
Perhaps the most striking aspect about the stock market's double-digit returns
in 1999 was that they were achieved while interest rates increased. The Federal
Reserve Board ("Fed") raised interest rates three times in 1999 as an
inflationary precaution. Rising interest rates generally lead to a decline in
stock prices. However, most stock investors remained optimistic that the U.S.
economy would continue its remarkable growth and stock prices continued to
advance. Conversely, bond investors' reaction to rising interest rates was less
favorable, as most bond prices slipped.
In our view, we expect continued volatility in the financial markets due to
ongoing uncertainty regarding inflation and the future direction of interest
rates. The strength of the U.S. economy may lead the Fed to raise rates in
2000. 4 Over the long-term, however, we think that the fundamentals for both
stocks and bonds remain favorable.
Income and Growth Portfolio
The Income and Growth Portfolio ("Portfolio") seeks current income and long-term
growth of capital. The Portfolio invests primarily, but not exclusively, in
common stocks. The Income and Growth Portfolio is managed conservatively with a
'bottom-up' value approach. (A bottom-up approach to investing focuses on the
potential outstanding performance of individual companies rather than
considering the impact of major economic trends. Value investing consists of
consists of identifying securities of companies that are believed to be
undervalued in the market.) For the 12-month period ended December 31, 1999, the
Portfolio returned a negative 2.74%. In comparison, the S&P 500 returned 21.03%
for the same time period.
Last year's strong stock performance was a continuation of a multi-year bull
market in large-capitalization growth stocks. Solid earnings reports and the
continued strength of the U.S. economy contributed to the increase in many share
prices. The positive stock market performance contrasted with the performance of
the U.S. bond market, where yields rose and returns were negative, especially
longer maturity issues.
Bond investors feared that the continued strength of the economy would lead to
higher inflation. In an attempt to prevent inflation, the Fed raised interest
rates three times in 1999 by a total of 0.75%.
In 1999, U.S. stock prices increased while bond prices declined. In the
manager's opinion, it is unlikely that the same market conditions will occur in
2000. The performance of the markets will be in large part determined by the
actions of the Fed. If the Fed continues to raise interest rates, stock prices
may be vulnerable. The manager continues to believe however, that the Fed will
limit rate increases, as inflation should remain low. Looking ahead, stocks
should continue to perform well, powered by strong earnings increases. (Of
course, past performance is not indicative of future results.)
- -------
4 On Wednesday, February 2, 2000 the Federal Reserve Board raised short-term
interest rates 25 basis points to5.75% after this letter was written.
2
<PAGE>
The U.S. Government/High Quality Securities Portfolio
The U.S. Government/High Quality Securities Portfolio ("Portfolio") seeks high
current income and security of principal from a portfolio made up primarily of
U.S. government obligations and other high-quality fixed income obligations. The
Portfolio currently has insufficient assets to enable it to invest in accordance
with its investment program. As of December 31, 1999, the Portfolio only held
Agency Discount Notes.
For the 12-month period ended December 31, 1999, the Portfolio returned 2.55%.
In comparison, the Lehman Brothers GNMA Index returned 1.86% for the same
period. (Past performance is not indicative of future results. The Lehman
Brothers GNMA Index is composed of 15-year and 30-year fixed rate securities
backed by mortgage pools of the Government National Mortgage Association. The
index is unmanaged and is not subject to the same management and trading
expenses of a mutual fund.)
The Reserve Account Portfolio
The Reserve Account Portfolio's ("Portfolio") objective is to invest in money
market instruments to help provide stability and short- and intermediate-term
securities to provide enhanced return. . The Portfolio currently has
insufficient assets to enable it to invest in accordance with its investment
program.
For the 12-month period ended December 31, 1999 the Portfolio had a total return
of 3.40%. In comparison, the Salomon Smith Barney One-Year Treasury Index
returned 4.04%. (Past performance is not indicative of future results. 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.)
In closing, thank you for your investment in Smith Barney Variable Account
Funds. We look forward to helping you pursue your investment needs in the new
century.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
January 25, 2000
3
<PAGE>
Income and Growth Portfolio
Historical Performance
<TABLE>
<CAPTION>
Net Asset Value
------------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 $4.53 $16.08
- --------------------------------------------------------------------------------------------
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
Average Annual Total Returns (1)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
<S> <C>
Year Ended 12/31/99 (2.74)%
- -----------------------------------------------------------------------------
Five Years Ended 12/31/99 16.74
- -----------------------------------------------------------------------------
Ten Years Ended 12/31/99 12.82
- -----------------------------------------------------------------------------
Inception* to 12/31/99 12.52
- -----------------------------------------------------------------------------
Cumulative Total Return
- ------------------------------------------------------------------------------
12/31/89 to 12/31/99 234.22%
- ------------------------------------------------------------------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions.
* 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*
- --------------------------------------------------------------------------------
December 1989 -- December 1999
[GRAPH]
Income &
Growth S&P 500
Date Portfolio Index
---- --------- -------
12/89 10,000 10,000
12/90 9,163 9,689
12/91 12,034 12,634
12/92 13,416 13,596
12/93 15,913 15,037
12/94 15,417 15,234
12/95 19,634 20,950
12/96 23,761 25,758
12/97 30,441 34,351
12/98 34,365 44,223
12/99 33,423 53,525
* Hypothetical illustration of $10,000 invested in shares at December 31, 1989,
assuming reinvestment of dividends and capital gains, if any, at net asset
value through December 31, 1999. 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 Nasdaq 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>
- --------------------------------------------------------------------------------
Historical Performance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Shares of
the Income and Growth Portfolio
vs. Standard & Poor's 500 Index*
- --------------------------------------------------------------------------------
[PLOT POINTS TO COME]
* Hypothetical illustration of $10,000 invested in shares at December 31, 1989,
assuming reinvestment of dividends and capital gains, if any, at net asset
value through December 31, 1999. 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 Nasdaq 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
Year Ended of Year of Year Dividends Distributions Returns(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 $7.58 $2.22
- --------------------------------------------------------------------------------
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
Average Annual Total Returns (1)
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
Year Ended 12/31/99 2.55%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/99 5.59
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/99 6.07
- --------------------------------------------------------------------------------
Inception* to 12/31/99 6.11
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
12/31/89 to 12/31/99 80.23%
- --------------------------------------------------------------------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions.
* 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*
- --------------------------------------------------------------------------------
[GRAPH]
U.S. Government/ Lehman
High Quality GNMA
Date Securities Portfolio Index
------ -------------------- ------
12/89 10,000 10,000
12/90 10,811 11,058
12/91 12,171 11,235
12/92 13,012 12,068
12/93 13,766 12,862
12/94 13,733 12,669
12/95 16,095 14,828
12/96 16,632 15,649
6/97 16,282
12/97 17,535 17,141
12/98 17,574 18,268
12/31/99 18,023 18,620
* Hypothetical illustration of $10,000 invested in shares at December 31, 1989,
assuming reinvestment of dividends and capital gains, if any, at net asset
value through December 31, 1999. The Lehman Brothers GNMA Index is composed of
15-year and 30-year fixed-rate securities backed by mortgage pools of the
Government National Mortgage Association. The index is unmanaged and is not
subject to the same management and trading expenses of a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
value may be more or less than the original cost.
<PAGE>
Reserve Account Portfolio
Historical Performance
<TABLE>
<CAPTION>
Net Asset Value
------------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 $7.05 $3.38
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
Average Annual Total Returns (1)
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------
Year Ended 12/31/99 3.40%
- -----------------------------------------------------------------------------
Five Years Ended 12/31/99 2.80
- -----------------------------------------------------------------------------
Ten Years Ended 12/31/99 4.40
- -----------------------------------------------------------------------------
Inception* to 12/31/99 4.54
- -----------------------------------------------------------------------------
Cumulative Total Return
- -----------------------------------------------------------------------------
12/31/89 to 12/31/99 53.81%
- --------------------------------------------------------------------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions.
* The inception date for the Reserve Account Portfolio is August 2, 1989.
<PAGE>
Growth of $10,000 Invested in Shares of
the Reserve Account Portfolio
vs. Salomon Smith Barney 1-Year Treasury Index*
- --------------------------------------------------------------------------------
Reserve Salomon Brothers
Date Account Portfolio 1-Year Treasury
---- ----------------- ----------------
12/89 10,000 10,000
12/90 10,830 10,893
12/91 11,982 11,846
12/92 12,559 12,417
12/93 13,135 12,893
12/94 13,396 13,232
12/95 14,579 14,302
12/96 14,808 15,114
12/97 15,010 16,038
12/98 14,876 16,983
12/99 15,381 17,669
* Hypothetical illustration of $10,000 invested in shares at December 31, 1989,
assuming reinvestment of dividends and capital gains, if any, at net asset
value through December 31, 1999. 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 December 31, 1999
- --------------------------------------------------------------------------------
INCOME AND GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
COMMON STOCK - 100%
- ----------------------------------------------------------------------------------------------------
Aerospace/Defense - 1.7
<S> <C> <C> <C>
3,200 Honeywell International, Inc. 184,600
- ----------------------------------------------------------------------------------------------------
Auto - Cars/Light Trucks - 1.5%
2,300 General Motors Corp. 167,181
- ----------------------------------------------------------------------------------------------------
Banking - 8.0%
4,500 Bank Of America Corp. 225,844
5,250 Chase Manhattan Corp. 407,859
7,000 Mellon Financial Corp. 238,438
- ----------------------------------------------------------------------------------------------------
872,141
- ----------------------------------------------------------------------------------------------------
Conglomerates - 4.2%
3,000 General Electric Co. 464,250
- ----------------------------------------------------------------------------------------------------
Consumer Products - 9.5%
6,500 Avon Products, Inc. 214,500
4,000 International Paper Co. 225,750
3,500 Kimberly Clark Corp. 228,375
10,000 Masco Corp. 253,750
2,000 McGraw-Hill Cos., Inc 123,250
- ----------------------------------------------------------------------------------------------------
1,045,625
- ----------------------------------------------------------------------------------------------------
Electrical Equipment - 2.9%
5,500 Emerson Electric Co. 315,563
- ----------------------------------------------------------------------------------------------------
Electric Utilities - 5.5%
7,400 Duke Energy Corp. 370,925
7,000 Unicom Corp. 234,500
- ----------------------------------------------------------------------------------------------------
605,425
- ----------------------------------------------------------------------------------------------------
Energy Oil Integrated - International - 10.8%
4,500 Chevron Corp. 389,812
6,440 Exxon Mobil Corp. 518,823
9,000 Williams Cos., Inc. 275,063
- ----------------------------------------------------------------------------------------------------
1,183,698
- ----------------------------------------------------------------------------------------------------
Energy - Refining and Marketing - 5.8%
2,918 E.I. du Pont Nemours & Co. 192,223
10,000 Enron Corp. 443,750
- ----------------------------------------------------------------------------------------------------
635,973
- ----------------------------------------------------------------------------------------------------
Food Processing - 2.4%
7,500 PepsiCo, Inc. 264,375
- ----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (continued) December 31, 1999
- --------------------------------------------------------------------------------
INCOME AND GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance - Multi-Line - 11.8%
1,500 CIGNA Corp. $120,844
5,000 Chubb Corp. 281,562
6,000 Hartford Financial Services Group, Inc. 284,250
5,000 Marsh & McLennan Cos., Inc. 478,438
4,000 UnumProvident Corp. 128,250
- -----------------------------------------------------------------------------------------
1,293,344
- -----------------------------------------------------------------------------------------
Metals - 2.7%
3,500 Alcoa, Inc. 290,500
- -----------------------------------------------------------------------------------------
Office Automation & Equipment - 3.9%
5,500 Pitney Bowes, Inc. 265,719
7,000 Xerox Corp. 158,812
- -----------------------------------------------------------------------------------------
424,531
- -----------------------------------------------------------------------------------------
Oil Well Equipment & Services - 8.5%
3,000 Atlantic Richfield 259,500
2,800 BP Amoco PLC 166,075
10,000 Conoco Inc., Class A Shares 247,500
6,141 Conoco Inc., Class B Shares 152,757
2,500 Halliburton Co. 100,625
- -----------------------------------------------------------------------------------------
926,457
- -----------------------------------------------------------------------------------------
Pharmaceuticals - 7.5%
5,000 American Home Products Corp. 197,187
4,500 Bristol-Myers Squibb Co. 288,844
800 Dow Chemical Corp. 106,900
5,000 Pharmacia & Upjohn Inc. 225,000
- -----------------------------------------------------------------------------------------
817,931
- -----------------------------------------------------------------------------------------
Railroads - 0.8%
2,000 Union Pacific Corp 87,250
- -----------------------------------------------------------------------------------------
Telecommunications - 12.5%
7,500 AT&T Corp. 380,625
4,200 GTE Corp. 296,363
5,922 SBC Communications, Inc. 288,697
6,000 Sprint Corp. (Fon Group) 403,875
- -----------------------------------------------------------------------------------------
1,369,560
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost - $9,256,925*) $10,948,404
- -----------------------------------------------------------------------------------------
</TABLE>
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (continued) December 31, 1999
- --------------------------------------------------------------------------------
U.S. GOVERNMENT/HIGH QUALITY SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
AGENCY DISCOUNT NOTES - 100%
<S> <C> <C>
$755,000 Federal Home Loan Mortgage Discount Note
1.500% due 1/3/00 (Cost - $754,937*) $754,937
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (continued) December 31, 1999
- --------------------------------------------------------------------------------
RESERVE ACCOUNT PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
AGENCY DISCOUNT NOTES - 100%
$27,000 Federal Home Loan Mortgage Discount Note
1.500% due 1/3/00 (Cost - $26,998*) $26,998
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Gov't./
Income and High Quality Reserve
Growth Securities Account
Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (Cost --- $9,256,925
$754,937 and $26,998, respectively) $10,948,404 $754,937 $26,998
Cash --- 382 443
Receivable for securities sold 108,294 --- ---
Dividends and interest receivable 15,562 --- ---
Receivable from investment manager --- 14,501 28,679
Other assets --- 43 38
- -----------------------------------------------------------------------------------------------------------------
Total Assets 11,072,260 769,863 56,158
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable to bank 135,588 --- ---
Management fees payable 5,654 --- ---
Deferred compensation --- 3,471 3,463
Payable for Fund shares purchased 383 27 2
Accrued expenses 19,437 10,647 10,040
- -----------------------------------------------------------------------------------------------------------------
Total Liabilities 161,062 14,145 13,505
- -----------------------------------------------------------------------------------------------------------------
Total Net Assets $10,911,198 $755,718 $42,653
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS:
Par value of shares of beneficial interest $994 $71 $6
Capital paid in excess of par value 7,170,033 737,779 43,355
Undistributed (overdistributed)
net investment income 140,900 17,868 (708)
Accumulated net realized gain
from security transactions 1,907,792 --- ---
Net unrealized appreciation of investments 1,691,479 --- ---
- -----------------------------------------------------------------------------------------------------------------
Total Net Assets $10,911,198 $755,718 $42,653
- -----------------------------------------------------------------------------------------------------------------
Shares Outstanding 994,187 71,118 5,606
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, per share $10.97 $10.63 $7.61
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Statements of Operations For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Gov't./
Income and High Quality Reserve
Growth Securities Account
Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $8,544 $28,447 $1,906
Dividends 262,474 --- ---
Less: Foreign withholding tax (280) --- ---
- -----------------------------------------------------------------------------------------------------------
Total Investment Income 270,738 28,447 1,906
- -----------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 77,096 3,796 216
Audit and legal 27,504 17,217 17,000
Shareholder and system servicing fees 13,503 3,000 5,000
Trustees' fees 1,935 2,846 3,242
Custody 1,588 --- ---
Other 6,226 1,642 5,226
- -----------------------------------------------------------------------------------------------------------
Total Expenses 127,852 28,501 30,684
Less: Management fee waiver and
expense reimbursement (Note 2) --- (20,066) (30,203)
- -----------------------------------------------------------------------------------------------------------
Net Expenses 127,852 8,435 481
- -----------------------------------------------------------------------------------------------------------
Net Investment Income 142,886 20,012 1,425
- -----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 7,567,887 --- ---
Cost of securities sold 5,660,095 --- ---
- -----------------------------------------------------------------------------------------------------------
Net Realized Gain 1,907,792 --- ---
- -----------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
of Investments:
Beginning of year 4,000,945 --- ---
End of year 1,691,479 --- ---
- -----------------------------------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (2,309,466) --- ---
- -----------------------------------------------------------------------------------------------------------
Net Loss on Investments (401,674) --- ---
- -----------------------------------------------------------------------------------------------------------
Increase (Decrease) in
Net Assets From Operations ($258,788) $ 20,012 $1,425
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended December 31,
Income and Growth Portfolio 1999 1998
- -------------------------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C>
Net investment income $142,886 $226,314
Net realized gain 1,907,792 2,388,392
Decrease in net unrealized appreciation (2,309,466) (850,939)
- -------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (258,788) 1,763,767
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (222,147) (396,112)
Net realized gains (2,393,210) (4,050,110)
- -------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (2,615,357) (4,446,222)
- -------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 36,670 358,924
Net asset value of shares issued for reinvestment of dividends 2,615,357 4,446,222
Cost of shares reacquired (2,645,117) (4,580,223)
- -------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Fund Share Transactions 6,910 224,923
- -------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets (2,867,235) (2,457,532)
NET ASSETS:
Beginning of year 13,778,433 16,235,965
- -------------------------------------------------------------------------------------------------------------------
End of year* $10,911,198 $13,778,433
- -------------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income of: $140,900 $220,184
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
For the Years Ended December 31,
U.S. Government/High Quality Securities Portfolio 1999 1998
- -------------------------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C>
Net investment income $20,012 $2,542
Net realized gain --- ---
Decrease in net unrealized appreciation --- ---
- -------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 20,012 2,542
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,850) (90,126)
Net realized gains --- (104,745)
- -------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (2,850) (194,871)
- -------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 29,053 231,508
Net asset value of shares issued for reinvestment of dividends 2,850 194,871
Cost of shares reacquired (266,347) (878,215)
- -------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share Transactions (234,444) (451,836)
- -------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets (217,282) (644,165)
NET ASSETS:
Beginning of year 973,000 1,617,165
- -------------------------------------------------------------------------------------------------------------------
End of year* $755,718 $973,000
- -------------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income of: $17,868 $710
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
For the Years Ended December 31,
Reserve Account Portfolio 1999 1998
- ---------------------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C>
Net investment income (loss) $1,425 ($802)
Net realized gain --- ---
Increase in net unrealized appreciation --- ---
- ---------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 1,425 (802)
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income --- (2,677)
Net realized gains --- ---
- ---------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders --- (2,677)
- ---------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares --- 1,997
Net asset value of shares issued for reinvestment of dividends --- 2,677
Cost of shares reacquired (15,184) (41,761)
- ---------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share Transactions (15,184) (37,087)
- ---------------------------------------------------------------------------------------------------------------
Decrease in Net Assets (13,759) (40,566)
NET ASSETS:
Beginning of year 56,412 96,978
- ---------------------------------------------------------------------------------------------------------------
End of year* $42,653 $56,412
- ---------------------------------------------------------------------------------------------------------------
* Includes overdistributed net investment income of: ($708) ($2,133)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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;
(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 (CONTINUED)
- --------------------------------------------------------------------------------
2. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED PERSONS
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund
Management Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"),
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 year ended December 31, 1999, SSBC waived all of its
management fees and reimbursed expenses of $16,270 and $29,987 for the U.S.
Government/High Quality Securities and Reserve Account Portfolios, respectively.
CFBDS, Inc. acts as the Fund's distributor. For the year ended December 31,
1999, Salomon Smith Barney Inc. ("SSB"), another subsidiary of SSBH, received
brokerage commissions of $2,517.
All officers and one Trustee of the Fund are employees of SSB.
3. INVESTMENTS
During the year ended December 31, 1999, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
U.S. Govt./
Income and High Quality Reserve
Growth Securities Account
Portfolio Portfolio Portfolio
==========================================================================================
<S> <C> <C> <C>
Purchases $5,296,683 --- ---
- ------------------------------------------------------------------------------------------
Sales 7,567,887 --- ---
==========================================================================================
</TABLE>
At December 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
<CAPTION>
U.S. Govt./
Income and High Quality Reserve
Growth Securities Account
Portfolio Portfolio Portfolio
==========================================================================================
<S> <C> <C> <C>
Gross unrealized appreciation $2,550,248 --- ---
Gross unrealized depreciation (858,769) --- ---
- ------------------------------------------------------------------------------------------
Net unrealized appreciation $1,691,479 --- ---
==========================================================================================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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 December 31, 1999, 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 Portfolio.
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
======================================================================================================
<S> <C> <C>
Income and Growth Portfolio
Shares sold 2,788 23,858
Shares issued on reinvestment 220,891 321,957
Shares reaquired (214,967) (299,350)
- ------------------------------------------------------------------------------------------------------
Net Increase 8,712 46,465
======================================================================================================
U.S. Gov't./High Quality Securities Portfolio
Shares sold 2,794 19,525
Shares issued on reinvestment 273 18,756
Shares reaquired (25,519) (72,448)
- ------------------------------------------------------------------------------------------------------
Net Decrease (22,452) (34,167)
======================================================================================================
Reserve Account Portfolio
Shares sold --- 271
Shares issued on reinvestment --- 362
Shares reaquired (2,063) (5,557)
- ------------------------------------------------------------------------------------------------------
Net Decrease (2,063) (4,924)
======================================================================================================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Income and Growth Portfolio 1999 1998 1997 1996 1995
====================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.98 $ 17.29 $ 14.69 $ 15.24 $ 13.05
- ----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.16 0.29 0.47 0.57 0.45
Net realized and unrealized gain (loss) (0.34) 1.87 3.61 2.68 3.12
- ----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.18) 2.16 4.08 3.25 3.57
- ----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.24) (0.49) (0.10) (0.56) (0.44)
Net realized gains (2.59) (4.98) (1.38) (3.24) (0.94)
- ----------------------------------------------------------------------------------------------------
Total Distributions (2.83) (5.47) (1.48) (3.80) (1.38)
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 10.97 $ 13.98 $ 17.29 $ 14.69 $ 15.24
- ----------------------------------------------------------------------------------------------------
Total Return (2.74)% 12.89% 28.11% 21.02% 27.56%
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $10,911 $13,778 $16,236 $20,812 $29,782
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.00% 0.76% 0.77% 0.74% 0.77%
Net investment income 1.11 1.53 2.18 2.39 2.77
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 42% 49% 38% 30% 46%
====================================================================================================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
U.S. Government/High
Quality Securities Portfolio 1999(1) 1998(1) 1997 1996 1995
===================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $10.40 $12.66 $12.90 $13.66 $12.46
- ---------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (3) 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 0.26 0.03 0.70 (0.46) 2.14
- ---------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.03) (1.06) (0.04) (1.22) (0.94)
Net realized gains --- (1.23) (0.90) --- ---
- ---------------------------------------------------------------------------------------------------
Total Distributions (0.03) (2.29) (0.94) (1.22) (0.94)
- ---------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $10.63 $10.40 $12.66 $12.90 $13.66
- ---------------------------------------------------------------------------------------------------
Total Return 2.55% 0.22% 5.43% 3.34% 17.20%
- ---------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $756 $973 $1,617 $2,876 $4,856
- ---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (3) 1.00% 1.00% 1.00% 0.98% 0.87%
Net investment income 2.37 0.22 4.33 6.30 6.36
- ---------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 0% 0% 43% 13% 0%
===================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) 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 $0.05 per share (0.45% of average net assets) in 1999, $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 $16,270, $4,832 and $719 in expenses for 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 $0.00, ($0.07) and $0.64 and the
expense ratio would have been 3.37%, 1.86% and 1.49%, for the years ended
December 31, 1999, 1998 and 1997, respectively.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Reserve Account Portfolio 1999(1) 1998(1) 1997 1996 1995
===================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $7.36 $7.70 $10.99 $12.71 $12.39
- ---------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (2) 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 0.25 (0.07) 0.15 0.20 1.11
- ---------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income --- (0.27) (0.25) (1.92) (0.74)
Net realized gains --- --- (3.19) --- (0.05)
- ---------------------------------------------------------------------------------------------------
Total Distributions --- (0.27) (3.44) (1.92) (0.79)
- ---------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $7.61 $7.36 $ 7.70 $10.99 $12.71
- ---------------------------------------------------------------------------------------------------
Total Return 3.40% (0.89)% 1.36% 1.57% 8.83%
- ---------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $43 $56 $97 $435 $2,315
- ---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 1.00% 1.00% 1.00% 1.00% 0.97%
Net investment income (loss) 2.96 (1.00) 1.59 4.98 5.30
- ---------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 0% 0% 0% 0% 17%
===================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) 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 $0.03 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
$29,987, $15,552, $19,395 and $19,891 in expenses for 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 $(4.38), $(1.56), $(1.76) and $1.27
and the expense ratio would have been 63.63%, 20.81%, 11.65% and 2.79%, for
the years ended December 31, 1999, 1998, 1997 and 1996, respectively.
<PAGE>
- --------------------------------------------------------------------------------
Additional Information (unaudited)
- --------------------------------------------------------------------------------
On April 19, 1999, a special meeting of shareholders of the Fund was held for
the purpose of electing Directors to the Fund.
The results of the vote were as follows:
<TABLE>
<CAPTION>
Percentage Percentage
Shares Voted of Shares Shares Voted of Shares
Name of Director For Voted Against Voted
====================================================================================
<S> <C> <C> <C> <C>
Lee Abraham 1,066,953.220 99.922% 836.230 0.078%
Allan J. Bloostein 1,066,953.220 99.922 836.230 0.078
Jane F. Dasher 1,066,953.220 99.922 836.230 0.078
Donald R. Foley 1,066,953.220 99.922 836.230 0.078
Richard E. Hanson, Jr. 1,066,953.220 99.922 836.230 0.078
Paul Hardin 1,066,953.220 99.922 836.230 0.078
Heath B. McLendon 1,066,953.220 99.922 836.230 0.078
Roderick C. Rasmussen 1,066,953.220 99.922 836.230 0.078
John P. Toolan 1,066,953.220 99.922 836.230 0.078
====================================================================================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
For Federal tax purposes the Income & Growth Portfolio hereby designates for the
fiscal year ended December 31, 1999:
* A corporate dividends received deduction of 100%.
* Total long-term capital gain distributions paid of $2,363,282.
