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SALOMON BROTHERS
VARIABLE INVESTORS FUND
7 WORLD TRADE CENTER NEW YORK, NEW YORK 10048
888-777-0102
SALOMON BROTHERS VARIABLE INVESTORS FUND (THE 'INVESTORS FUND' OR THE 'FUND') IS
A DIVERSIFIED PORTFOLIO OF SALOMON BROTHERS VARIABLE SERIES FUNDS INC ('VARIABLE
SERIES FUNDS'), AN OPEN-END MANAGEMENT INVESTMENT COMPANY. THE FUND'S PRIMARY
INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. CURRENT INCOME IS A
SECONDARY OBJECTIVE. THE FUND SEEKS TO ACHIEVE ITS OBJECTIVES PRIMARILY THROUGH
INVESTMENTS IN STOCKS OF WELL-KNOWN COMPANIES. THIS PROSPECTUS CONTAINS
INFORMATION RELATING ONLY TO THE INVESTORS FUND WHICH IS OFFERED EXCLUSIVELY AS
A FUNDING VEHICLE FOR VARIABLE ANNUITY ('VA') CONTRACTS AND VARIABLE LIFE
INSURANCE ('VLI') POLICIES OFFERED THROUGH SEPARATE ACCOUNTS OF VARIOUS LIFE
INSURANCE COMPANIES ('PARTICIPATING INSURANCE COMPANIES') AND FOR QUALIFIED
PENSION AND RETIREMENT PLANS. EACH INVESTOR SHOULD REFER TO THE PROSPECTUS FOR
HIS OR HER CONTRACT OR POLICY OR HIS OR HER PLAN DOCUMENTS FOR ADDITIONAL
INFORMATION RELATING TO SUCH CONTRACT, POLICY OR PLAN.
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THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVES
AND THE FUND MAY EMPLOY CERTAIN INVESTMENT PRACTICES WHICH INVOLVE SPECIAL RISK
CONSIDERATIONS. SEE 'ADDITIONAL INVESTMENT ACTIVITIES AND RISK FACTORS.'
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund and should be read and retained for
future reference. A Statement of Additional Information dated January 2, 1998,
containing additional information about the Fund (the 'Statement of Additional
Information') has been filed with the Securities and Exchange Commission (the
'SEC') and is incorporated herein by reference. It is available without charge
and can be obtained by writing to the Fund at the address, or by calling the
toll-free telephone number, listed above. THE SEC MAINTAINS A WEB SITE AT
HTTP://WWW.SEC.GOV THAT CONTAINS THE STATEMENT OF ADDITIONAL INFORMATION,
MATERIAL INCORPORATED BY REFERENCE AND OTHER INFORMATION REGARDING THE
VARIABLE SERIES FUNDS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SALOMON BROTHERS ASSET MANAGEMENT INC -- INVESTMENT MANAGER
SALOMON BROTHERS INC -- DISTRIBUTOR
MARCH 23, 1998
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TABLE OF CONTENTS
Summary 3
Expense Information 4
Investment Objectives and Policies 5
Additional Investment Activities and Risk
Factors 7
Investment Limitations 13
Management 14
Determination of Net Asset Value 16
Participating Insurance Companies and Plans 17
Purchase of Shares 17
Redemption of Shares 18
Performance Information 19
Dividends and Distributions 20
Taxation 21
Account Services 22
Capital Stock 22
Appendix A A-1
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SUMMARY
THE FUND
The Investors Fund is a diversified investment portfolio of the Variable Series
Funds, an open-end investment company incorporated in Maryland on October 1,
1997. Shares of the Fund are sold only to: (i) separate accounts of
Participating Insurance Companies to fund the benefits for VA contracts and VLI
policies; and (ii) Qualified Pension and Retirement Plans ('Plans).
Accordingly, all references to 'shareholders' in this Prospectus refer to such
Participating Insurance Companies and Plans and not to individual contract or
policy holders or plan participants. See 'Participating Insurance Companies and
Plans.'
OBJECTIVES AND POLICIES
The Investors Fund's primary objective is long-term growth of capital. Current
income is a secondary objective. The Fund seeks to achieve its objectives
primarily through investments in common stocks of well-known companies.
There can be no assurance that the Investors Fund will achieve its investment
objectives. See 'Investment Objectives and Policies.'
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc ('SBAM') is the Fund's investment
manager. SBAM also serves as investment manager to other investment companies
and numerous individuals and institutions. See 'Management.'
RISK FACTORS
Prospective investors should consider certain risks associated with an
investment in the Investors Fund. The Investors Fund may use various investment
practices that involve special considerations, including investing in high
yield and/or illiquid securities, foreign securities (including emerging markets
securities), warrants, entering into repurchase agreements, entering into
securities transactions on a firm commitment or when issued basis, lending
portfolio securities and high portfolio turnover rates. The Investors Fund may
engage in derivatives which involve special risks. See 'Investment Objectives
and Policies' and 'Additional Investment Activities and Risk Factors.'
PURCHASE OF SHARES
Shares of the Investors Fund may be purchased at their next determined net
asset value by Participating Insurance Companies and Plans. Individuals may not
place orders directly with the Fund. See 'Purchase of Shares.'
REDEMPTION OF SHARES
The Investors Fund redeems shares at the applicable next determined net asset
value. The value of shares at the time of redemption may be more or less than
the shareholder's cost. See 'Redemption of Shares.'
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income of the Investors Fund will be
declared as an annual dividend, and shareholders will receive such dividends
annually. The Investors Fund will pay net realized long-term capital gains
annually. See 'Dividends and Distributions.' Dividends and distributions are
reinvested in additional shares of the Investors Fund unless a shareholder
requests otherwise. See 'Dividends and Distributions' and 'Taxation.'
The information in this Summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus and in the
Statement of Additional Information.
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Expense Information
ANNUAL FUND OPERATING EXPENSES
Information in the table below is given as a percentage of average daily net
assets.
<TABLE>
<CAPTION>
FUND
<S> <C>
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Investors
Management Fees........................................................................... 0.70
Other Expenses (after reimbursement)*,'D'................................................. 0.30
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Total Fund Operating expenses (after reimbursement)*...................................... 1.00%
</TABLE>
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* Reflects the voluntary agreement by SBAM to impose an expense cap for the
fiscal year ending December 31, 1998 on the total operating expenses of the
Investors Fund (exclusive of taxes, interest and extraordinary expenses such
as litigation and indemnification expenses) at the amounts shown in the table
through the reimbursement of expenses. Absent such agreement, the ratio of
other expenses and total operating expenses to the average daily net assets
would be 1.91% and 2.61%.
'D' As of the date of this Prospectus, the Investors Fund had only recently
commenced investment operations. The amounts set forth for 'Other Expenses'
are therefore based on estimates for the current fiscal year and will
include fees for shareholder services, administrative fees, custodial fees,
legal and accounting fees, printing costs and registration fees.
Example:
The following table demonstrates the projected dollar amount of total cumulative
expenses that would be incurred over various periods with respect to a
hypothetical investment in the Investors Fund. The example assumes payment by
the Investors Fund of operating expenses at the levels set forth in the table
above and are also based upon the following assumptions:
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS
<S> <C> <C>
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Investors....................................................................... $ 10 $32
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES FOR THE FUND MAY BE HIGHER OR LOWER THAN THE AMOUNTS
SHOWN IN THE FEE TABLES. Moreover, while the example assumes a 5% annual return,
the Fund's performance will vary and may result in a return greater or less than
5%.
The information in the foregoing summary is qualified in its entirety by the
more detailed information appearing elsewhere in this Prospectus and in the
Statement of Additional Information.
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INVESTMENT OBJECTIVES
AND POLICIES
The investment objectives of the Investors Fund are deemed to be fundamental
policies and may not be changed without the affirmative vote of the holders of a
majority of its outstanding shares, as defined in the Investment Company Act of
1940, as amended (the '1940 Act.') There can be no assurance that the Fund will
achieve its investment objectives.
The primary investment objective of the Fund is to seek long-term growth of
capital. Current income is a secondary objective. The Fund seeks to achieve its
objectives primarily through investments in common stocks of well-known
companies.
The Fund's policy is to retain flexibility in the management of its portfolio,
without restrictions as to the proportion of assets which may be invested in
any class of securities. It is anticipated that the Fund's portfolio will
generally consist of common and preferred stocks. The Fund may purchase
securities of companies located in foreign countries which SBAM deems
consistent with the investment objectives and policies of the Fund, but not if
upon such purchase more than 20% of the Fund's net assets would be so invested.
For a discussion of the risks associated with investment in foreign securities,
see 'Additional Investment Activities and Risk Factors -- Foreign Securities.'
Under normal conditions, the selection of common stock or securities convertible
into common stock, such as convertible preferred stock or convertible
debentures, with growth possibilities will be favored. Income-producing
securities are a secondary consideration in portfolio selection. To meet
operating expenses and to meet anticipated redemption requests, the Investors
Fund generally holds a portion of its assets in short-term fixed-income
securities (governmental obligations or investment grade debt securities) or
cash or cash equivalents. As described below, short-term investments may
include repurchase agreements with banks or broker/dealers. When management
deems it appropriate, consistent with the Fund's secondary objective of current
income, or during temporary defensive periods due to economic or market
conditions, the Fund may invest without limitation in fixed-income securities
or hold assets in cash or cash equivalents.
The investment grade corporate debt securities and the investment grade foreign
debt securities to be purchased by the Fund are debt securities rated within the
four highest bond ratings of either Moody's Investors Service ('Moody's') or
Standard & Poor's Ratings Group ('S&P'), or, if unrated, deemed by SBAM to be of
equivalent quality. While debt securities carrying the fourth highest quality
rating ('Baa' by Moody's or 'BBB' by S&P) are considered investment grade and
are viewed to have adequate capacity for payment of principal and interest,
investments in such securities involve a higher degree of risk than that
associated with investments in debt securities in the higher rating categories
and such debt securities lack outstanding investment characteristics and in
fact have speculative characteristics as well. For example, changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt securities. See Appendix A to this Prospectus for a description of
these ratings.
Investments in such investment grade fixed-income securities may also be made
for the purpose of capital appreciation, as
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in the case of purchases of bonds traded at a substantial discount, or when
interest rates are expected to decline.
The Investors Fund from time to time may invest up to 5% of its net assets in
non-convertible debt securities rated below investment grade by S&P and Moody's
with no minimum rating required or comparable unrated securities. There is no
limit on the amount of the Fund's assets that can be invested in convertible
securities rated below investment grade. For additional information on these
high yield debt securities, which involve a high degree of risk, see
'Additional Investment Activities and Risk Factors -- High Yield Securities.'
The Investors Fund maintains a carefully selected portfolio of securities
diversified among industries and companies. The Fund may invest up to 25% of
its net assets in any one industry. The Fund generally purchases marketable
securities, primarily those traded on the New York Stock Exchange ('NYSE') or
other national securities exchanges, but also issues traded in the
over-the-counter market. The Fund will not invest more than 15% of the value of
its total assets in illiquid securities, such as 'restricted securities' which
are illiquid, and securities that are not readily marketable. As more fully
described in the Statement of Additional Information, the Fund may purchase
certain restricted securities ('Rule 144A Securities') for which there is a
secondary market of qualified institutional buyers as contemplated by Rule 144A
under the Securities Act of 1933 (the '1933 Act'). The Fund's holdings of Rule
144A securities which are liquid securities will not be subject to the 15%
limitation on investments in illiquid securities. For further discussion of
illiquid securities and their associated risks, see 'Additional Investment
Activities and Risk Factors -- Restricted Securities and Securities with
Limited Trading Markets.'
From time to time, the Investors Fund may lend portfolio securities to brokers
or dealers or other financial institutions. Such loans will not exceed 33 1/3%
of the Fund's total assets, taken at value. For a discussion of the risks
associated with lending portfolio securities, see 'Additional Investment
Activities and Risk Factors -- Loans of Portfolio Securities.'
For a description of repurchase agreements and their associated risks, see
'Additional Investment Activities and Risk Factors -- Repurchase Agreements.'
As a hedge against either a decline in the value of securities included in the
Fund's portfolio or against an increase in the price of securities which it
plans to purchase or in order to preserve or maintain a return or spread on a
particular investment or portion of its portfolio or to achieve a particular
return on cash balances, or in order to increase income or gain, the Fund may
use all of the various investment strategies referred to under 'Additional
Investment Activities and Risk Factors -- Derivatives.' The Fund's ability to
pursue certain of these strategies may be limited by applicable regulations of
the SEC, the Commodity Futures Trading Commission ('CFTC') and the federal
income tax requirements applicable to regulated investment companies. See
'Additional Investment Activities and Risk Factors -- Derivatives' and the
Statement of Additional Information for a description of these strategies and
of certain risks associated therewith.
The foregoing investment policies and activities, other than the Investors
Fund's investment objectives are not fundamental policies and may be changed by
vote of the Board of Directors without the approval of shareholders.
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ADDITIONAL INVESTMENT ACTIVITIES
AND RISK FACTORS
FOREIGN SECURITIES. Investors should recognize that investing in the securities
of foreign issuers involves special considerations which are not typically
associated with investing in the securities of U.S. issuers. Investments in
securities of foreign issuers may involve risks arising from differences
between U.S. and foreign securities markets, including less volume, much
greater price volatility in and illiquidity of certain foreign securities
markets, different trading and settlement practices and less governmental
supervision and regulation, from changes in currency exchange rates, from high
and volatile rates of inflation, from economic, social and political conditions
and, as with domestic multinational corporations, from fluctuating interest
rates.
Investment in certain emerging market securities is restricted or controlled to
varying degrees which may at times limit or preclude investment in certain
emerging market securities and increase the costs and expenses of the Fund.
Investing in local markets in emerging market countries may require a Fund to
adopt special procedures, seek local government approvals or take other
actions, each of which may involve additional costs to the Fund.
Other investment risks include the possible imposition of foreign withholding
taxes on certain amounts of the Fund's income, the possible seizure or
nationalization of foreign assets and the possible establishment of exchange
controls, expropriation, confiscatory taxation, other foreign governmental laws
or restrictions which might affect adversely payments due on securities held by
the Fund, the lack of extensive operating experience of eligible foreign
subcustodians and legal limitations on the ability of the Fund to recover
assets held in custody by a foreign subcustodian in the event of the
subcustodian's bankruptcy. Moreover, brokerage commissions and other
transactions costs on foreign securities exchanges are generally higher than in
the United States.
In addition, there may be less publicly-available information about a foreign
issuer than about a U.S. issuer, and foreign issuers may not be subject to the
same accounting, auditing and financial record-keeping standards and
requirements as U.S. issuers.
Finally, in the event of a default in any such foreign obligations, it may be
more difficult for the Fund to obtain or enforce a judgment against the issuers
of such obligations. For a further discussion of certain risks involved in
investing in foreign securities, particularly of emerging market issuers, see
'Additional Information on Portfolio Instruments and Investment
Policies -- Foreign Securities' in the Statement of Additional Information.
FIRM COMMITMENTS AND WHEN-ISSUED SECURITIES. The Investors Fund may purchase
securities on a firm commitment basis, including when-issued securities.
Securities purchased on a firm commitment basis are purchased for delivery
beyond the normal settlement date at a stated price and yield. No income
accrues to the purchaser of a security on a firm commitment basis prior to
delivery. Such securities are recorded as an asset and are subject to changes in
value based upon changes in the general level of interest rates. Purchasing a
security on a firm commitment basis can involve a risk that the market price at
the time of delivery may be lower than the
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agreed upon purchase price, in which case there could be an unrealized loss at
the time of delivery. The Fund will only make commitments to purchase
securities on a firm commitment basis with the intention of actually acquiring
the securities, but may sell them before the settlement date if it is deemed
advisable. The Fund will establish a segregated account in which it will
maintain liquid assets in an amount at least equal in value to the Fund's
commitments to purchase securities on a firm commitment basis. If the value of
these assets declines, the Fund will place additional liquid assets in the
account on a daily basis so that the value of the assets in the account is
equal to the amount of such commitments.
WARRANTS. The Investors Fund may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other securities.
Warrants do not carry the right to dividends or voting rights with respect to
their underlying securities, and they do not represent any rights in assets of
the issuer. An investment in warrants may be considered speculative. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities and a warrant ceases to have value if it is not
exercised prior to its expiration date.
REPURCHASE AGREEMENTS. The Investors Fund may enter into repurchase agreements
for cash management purposes. A repurchase agreement is a transaction in which
the seller of a security commits itself at the time of the sale to repurchase
that security from the buyer at a mutually agreed upon time and price.
The Fund will enter into repurchase agreements only with dealers, domestic
banks or recognized financial institutions which, in the opinion of SBAM based
on guidelines established by the Board of Directors, are deemed creditworthy.
SBAM will monitor the value of the securities underlying the repurchase
agreement at the time the transaction is entered into and at all times during
the term of the repurchase agreement to ensure that the value of the securities
always equals or exceeds the repurchase price. The Fund requires that additional
securities be deposited if the value of the securities purchased decreases
below their resale price and does not bear the risk of a decline in the value
of the underlying security unless the seller defaults under the repurchase
obligation. In the event of default by the seller under the repurchase
agreement, the Fund could experience losses and experience delays in connection
with the disposition of the underlying security. To the extent that, in the
meantime, the value of the securities that the Fund has purchased has decreased,
the Fund could experience a loss. Repurchase agreements with maturities of more
than seven days will be treated as illiquid securities by a Fund.
RESTRICTED SECURITIES AND SECURITIES WITH LIMITED TRADING MARKETS. The
Investors Fund may purchase securities for which there is a limited trading
market or which are subject to restrictions on resale to the public. If the
Fund was to assume substantial positions in securities with limited trading
markets, the activities of the Fund could have an adverse effect upon the
liquidity and marketability of such securities and the Fund might not be able
to dispose of its holdings in those securities at then current market prices.
Circumstances could also exist (to satisfy redemptions, for example) when
portfolio securities might have to be sold by the Fund at times which otherwise
might be considered to be disadvantageous so that the Fund might receive lower
proceeds from such sales than it had expected to realize. Investments in
securities which are 'restricted' may involve added expenses to the Fund should
the Fund be required to bear registration costs with respect to such securities
and could involve delays in disposing of such securities which might
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have an adverse effect upon the price and timing of sales of such securities
and the liquidity of the Fund with respect to redemptions. Restricted
securities and securities for which there is a limited trading market may be
significantly more difficult to value due to the unavailability of reliable
market quotations for such securities, and investment in such securities may
have an adverse impact on net asset value. As more fully described in the
Statement of Additional Information, the Fund may purchase Rule 144A securities
for which there may be a secondary market of qualified institutional buyers as
contemplated by recently adopted Rule 144A under the 1933 Act. The Fund's
holdings of Rule 144A securities which are liquid securities will not be
subject to the Fund's 15% limitation on investments in illiquid securities.
Rule 144A is a recent development and there is no assurance that a liquid
market in Rule 144A securities will develop or be maintained. To the extent
that the number of qualified institutional buyers is reduced, a previously
liquid Rule 144A security may be determined to be illiquid, thus increasing the
percentage of illiquid assets in the Fund's portfolio. SBAM, under the
supervision of the Board of Directors, is responsible for monitoring the
liquidity of Rule 144A securities and the selection of such securities. The
Board of Directors periodically reviews purchases and sales of such securities.
FIXED-INCOME SECURITIES. To the extent that a portion of the Fund's portfolio is
invested in fixed-income securities, changes in market yields will affect the
Fund's net asset value as prices of fixed-income securities generally increase
when interest rates decline and decrease when interest rates rise. Prices of
longer term securities generally increase or decrease more sharply than those
of shorter term securities in response to interest rate changes, particularly
if such securities were purchased at a discount. Because the Fund may from time
to time invest in fixed-income securities, the net asset value of the Fund's
shares may change as general levels of interest rates fluctuate. See
'Additional Information on Portfolio Instruments and Investment Policies --
Fixed Income Securities' in the Statement of Additional Information.
HIGH YIELD SECURITIES. Medium and low rated and comparable unrated 'high yield'
securities, commonly known as 'junk bonds,' involve significantly greater
risks, including price volatility and risk of default in the payment of
interest and principal, than higher rated securities.
Under rating agency guidelines, medium-and lower-rated securities and comparable
unrated securities will likely have some quality and protective characteristics
that are outweighed by large uncertainties or major risk exposures to adverse
conditions. Medium and lower rated securities are considered to have extremely
poor prospects of ever attaining any real investment standing, to have a current
identifiable vulnerability to default or are in default, to be unlikely to have
the capacity to pay interest and repay principal when due in the event of
adverse business, financial or economic conditions, and/or to be in default or
not current in the payment of interest or principal. Such securities are
considered speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations.
Accordingly, it is possible that these types of factors could, in certain
instances, reduce the value of securities held by the Fund with a commensurate
effect on the value of the Fund's shares.
The secondary markets for high yield securities are not as liquid as the
secondary markets for higher rated securities. This relative illiquidity may
have an adverse effect on the ability of a Fund holding such securities to
dispose of particular portfolio investments, may
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adversely affect the Fund's net asset value per share and may limit the ability
of such a Fund to obtain accurate market quotations for purposes of valuing
securities and calculating net asset value.
While the market values of securities rated below investment grade and
comparable unrated securities tend to react less to fluctuations in interest
rate levels than do those of higher-rated securities, the market values of
certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher rated
securities. In addition, such securities present a higher degree of credit
risk. See 'Additional Information on Portfolio Instruments and Investment
Policies -- High Yield Securities' in the Statement of Additional Information.
LOANS OF PORTFOLIO SECURITIES. The Investors Fund may lend portfolio securities
to generate income. In the event of the bankruptcy of the other party to a
securities loan, the Fund could experience delays in recovering the securities
it lent. To the extent that, in the meantime, the value of the securities the
Fund lent has increased, the Fund could experience a loss. The value of
securities loaned will be marked to market daily. Any securities that the Fund
may receive as collateral will not become a part of its portfolio at the time
of the loan. In the event of a default by the borrower, the Fund will, if
permitted by law, dispose of such collateral except that the Fund may retain
any such part thereof that is a security in which the Fund is permitted to
invest. The Fund may invest the cash collateral and earn additional income or
receive an agreed-upon fee from a borrower that has delivered cash equivalent
collateral. Cash collateral received by the Fund may be invested in securities
in which the Fund is permitted to invest. Portfolio securities purchased with
cash collateral are subject to possible depreciation. Voting rights may pass
with the lending of portfolio securities. Loans of securities by the Fund will
be subject to termination at the Fund's or the borrower's option. The Fund may
pay administrative and custodial fees in connection with a securities loan and
may pay a negotiated portion of the interest or fee earned with respect to the
collateral to the borrower or a placing broker.
INVESTMENT FUNDS. The Investors Fund may invest in unaffiliated investment funds
which invest principally in securities in which the Fund is authorized to
invest. Under the 1940 Act, the Fund may invest a maximum of 10% of its total
assets in the securities of other investment companies. In addition, under the
1940 Act, not more than 5% of the Fund's total assets may be invested in the
securities of any one investment company and a Fund may not purchase more than
3% of the outstanding voting stock of such investment company. To the extent the
Fund invests in other investment funds, the Fund's shareholders will incur
certain duplicative fees and expenses, including investment advisory fees. The
Fund's investment in certain investment funds will result in special U.S.
Federal income tax consequences described below under 'Taxation.'
BORROWING. The Investors Fund may borrow in certain limited circumstances. See
'Investment Limitations.' Borrowing creates an opportunity for increased
return, but, at the same time, creates special risks. For example, borrowing may
exaggerate changes in the net asset value of the Fund's shares and in the
return on the Fund's portfolio. Although the principal of any borrowing will be
fixed, the Fund's assets may change in value during the time the borrowing is
outstanding. The Fund may be required to liquidate portfolio securities at a
time when it would be disadvantageous to do so in order to make payments with
respect to any borrowing, which could affect the investment manager's strategy
and the
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ability of the Fund to comply with certain provisions of the Internal Revenue
Code of 1986, as amended (the 'Code') in order to provide 'pass-though' tax
treatment to shareholders. Furthermore, if the Fund were to engage in
borrowing, an increase in interest rates could reduce the value of the Fund's
shares by increasing the Fund's interest expense.
DERIVATIVES. The Investors Fund may use various investment strategies described
below to hedge market risks (such as broad or specific market movements,
interest rates and currency exchange rates), to manage the effective maturity or
duration of debt instruments held by the Fund, or to seek to increase the Fund's
income or gain. Over time, however, techniques and instruments may change as
new instruments and strategies are developed or regulatory changes occur.
Subject to the constraints described above, the Fund may (if and to the extent
so authorized) purchase and sell interest rate, currency or stock or bond index
futures contracts and enter into currency forward contracts and currency swaps;
purchase and sell (or write) exchange listed and over-the-counter put and call
options on securities, currencies, futures contracts, indices and other
financial instruments, and the Fund may enter into interest rate transactions,
equity swaps and related transactions, invest in indexed debt securities and
other similar transactions which may be developed to the extent the investment
manager determines that they are consistent with the Fund's investment
objectives and policies and applicable regulatory requirements (collectively,
these transactions are referred to in this Prospectus as 'Derivatives'). The
Fund's interest rate transactions may take the form of swaps, caps, floors and
collars, and the Fund's currency transactions may take the form of currency
forward contracts, currency futures contracts, currency swaps and options on
currencies.
Derivatives may be used to attempt to protect against possible changes in the
market value of securities held or to be purchased for the Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations, to
protect the Fund's unrealized gains in the value of its securities, to
facilitate the sale of those securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities or to seek to enhance the Fund's income or gain.
The Fund may use any or all types of Derivatives which it is authorized to use
at any time; no particular strategy will dictate the use of one type of
transaction rather than another, as use of any authorized Derivative will be a
function of numerous variables, including market conditions. The ability of the
Fund to utilize Derivatives successfully will depend on numerous factors
including the investment manager's ability to predict pertinent market
movements, which cannot be assured. These skills are different from those
needed to select the Fund's portfolio securities. The Investors Fund is not a
'commodity pool' (i.e., a pooled investment vehicle which trades in commodity
futures contracts and options thereon and the operator of which is registered
with the CFTC), and Derivatives involving futures contracts and options on
futures contracts will be purchased, sold or entered into only for bona fide
hedging purposes, provided that the Fund may enter into such transactions for
purposes other than bona fide hedging if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open contracts and options would
not exceed 5% of the liquidation value of the Fund's portfolio, after taking
into account unrealized profits and losses on existing contracts provided,
further, that, in the case of an option that is in-the-money, the in-the-money
amount may be excluded in calculating the 5% limitation. The use of
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SALOMON BROTHERS VARIABLE SERIES
certain Derivatives in certain circumstances will require that the Fund
segregate liquid assets to the extent the Fund's obligations are not otherwise
'covered' through ownership of the underlying security, financial instrument or
currency.
Derivatives involve special risks, including possible default by the other
party to the transaction, illiquidity and, to the extent the investment
manager's view as to certain market movements is incorrect, the risk that the
use of Derivatives could result in significantly greater losses than if it had
not been used. Losses resulting from the use of Derivatives will reduce the
Fund's net asset value, and possibly income. Use of put and call options could
result in losses to the Fund, force the purchase or sale of portfolio
securities at inopportune times or for prices higher or lower than current
market values, or cause the Fund to hold a security it might otherwise sell.
The use of currency transactions could result in the Fund's incurring losses as
a result of the imposition of exchange controls, suspension of settlements, or
the inability to deliver or receive a specified currency in addition to
exchange rate fluctuations. The use of options and futures transactions entails
certain special risks. In particular, the variable degree of correlation between
price movements of futures contracts and price movements in the related
portfolio position of the Fund could create the possibility that losses on the
Derivative will be greater than gains in the value of the Fund's position. In
addition, futures and options markets could be illiquid in some circumstances
and certain over-the-counter options could have no markets. The Fund might not
be able to close out certain positions without incurring substantial losses. To
the extent the Fund utilizes futures and options transactions for hedging, such
transactions should tend to minimize the risk of loss due to a decline in the
value of the hedged position and, at the same time, limit any potential gain to
the Fund that might result from an increase in value of the position. Finally,
the daily variation margin requirements for futures contracts create a greater
ongoing potential financial risk than would purchases of options, in which case
the exposure is limited to the cost of the initial premium and transaction
costs and the losses may be significantly greater than if Derivatives had not
been used. Additional information regarding the risks and special
considerations associated with Derivatives appears in the Statement of
Additional Information.
The degree of the Fund's use of Derivatives may be limited by certain
provisions of the Code. See 'Taxation.'
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INVESTMENT LIMITATIONS
The following investment restrictions and those described in the Statement of
Additional Information are fundamental policies applicable to the Investors Fund
which may be changed only when permitted by law and approved by the holders of
a majority of the Fund's outstanding voting securities, as defined in the 1940
Act. Except for the investment restrictions set forth below and in the
Statement of Additional Information and the Fund's investment objectives, the
other policies and percentage limitations referred to in this Prospectus and in
the Statement of Additional Information are not fundamental policies of the
Fund and may be changed by the Fund's Board of Directors without shareholder
approval.
If a percentage restriction on investment or use of assets set forth in this
Prospectus or in the Statement of Additional Information is adhered to at the
time a transaction is effected, later changes in percentages resulting from
changing values will not be considered a violation.
The Investors Fund may not:
(1) purchase securities of any issuer if the purchase would cause more than 5%
of the value of the Fund's total assets to be invested in the securities of any
one issuer (excluding securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities and bank obligations) or cause more than 10%
of the voting securities of the issuer to be held by the Fund, except that up
to 25% of the value of the Fund's total assets may be invested without regard
to this restriction and provided that the Fund may invest all or substantially
all of its assets in another registered investment company having substantially
the same investment objective(s) and policies and substantially the same
investment restrictions as those with respect to the Fund;
(2) borrow money (including entering into reverse repurchase agreements),
except for temporary or emergency purposes and then not in excess of 10% of the
value of the total assets of the Fund at the time the borrowing is made, except
that for the purpose of this restriction, short-term credits necessary for
settlement of securities transactions are not considered borrowings (the Fund
will not purchase additional securities at any time its borrowings exceed 5% of
total assets, provided, however, that the Fund may increase its interest in
another registered investment company having substantially the same investment
objective(s) and policies and substantially the same investment restrictions as
the Fund while such borrowings are outstanding); or
(3) invest more than 25% of the total assets of the Fund in the securities of
issuers having their principal activities in any particular industry, except for
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities or by any state, territory or any possession of the United
States or any of their authorities, agencies, instrumentalities or political
subdivisions, or with respect to repurchase agreements collateralized by any of
such obligations (for purposes of this restriction, supranational issuers will
be considered to comprise an industry as will each foreign government that
issues securities purchased by the Fund), provided, however, that the Fund may
invest all or substantially all of its assets in another registered investment
company having substantially the same investment objective(s) and policies and
substantially the same investment restrictions as the Fund.
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MANAGEMENT
The business and affairs of the Fund are managed under the direction of the
Board of Directors. The Board of Directors approves all significant agreements
between the Fund and the persons or companies that furnish services to the Fund,
including agreements with its distributor, investment manager, administrator,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to SBAM, the Fund's investment manager and administrator.
The Statement of Additional Information contains general background information
regarding each director and executive officer of the Fund.
INVESTMENT MANAGER
The Fund retains SBAM, a wholly owned subsidiary of Salomon Brothers Holding
Company Inc, which is in turn wholly owned by Salomon Smith Barney Holdings,
Inc., which is in turn wholly owned by Travelers Group Inc. ('Travelers'), as
its investment manager under an investment management contract. SBAM was
incorporated in 1987 and together with SBAM affiliates in London, Frankfurt,
Tokyo and Hong Kong, provides a broad range of fixed-income and equity
investment advisory services to various individuals and institutional clients
located throughout the world, and serves as investment adviser to various
investment companies. As of December 31, 1997, SBAM and such affiliates managed
approximately $26 billion of assets. In providing advisory services, SBAM has
access to hundreds of affiliated economists and mortgage, bond, sovereign and
equity analysts. Michael S. Hyland serves as President of SBAM. SBAM's business
offices are located at 7 World Trade Center, New York, New York 10048.
Allan R. White III is a Managing Director of Salomon Brothers Inc ('Salomon
Brothers') and SBAM and is primarily responsible for the day-to-day management
of the Investors Fund. Since 1989 he has been a Vice President of SBAM. Prior to
1989 he was a Vice President at The First Boston Corporation. Mr. White is also
Executive Vice President and portfolio manager for the Salomon Brothers
Investors Fund Inc, as well as The Salomon Brothers Fund Inc. Mr. White is
assisted in the management of the Investors Fund by John B. Cunningham. Mr.
Cunningham has been a Vice President of SBAM since 1995. Prior to that time, Mr.
Cunningham was an Associate in the Investment Banking Group of Salomon Brothers.
Subject to policy established by the Board of Directors, which has overall
responsibility for the business and affairs of the Fund, SBAM manages the
investment and reinvestment of the Fund's assets pursuant to the management
contract. SBAM also furnishes office space, personnel and certain facilities
required for the performance by SBAM of certain additional services provided by
it to the Fund under the applicable management contract, including SEC
compliance, supervision of Fund operations and certain administrative and
clerical services, and pays the compensation of the Fund's officers, employees
and directors affiliated with SBAM. Except for the expenses paid by SBAM that
are described herein, the Fund bears all costs of its operations.
As compensation for its services, the Investors Fund pays SBAM a monthly fee at
an annual rate of .70% of the Fund's average daily net assets. For the 1998
fiscal year, SBAM has voluntarily agreed to impose an expense cap on total Fund
operating expenses (exclusive of taxes, interest and extraordinary expenses such
as
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SALOMON BROTHERS VARIABLE SERIES
litigation and indemnification expenses) at 1.00%.
SBAM may waive all or part of its fee from time to time in order to increase the
Fund's net investment income available for distribution to shareholders. The
Fund will not be required to reimburse SBAM for any advisory fees waived. In
addition, Participating Insurance Companies that purchase the Fund's shares may
perform certain administrative services relating to the Fund and SBAM may pay
those companies for such services.
The services of SBAM are not deemed to be exclusive, and nothing in the relevant
agreements will prevent either of them or their affiliates from providing
similar services to other investment companies and other clients (whether or not
their investment objectives and policies are similar to those of the Fund) or
from engaging in other activities.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers (the 'NASD'), and subject to seeking the most favorable price
and execution available, the investment manager may consider sales of shares of
the Fund as a factor in the selection of brokers to execute portfolio
transactions for the Fund. The Fund may use Salomon Brothers, other
broker-dealer subsidiaries of Travelers and their affiliates to execute
portfolio transactions when the investment manager believes that the broker's
charge for the transaction does not exceed the usual and customary levels
charged by other brokers in connection with comparable transactions involving
similar securities. See the Statement of Additional Information for a more
complete description of the Fund's policies with respect to portfolio
transactions.
DISTRIBUTOR
Salomon Brothers, located at 7 World Trade Center, New York, New York 10048,
serves as the Investors Fund's distributor. Salomon Brothers, a wholly-owned
subsidiary of Salomon Brothers Holding Company Inc, is also one of the largest
securities dealers in the world and a registered broker-dealer. Salomon
Brothers, along with other broker-dealer subsidiaries of Travelers, makes
markets in securities and provides a broad range of underwriting, research, and
financial advisory services to governments, international corporations, and
institutional investors. Salomon Brothers and other affiliated broker-dealers
from time to time may receive fees from the Fund in connection with the
execution of portfolio transactions on behalf of the Fund.
ADMINISTRATOR
The Investors Fund employs SBAM under an administration agreement to provide
certain administrative services to the Fund.
The services provided by SBAM under the administration agreement include certain
accounting, clerical and bookkeeping services, Blue Sky reports, corporate
secretarial services and assistance in the preparation and filing of tax returns
and reports to shareholders and the SEC. For its services as administrator, the
Fund pays SBAM a fee, calculated daily and payable monthly, at an annual rate of
.05% of the Fund's aggregate average daily net assets. SBAM has delegated its
responsibilities under the administrative agreement to one of its affiliates.
EXPENSES
The Investors Fund's expenses include taxes, interest, fees and salaries of the
directors and officers who are not directors, officers or employees of the
Fund's service contractors, SEC fees, state securities qualification fees, costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders, advisory and administration fees, charges
of the custodian, transfer agent and dividend disbursing agent, certain
insurance premiums, outside
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SALOMON BROTHERS VARIABLE SERIES
auditing and legal expenses, costs of shareholder reports and shareholder
meetings and any extraordinary expenses. The Fund also pays for brokerage fees
and commissions (if any) in connection with the purchase and sale of portfolio
securities.
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DETERMINATION
OF NET ASSET VALUE
For the purpose of pricing purchase and redemption orders, the net asset value
per share of the Investors Fund is calculated separately and is determined once
daily as of the close of regularly scheduled trading on the NYSE. Such
calculation is determined on each day that the NYSE is open for trading, i.e.,
Monday through Friday, except for New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and the preceding Friday or subsequent
Monday when one of those holidays falls on a Saturday or Sunday, respectively.
Net asset value per share of the Fund is calculated by dividing the value of the
Fund's securities and other assets, less the liabilities, by the number of
shares outstanding. In calculating net asset value, all portfolio securities
will be valued at market value when there is a reliable market quotation
available for the securities and otherwise pursuant to procedures adopted by the
Fund's Board of Directors. Securities that are primarily traded on foreign
exchanges generally are valued at the preceding closing values of such
securities on their respective exchanges, except that when an occurrence
subsequent to the time a value was so established is likely to have changed such
value, then the fair value of those securities may be determined by
consideration of other factors by or under the direction of the Board of
Directors. Securities may be valued by independent pricing services which use
prices provided by market-makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
In valuing the Fund's assets, any assets or liabilities initially expressed in
terms of a foreign currency are converted to U.S. dollar equivalents at the then
current exchange rate. Corporate actions by issuers of foreign securities held
by the Fund, such as payment of dividends or distributions, are reflected in the
net asset value on the ex-dividend date therefor, except that such actions will
be so reflected on the date the Fund is actually advised of the corporate action
if subsequent to the ex-dividend date. Further information regarding the Funds'
valuation policies is contained in the Statement of Additional Information.
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PARTICIPATING INSURANCE COMPANIES
AND PLANS
Variable Series Funds is a funding vehicle for VA contracts and VLI policies to
be offered by separate accounts of Participating Insurance Companies and for
Plans. The VA contracts and the VLI policies are described in the separate
prospectuses issued by the Participating Insurance Companies for which the Fund
assumes no responsibility, and the Plans are described in the relevant Plan
documents for which the Fund assumes no responsibility. Variable Series Funds
currently does not foresee any disadvantages to the holders of VA contracts and
VLI policies or Plan Participants arising from the fact that the interests of
the holders of such policies and such Plan Participants may differ in the future
due to differences in tax treatment of variable products and Plans or other tax
considerations.
Nevertheless, the Variable Series Funds' Board of Directors intends to monitor
events in order to identify any material conflicts which may arise and to
determine what action, if any, should be taken in response thereto. Resolution
of an irreconcilable conflict might result in the withdrawal of a substantial
amount of the Fund's assets which could adversely affect the Fund's net asset
value per share.
Individual VA contract holders and VLI policy holders and Plan Participants are
not the 'shareholders' of the Fund. Rather, the separate accounts of
Participating Insurance Companies and the Plans are the shareholders. However,
the Participating Insurance Companies have informed the Fund that they will pass
through voting rights to their VA contract and VLI policy holders. Plans will
vote shares as required by applicable law and governing plan documents.
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PURCHASE OF SHARES
Shares of the Fund are sold at net asset value to the separate accounts of
Participating Insurance Companies and to Plans. Individuals may not place orders
directly with the Fund. See the prospectus of the separate account of the
Participating Insurance Company or the relevant Plan documents for more
information on the purchase of Fund shares and with respect to the availability
for investment in the Fund. There are no sales commissions or redemption
charges; however, other charges may apply to the variable annuity contracts or
life insurance policies or Plans. The Fund does not issue share certificates.
Purchase orders will be effected at the net asset value of the Fund determined
on the business day received if the orders are received by such Fund through
First Data Investor Services Group, Inc. ('Investor Services Group' or the
'Transfer Agent') in proper form and in accordance with the
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SALOMON BROTHERS VARIABLE SERIES
applicable requirements prior to the close of regular trading on the NYSE on any
day that the Fund calculates its net asset value and the Federal Funds (monies
of member banks within the Federal Reserve System which are held on deposit at a
Federal Reserve Bank) in the net amount of such orders are received by the Fund
on such business day in accordance with applicable requirements. Otherwise, the
orders will be priced as of the time the net asset value is next determined. It
is each Plan and Participating Insurance Company's responsibility to properly
transmit purchase orders and Federal Funds in accordance with applicable
requirements. VA contract or VLI policy holders and Plan Participants should
refer to the prospectus for their contracts or policies or Plan documents in
this regard.
The Fund reserves the right to reject any purchase order in whole or in part.
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REDEMPTION OF SHARES
Fund shares may be redeemed at any time by the separate accounts of the
Participating Insurance Companies and the Plans. Individuals may not place
redemption orders directly with the Fund. Redemption requests will be effected
at the net asset value of the Fund next determined after receipt of redemption
instructions by such Fund in proper form and in accordance with applicable
requirements. It is the responsibility of the Participating Insurance Company to
properly transmit redemption requests in accordance with applicable
requirements. VA contract holders and VLI policy holders and Plan Participants
should consult their Participating Insurance Company or Plan in this regard. The
value of the shares redeemed may be more or less than their original cost,
depending on the Fund's then-current net asset value. No charges are imposed by
the Fund when shares are redeemed.
Payment of redemption proceeds may be made in securities, subject to regulation
by some state securities commissions. Payment of the redemption price will be
made within seven days after receipt of the redemption instructions in good
order (or such shorter time period as may be required), but the Fund may suspend
the right of redemption during any period when: (i) trading on the NYSE is
restricted or the NYSE is closed, other than customary weekend and holiday
closings; (ii) the SEC has by order permitted such suspension; or (iii) an
emergency exists, as defined by rules of the SEC, making disposal of portfolio
securities or determination of the value of the net assets of the Fund not
reasonably practicable.
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PERFORMANCE INFORMATION
From time to time, the Investors Fund may advertise its standardized and
nonstandardized 'average annual total return' over various periods of time.
Total return figures show the average annual percentage change in value of an
investment in the Fund from the beginning date of the measuring period to the
end of the measuring period. These figures reflect changes in the price of the
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Standardized total return is calculated in accordance with the SEC's formula.
Nonstandardized total return differs from the standardized total return only in
that it may relate to a nonstandard period or is presented in the aggregate
rather than as an annual average.
Total return figures will be given for the most current one-, five- and ten-year
periods, or the life of the Fund to the extent it has not been in existence for
any such periods, and may be given for other periods as well, such as on a
year-by-year basis. When considering average total return figures for periods
longer than one year, it is important to note that the total return for any one
year in the period might have been greater or less than the average for the
entire period. 'Aggregate total return' figures may be used for various periods,
representing the cumulative change in value of an investment in Fund shares for
the specific period (again reflecting changes in share prices and assuming
reinvestment of dividends and distributions). Aggregate total return may be
shown by means of schedules, charts or graphs and may indicate subtotals of the
various components of total return (i.e., change in the value of initial
investment, income dividends and capital gains distributions).
Furthermore, in reports or other communications to shareholders or in
advertising materials, performance of Fund shares may be compared with that of
other mutual funds or classes of shares of other mutual funds, as listed in the
rankings prepared by Lipper Analytical Services, Inc. or similar independent
services that monitor the performance of mutual funds, financial indices such as
the S&P 500 Index or other industry or financial publications, including, but
not limited to, Bank Rate Monitor, Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune, ICB Donaghue's Money Fund
Report, Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. Performance
figures are based on historical earnings and are not intended to indicate future
performance. See 'Performance Data' in the Statement of Additional Information.
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DIVIDENDS AND DISTRIBUTIONS
The Investors Fund will declare dividends from net investment income annually
and will pay such dividends annually. Net investment income is a Fund's
investment company taxable income, as that term is defined in the Code,
determined without regard to the deduction for dividends paid and excluding any
net realized capital gains. For the purpose of calculating dividends, net
investment income shall consist of interest earned, which includes, where
applicable, any discount accreted or premium amortized to the date of maturity,
minus estimated expenses.
Shares of the Fund are entitled to dividends declared beginning on the day after
the purchase order is received in good order.
Dividends are determined in the same manner and are paid in the same amount for
each Fund share.
Net realized short-term capital gains of the Fund, if any, will be distributed
whenever the Directors determine that such distributions would be in the best
interest of shareholders, but in any event at least once a year. The Fund
distributes annually any net realized long-term capital gains from the sale of
securities (after deducting any net realized losses that may be carried forward
from prior years).
If, for any full fiscal year, the Fund's total distributions exceed net
investment income and net realized capital gains, the excess distributions
generally will be treated as a tax-free return of capital (up to the amount of
the shareholder's tax basis in his or her shares). The amount treated as a
tax-free return of capital will reduce a shareholder's adjusted basis in his or
her shares. Pursuant to the requirements of the 1940 Act and other applicable
laws, a notice will accompany any distribution paid from sources other than net
investment income. In the event the Fund distributes amounts in excess of its
net investment income and net realized capital gains, such distributions may
have the effect of decreasing the Fund's total assets, which may increase the
Fund's expense ratio.
Dividend and/or capital gains distributions will be reinvested automatically in
additional shares of the Fund at the applicable net asset value per share and
such shares will be automatically credited to a shareholder's account, unless a
shareholder elects to receive either dividends or capital gains distributions in
cash.
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TAXATION
FEDERAL INCOME TAX MATTERS. The Investors Fund intends to qualify and elect to
be treated as a regulated investment company under Subchapter M of the Code. If
it so qualifies, the Fund will not be subject to U.S. federal income taxes on
its net investment income (i.e., its investment company taxable income, as that
term is defined in the Code, determined without regard to the deduction for
dividends paid) and net capital gain (i.e., the excess of the Fund's net
realized long-term capital gain over its net realized short-term capital loss),
if any, that it distributes to its shareholders in each taxable year, provided
that it distributes to its shareholders at least 90% of its net investment
income for such taxable year. If in any year the Fund fails to qualify as a
regulated investment company, the Fund would incur regular corporate federal
income tax on its taxable income for that year and be subject to certain
additional distribution requirements upon requalification.
The Fund will be subject to federal corporate income tax (currently at a maximum
rate of 35%) on any undistributed income and to alternative minimum tax
(currently at a maximum rate of 28%) on alternative minimum taxable income.
The Fund is subject to a nondeductible 4% excise tax calculated as a percentage
of certain undistributed amounts of ordinary income and capital gain net income.
To the extent possible, the Fund intends to make sufficient distributions to
avoid the application of both the corporate income and excise taxes.
DIVIDENDS. Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends paid from net investment income
generally are taxable as ordinary income whether received in cash or reinvested
in additional shares. Distributions from net capital gain which are designated
as 'capital gain dividends' generally are taxable as long-term capital gain
whether received in cash or reinvested in additional shares. Since the Funds'
shareholders are the separate accounts of Participating Insurance Companies and
the Plans, no discussion is included herein as to the federal income tax
consequences to VA contract holders, VLI policy holders and Plan Participants.
For information concerning the federal income tax consequences to such holders,
see the prospectus for such contract or policy or the applicable Plan documents.
DIVERSIFICATION. Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be 'adequately diversified' as
provided therein or in accordance with U.S. Treasury Regulations in order for
the account to serve as the basis for VA contracts and VLI policies. Section
817(h) and the U.S. Treasury Regulations issued thereunder provide the manner in
which a segregated asset account will treat investments in a regulated
investment company for purposes of the diversification requirements. If the
Investors Fund satisfies certain conditions, a segregated asset account owning
shares of the Fund will be treated as owning the account's proportionate share
of each of the assets of the Fund. The Fund intends to satisfy these conditions
so that the shares of the Fund owned by a segregated asset account of a
Participating Insurance Company will be treated as adequately diversified.
Participating Insurance Companies and Plans should consult their tax advisers
regarding specific questions as to Federal, state or local taxes.
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ACCOUNT SERVICES
Shareholders of the Fund are kept informed through semi-annual reports showing
current investments and other financial data for such Fund. Annual reports for
the Fund include audited financial statements.
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CAPITAL STOCK
The Variable Series Funds was incorporated in Maryland on October 1, 1997. The
authorized capital stock of the Variable Series Funds consists of 10,000,000,000
shares having a par value of $.001 per share. Pursuant to the Variable Series
Funds' Articles of Incorporation and Articles Supplementary, the Directors have
authorized the issuance of seven series of shares, each representing shares in
one of seven separate investment portfolios; namely, the Investors Fund, Salomon
Brothers Variable Capital Fund, Salomon Brothers Variable Total Return Fund,
Salomon Brothers Variable High Yield Bond Fund, Salomon Brothers Variable
Strategic Bond Fund, Salomon Brothers Variable U.S. Government Income Fund and
Salomon Brothers Variable Asia Growth Fund. The assets of each investment
portfolio are segregated and separately managed. The Variable Series Funds'
Board of Directors may, in the future, authorize the issuance of additional
classes of capital stock representing shares of additional investment
portfolios. As of the date of this Prospectus, SBAM owns substantially all the
shares of each Fund and consequently is deemed to be a 'control person,' as
defined in the 1940 Act, of each Fund.
Although each Fund is offering only its own shares, it is possible that a Fund
could become liable for a misstatement in this Statement of Additional
Information about another investment portfolio.
All shares of each investment portfolio have equal voting rights and will be
voted in the aggregate, and not by series, except where voting by series is
required by law or where the matter involved affects only one series. Pursuant
to current interpretations of the 1940 Act, the Fund anticipates that each
Participating Insurance Company will solicit voting instructions from VA
contract and VLI policy owners with respect to any matters that are presented to
a vote of shareholders, and will vote shares in proportion to the voting
instructions received. Plans will vote shares as required by applicable law and
governing Plan documents. All shares of each Fund will, when issued, be fully
paid and nonassessable. Under the corporate law of Maryland, the state of
incorporation of the Variable Series Funds and the By-Laws of each of the
Variable Series Funds, the Variable Series Fund is not required and does not
currently intend to hold annual meetings of shareholders for the election of
directors except as required under the 1940 Act. A more complete statement of
the voting rights of shareholders is contained in the Statement of Additional
Information.
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APPENDIX A:
DESCRIPTION OF RATINGS
A DESCRIPTION OF THE RATING POLICIES OF MOODY'S AND S&P WITH RESPECT TO BONDS
AND COMMERCIAL PAPER APPEARS BELOW.
MOODY'S CORPORATE BOND RATINGS
Aaa -- Bonds which are rated 'Aaa' are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected
by a large or by an exceptionally stable margin, and principal is secure. While
the various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa -- Bonds which are rated 'Aa' are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated 'A' possess many favorable investment qualities and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated 'Baa' are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated 'B' generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated 'Caa' are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated 'Ca' represent obligations which are speculative to
a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated 'C' are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers '1', '2' and '3' to certain of its rating
classifications. The modifier '1' indicates that the security ranks in the
higher end of
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SALOMON BROTHERS VARIABLE SERIES
its generic rating category; the modifier '2' indicates a mid-range ranking;
and the modifier '3' indicates that the issue ranks in the lower end of its
generic rating category.
S&P's CORPORATE BOND RATINGS
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to repay principal and pay interest.
AA -- Bonds rated 'AA' also qualify as high quality debt obligations. Capacity
to pay principal and interest is very strong, and differs from 'AAA' issues
only in small degree.
A -- Bonds rated 'A' have a strong capacity to repay principal and pay interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB -- Bonds rated 'BBB' are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher-rated categories.
BB-B-CCC-CC-C -- Bonds rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI -- Bonds rated 'CI' are income bonds on which no interest is being paid.
D -- Bonds rated 'D' are in default. The 'D' category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The 'D' rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
MOODY'S COMMERCIAL PAPER RATINGS
PRIME-1 -- Issuers (or related supporting institutions) rated 'Prime-1' have a
superior ability for repayment of senior short-term debt obligations. 'Prime-1'
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2 -- Issuers (or related supporting institutions) rated 'Prime-2' have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization
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SALOMON BROTHERS VARIABLE SERIES
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
PRIME-3 -- Issuers (or related supporting institutions) rated 'Prime-3' have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME -- Issuers rated 'Not Prime' do not fall within any of the Prime
rating categories.
S&P's COMMERCIAL PAPER RATINGS
A -- S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from 'A-1' for the highest
quality obligations to 'D' for the lowest. The four categories are as follows:
A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
A-3 -- Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B -- Issues rated 'B' are regarded as having only speculative capacity for
timely payment.
C -- This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D -- Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
Like higher-rated bonds, bonds rated in the Baa or BBB categories are
considered to have adequate capacity to pay principal and interest. However,
such bonds may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds.
After purchase by the Investors Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require a sale of such security by the Fund. However, the
Fund's investment manager will consider such event in its determination of
whether the Fund should continue to hold the security. To the extent the
ratings given by Moody's, or S&P may change as a result of changes in such
organizations or their rating systems, the Fund will attempt to use comparable
ratings as standards for investments in accordance with the investment policies
contained in this Prospectus and in the Statement of Additional Information.
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DISTRIBUTOR
Salomon Brothers Inc
7 World Trade Center
New York, New York 10048
INVESTMENT MANAGER
Salomon Brothers Asset
Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
PNC Bank, N.A.
Airport Business Center
International Court 2
200 Stevens Drive
Lester, Pennsylvania 19113
DIVIDEND DISBURSING AGENT
First Data Investors Services Group, Inc.
P.O. Box 5127
Westborough, Massachusetts 01581-5127
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY A FUND, THE DISTRIBUTOR OR THE INVESTMENT MANAGER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
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SALOMON BROTHERS ASSET MANAGEMENT
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STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as....................................`D'
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