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SALOMON BROTHERS
VARIABLE CAPITAL FUND
PROSPECTUS
APRIL 30, 1999
[SALOMON BROTHERS ASSET MANAGEMENT LOGO]
The fund's investment manager is Salomon Brothers Asset Management Inc,
a subsidiary of Citigroup Inc.
Shares of the fund are offered to insurance company separate accounts
which fund certain variable annuity and variable life insurance contracts and to
qualified retirement and pension plans. This prospectus should be read together
with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate
or complete. Any statement to the contrary is a crime.
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CONTENTS
Salomon Variable Series Funds Inc. consists of 7 separate investment funds, each
with its own investment objective and policies. Each fund offers different
levels of potential return and involves different levels of risk.
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Fund goals, strategies and risks:
Capital Fund................................................ 4
More on the fund's investments.............................. 6
Management.................................................. 9
Share transactions.......................................... 10
Dividends, distributions and taxes.......................... 11
Financial highlights........................................ 12
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THINGS YOU SHOULD KNOW BEFORE INVESTING
ABOUT MUTUAL FUND RISKS
An investment in any of the fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any other government agency.
Salomon Brothers Variable Series Funds Inc - 3
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FUND GOALS, STRATEGIES AND RISKS
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INVESTMENT The fund seeks capital appreciation through investment in
OBJECTIVE securities which the manager believes have above-average
capital appreciation potential.
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KEY INVESTMENTS The fund invests primarily in equity securities of U.S.
companies. These companies may range in size from
established large capitalization (over $5 billion in market
capitalization) companies to small capitalization (less than
$1 billion in market capitalization) companies at the
beginning of their life cycles.
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HOW THE The manager emphasizes individual security selection while
MANAGER diversifying the fund's investments across industries, which
SELECTS THE may help to reduce risk. The manager seeks to identify those
FUND'S companies which offer the greatest potential for capital
INVESTMENTS appreciation through careful fundamental analysis of each
company and its financial characteristics. The manager
evaluates companies of all sizes.
In selecting individual companies for investment, the
manager looks for the following:
Share prices which appear to undervalue the company's assets
or do not adequately reflect factors such as favorable
industry trends, lack of investor recognition or the
short-term nature of earnings declines.
Special situations such as existing or possible changes in
management, corporate policies, capitalization or regulatory
environment which may boost earnings or the market price of
the company's shares.
Growth potential due to technological advances, new products
or services, new methods of marketing or production, changes
in demand or other significant new developments which may
enhance future earnings.
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PRINCIPAL RISKS Equity investments may involve added risks. Investors could
OF INVESTING IN lose money on their investment in the fund, or the fund may
THE FUND not perform as well as other investments, if any of the
following occurs:
The U.S. stock market declines.
Investing in An adverse event, such as negative press reports about a
small company in the fund's portfolio, depresses the value of the
capitalization company's stock.
companies The manager's judgment about the attractiveness, relative
involves a value or potential appreciation of a particular sector or
substantial risk security proves to be incorrect.
of loss. Greater volatility of share price because of the fund's
ability to invest in small cap companies. Compared to large
cap companies, small cap companies and the market for their
equity securities are more likely to:
Be more sensitive to changes in earnings results and
investor expectations
Have more limited product lines, capital resources and
management depth
Experience sharper swings in market values
Be harder to sell at the times and prices the manager
believes appropriate
Offer greater potential for gain and loss
The fund is not diversified, which means that it can invest
a higher percentage of its assets in any one issuer than a
diversified fund. Being non-diversified may magnify the
fund's losses from adverse events affecting a particular
issuer.
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Salomon Brothers Variable Series Funds Inc - 4
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TOTAL RETURN AND Because the fund commenced operations in 1998, the fund does
PERFORMANCE not have a sufficient operating history to depict its
performance in the graphic and table form.
The fund's total return will vary from year to year, and its
performance will vary compared with that of unmanaged U.S.
stock indices. Although variations in the fund's performance
are an indication of the risks of investing in the fund,
past performance does not necessarily indicate how the fund
will perform in the future.
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SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT)
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Maximum sales charge on purchases None
Maximum deferred sales charge on redemptions None
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ANNUAL FUND OPERATING EXPENSES (PAID BY THE FUND AS
A % OF NET ASSETS)
Management fees 0.85%
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Distribution and service (12b-1) fees None
Other expenses 2.41%
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Total annual fund operating expenses 3.26%
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FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund. Because the manager waived all of its management fee and reimbursed
the fund for certain expenses during the period ended December 31, 1998, actual
total operatingexpenses for the fund were:
1.00%
The manager may discontinue this waiver at any time.
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NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Your costs would be $329 $1,004 $1,702 $3,558
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This example helps you compare the cost of investing in the fund with other
mutual funds. Your actual cost may be higher or lower.
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The example assumes: You invest $10,000 for the period shown
You reinvest all distributions and dividends without a sales charge
The fund's operating expenses remain the same
Your investment has a 5% return each year
Redemption of your shares at the end of the period
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Salomon Brothers Variable Series Funds Inc - 5
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MORE ON THE FUND'S INVESTMENTS
ADDITIONAL INVESTMENTS AND INVESTMENT TECHNIQUES
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The fund's investment objective and its principal investment strategies and
risks are described under 'Fund Goals and Strategies.'
This section provides additional information about the fund's investments and
certain portfolio management techniques the fund may use. More information
about the fund's investments and portfolio management techniques, some of which
entail risks, is included in the statement of additional information (SAI).
CAPITAL FUND
The fund may invest in investment grade fixed-income securities and may invest
up to 20% of its net assets in non-convertible debt securities rated below
investment grade or, if unrated, of equivalent quality as determined by the
manager. The fund may invest without limit in convertible debt securities.
The fund emphasizes those convertible debt securities that offer the
appreciation potential of common stocks. The fund may also invest up to 20%
of its assets in securities of foreign issuers.
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EQUITY INVESTMENTS The fund may invest in all types of equity
securities. Equity securities include common stocks
traded on an exchange or in the over the counter
market, preferred stocks, warrants, rights,
convertible securities, depositary receipts, trust
certificates, limited partnership interests, shares
of other investment companies and real estate
investment trusts.
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FIXED INCOME INVESTMENTS Although the fund invests primarily in equity
securities, the fund may from time to time invest in
fixed income securities. Fixed income investments
include bonds, notes (including structured notes),
asset-backed securities, convertible securities.
Fixed income securities may have all types of
interest rate payment and reset terms, including
fixed rate, adjustable rate, zero coupon, contingent,
deferred, payment in kind and auction rate features.
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CREDIT QUALITY If a security receives different ratings, the fund
will treat the securities as being rated in the
highest rating category. Credit rating criteria are
applied at the time the fund purchases a fixed income
security. The fund may choose not to sell securities
that are downgraded after their purchase below the
fund's minimum acceptable credit rating. The fund's
credit standards also apply to counterparties to OTC
derivatives contracts.
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INVESTMENT GRADE SECURITIES
Securities are investment grade if:
They are rated in one of the top four long-term
rating categories of a nationally recognized
statistical rating organization.
They have received a comparable short-term or other
rating.
They are unrated securities that the manager
believes are of comparable quality to investment
grade securities.
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HIGH YIELD, LOWER QUALITY SECURITIES
Although it is not a principal investment, the fund
may invest in fixed income securities that are high
yield, lower quality securities rated by a rating
organization below its top four long-term rating
categories or unrated securities determined by the
manager to be of equivalent quality. The issuers of
lower quality bonds may be highly leveraged and have
difficulty servicing their debt, especially during
prolonged economic recessions or periods of rising
interest rates. The prices of lower quality
securities are volatile and may go down due to market
perceptions of deteriorating issuer creditworthiness
or economic conditions. Lower quality securities may
become illiquid and hard to value in down markets.
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FOREIGN INVESTMENTS
The fund may invest in foreign securities. Investing
in foreign issuers may involve unique risks compared
to investing in the securities of U.S. issuers. Some
of these risks do not apply to larger more developed
countries. These risks may include:
Less information about non-U.S. issuers or markets
may be available due to less rigorous disclosure and
accounting standards or regulatory practices.
Many non-U.S. markets are smaller, less liquid and
more volatile than U.S. markets. In a changing
market, the manager may not be able to sell the
fund's portfolio securities in amounts and at prices
the manager considers reasonable.
The U.S. dollar may appreciate against non-U.S.
currencies or a foreign government may impose
restrictions on currency conversion or trading.
The economies of non-U.S. countries may grow at a
slower rate than expected or may experience a
downturn or recession.
Economic, political and social developments may
adversely affect the securities markets.
Foreign governmental obligations involve the risk of
debt moratorium, repudiation or renegotiation and the
fund may be unable to enforce its rights against the
issuers.
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DERIVATIVES AND HEDGING TECHNIQUES
The fund may, but need not, use derivative contracts,
such as futures and options on securities, securities
indices or currencies; options on these futures;
forward currency contracts; and interest rate or
currency swaps. The fund does not use derivatives as
a primary investment technique and generally limit
their use to hedging. However, the fund may use
derivatives for a variety of purposes, including:
To hedge against the economic impact of adverse
changes in the market value of its securities, due to
changes in stock market prices, currency exchange
rates or interest rates
As a substitute for buying or selling securities
To increase the fund's total return as a non-hedging
strategy that may be considered speculative
A derivative contract will obligate or entitle the
fund to deliver or receive an asset or cash payment
that is based on the change in value of one or more
securities, currencies or indices. Even a small
investment in derivative contracts can have a big
impact on the fund's market, currency and interest
rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce
opportunities for gains when market prices, currency
rates or interest rates are changing. The fund may
not fully benefit from or may lose money on
derivatives if changes in their value do not
correspond accurately to changes in the value of the
fund's holdings. The other parties to certain
derivative contracts present the same types of credit
risk as issuers of fixed-income securities.
Derivatives can also make the fund less liquid and
harder to value, especially in declining markets.
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TEMPORARY DEFENSIVE
INVESTING
The fund may depart from its principal investment
strategies in response to adverse market, economic or
political conditions by taking temporary defensive
positions in all types of money market and short-term
debt securities. If the fund takes a temporary
defensive position, it may be unable to achieve its
investment goal.
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PORTFOLIO TURNOVER
The fund may engage in active and frequent trading to
achieve its principal investment strategies. Frequent
trading also increases transaction costs, which could
detract from the fund's performance.
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Salomon Brothers Variable Series Funds Inc - 8
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MANAGEMENT
Salomon Brothers Asset Management Inc. is the investment manager for the fund.
Together with its affiliates, the manager provides a broad range of fixed income
and equity investment advisory services to various individuals located
throughout the world. The manager's principal address is 7 World Trade Center,
New York, New York 10048. It is a wholly-owned subsidiary of Citigroup, Inc.
Citigroup businesses produce a broad range of financial services -- asset
management, banking and consumer finance, credit and charge cards, insurance,
investments, investment banking and trading -- and use diverse channels to make
them available to consumer and corporate customers around the world.
Ross Margolies and Robert M. Donahue, Jr. are primarily responsible for the day
to day operation of the fund. Mr. Margolies is a Managing Director of the
manager. Mr. Donahue has been a Vice President and Equity Analyst of the manager
since February 1997. Prior to that time he was an analyst at Gabelli & Company.
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MANAGEMENT
FEE*
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Capital Fund 0.85%
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* Actual management fee may be less than contractual rate due to expense
limitations.
MANAGEMENT FEES
As of January 31, 1999, SBAM and its affiliates managed approximately $21
billion of assets.
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CFBDS, Inc. a registered broker-dealer, serves as the fund's DISTRIBUTOR
distributor.
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SSB Citi Fund Management LLC ('SSBCiti'), an affiliate of ADMINISTRATOR
the manager, serves as administrator for the fund. For its
services as administrator, the fund pays SSBCiti a fee at an
annual rate of 0.05% of the fund's average daily net assets.
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Information technology experts are concerned about computer YEAR 2000 ISSUE
systems' ability to process date-related information on and
after January 1, 2000. This situation, commonly known as the
'Year 2000' issue, could have an adverse impact on the
funds. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and
governments that issue securities held by the funds. Issuers
of municipal securities and issuers located outside of the
U.S. may be more susceptible to the risks associated with
the Year 2000 issue. The manager, administrator and
distributor are addressing the Year 2000 issue for their
systems. The fund has been informed by its other service
providers that they are taking similar measures. Although
the fund does not expect the Year 2000 issue to adversely
affect it, the fund cannot guarantee that the efforts of the
fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the
problem will be successful.
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Salomon Brothers Variable Series Funds Inc - 9
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SHARE TRANSACTIONS
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AVAILABILITY OF THE The fund may sell its shares directly to separate accounts
FUND established and maintained by insurance companies for the
Individuals may not purpose of funding variable annuity and variable life
purchase shares insurance contracts and to certain qualified pension and
directly from the retirement plans. Shares of the fund are sold at net asset
funds. You should read value.
the prospectus for The interests of different variable insurance products and
your insurance qualified plans investing in the fund could conflict due to
company's variable differences of tax treatment and other considerations. The
contract to learn how fund currently does not foresee any disadvantages to
to purchase a variable investors arising from the fact that the fund may offer its
contract based on the shares to different insurance company separate accounts that
fund. serve as the investment medium for its variable annuity and
variable life products and to qualified plans. Nevertheless,
the board of directors intends to monitor events to identify
any material irreconcilable conflicts which may arise, and
to determine what action, if any, should be taken in
response to these conflicts. If a conflict were to occur,
one or more insurance companies' separate accounts or
qualified plans might be required to withdraw their
investments in the fund and shares of another fund may be
substituted.
In addition, the sale of shares may be suspended or
terminated if required by law or regulatory authority or is
in the best interests of the fund's shareholders. The fund
reserves the right to reject any specific purchase order.
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REDEMPTION OF SHARES Redemption requests may be placed by separate accounts of
participating insurance companies and by qualified plans.
The redemption price of the shares of the fund will be the
net asset value next determined after receipt by the fund of
a redemption request in good order. The value of redeemed
shares may be more or less than the price paid for the
shares. Sales proceeds will normally be forwarded by bank
wire to the selling insurance company or qualified plan on
the next business day after receipt of a redemption request
in good order but in no event later than 7 days following
receipt of instructions. The fund may suspend sales or
postpone payment dates during any period in which any of the
following conditions exist:
the New York Stock Exchange is closed;
trading on the New York Stock Exchange is restricted;
an emergency exists as a result of which disposal by the
fund of securities is not reasonably practicable or it is
not reasonably practicable for the fund to fairly determine
the value of its net assets; or
as permitted by SEC order in extraordinary circumstances.
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Salomon Brothers Variable Series Funds Inc - 10
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SHARE PRICE The fund's net asset value is the value of its assets minus
its liabilities. The fund calculates its net asset value
every day the New York Stock Exchange is open. The fund
calculates its net asset value when regular trading closes
on the Exchange (normally 4:00 p.m., Eastern time).
The fund generally values its securities based on market
prices or quotations. The fund's currency conversions are
done when the London stock exchange closes, which is 12 noon
eastern time. When market prices are not available, or when
the manager believes they are unreliable or that the value
of a security has been materially affected by events
occurring after a foreign exchange closes, the fund may
price those securities at fair value. Fair value is
determined in accordance with procedures approved by the
fund's board of directors. A fund that uses fair value to
price securities may value those securities higher or lower
than another fund that uses market quotations to price the
same securities. International markets may be open on days
when U.S. markets are closed and the value of foreign
securities owned by the fund could change on days when an
insurance company separate account or a qualified plan
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's
price, an insurance company separate account or a qualified
plan must place its order with
the transfer agent before the New York Stock Exchange
closes. If the New York Stock Exchange closes early, the
order must be placed prior to the actual closing time.
Otherwise, the investor will receive the next business day's
price.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Annual distributions of income and capital gain are made at the end of the year
in which the income or gain is realized, or the beginning of the next year.
The fund intends to qualify and be taxed as a 'regulated investment company'
under Subchapter M of the Internal Revenue Code of 1986 (the 'Code'), as
amended. In order to qualify to be taxed as a regulated investment company, the
fund must meet certain income and diversification tests and distribution
requirements. As a regulated investment company meeting these requirements, the
fund will not be subject to federal income tax on its net investment income and
net capital gains that it distributes to its shareholders. All income and
capital gain distributions are automatically reinvested in additional shares of
the fund at net asset value and are includable in gross income of the separate
accounts holding such shares. See the accompanying contract prospectus for
information regarding the federal income tax treatment of distributions to the
separate accounts and to holders of the contracts.
The fund intends to pay out all of its net investment income and net realized
capital gains for each year. The fund normally pays dividends and distribute
capital gain, if any, annually.
Salomon Brothers Variable Series Funds Inc - 11
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FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of a share for the past 5 years (or since inception if less than 5
years). Certain information reflects financial results for a single share. The
information in the following tables was audited by PricewaterhouseCoopers LLP,
independent auditors, whose report, along with the fund's financial statements,
are included in the annual report (available upon request).
For a share of capital stock outstanding throughout each period ended
December 31:
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CAPITAL
FUND
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1998(1)
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NET ASSET VALUE, BEGINNING OF PERIOD $10.00
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INCOME FROM OPERATIONS:
Net investment income (2) 0.09
Net realized and unrealized gain 1.72
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Total Income From Operations 1.81
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LESS DISTRIBUTIONS FROM:
Net investment income (0.09)
Net realized gains (0.15)
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Total Distributions (0.24)
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NET ASSET VALUE, END OF PERIOD $11.57
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TOTAL RETURN'DD' 18.12%
NET ASSETS, END OF PERIOD (000S) $4,290
RATIOS TO AVERAGE NET ASSETS (2)'D':
Expenses 1.00%
Net investment income 1.35%
PORTFOLIO TURNOVER RATE 116%
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(1) Capital Fund commenced operations on February 17, 1998.
(2) SBAM has waived all of its management fees for the period ended
December 31, 1998 and reimbursed expenses of $33,776 for Capital Fund. If
such fees were not waived or expenses reimbursed, the per share decrease in
net investment income and the actual annualized expense ratio would have
been $0.15 and 3.26% for the Capital Fund, respectively.
'DD' Total return is not annualized as it may not be representative of the
total return for the year.
'D' Annualized.
Salomon Brothers Variable Series Funds Inc - 12
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SALOMON BROTHERS VARIABLE SERIES FUNDS INC
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Capital Fund
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ADDITIONAL INFORMATION ABOUT THE FUNDS
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the funds' investments. These reports discuss the
market conditions and investment strategies that significantly affected the
fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about each fund. It is incorporated by
reference into (is legally a part of) this prospectus.
HOW TO OBTAIN ADDITIONAL INFORMATION.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting the transfer
agent at 1-800-446-1013, by calling Salomon Brothers Asset Management or
writing the funds at 7 World Trade Center, 38th Floor, New York, NY 10013.
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. Information about the public reference room may be obtained
by calling 1-800-SEC-0330. You can get the same reports and information free
from the Commission's Internet web site -- http://www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(Investment Company Act file no. 811-08443)
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as.....................................'D'
The double dagger symbol shall be expressed as.............................'DD'
