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SALOMON BROTHERS
VARIABLE CAPITAL FUND
Prospectus
April 28, 2000
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SALOMON BROTHERS
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Asset Management
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
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Investments, risks and expenses............................. 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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ABOUT MUTUAL FUND RISKS
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Salomon Brothers Variable Capital Fund Inc - 3
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INVESTMENTS, RISKS AND EXPENSES
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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 Capital Fund Inc - 4
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PERFORMANCE [BAR CHART DISPLAYING 22.08% TOTAL RETURN FOR
The bar chart indicates the risks of THE CALENDAR YEAR ENDED 12/31/99]
investing in the fund by showing
changes in the fund's performance
from year to year. Past performance
does not necessarily indicate how
the fund will perform in the future.
QUARTERLY RETURNS: Highest:
15.11% in 2nd quarter 1999;
Lowest: - 4.89% in 3rd quarter 1999
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TOTAL RETURN
The bar chart shows the
performance of the fund
for the calendar year
indicated.
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PERFORMANCE TABLE
THIS TABLE ASSUMES REDEMPTION OF SHARES AT THE END OF THE PERIOD, AND THE REINVESTMENT OF
DISTRIBUTIONS AND DIVIDENDS.
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AVERAGE ANNUAL TOTAL RETURNS (CALENDAR YEARS ENDED DECEMBER 31, 1999)
Inception Date 1 Year Since Inception
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Fund 2/17/98 22.08% 21.64%
Russell 3000 Index * 20.90% 19.84%
* Index comparison begins on 2/28/98.
COMPARATIVE
PERFORMANCE
The table indicates the
risk of investing in
the fund by comparing
the average annual
total return for the
periods shown to that
of Russell 3000 Index,
a broad-based unmanaged
capitalization weighted
index of large
capitalized companies.
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FEE TABLE
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SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT)
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 1.14%
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Total annual fund operating expenses 1.99%
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, 1999, the
actual total operating
expenses for the fund
were:
1.00%
The manager may
discontinue this waiver
at any time.
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EXAMPLE
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NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Your costs would be $202 $624 $1,073 $2,317
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
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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Salomon Brothers Variable Capital Fund 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 'Investments, Risks and Expenses.'
Any policy or limitation for the fund that is expressed as a percentage of
assets is considered only at the time of purchase of portfolio securities. The
policy will not be violated if these limitations are exceeded because of
changes in the market value of the fund's assets or for any other reason.
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 The fund may, to a limited extent, invest in fixed
income securities. Fixed income investments include
bonds, notes (including structured notes),
mortgage-related securities, asset-backed securities,
convertible securities, Eurodollar and Yankee dollar
instruments, loan participation and assignments,
preferred stocks and money market instruments. Fixed
income securities may be issued by U.S. and foreign
corporations or entities; U.S. and foreign banks; the
U.S. government, its agencies, authorities,
instrumentalities or sponsored enterprises; state and
municipal governments; supranational organizations;
and foreign governments and their political
subdivisions.
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.
Salomon Brothers Variable Capital Fund Inc - 6
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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.
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 The fund may, to a limited extent, invest in fixed
QUALITY SECURITIES 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 AND EMERGING The fund may invest in foreign securities. Investing
MARKET INVESTMENTS 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 are more pronounced to the
extent the fund invests in issuers in countries with
emerging markets or if the fund invests significantly
in one country. 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.
Salomon Brothers Variable Capital Fund Inc - 7
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SOVEREIGN GOVERNMENT AND The fund may, to a limited extent, invest in all
SUPRANATIONAL DEBT types of fixed income securities of governmental
issuers in all countries, including emerging markets.
These sovereign debt securities may include:
Fixed income securities issued or guaranteed by
governments, governmental agencies or
instrumentalities and political subdivisions located
in emerging market countries.
Fixed income securities issued by government owned,
controlled or sponsored entities located in emerging
market countries.
Interests in entities organized and operated for
the purpose of restructuring the investment
characteristics of instruments issued by any of the
above issuers.
Brady Bonds, which are debt securities issued under
the framework of the Brady Plan as a means for debtor
nations to restructure their outstanding external
indebtedness.
Fixed income securities issued by corporate
issuers, banks and finance companies located in
emerging market countries.
Participations in loans between emerging market
governments and financial institutions.
Fixed income securities issued by supranational
entities such as the World Bank or the European
Economic Community. A supranational entity is a bank,
commission or company established or financially
supported by the national governments of one or more
countries to promote reconstruction or development.
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DERIVATIVES AND The fund may, but need not, use derivative contracts,
HEDGING TECHNIQUES 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 return as a non-hedging
strategy that may be considered speculative.
A derivative contract will obligate or entitle a 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 a 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.
Salomon Brothers Variable Capital Fund Inc - 8
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TEMPORARY DEFENSIVE The fund may depart from its principal investment
INVESTING 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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MANAGEMENT
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THE MANAGER AND Salomon Brothers Asset Management Inc is the investment
ADMINISTRATOR 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. SSB Citi Fund
Management LLC, an affiliate of the manager, serves as
administrator for the fund. The administrator's address is
388 Greenwich Street, New York, New York 10013. The manager
and the administrator are wholly-owned subsidiaries 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 S. Margolies is primarily responsible for the
day-to-day management of the fund's portfolio.
Mr. Margolies has been the portfolio manager of the fund
since inception. He is a managing director of SBAM and SSB.
Robert M. Donahue, Jr. has been co-portfolio manager of the
Fund since July 1998. Mr. Donahue has been a director and
equity analyst with SBAM and SSB since February 1997. Prior
to that time, he was an analyst at Gabelli & Company.
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MANAGEMENT AND For its services, the manager receives a fee equal to 0.80%
ADMINISTRATION FEES of the fund's average daily net assets. The administrator
receives a fee for its administrative services to the fund
equal to 0.05% of the Fund's average daily net assets.
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DISTRIBUTOR CFBDS, Inc., a registered broker-dealer, serves as the
fund's distributor.
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Salomon Brothers Variable Capital Fund 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. The variable insurance products and
fund. You should read qualified plans may or may not make investments in the fund
the prospectus for described in this prospectus. Shares of the fund are sold at
your insurance net asset value.
company's variable The interests of different variable insurance products and
contract to learn how qualified plans investing in the fund could conflict due to
to purchase a variable differences of tax treatment and other considerations. The
contract based on the fund currently does not foresee any disadvantages to
fund. investors arising from the fact that the fund may offer its
shares to different insurance company separate accounts that
serve as the investment medium for their 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 one or more funds 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 interest 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 Capital Fund 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 a 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
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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, if any, for each year.
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.
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Salomon Brothers Variable Capital Fund Inc - 11
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
performance of a share for the past 5 years (or since inception if less than 5
years). Total return represents the rate that a shareholder would have earned
(or lost) on a fund share assuming reinvestment of all dividends and
distributions. The information in the following table 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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1999 1998(1)
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NET ASSET VALUE, BEGINNING OF PERIOD $ 11.57 $ 10.00
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INCOME FROM OPERATIONS:
Net investment income (2) 0.07 0.09
Net realized and unrealized gain (loss) 2.49 1.72
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Total Income From Operations 2.56 1.81
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LESS DISTRIBUTIONS FROM:
Net investment income (0.07) (0.09)
Net realized gains (0.39) (0.15)
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Total Distributions (0.46) (0.24)
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NET ASSET VALUE, END OF PERIOD $ 13.67 $ 11.57
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TOTAL RETURN'DD' 22.08% 18.12%
NET ASSETS, END OF PERIOD (000S) $16,189 $ 4,290
RATIOS TO AVERAGE NET ASSETS 'D':
Expenses 1.00%(3) 1.00%(2)
Net investment income 0.99%(3) 1.35%(2)
PORTFOLIO TURNOVER RATE 119% 116%
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(1) Capital Fund commenced operations on February 17, 1998.
(2) SBAM has waived all if its management fees for the period ended December
31, 1998 and reimbursed expenses of $33,776 for the 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%.
(3) SBAM who waived all or part of its management fee for the year ended
December 31, 1999 and reimbursed expenses of $13,177 for the 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 $0.06 and 1.99%.
'DD' For periods less than a year total return is not annualized as it may not
be representative of the total return for the year.
'D' For periods less than a year.
Salomon Brothers Variable Capital Fund Inc - 12
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SALOMON BROTHERS VARIABLE CAPITAL FUND
ADDITIONAL INFORMATION ABOUT THE FUND
SHAREHOLDER REPORTS. Annual and semi-annual reports to shareholders provide
additional information about the fund's 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 the fund. It is incorporated by
reference into (is legally a part of) this combined 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 by
writing the fund at 7 World Trade Center, 38th Floor, New York, NY 10048.
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 their 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'
