SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC, 497, 1996-05-03

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
497, 1996-05-03

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<PAGE> 1

SALOMON BROTHERS
INSTITUTIONAL
INVESTMENT SERIES

PROSPECTUS

APRIL 29, 1996

- MONEY MARKET FUND

- HIGH YIELD BOND FUND

- EMERGING MARKETS DEBT FUND

- ASIA GROWTH FUND

----------------------------------------
SALOMON BROTHERS ASSET MANAGEMENT
-----------------------------------------

<PAGE> 2

SALOMON BROTHERS
INSTITUTIONAL INVESTMENT SERIES

------------------------------------

7 WORLD TRADE CENTER - NEW YORK, NEW YORK 10048 - 800 725-6666

SALOMON BROTHERS INSTITUTIONAL INVESTMENT SERIES CONSISTS OF SALOMON BROTHERS
INSTITUTIONAL MONEY MARKET FUND (THE "MONEY MARKET FUND"), SALOMON BROTHERS
INSTITUTIONAL HIGH YIELD BOND FUND (THE "HIGH YIELD BOND FUND"), SALOMON
BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND (THE "EMERGING MARKETS DEBT
FUND") AND SALOMON BROTHERS INSTITUTIONAL ASIA GROWTH FUND (THE "ASIA GROWTH
FUND") (EACH, A "FUND" AND COLLECTIVELY, THE "FUNDS"). EACH OF THE FUNDS, EXCEPT
THE MONEY MARKET FUND, IS A NO-LOAD INVESTMENT PORTFOLIO OF SALOMON BROTHERS
INSTITUTIONAL SERIES FUNDS INC ("INSTITUTIONAL SERIES FUNDS"). THE MONEY MARKET
FUND IS A NO-LOAD INVESTMENT PORTFOLIO OF SALOMON BROTHERS SERIES FUNDS INC
("SERIES FUNDS").

The MONEY MARKET FUND seeks as high a level of current income as is consistent
with liquidity and the stability of principal. The Fund seeks to achieve its
objective by investing in high-quality, short-term U.S. dollar denominated money
market instruments, and seeks to maintain a stable net asset value of $1.00 per
share. THERE IS NO ASSURANCE THAT A STABLE NET ASSET VALUE OF $1.00 PER SHARE
WILL BE MAINTAINED. INVESTMENTS IN THE FUND ARE NOT GUARANTEED OR INSURED BY THE
U.S. GOVERNMENT.

The HIGH YIELD BOND FUND seeks to maximize total return. The Fund seeks to
achieve its objective by investing primarily in a portfolio of high yield
fixed-income securities that offer a yield above that generally available on
debt securities in the four highest rating categories of the recognized rating
services.

The EMERGING MARKETS DEBT FUND seeks to maximize total return. The Fund seeks to
achieve its objective by investing at least 80% of its total assets in debt
securities of government, government related and corporate issuers located in
emerging market countries, and of entities organized to restructure outstanding
debt of such issuers.

The ASIA GROWTH FUND seeks long-term capital appreciation. The Fund seeks to
achieve its objective by investing at least 65% of its total assets in equity
and equity-related securities of Asian Companies (as defined in this
Prospectus).
------------------------------------------------------------------
THERE CAN BE NO ASSURANCE THAT ANY FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE
AND EACH OF THE FUNDS MAY EMPLOY CERTAIN INVESTMENT PRACTICES WHICH INVOLVE
SPECIAL RISK CONSIDERATIONS. CERTAIN FUNDS MAY INVEST IN CERTAIN SECURITIES,
COMMONLY REFERRED TO AS JUNK BONDS, WHICH PRESENT A HIGH DEGREE OF RISK. SUCH
LOWER-QUALITY SECURITIES INVOLVE COMPARATIVELY GREATER RISKS, INCLUDING PRICE
VOLATILITY AND THE RISK OF DEFAULT IN THE TIMELY PAYMENT OF INTEREST AND
PRINCIPAL, THAN HIGHER-QUALITY SECURITIES. THE HIGH YIELD BOND FUND AND THE
EMERGING MARKETS DEBT FUND ARE NOT LIMITED IN THE PERCENTAGE OF THEIR ASSETS
WHICH MAY BE INVESTED IN SUCH SECURITIES. THE ASIA GROWTH FUND MAY INVEST UP TO
10% OF ITS TOTAL ASSETS IN NON-CONVERTIBLE SECURITIES OF THIS TYPE AND MAY
INVEST WITHOUT LIMIT IN CONVERTIBLE SECURITIES OF THIS TYPE. SEE "ADDITIONAL
INVESTMENT ACTIVITIES AND RISK FACTORS."

This Prospectus sets forth concisely the information a prospective investor
should know before investing in a Fund. This Prospectus should be read and
retained for ready future reference to information about a Fund. A Statement of
Additional Information dated April 29, 1996, containing additional information
about each Fund has been filed with the Securities and Exchange Commission (the
"SEC") and is hereby incorporated by reference into this Prospectus. It is
available without charge and can be obtained by writing or calling the Funds at
the address and telephone number printed above.
------------------------------------------------------------------
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
PROSPECTUS
APRIL 29, 1996

PAGE 1
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TABLE OF CONTENTS
- ----------------------------------------------

<TABLE>
<S> <C>
Fee Table 3
Highlights 4
Financial Highlights 5
Benefits of Investing in the Funds 6
Performance Information 7
Investment Objective and Policies 8
Additional Investment Activities and Risk Factors 20
Investment Limitations 30
Purchase and Redemption of Shares 31
Management 35
Dividends, Distributions and Taxes 39
Account Services 42
Capital Stock 42
Appendix A:
Description of Ratings A-1
Appendix B:
General Characteristics and Risks of Derivatives B-1
</TABLE>

PAGE 2
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FEE TABLE

------------------------------------

Information in the table below is given as a percentage of average daily net
assets. Shares of each Fund are sold without imposition by the Fund of any sales
charge, deferred sales charge or any other transaction fee.(a)

<TABLE>
<CAPTION>
HIGH EMERGING
MONEY YIELD MARKETS ASIA
MARKET BOND DEBT GROWTH
ANNUAL FUND OPERATING FUND** FUND*** FUND**** FUND*****
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fee (after waiver*) .18% .50% .70% .75%
--- ---------
Other Expenses (after reimbursement) .00% .05%+ .05%+ .25%+
------ ------- --- ---------
Total Fund Operating Expenses (after waiver and reimbursement*) .18% .55% .75% 1.00%
====== ======= ======== =========
</TABLE>

- --------------------------------------------------------------------------------

EXAMPLE

You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return, (ii) total annual operating expenses as shown in the fee table
set out above and (iii) redemption at the end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund++ $2 $6 $10 $23
High Yield Bond Fund++ $6 $18 N/A N/A
Emerging Markets Debt Fund++ $8 $24 N/A N/A
Asia Growth Fund++ $10 $32 N/A N/A
</TABLE>

- --------------------------------------------------------------------------------

(a) Under certain circumstances, certain broker/dealers may impose
transaction fees on the purchase and/or sale of shares. See "Purchase and
Redemption of Shares."

* Only the Money Market Fund reflects any waiver of Management Fees.

** The information in the fee table set forth above has been restated to
reflect a new management fee, as described below, and the voluntary
agreement by Salomon Brothers Asset Management Inc ("SBAM"), the Fund's
investment manager, to reduce or otherwise limit the expenses of the Money
Market Fund (exclusive of taxes, interest and extraordinary expenses such
as litigation and indemnification expenses), on an annualized basis, to
.18% of the Fund's average daily net assets for a period of at least one
year from the date of this Prospectus, and no more than .25% thereafter.
For the year ended December 31, 1995, Other Expenses and Total Fund
Operating Expenses were .60% and .70%, respectively. On November 16, 1995,
the Board approved, subject to shareholder approval, an increase in the
management fee from .10% of the Money Market Fund's average daily net
assets to .20%. The shareholders approved the amendment on March 26, 1996,
to become effective as of the date of this Prospectus.

*** SBAM has voluntarily agreed to reduce or otherwise limit the expenses of
the High Yield Bond Fund (exclusive of taxes, interest and extraordinary
expenses such as litigation and indemnification expenses), on an
annualized basis, to .55% of the Fund's average daily net assets. Without
this agreement, Other Expenses and Total Fund Operating Expenses are
expected to be .56%, and 1.06%, respectively.

**** SBAM has voluntarily agreed to reduce or otherwise limit the expenses of
the Emerging Markets Debt Fund (exclusive of taxes, interest and
extraordinary expenses such as litigation and indemnification expenses),
on an annualized basis, to .75% of the Fund's average daily net assets.
Without this agreement, Other Expenses and Total Fund Operating Expenses
are expected to be .56%, and 1.26%, respectively.

***** SBAM has voluntarily agreed to reduce or otherwise limit the expenses of
the Asia Growth Fund (exclusive of taxes, interest and extraordinary
expenses such as litigation and indemnification expenses), on an
annualized basis, to 1.00% of the Fund's average daily net assets. Without
this agreement, Other Expenses and Total Fund Operating Expenses are
expected be .56% and 1.31%, respectively.

+ As of the date of this Prospectus, the Fund had not yet commenced
investment operations. The amounts set forth for Other Expenses in the
table above and the preceding footnotes are, therefore, based on estimates
for the current fiscal year.

++ Assuming the expense caps of .18%, .55%, .75% and 1.00% discussed above
are in effect throughout the time period shown.

The purpose of the foregoing table is to assist an investor in understanding the
various costs and expenses that an investor in a Fund will incur either directly
or indirectly as a shareholder in a Fund. "Other Expenses" include
administrative fees, custodial fees, legal and accounting fees, printing costs
and registration fees. Expenses associated with distributing each Fund's shares
are borne by the Fund's distributor out of its own resources and are not borne
directly or indirectly by shareholders. THE EXAMPLE ABOVE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES FOR ANY
OF THE FUNDS MAY BE HIGHER OR LOWER THAN THE AMOUNTS SHOWN IN THE FEE TABLES.
Moreover, while the example assumes a 5% annual return, each Fund's performance
will vary and may result in a return greater or less than 5%. For more complete
descriptions of the various costs and expenses, see "Management" in this
Prospectus and the Statement of Additional Information.

PAGE 3
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HIGHLIGHTS
- ----------------------------------------------

THE FUNDS

Each of the Funds, except the Money Market Fund, is a newly organized, no-load
investment portfolio of Salomon Brothers Institutional Series Funds Inc, an
open-end investment company incorporated in Maryland on January 19, 1996. The
High Yield Bond Fund is a diversified portfolio and the Emerging Markets Debt
Fund and the Asia Growth Fund are non-diversified portfolios of the
Institutional Series Funds. The Money Market Fund is a no-load, diversified
investment portfolio of Salomon Brothers Series Funds Inc, an open-end
investment company incorporated in Maryland on April 17, 1990.

There is no assurance that any particular Fund will achieve its investment
objective.

PURCHASE AND REDEMPTION OF SHARES

The minimum initial investment in the Money Market Fund is $250,000 and the
minimum initial investment in the other Funds is $1,000,000. The minimum
investment may be waived at the discretion of a Fund. There is no subsequent
investment minimum in any Fund. Settlement of purchases and redemptions is
effected by wire transfer of Federal funds or upon conversion to Federal funds
of a purchase payment effected by check or draft. See "Purchase and Redemption
of Shares."

MANAGEMENT SERVICES

Each Fund retains Salomon Brothers Asset Management Inc ("SBAM"), an indirect,
wholly-owned subsidiary of Salomon Inc, as its investment manager under an
investment management contract. SBAM has retained its affiliate, Salomon
Brothers Asset Management Asia Pacific Limited ("SBAM AP"), to serve as
sub-adviser to the Asia Growth Fund, subject to the supervision of SBAM. See
"Management."

DISTRIBUTOR

Salomon Brothers Inc ("Salomon Brothers") serves as each Fund's distributor.
Salomon Brothers is an indirect, wholly-owned subsidiary of Salomon Inc. Salomon
Brothers is one of the largest securities dealers in the world and a registered
broker-dealer.

PAGE 4
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RISK FACTORS

Prospective investors should consider certain risks associated with an
investment in each Fund.

The medium and low rated and comparable unrated securities in which the High
Yield Bond Fund and the Emerging Markets Debt Fund will invest (commonly
referred to as "junk bonds") involve significantly greater risks than higher
rated securities, including price volatility and risk of default in payment of
interest and principal. The Emerging Markets Debt Fund's investments in
securities of emerging market countries involves certain considerations not
typically associated with investing in securities of U.S. issuers, including
restrictions on foreign investment and on repatriation of capital, currency
fluctuations, price volatility and lesser liquidity or lack of a secondary
trading market, and political and economic risks, including the risk of
nationalization or expropriation of assets. The Asia Growth Fund is subject to
these same risks and, concentration of the Fund's assets in one or a few of the
Asian countries and Asian currencies will subject the Fund, to a greater extent
than if the Fund's assets were less geographically concentrated, to the risks of
adverse changes in the securities and foreign exchange markets of such countries
and social, political or economic events which may occur in such countries.
Additionally, certain Funds may use various investment practices that involve
special considerations, including investing in illiquid securities, zero coupon
and deferred payment securities, loan participations and assignments and
warrants and engaging in repurchase and reverse repurchase agreements and
derivative transactions. See "Investment Objective and Policies" and "Additional
Investment Activities and Risk Factors."
FINANCIAL HIGHLIGHTS

------------------------------------

The following information is provided with respect to the Money Market Fund
only. Financial highlights are not presented for the High Yield Bond Fund, the
Emerging Markets Debt Fund and the Asia Growth Fund since they have not yet
commenced investment operations. The following data per share of capital stock
outstanding throughout each period and ratios should be read in conjunction with
the financial statements included in the Fund's Statement of Additional
Information. The financial statements and financial highlights of the Money
Market Fund for each of the years in the period ended December 31, 1995, and the
period from December 7, 1990 (commencement of operations) through December 31,
1990 have been audited by Price Waterhouse LLP, whose unqualified report thereon
is included in the Statement of Additional Information. The Statement of
Additional Information may be obtained by shareholders by writing or calling at
the address or telephone number printed on the front cover. The Money Market
Fund changed its name from Salomon Brothers U.S. Treasury Securities Money
Market Fund to its current name on March 26, 1996. On that same date,
shareholders of the Money Market Fund approved a change in the Fund's investment
objective and policies and certain investment restrictions to those described
herein. Prior to such change, the Money Market Fund invested, under normal
market conditions, at least 65% of its assets in United States Treasury bonds,
notes and bills.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------------------------------------- DECEMBER 31,
1995 1994 1993 1992 1991 1990**
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
Net investment income 0.049* .036 .028 .034 .054* .005*
Dividends from net investment
income (0.049) (.036) (.028) (.034) (.054) (.005)
Net asset value, end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
Net assets end of year
(thousands) $11,425 $27,667 $34,120 $50,554 $35,414 $4,596
Total investment return +5.0% +3.6% +2.9% +3.4% +5.5% +0.5%
Ratios to average net assets:
Expenses 0.65%* .45% .35% .44% .54%* .74%*+
Net investment income 4.89% 3.53% 2.83% 3.42% 5.23% 6.45%+
</TABLE>

- --------------------------------------------------------------------------------

* Net investment income per share would have been $.049, $.052 and $.004
and the expense ratios to average net assets would have been .70%, .64%
and 1.72%, respectively, for the periods ended December 31, 1995, December
31, 1991 and December 31, 1990 before applicable waiver of management fee,
expenses absorbed by SBAM and credits earned on custodian cash balances.

** December 7, 1990, commencement of operations, through December 31, 1990.

+ Annualized.

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BENEFITS OF INVESTING
IN THE FUNDS
- ----------------------------------------------

Mutual funds, such as the Funds, are flexible investment tools that are
increasingly popular--for a variety of reasons. The Funds offer investors the
following important benefits:

Funds Designed For Institutions

The Funds are designed primarily for institutions as an economical and
convenient means for the investment of funds for their own account or which they
may manage for others. These institutions include corporations, banks, trust
companies, investment bankers and brokers, insurance companies, investment
counsellors, pension funds, employee benefit plans, law firms, trusts, estates
and educational, religious and charitable organizations. See "Purchase and
Redemption of Shares."

Professional Management

By pooling the funds of many investors, each Fund enables shareholders to obtain
the benefits of full-time professional management that is beyond the means of
most investors. As an active market participant on a day-to-day basis, the
Funds' investment manager or sub-adviser reviews the fundamental characteristics
of far more securities than a typical individual investor can and may employ
portfolio management techniques that frequently are not used by individual or
many institutional investors. Additionally, the larger denominations of
securities in which a Fund invests may result in better overall prices for the
investments than could be obtained independently by individual investors.

Diversification

By pooling funds of many investors, each Fund provides investors with a degree
of diversification of exposure to individual issuers, industries and/or
geographical regions that would not be possible through the management of
smaller separate accounts.

Transaction Savings

By investing in a Fund, a shareholder is able to acquire ownership in a
portfolio of securities without paying the higher transaction costs associated
with a series of small securities purchases.

Convenience

Fund shareholders are relieved of the administrative and record keeping burdens
of securities settlements and interest payments and coordination of maturities
normally associated with direct ownership of securities.

Daily Liquidity

The Funds' convenient purchase and redemption procedures provide shareholders
with daily access to their money and reduce the delays frequently involved in
the direct purchase and sale of securities. See "Purchase and Redemption of
Shares."

Exchange Privilege

Shareholders of a Fund may exchange all or part of their shares for shares of
any of the other Funds. The value of the shares exchanged must meet the
investment minimum of the Fund into which the investor is exchanging. See
"Purchase and Redemption of Shares--Exchange Privilege."

PAGE 6
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PERFORMANCE INFORMATION

------------------------------------

From time to time, a Fund may advertise its "yield," "effective yield,"
"distribution rate" and/or 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 a 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 a Fund during the period
were reinvested in 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 a 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).

Yield is calculated in accordance with the SEC's formula. Yield differs from
total return in that it does not consider changes in net asset value.

From time to time, the Money Market Fund may make available information as to
its "yield" and "effective yield." Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of the
Money Market Fund refers to income generated by an investment in the Fund over a
seven-day period, which period will be stated in the advertisement. This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment.

Distribution rate differs from yield in that it is calculated by dividing the
annualization of the most recent month's distribution by the maximum offering
price at the end of the month.

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 such as Bank Rate
Monitor, Barron's, Business Week, CDA Investment Technologies, Inc., Changing
Times, Forbes, Fortune, ICB/Donoghue's Money Fund Report, Institutional
Investor, Investors Daily, Money, Morningstar Mutual Fund Values, The New York
Times, USA Today and The Wall Street Journal. The yield of the Money Market Fund
may also be compared to yields set forth in the weekly statistical release
H.15(519) or the monthly statistical release designated G.13(415) published by
the Board of Governors of the Federal Reserve System. The annual report to
shareholders of the Money Market Fund for the fiscal year ended December 31,
1995 containing additional performance information is available without charge
and can

PAGE 7
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be obtained by writing or calling the address or telephone number printed on the
front cover of this Prospectus. See "Performance Data" in the Statement of
Additional Information.

INVESTMENT OBJECTIVE AND POLICIES
- ----------------------------------------------
MONEY MARKET FUND

The investment objective of the Money Market Fund is to seek as high a level of
current income as is consistent with liquidity and the stability of principal.
The Fund invests in high-quality, short-term U.S. dollar-denominated money
market instruments which are deemed to mature in thirteen months or less, and is
managed so that the average portfolio maturity of all portfolio instruments (on
a dollar-weighted basis) will not exceed 90 days. The Fund is diversified within
the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"),
and will seek to maintain a stable net asset value of $1.00 per share.

The instruments in which the Money Market Fund may invest include, but are not
limited to:

- --Securities issued or guaranteed by the U.S. government or by agencies or
instrumentalities thereof;

- --Obligations issued or guaranteed by U.S. and foreign banks ("Bank
Obligations");

- --Commercial paper;

- --Corporate debt obligations, including variable rate obligations;

- --Short-term credit facilities;

- --Asset-backed securities; and

- --Other money market instruments.

The Money Market Fund will limit its portfolio investments to securities that
are determined by SBAM to present minimal credit risks pursuant to guidelines
established by the Fund's Board of Directors and which are "Eligible Securities"
at the time of acquisition by the Fund. The term "Eligible Securities" includes
securities rated by the "Requisite NRSROs" in one of the two highest short-term
rating categories, securities of issuers that have received such ratings with
respect to other short-term debt securities and comparable unrated securities.
"Requisite NRSROs" means (a) any two nationally recognized statistical rating
organizations ("NRSROs") that have issued a rating with respect to a security or
class of debt obligations of an issuer, or (b) one NRSRO, if only one NRSRO has
issued such a rating at the time that the Fund acquires the security. The Fund
may not invest more than 5% of its total assets in Eligible Securities that have
not received the highest rating from the Requisite NRSROs and comparable unrated
securities ("Second Tier Securities") and may not invest more than the greater
of 1% of its total assets or $1 million in the Second Tier Securities of any one
issuer.

The Money Market Fund may also enter into repurchase agreements with respect to
the obligations identified above. While the maturity of the underlying
securities in a repurchase agreement transaction may be more than thirteen
months, the term of the repurchase agreement will always be less than thirteen
months. For a description of repurchase agreements and their associated risks,
see "Additional Investment Activities and Risk Factors--Repurchase Agreements."

Securities issued or guaranteed by the U.S. government or by its agencies or
instrumentalities include obligations of several kinds. Such securities in
general include a wide variety of U.S. Treasury obligations consisting of bills,
notes and bonds, which principally differ only in their interest rates,
maturities and times of issuance. Securities issued or guaranteed by U.S.
government agencies and

PAGE 8
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instrumentalities are debt securities issued by agencies or instrumentalities
established or sponsored by the U.S. government and may be backed only by the
credit of the issuing agency or instrumentality. The Fund will invest in such
obligations only where SBAM is satisfied that the credit risk with respect to
the issuer is minimal.

Bank Obligations that may be purchased by the Money Market Fund include
certificates of deposit, commercial paper, bankers' acceptances and fixed time
deposits. Fixed time deposits are obligations of branches of U.S. banks or
foreign banks which are payable at a stated maturity date and bear a fixed rate
of interest. Although fixed time deposits do not have a market, there are no
contractual restrictions on the right to transfer a beneficial interest in the
deposit to a third party. For a discussion of the risks associated with
investing in bank obligations, see "Additional Information on Portfolio
Instruments and Investment Policies--Bank Obligations" in the Statement of
Additional Information.

The Money Market Fund's investments in corporate debt securities consist of
non-convertible corporate debt securities such as bonds and debentures that have
thirteen months or less remaining to maturity.

The Fund may invest in U.S. dollar-denominated securities of non-U.S. issuers,
including obligations of non-U.S. banks or non-U.S. branches of U.S. banks and
commercial paper and other corporate debt securities of non-U.S. issuers, where
SBAM deems the instrument to present minimal credit risks. Investments in
non-U.S. banks and non-U.S. issuers present certain risks. See "Additional
Investment Activities--Foreign Securities."

The Money Market Fund may invest in floating and variable rate obligations with
stated maturities in excess of thirteen months upon compliance with certain
conditions contained in Rule 2a-7 promulgated under the 1940 Act, in which case
such obligations will be treated, in accordance with Rule 2a-7, as having
maturities not exceeding thirteen months. Floating or variable rate obligations
bear interest at rates that are not fixed, but vary with changes in specified
market rates or indices, such as the prime rate, and at specified intervals.
Certain of the floating or variable rate obligations that may be purchased by
the Fund may carry a demand feature that would permit the holder to tender them
back to the issuer at par value prior to maturity. Such obligations include
variable rate master demand notes, which are unsecured instruments issued
pursuant to an agreement between the issuer and the holder that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. The Fund will limit its purchases of floating and variable rate
obligations to those of the same quality as it otherwise is allowed to purchase.
SBAM will monitor on an ongoing basis the ability of an issuer of a demand
instrument to pay principal and interest on demand.

The Money Market Fund may also invest in variable amount master demand notes. A
variable amount master demand note differs from ordinary commercial paper in
that it is issued pursuant to a written agreement between the issuer and the
holder, its amount may from time to time be increased by the holder (subject to
an agreed maximum) or decreased by the holder or the issuer, it is payable on
demand, the rate of interest payable on it varies with an agreed formula and it
is not typically rated by a rating agency.

The Money Market Fund may enter into, or acquire participations in, short-term
borrowing arrangements with corporations, consisting of either a short-term
revolving credit facility or a master note agreement payable upon demand. Under
these arrangements, the borrower may reborrow funds during the term of the
facility. The Fund treats any commitments to provide such advances as a standby
commitment to purchase the borrower's notes.

The Money Market Fund may also purchase asset-backed securities. Asset-backed
securities represent defined interests in an underlying pool of assets. Such
securities may be issued as pass-through certificates, which represent undivided
fractional interests in the underlying pool of assets.

PAGE 9
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Alternatively, asset-backed securities may be issued as interests, generally in
the form of debt securities, in a special purpose entity organized solely for
the purpose of owning the underlying assets and issuing such securities. In the
latter case, such securities are secured by and payable from a stream of
payments generated by the underlying assets. The assets underlying asset-backed
securities are often a pool of assets similar to one another, such as motor
vehicle receivables or credit card receivables. Alternatively, the underlying
assets may be particular types of securities, various contractual rights to
receive payments and/or other types of assets. Asset-backed securities
frequently carry credit protection in the form of extra collateral, subordinated
certificates, cash reserve accounts, letters of credit or other enhancements.
Any asset-backed securities held by the Fund must comply with its credit quality
requirements and be deemed to have a maturity of thirteen months or less in
accordance with applicable regulations. See "Additional Information on Portfolio
Instruments and Investment Policies" in the Statement of Additional Information.

The Money Market Fund may also invest in high-quality, short-term municipal
obligations that carry yields that are competitive with those of other types of
money market instruments in which the Fund may invest. Dividends paid by the
Fund derived from interest on municipal obligations that may be purchased by it
will be taxable to shareholders for federal income tax purposes because the Fund
will not qualify as an entity that can pass through the tax-exempt character of
such interest.

The Money Market Fund may purchase securities on a firm commitment basis,
including when-issued securities and the Fund may invest in other investment
funds. See "Additional Investment Activities and Risk Factors" for a description
of such securities and their associated risks. The Fund is not currently
authorized to use any of the various investment strategies referred to under
"Additional Investment Activities and Risk Factors--Derivatives." The foregoing
investment policies and activities, other than the Money Market Fund's
investment objective, are not fundamental and may be changed by the Board of
Directors of Series Funds without the approval of shareholders.

HIGH YIELD BOND FUND

The High Yield Bond Fund's investment objective is to maximize total return. The
Fund seeks to achieve its objective by investing primarily in a portfolio of
high yield fixed-income securities that offer a yield above that generally
available on debt securities in the four highest rating categories of the
recognized rating services and which generally entail increased credit and
market risks. To mitigate these risks, the Fund will diversify its holdings by
issuer, industry and credit quality. The Fund is diversified within the meaning
of the 1940 Act.

The High Yield Bond Fund intends to invest, under normal market conditions, at
least 80% of its total assets in non-investment grade fixed-income securities,
(e.g., bonds, debentures, notes, equipment lease certificates, equipment trust
certificates, conditional sales contracts, commercial paper and other
obligations and preferred stock). The lower-rated bonds in which the Fund will
invest are commonly referred to as "junk bonds."

The debt obligations in which the Fund will invest generally will be rated, at
the time of investment, "Ba" or "B" or lower by Moody's Investors Service
("Moody's") or "BB" or "B" or lower by Standard & Poor's Rating Services Group
("S&P"), or determined by SBAM to be of comparable quality. Debt securities
rated by both Moody's and S&P need only satisfy the foregoing ratings standards
with respect to either the Moody's or the S&P rating. The Fund is not required
to dispose of a debt security if its credit rating or credit quality declines.
Medium and low-rated and comparable unrated securities offer yields that
fluctuate over time, but generally are superior to the yields offered by higher
rated securities. However, such securities also involve significantly greater
risks, including price volatility and risk of default in the payment of interest
and principal, than higher rated securities. Certain of the debt securities
purchased by the Fund may be rated as low as "C" by Moody's or "D" by S&P or may
be considered comparable to securities having such ratings. An investment in the
High Yield Bond Fund should not be considered as a complete investment program

PAGE 10
<PAGE> 12

for all investors. For further discussion of high yield securities and the
special risks associated therewith, see "Additional Investment Activities and
Risk Factors--High Yield Securities."

The High Yield Bond Fund may invest up to 10% of its total assets in securities
of foreign issuers and up to 5% of its total assets in foreign governmental
issuers in any one country. The foreign securities in which the High Yield Bond
Fund may invest, all or a portion of which may be non-U.S. dollar denominated,
include: (a) debt obligations issued or guaranteed by foreign national,
provincial, state, municipal or other governments with taxing authority or by
their agencies or instrumentalities, including Brady Bonds; (b) debt obligations
of supranational entities; (c) debt obligations of the U.S. government issued in
non-dollar securities; (d) debt obligations and other fixed-income securities of
foreign corporate issuers; and (e) U.S. corporate issuers. There is no minimum
rating criteria for the Fund's investments in such securities. A description of
Brady Bonds is set forth in the discussion of the investment objective and
policies of the Emerging Markets Debt Fund. The risks associated with these
investments are described under the captions "Additional Investment Activities
and Risk Factors--Foreign Securities" and "--High Yield Securities." Moreover,
investments in foreign securities may have adverse tax implications as described
under "Dividends, Distributions and Taxes."

In light of the risks associated with high yield corporate and sovereign debt
securities, SBAM will take various factors into consideration in evaluating the
creditworthiness of an issuer. These will typically include the issuer's
financial resources, its sensitivity to economic conditions and trends, the
operating history of the issuer, and the experience and track record of the
issuer's management. SBAM will also review the ratings, if any, assigned to the
security by any recognized rating agencies, although SBAM's judgment as to the
quality of a debt security may differ from that suggested by the rating
published by a rating service. In addition to the foregoing credit analysis,
SBAM will evaluate the relative value of an investment compared with its
perceived credit risk. In selecting securities for the Fund, SBAM intends to
consider the correlation among securities represented in the Fund's portfolio in
an attempt to reduce the risk of exposure to market, industry and issuer
volatility. The High Yield Bond Fund's ability to achieve its investment
objective may be more dependent on SBAM's credit analysis than would be the case
if it invested in higher quality debt securities. A description of the ratings
used by Moody's and S&P is set forth in Appendix A to this Prospectus.

SBAM will be free to invest in high yield debt securities of any maturity and
may adjust the average maturity of the Fund's portfolio from time to time,
depending on SBAM's assessment of the relative yields available on securities of
different maturities and its expectations of future changes in interest rates.
Long-term debt securities generally provide a higher yield than short-term debt
securities, and therefore SBAM expects that, based upon current market
conditions, the Fund's high yield debt securities will initially have an average
maturity of 10 to 15 years.

The High Yield Bond Fund may invest in zero coupon securities, pay-in-kind bonds
and deferred payment securities, each which involve special risk considerations.
See "Additional Investment Activities and Risk Factors--Zero Coupon Securities,
Pay-in-Kind Bonds and Deferred Payment Securities."

The High Yield Fund may also invest in fixed and floating rate loans ("Loans")
arranged through private negotiations between a corporate borrower or a foreign
sovereign entity and one or more financial institutions ("Lenders"). The Fund
may invest in such Loans in the form of participations in Loans ("Loan
Participations") and assignments of all or a portion of Loans from third parties
("Assignments"). See "Additional Investment Activities and Risk Factors--Loan
Participations and Assignments."

The High Yield Fund may invest up to 10% of its total assets in either (1)
equipment lease certificates, equipment trust certificates and conditional sales
contracts or (2) limited partnership interests. The Fund may invest up to 10% of
its total assets in common stock, convertible securities, warrants or other
equity securities (other than preferred stock for which there is no limit) when
consistent with

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<PAGE> 13

the Fund's objective. The Fund will generally hold such equity investments as a
result of purchases of unit offerings of fixed-income securities which include
such securities or in connection with an actual or proposed conversion or
exchange of fixed-income securities, but may also purchase equity securities not
associated with fixed-income securities when, in the opinion of SBAM, such
purchase is appropriate.

In order to maintain liquidity, the Fund may hold and/or invest up to 20% of its
total assets in cash and/or U.S. dollar denominated debt securities including:
(1) short-term (less than 12 months to maturity) and medium-term (not greater
than five years to maturity) obligations issued or guaranteed by (a) the U.S.
government or the government of a developed country, their agencies or
instrumentalities or (b) international organizations designated or supported by
multiple foreign governmental entities to promote economic reconstruction or
development ("supranational entities"); (2) finance company obligations,
corporate commercial paper and other short-term commercial obligations, in each
case rated or issued by companies with similar securities outstanding that are
rated "Prime-1" or "A" or better by Moody's or "A-1" or "A" or better by S&P or,
if unrated, of comparable quality as determined by SBAM; (3) obligations
(including certificates of deposit, time deposits, demand deposits and bankers'
acceptances) of banks; and (4) repurchase agreements (as discussed below under
"Additional Investment Activities and Risk Factors--Repurchase Agreements") with
respect to securities in which the Fund may invest. If at some future date, in
the opinion of SBAM, adverse conditions prevail in the securities markets which
makes the High Yield Bond Fund's investment strategy inconsistent with the best
interests of the Fund's shareholders, then for defensive purposes, the Fund may
temporarily invest its assets without limit in such instruments.

The High Yield Bond Fund may enter into repurchase agreements and reverse
repurchase agreements, may purchase securities on a firm commitment basis,
including when-issued securities and may lend portfolio securities. The Fund may
also invest in investment funds. For a description of these investment practices
and the risks associated therewith, see "Additional Investment Activities and
Risk Factors."

The High Yield Bond Fund may purchase securities for which there is a limited
trading market or which are subject to restrictions on resale to the public. 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. See "Additional Investment Activities and Risk
Factors-- Restricted Securities and Securities With Limited Trading Markets." 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, as amended (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.

The High Yield Bond Fund is currently authorized to use all of the various
investment strategies referred to under "Additional Investment Activities and
Risk Factors--Derivatives." It is not presently anticipated that any of these
strategies will be used to a significant degree by the Fund. The Fund's ability
to pursue certain of these strategies may be limited by applicable regulations
of the SEC, the Commodity Futures Trading Commission (the "CFTC") and the
federal income tax requirements applicable to regulated investment companies.
Appendix B to this Prospectus and the Statement of Additional Information
contain descriptions of these strategies and of certain risks associated
therewith.

The foregoing investment policies and activities, other than the High Yield Bond
Fund's investment objective, are not fundamental and may be changed by the Board
of Directors of Institutional Series Funds without the approval of shareholders.

PAGE 12
<PAGE> 14

EMERGING MARKETS DEBT FUND

The investment objective of the Emerging Markets Debt Fund is to maximize total
return. The Fund seeks to achieve its objective by investing at least 80% of its
total assets in debt securities of government, government-related and corporate
issuers in emerging market countries and of entities organized to restructure
outstanding debt of such issuers. As used in this Prospectus, an "emerging
market country" is any country considered to be an emerging market country by
the World Bank at the time of investment. These countries generally include
every nation in the world except the United States, Canada, Japan, Australia,
New Zealand and most countries located in Western Europe. The Fund is
non-diversified within the meaning of the 1940 Act. See "Additional Investment
Activities and Risk Factors--Non-Diversification."

Initially, the Emerging Markets Debt Fund expects that its investments in
emerging market country debt securities will be made primarily in some or all of
the following emerging market countries:

Algeria
Argentina
Brazil
Bulgaria
Chile
China
Colombia
Costa Rica
Czech Republic
Dominican Republic
Ecuador
Egypt
Greece
Hungary
India
Indonesia
Ivory Coast
Jamaica
Jordan
Lebanon
Malaysia
Mexico
Morocco
Nicaragua
Nigeria
Pakistan
Panama
Paraguay
Peru
Philippines
Poland
Portugal
Russia
Slovakia
Slovenia
South Africa
Thailand
Trinidad & Tobago
Tunisia
Turkey
Uruguay
Venezuela
Vietnam
Zaire

In selecting emerging market country debt securities for investment, SBAM will
apply a market risk analysis contemplating assessment of factors such as
liquidity, volatility, tax implications, interest rate sensitivity, counterparty
risks and technical market considerations. Currently, investing in many emerging
market country securities is not feasible or may involve unacceptable political
risks. As opportunities to invest in debt securities in other countries develop,
the Fund expects to expand and further diversify the emerging market countries
in which it invests. While the Fund generally is not restricted in the portion
of its assets which may be invested in a single country or region, it is
anticipated that, under normal conditions, the Fund's assets will be invested in
issuers in at least three countries.

Emerging market country debt securities in which the Emerging Markets Debt Fund
may invest are U.S. dollar-denominated and non-U.S. dollar-denominated debt
securities, including bonds, notes, bills, debentures, convertible securities,
warrants, bank debt obligations, short-term paper, mortgage and other
asset-backed securities, preferred stock, Loan Participations and Assignments
and interests issued by entities organized and operated for the purpose of
restructuring the investment characteristics of instruments issued by emerging
market country issuers. The Fund is subject to no restrictions on the maturities
of the emerging market country debt securities in which it will invest and such
maturities may range from overnight to thirty years. There is no limit on the
percentage of the Fund's assets that may be invested in non-U.S. dollar
denominated securities and a substantial portion of the Fund's assets may be
invested in non-U.S. dollar denominated securities. The amount of assets
invested in non-U.S. dollar denominated securities will vary depending upon
market conditions. The Fund may invest in Brady Bonds, which are debt securities
issued under the framework of the Brady Plan, an initiative announced by former
U.S. Treasury Secretary Nicholas F. Brady in 1989 as a

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<PAGE> 15

mechanism for debtor nations to restructure their outstanding external
indebtedness. For a description of Brady Bonds, see "Additional Investment
Activities and Risk Factors--High Yield Securities" herein and "Additional
Information on Portfolio Instruments and Investment Policies--Brady Bonds" in
the Statement of Additional Information. For a description of Loan
Participations and Assignments, see "Additional Investment Activities and Risk
Factors--Loan Participations and Assignments."

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 relative illiquidity of 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. See "Additional Investment Activities and Risk Factors--Foreign
Securities."

The Fund's investments in government, government-related and restructured debt
securities will consist of (i) debt securities or obligations issued or
guaranteed by governments, governmental agencies or instrumentalities and
political subdivisions located in emerging market countries (including
participations in loans between governments and financial institutions), (ii)
debt securities or obligations issued by government owned, controlled or
sponsored entities located in emerging market countries (including
participations in loans between governments and financial institutions), and
(iii) interests in issuers organized and operated for the purpose of
restructuring the investment characteristics of instruments issued by any of the
entities described above. Such type of restructuring involves the deposit with
or purchase by an entity of specific instruments and the issuance by that entity
of one or more classes of securities backed by, or representing interests in,
the underlying instruments. Certain issuers of such structured securities may be
deemed to be "investment companies" as defined in the 1940 Act. As a result, the
Fund's investment in such securities may be limited by certain investment
restrictions contained in the 1940 Act. See "Additional Information on Portfolio
Instruments and Investment Policies--Structured Investments" in the Statement of
Additional Information. In addition to the risks of investing in emerging market
country debt securities, the Fund's investment in government, government-related
and restructured debt instruments are subject to special risks, including the
inability or unwillingness to repay principal and interest, requests to
reschedule or restructure outstanding debt, and requests to extend additional
loan amounts. The Fund may have limited recourse in the event of default on such
debt instruments. See "Additional Investments Activities and Risk
Factors--Foreign Securities" and "--High Yield Securities".

The Emerging Market Debt Fund's investments in debt securities of corporate
issuers in emerging market countries may include debt securities or obligations
issued by (i) banks located in emerging market countries or by branches of
emerging market country banks located outside the home country or (ii) companies
organized under the laws of an emerging market country.

The securities in which the Fund will invest will not be required to meet a
minimum rating standard and may not be rated for creditworthiness by any
internationally recognized credit rating organization. In fact, the Fund's
investments are expected to be in the lower and lowest rating categories of
internationally recognized credit rating organizations or of comparable quality.
Such securities, commonly referred to as "junk bonds," involve significantly
greater risks, including price volatility and risk of default of payment of
interest and principal than higher rated securities. An investment in the
Emerging Markets Debt Fund should not be considered as a complete investment
program for all investors. See "Additional Investment Activities and Risk
Factors--Foreign Securities" and "--High Yield Securities." Moreover,
substantial investments in foreign securities may have adverse tax implications
as described under "Dividends, Distributions and Taxes."

PAGE 14
<PAGE> 16

conditions and trends, the operating history of the issuer, and the experience
and track record of the issuer's management. For sovereign debt instruments,
these will typically include the economic and political conditions within the
issuer's country, the issuer's overall and external debt levels and debt service
ratios, the issuer's access to capital markets and other sources of funding, and
the issuer's debt service payment history. SBAM will also review the ratings, if
any, assigned to the security by any recognized rating organizations, although
SBAM's judgment as to the quality of a debt security may differ from that
suggested by the rating published by a rating service. In addition to the
foregoing credit analysis, SBAM will evaluate the relative value of an
investment compared with its perceived credit risk. In selecting securities for
the Emerging Markets Debt Fund, SBAM intends to consider the correlation among
securities represented in the Fund's portfolio in an attempt to reduce the risk
of exposure to market, industry and issuer volatility. The Fund's ability to
achieve its investment objective may be more dependent on SBAM's credit analysis
than would be the case if it invested in higher quality debt securities. A
description of the ratings used by Moody's and S&P is set forth in Appendix A to
this Prospectus.

The Emerging Markets Debt Fund may invest in zero coupon securities, pay-in-kind
bonds and deferred payment securities. The characteristics and risks of these
investments are described under "Additional Investment Activities and Risk
Factors--Zero Coupon Securities, Pay-in-Kind Bonds and Deferred Payment
Securities."

The Emerging Markets Debt Fund may invest up to 10% of its total assets in
common stock, convertible securities, warrants or other equity securities when
consistent with the Fund's objective. The Fund will generally hold such equity
investments as a result of purchases of unit offerings of fixed-income
securities which include such securities or in connection with an actual or
proposed conversion or exchange of fixed-income securities, but may also
purchase equity securities not associated with fixed-income securities when, in
the opinion of SBAM, such purchase is appropriate.

In order to maintain liquidity, the Emerging Markets Debt Fund may hold and/or
invest up to 20% of its total assets in cash and/or U.S. dollar denominated debt
securities including: (1) short-term (less than 12 months to maturity) and
medium-term (not greater than five years to maturity) obligations issued or
guaranteed by (a) the U.S. government or the government of a developed country,
their agencies or instrumentalities or (b) international organizations
designated or supported by multiple foreign governmental entities to promote
economic reconstruction or development ("supranational entities"); (2) finance
company obligations, corporate commercial paper and other short-term commercial
obligations, in each case rated or issued by companies with similar securities
outstanding that are rated "Prime-1" or "A" or better by Moody's or "A-1" or "A"
or better by S&P or, if unrated, of comparable quality as determined by the
SBAM; (3) obligations (including certificates of deposit, time deposits, demand
deposits and bankers' acceptances) of banks; and (4) repurchase agreements (as
discussed below under "Additional Investment Activities and Risk
Factors--Repurchase Agreements") with respect to securities in which the Fund
may invest. If at some future date, in the opinion of SBAM, adverse conditions
prevail in the securities markets which makes the Fund's investment strategy
inconsistent with the best interests of the Fund's shareholders, then for
defensive purposes, the Fund may temporarily invest its assets without limit in
such instruments.

The Emerging Markets Debt Fund may enter into repurchase agreements and reverse
repurchase agreements, may purchase securities on a firm commitment basis,
including when-issued securities and may lend portfolio securities. The Fund may
also invest in investment funds. For a description of these investment practices
and the risks associated therewith, see "Additional Investment Activities and
Risk Factors."

The Emerging Markets Debt Fund may purchase securities for which there is a
limited trading market or which are subject to restrictions on resale to the
public. 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. See "Additional Investment
Activities and Risk Factors--

PAGE 15
<PAGE> 17

Restricted Securities and Securities with Limited Trading Markets." 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.

The Emerging Markets Debt Fund is currently authorized to use all of the various
investment strategies referred to under "Additional Investment Activities and
Risk Factors--Derivatives." With the exception of currency transactions,
however, it is not presently anticipated that any of these strategies will be
used to a significant degree by the Fund. The Fund's ability to pursue certain
of these strategies, including the ability to hedge against currency exchange
rate risks with respect to its holdings of non-U.S. dollar denominated
securities, may be limited by applicable regulations of the SEC, the CFTC and
the federal income tax requirements applicable to regulated investment
companies. Appendix B to this Prospectus and the Statement of Additional
Information contain descriptions of these strategies and of certain risks
associated therewith.

The foregoing investment policies and activities, other than the Emerging
Markets Debt Fund's investment objective, are not fundamental and may be changed
by the Board of Directors of Institutional Series Funds without the approval of
shareholders.

ASIA GROWTH FUND

The Asia Growth Fund's objective is to achieve long-term capital appreciation.
The Fund seeks to achieve its objective by investing at least 65% of its total
assets in equity and equity-related securities of Asian Companies. Asian
Companies include companies that (i) are organized under the laws of Bangladesh,
China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, the Philippines,
Singapore, Sri Lanka, Taiwan, Thailand or any other country in the Asian region
(other than Japan, Australia and New Zealand) that currently or in the future
permits foreign investment (collectively, "Asian Countries") or (ii) regardless
of where organized and as determined by SBAM AP, (a) derive at least 50% of
their revenues from goods produced or sold, investments made, or services
performed in or with one or more of the Asian Countries, (b) maintain at least
50% of their assets in one or more of the Asian Countries, or (c) have
securities which are traded principally on a stock exchange in an Asian Country.
The Fund is non-diversified within the meaning of the 1940 Act. See "Additional
Investment Activities and Risk Factors--Non-Diversification."

Equity securities in which the Asia Growth Fund may invest include common and
preferred stocks (including convertible preferred stock), bonds, notes and
debentures convertible into common and preferred stock, stock purchase warrants
and rights, equity-linked debt securities, equity interests in trusts,
partnerships, joint ventures or similar enterprises, and American, Global or
other types of Depositary Receipts. Equity-linked debt securities are debt
instruments whose prices are indexed to the prices of equity securities or
securities indices. In other words, the value at maturity or coupon rate of
these equity-linked debt instruments is determined by reference to a specific
instrument or statistic. The performance of equity-linked debt instruments
depends to a great extent on the performance of the security or index to which
they are indexed, and may also be influenced by interest rate changes in the
United States and abroad. At the same time, these instruments are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Indexed
instruments may be more volatile than the underlying instruments.

There are no prescribed limits on geographic asset distributions among Asian
Countries and from time to time, SBAM AP expects to invest a significant portion
of the Asia Growth Fund's assets in Hong Kong, Malaysia, Singapore and Thailand.
Investments in each of these countries may from time to time exceed 25% of the
Fund's total assets. In addition, more than 25% of the Fund's total assets may
be denominated or quoted in the currencies of any one or more of such countries.
In this connection, SBAM AP anticipates that up to 35% of the Fund's initial
investments will be in Hong Kong. Although SBAM AP expects that most of the
equity securities purchased by the Fund will be traded on a stock

PAGE 16
<PAGE> 18

exchange or in an over-the-counter market, most of the Asian securities markets
have substantially less volume than U.S. or other established markets and some
of the stock exchanges in the Asian Countries are in the early stages of their
development. Concentration of the Fund's assets in one or a few of the Asian
countries and Asian currencies will subject the Fund, to a greater extent than
if the Fund's assets were less geographically concentrated, to the risks of
adverse changes in the securities and foreign exchange markets of such countries
and social, political or economic events which may occur in those countries. For
a more detailed discussion of the special risks which the Fund is subject to by
virtue of its investment in foreign securities, see "Additional Investment
Activities and Risk Factors-- Foreign Securities." An investment in the Asia
Growth Fund should not be considered as a complete investment program for all
investors.

In pursuing the Asia Growth Fund's investment objective, SBAM AP will combine a
traditional fundamental approach towards evaluating industry sectors and
individual securities of Asian Companies with a risk management driven approach
seeking to keep the Fund's volatility of return in line with or lower than that
currently experienced in the Asian markets.

SBAM AP expects to focus on certain industry groups across Asian Countries in an
attempt to identify and capture the relative value of such groups on a
pan-regional basis. SBAM AP will research individual companies in an effort to
identify the investment opportunities within these industry groups which will
provide long-term capital appreciation. In addition, SBAM AP intends to meet the
management of individual companies on a periodic basis. As part of the Asia
Growth Fund's risk management objective, SBAM AP will also concentrate on
macroeconomic issues and other variables influencing the direction of monetary
policies followed by Asian Central Banks.

The investment process to be implemented by SBAM AP will consist of the three
following principal (and potentially overlapping) types of approaches.

PAN-REGIONAL INDUSTRY GROUP DECISIONS. SBAM AP will seek to identify the
pan-regional industrial sectors which are likely to exhibit attractive returns
over the long-term. In selecting such industrial sectors, SBAM AP will focus on
industry cycles and competitiveness as well as the industrial characteristics of
the Asian economies. In addition, SBAM AP will review government regulations,
industrial policies, access to technology and industrial research reports
provided by industrial companies or associations and securities dealers in Asian
Countries. SBAM AP will focus on those industries which represent meaningful
weightings in the total market capitalization of the Asian Countries including,
but not limited to, telecommunications, consumer durables and nondurables, food
and beverage, electronics, hotels, power engineering and generation, basic
industries, public utilities, property and financial sectors. SBAM AP believes
that an investment process that places emphasis on industry groups is
appropriate given the current state of economic and financial integration being
achieved by the Asian Countries and the relatively significant concentration of
market capitalization in Asian Countries toward certain industrial sectors.

FUNDAMENTAL ANALYSIS: INDIVIDUAL SECURITY DECISIONS. In order to identify the
most attractive investment opportunities within industry groups, SBAM AP will
employ extensive research to select investments in Asian Countries that offer
long-term growth potential for investors. While the Asia Growth Fund generally
seeks to invest in securities of larger companies within the particular Asian
market, it may also invest in the securities of medium and smaller companies
that, in the opinion of SBAM AP, have potential for growth. In particular, SBAM
AP will employ the following three-step process to evaluate particular
investment opportunities for the Fund.

SCREENING PROCESS. SBAM AP will implement a systematic screening process in an
effort to identify individual securities it believes likely to exhibit
attractive returns over the long term. SBAM AP will screen companies according
to factors such as the perceived quality of their management and business,
overall sustainable competitiveness, historical earnings, dividend records over
at least a full business cycle, liquidity, trading volumes and historical and
expected volatility.

PAGE 17
<PAGE> 19

FINANCIAL ANALYSIS PROCESS. The financial analysis of selected companies will
focus on evaluating the fundamental value of the enterprise. SBAM AP will use a
value-driven process which will emphasize quantitative analysis based on return
on equity ("ROE") and its components, such as operating margins, financial
leverage, asset turnover and interest and tax burdens. In addition, the
company's cash flow generating capabilities and return on assets will be
considered. SBAM AP believes that ROE and cash flow dynamics are appropriate
variables when analyzing companies which operate in high growth markets, such as
Asia, as the ability of such companies to capture this growth by using the right
allocation of resources and asset financing is of utmost importance.

VALUATION PROCESS AND VOLATILITY ANALYSIS. The valuation process will focus on
Price Earnings Ratio ("PER") calculations and comparisons with historical
relative PER bands and local market conditions. SBAM AP will use measures such
as PER/growth, and will evaluate whether the security enjoys accelerating
earnings growth momentum due to management changes or the introduction of new
products and/or services. In addition, where appropriate, SBAM AP will conduct
specific dividend discount model and discount cash flow analyses for specific
securities with predictable cash flows or dividend streams. Through the use of
this analysis, SBAM AP will attempt to identify companies with strong potential
for appreciation relative to their downside exposure. Lastly, SBAM AP will
conduct a volatility analysis on selected securities in an effort to forecast
the expected risk of such securities and compare the results of such risk
analysis with these securities' expected returns. Investments may be made in
companies that do not have extensive operating experience provided that SBAM AP
believes such companies nevertheless have significant growth potential.

RISK MANAGEMENT AND MACROECONOMIC/TOP-DOWN ANALYSIS. SBAM AP will also consider
macroeconomic variables, such as liquidity and capital flows, foreign equity and
industrial investments and the direction of monetary policies in the Asian
Countries in an effort to capture individual market movements as well as attain
an optimal asset allocation mix and to identify the appropriate risk management
parameters for the Asia Growth Fund. The macroeconomic data SBAM AP will monitor
and analyze includes, but is not limited to, gross domestic product growth,
balance of payments and current account balances, budget deficits or surpluses,
inflation and interest rates. SBAM AP intends to meet with central bankers,
regional economists and strategists on a regular basis to assess the present and
future direction of monetary policies and their likely impact on the markets of
the Asian Countries.

As part of the Fund's risk management approach and in an attempt to better
assess and control the Fund's overall risk level on an ongoing basis, SBAM AP
will employ a quantitative analysis at each stage of the investment process
which will consist of analyzing and forecasting volatilities of the Asian
markets and securities. SBAM AP will use a number of volatility-control
strategies, including derivative instruments (as discussed below), in an effort
to attain an optimal asset allocation mix, for hedging purposes in an attempt to
control the Fund's overall risk level and to obtain exposure to markets in the
Asian Countries which have restrictions on foreign investment.

The Asia Growth Fund from time to time may invest up to 10% of its total assets
in non-convertible debt securities, which may include securities rated below
investment grade by S&P and Moody's with no minimum rating required or
comparable unrated securities (commonly referred to as "junk bonds"). 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 may involve a high degree of risk, see
"Additional Investment Activities and Risk Factors--High Yield Securities."

In order to maintain liquidity, the Asia Growth Fund may hold and/or invest up
to 35% of its total assets in debt securities denominated in U.S. dollars or in
another freely convertible currency including: (1) short-term (less than 12
months to maturity) and medium-term (not greater than five years to maturity)
obligations issued or guaranteed by (a) the U.S. government or the government of
an Asian Country, their agencies or instrumentalities or (b) international
organizations designated or

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supported by multiple foreign governmental entities to promote economic
reconstruction or development ("supranational entities"); (2) finance company
obligations, corporate commercial paper and other short-term commercial
obligations, in each case rated, or issued by companies with similar securities
outstanding that are rated, "Prime-1" or "A" or better by Moody's or "A-1" or
"A" or better by S&P or, if unrated, of comparable quality as determined by SBAM
AP; (3) obligations (including certificates of deposit, time deposits, demand
deposits and bankers' acceptances) of banks; and (4) repurchase agreements (as
described below under "Additional Investment Activities and Risk
Factors--Repurchase Agreements") with respect to securities in which the Fund
may invest. If at some future date, in the opinion of SBAM AP, adverse
conditions prevail in the securities markets which makes the Asia Growth Fund's
investment strategy inconsistent with the best interests of the Fund's
shareholders, then for defensive purposes, the Fund may temporarily invest its
assets without limit in such instruments.

The Asia Growth Fund may enter into repurchase agreements and reverse repurchase
agreements, may purchase securities on a firm commitment basis, including
when-issued securities and may lend portfolio securities. The Fund may also
invest in investment funds. For a description of these investment practices and
the risks associated therewith, see "Additional Investment Activities and Risk
Factors."

The Asia Growth Fund may purchase securities for which there is a limited
trading market or which are subject to restrictions on resale to the public. 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. 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." As
more fully described in the Statement of Additional Information, the Fund may
purchase Rule 144A securities. 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.

The Asia Growth Fund is currently authorized and intends to use 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 CFTC and the
federal income tax requirements applicable to regulated investment companies.
Appendix B to this Prospectus and the Statement of Additional Information
contain descriptions of these strategies and of certain risks associated
therewith.

The foregoing investment policies and activities, other than the Asia Growth
Fund's investment objective, are not fundamental and may be changed by the Board
of Directors of Institutional Series Funds without the approval of shareholders.

The investment objective of each Fund is deemed to be a fundamental policy and
may not be changed without the affirmative vote of the holders of a majority of
its outstanding shares as defined in the 1940 Act. There is no assurance that a
Fund will achieve its investment objective.

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<PAGE> 21

ADDITIONAL
INVESTMENT ACTIVITIES
AND RISK FACTORS

------------------------------------

REPURCHASE AGREEMENTS. Each 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 sale to repurchase that security
from the buyer at a mutually agreed upon time and price. Each Fund will enter
into repurchase agreements only with dealers, banks or recognized financial
institutions which, in the opinion of the investment manager based on guidelines
established by the applicable Fund's Board of Directors, are deemed
creditworthy. The investment manager 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. In the
event of default by the seller under the repurchase agreement, a Fund could
experience losses and experience time delays in connection with the disposition
of the underlying security. To the extent that, in the meantime, the value of
the securities that a 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.

REVERSE REPURCHASE AGREEMENTS. Certain of the Funds may enter into "reverse"
repurchase agreements to avoid selling securities during unfavorable market
conditions to meet redemptions. Pursuant to a reverse repurchase agreement, a
Fund will sell portfolio securities and agree to repurchase them from the buyer
at a particular date and price. Whenever a Fund enters into a reverse repurchase
agreement, it will establish a segregated account in which it will maintain
liquid assets in an amount at least equal to the repurchase price marked to
market daily (including accrued interest), and will subsequently monitor the
account to ensure that such equivalent value is maintained. A Fund pays interest
on amounts obtained pursuant to reverse repurchase agreements. Reverse
repurchase agreements are considered to be borrowings by a Fund.

LOANS OF PORTFOLIO SECURITIES. Certain of the Funds may lend portfolio
securities to generate income. In the event of the bankruptcy of the other party
to a securities loan, a Fund could experience delays in recovering the
securities it lent. To the extent that, in the meantime, the value of the
securities a Fund lent has increased, the Fund could experience a loss. The
value of securities loaned will be marked to market daily. Any securities that a
Fund may receive as collateral will not become a part of its portfolio at the
time of the loan and, 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 a 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 a Fund will be subject
to termination at the Fund's or the borrower's option. A 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.

FIRM COMMITMENTS AND WHEN-ISSUED SECURITIES. A 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

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<PAGE> 22

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
agreed upon purchase price, in which case there could be an unrealized loss at
the time of delivery. A 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. A 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.

ZERO COUPON SECURITIES, PAY-IN-KIND BONDS AND DEFERRED PAYMENT SECURITIES. The
High Yield Bond Fund and the Emerging Markets Debt Fund may invest in zero
coupon securities, pay-in-kind bonds and deferred payment securities.

Zero coupon securities are debt securities that pay no cash income but are sold
at substantial discounts from their value at maturity. When a zero coupon
security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. This difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time of
their investment what the expected return on their investment will be. Certain
zero coupon securities also are sold at substantial discounts from their
maturity value and provide for the commencement of regular interest payments at
a deferred date. Zero coupon securities may have conversion features. A Fund
also may purchase pay-in-kind bonds. Pay-in-kind bonds pay all or a portion of
their interest in the form of debt or equity securities. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals.

Zero coupon securities, pay-in-kind bonds and deferred payment securities tend
to be subject to greater price fluctuations in response to changes in interest
rates than are ordinary interest-paying debt securities with similar maturities.
The value of zero coupon securities appreciates more during periods of declining
interest rates and depreciates more during periods of rising interest rates than
ordinary interest-paying debt securities with similar maturities. Zero coupon
securities, pay-in-kind bonds and deferred payment securities may be issued by a
wide variety of corporate and governmental issuers. Although these instruments
are generally not traded on a national securities exchange, they are widely
traded by brokers and dealers and, to such extent, will not be considered
illiquid for the purposes of a Fund's 15% limitation on investments in illiquid
securities discussed below.

Current federal income tax law requires the holder of a zero coupon security,
certain pay-in-kind bonds, deferred payment securities and certain other
securities acquired at a discount (such as Brady Bonds) to accrue income with
respect to these securities prior to the receipt of cash payments. Accordingly,
to avoid liability for federal income and excise taxes, a Fund may be required
to distribute income accrued with respect to these securities and may have to
dispose of portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.

LOAN PARTICIPATIONS AND ASSIGNMENTS. The High Yield Bond Fund and the Emerging
Markets Debt Fund may invest in Loan Participations and Assignments. The Funds
consider these investments to be investments in debt securities for purposes of
this Prospectus. Loan Participations typically will result in a Fund having a
contractual relationship only with the Lender, not with the borrower. A Fund
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the borrower. In connection with
purchasing Loan Participations, a Fund generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
Loan, nor

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<PAGE> 23

any rights of set-off against the borrower, and the Fund may not benefit
directly from any collateral supporting the Loan in which it has purchased the
Participation. As a result, a Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, a Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. A Fund will acquire Loan Participations only if the
Lender interpositioned between the Fund and the borrower is determined by SBAM
to be creditworthy. When a Fund purchases Assignments from Lenders, the Fund
will acquire direct rights against the borrower on the Loan, except that under
certain circumstances such rights may be more limited than those held by the
assigning Lender.

A Fund may have difficulty disposing of Assignments and Loan Participations.
Because the market for such instruments is not highly liquid, the Funds
anticipate that such instruments could be sold only to a limited number of
institutional investors. The lack of a highly liquid secondary market may have
an adverse impact on the value of such instruments and will have an adverse
impact on a Fund's ability to dispose of particular Assignments or Loan
Participations in response to a specific economic event, such as deterioration
in the creditworthiness of the borrower.

The Board of Directors of Institutional Series Funds has adopted policies and
procedures for the High Yield Bond Fund and the Emerging Markets Debt Fund for
the purpose of determining whether Assignments and Loan Participations are
liquid or illiquid for purposes of a Fund's limitation on investment in illiquid
securities. Pursuant to those policies and procedures, the Board of Directors
has delegated to the investment manager the determination as to whether a
particular Loan Participation or Assignment is liquid or illiquid, requiring
that consideration be given to, among other things, the frequency of quotes, the
number of dealers willing to sell and the number of potential purchasers, the
nature of the Loan Participation or Assignment and the time needed to dispose of
it, and the contractual provisions of the relevant documentation. The Board of
Directors periodically reviews purchases and sales of Assignments and Loan
Participations. In valuing a Loan Participation or Assignment held by a Fund for
which a secondary trading market exists, the Fund will rely upon prices or
quotations provided by banks, dealers or pricing services. To the extent a
secondary trading market does not exist, a Fund's Loan Participations and
Assignments will be valued in accordance with procedures adopted by the Board of
Directors, taking into consideration, among other factors, (i) the
creditworthiness of the borrower under the Loan and the Lender, (ii) the current
interest rate, period until next rate reset and maturity of the Loan, (iii)
recent prices in the market for similar Loans and (iv) recent prices in the
market for instruments of similar quality, rate, period until next interest rate
reset and maturity. See "Net Asset Value."

To the extent that liquid Assignments and Loan Participations that a Fund holds
become illiquid, due to the lack of sufficient buyers or market or other
conditions, the percentage of a Fund's assets invested in illiquid assets would
increase. The investment manager, under the supervision of the Board of
Directors, will monitor Fund investments in Assignments and Loan Participations
and will consider appropriate measures to enable a Fund to maintain sufficient
liquidity for operating purposes and to meet redemption requests.

RESTRICTED SECURITIES AND SECURITIES WITH LIMITED TRADING MARKETS. Each Fund may
purchase securities for which there is a limited trading market or which are
subject to restrictions on resale to the public. Investments in securities which
are "restricted" may involve added expenses to a 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 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. 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

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<PAGE> 24

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 a Fund's portfolio. The Board of
Directors of Institutional Series Funds will be responsible for monitoring the
liquidity of Rule 144A securities and the selection by the investment manager of
such securities.

WARRANTS. Certain of the Funds 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.

FOREIGN SECURITIES. Investors should recognize that investing in the securities
of foreign issuers generally, and particularly in emerging market issuers,
involves special considerations which are not typically associated with
investing in 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
relative illiquidity of 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 a Fund.
Certain emerging market countries require governmental approval prior to
investments by foreign persons, limit the amount of investment by foreign
persons in a particular issuer, limit the investment by foreign persons only to
a specific class of securities of an issuer that may have less advantageous
rights than other classes, restrict investment opportunities in issuers in
industries deemed important to national interests and/or impose additional taxes
on foreign investors.

Certain emerging market countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors which could adversely affect a Fund. In
addition, if a deterioration occurs in an emerging market country's balance of
payments, it could impose temporary restrictions on foreign capital remittances.
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 taxes on
certain amounts of a Fund's income which may reduce the net return on foreign
investments as compared to income received from a U.S. issuer, 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 a Fund, the lack of extensive operating experience of
eligible foreign subcustodians and legal limitations on the ability of a 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. In particular, the assets and profits appearing on
the financial statements of an emerging market country issuer may not reflect
its financial position or results of operations in the way they would be
reflected had the financial statements been prepared in accordance with U.S.
generally accepted accounting principles. In addition, for an issuer that keeps
accounting records in local currency, inflation accounting rules may

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require, for both tax and accounting purposes, that certain assets and
liabilities be restated on the issuer's balance sheet in order to express items
in terms of currency of constant purchasing power. Inflation accounting may
indirectly generate losses or profits. Consequently, financial data may be
materially affected by restatements for inflation and may not accurately reflect
the real condition of those issuers and securities markets. Finally, in the
event of a default of any such foreign obligations, it may be more difficult for
a Fund to obtain or enforce a judgment against the issuers of such obligations.
See "--High Yield Securities."

For a further discussion of certain risks involved in investing foreign
securities, particularly of emerging market issuers, see "Additional Information
on Portfolio Instruments and Investment Policies--Foreign Securities" in the
Statement of Additional Information.

FIXED-INCOME SECURITIES. Except to the extent that values are affected
independently by other factors such as developments relating to a specific
issuer, when interest rates decline, the value of a fixed-income portfolio can
generally be expected to rise. Conversely, when interest rates rise, the value
of a fixed-income portfolio can generally be expected to decline. 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 High Yield Bond Fund
and the Emerging Markets Debt Fund will invest primarily in fixed-income
securities, the net asset value of these Funds' shares can be expected to change
as general levels of interest rates fluctuate. It should be noted that 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.

In addition, many fixed-income securities contain call or buy-back features that
permit their issuers to call or repurchase the securities from their holders.
Such securities may present risks based on payment expectations. Although a Fund
would typically receive a premium if an issuer were to redeem a security, if an
issuer exercises such a "call option" and redeems the security during a time of
declining interest rates, a Fund may realize a capital loss on its investment if
the security was purchased at a premium and a Fund may have to replace the
called security with a lower yielding security, resulting in a decreased rate of
return to the Fund.

HIGH YIELD SECURITIES. The High Yield Bond Fund and the Emerging Markets Debt
Fund may invest without limitation in high yield securities. The Asia Growth
Fund may invest without limitation in convertible non-U.S. high yield securities
and up to 10% of its total assets in non-convertible non-U.S. high yield
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 a
Fund with a commensurate effect on the value of the Fund's shares.

Changes by recognized rating services in their ratings of any fixed-income
security and in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. A description of the
ratings used by Moody's and S&P is set forth in Appendix A to this Prospectus.
The ratings of Moody's and S&P generally represent the opinions of those
organizations as to the quality of the securities that they rate. Such ratings,
however, are relative and subjective, are not absolute standards of quality, are
subject to change and do not evaluate the market risk or liquidity of the
securities. Ratings of a non-U.S. debt instrument, to the extent that those
ratings are undertaken,

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are related to evaluations of the country in which the issuer of the instrument
is located. Ratings generally take into account the currency in which a non-U.S.
debt instrument is denominated. Instruments issued by a foreign government in
other than the local currency, for example, typically have a lower rating than
local currency instruments due to the existence of an additional risk that the
government will be unable to obtain the required foreign currency to service its
foreign currency-denominated debt. In general, the ratings of debt securities or
obligations issued by a non-U.S. public or private entity will not be higher
than the rating of the currency or the foreign currency debt of the central
government of the country in which the issuer is located, regardless of the
intrinsic creditworthiness of the issuer.

The secondary markets for high yield securities are not as liquid as the
secondary markets for higher rated securities. The secondary markets for high
yield securities are concentrated in relatively few market makers and
participants in the market are mostly institutional investors, including
insurance companies, banks, other financial institutions and mutual funds. These
factors may have an adverse effect on the ability of a Fund holding such
securities to dispose of particular portfolio investments at fair value, may
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. If a Fund is not able to obtain
precise or accurate market quotations for a particular security, it will become
more difficult for the Board of Directors to value such Fund's portfolio
securities, and the Directors may have to use a greater degree of judgment in
making such valuations. The secondary markets for high yield securities may
contract due to adverse economic conditions or for other reasons relating to or
independent of any specific adverse changes in the condition of a particular
issuer and, as a result, certain liquid securities in a Fund's portfolio may
become illiquid and the proportion of the Fund's assets invested in illiquid
securities may significantly increase.

Prices for high yield securities may be affected by legislative and regulatory
developments. These laws could adversely affect a Fund's net asset value and
investment practices, the secondary market for high yield securities, the
financial condition of issuers of these securities and the value of outstanding
high yield securities. For example, federal legislation requiring the
divestiture by federally insured savings and loan associations of their
investments in high yield bonds and limiting the deductibility of interest by
certain corporate issuers of high yield bonds adversely affected the market in
recent years.

High Yield Corporate Securities. 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. Issuers of these securities are often highly leveraged and may not
have more traditional methods of financing available to them, so that their
ability to service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired. The risk of loss due
to default by such issuers is significantly greater than with investment grade
securities because such securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. A Fund also may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings.

The development of a market for high yield corporate securities generally, and
non-U.S. securities in particular, is relatively new and may undergo significant
changes in the future.

High yield corporate securities in which the applicable Funds may invest will
generally be unsecured. Most of the debt securities will bear interest at fixed
rates but a Fund may also invest in securities with variable rates of interest
or which involve equity features, such as contingent interest or participations
based on revenues, sales or profits (i.e., interest or other payments, often in
addition to a fixed rate of return, that are based on the borrower's attainment
of specified levels of revenues, sales or profits and thus enable the holder of
the security to share in the potential success of the venture).

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High Yield Foreign Sovereign Debt Securities. Investing in fixed and floating
rate high yield foreign sovereign debt securities will expose a Fund to the
direct or indirect consequences of political, social or economic changes in the
countries that issue the securities. See "--Foreign Securities" above. The
ability and willingness of sovereign obligors in developing and emerging market
countries or the governmental authorities that control repayment of their
external debt to pay principal and interest on such debt when due may depend on
general economic and political conditions within the relevant country. Countries
such as those in which a Fund may invest have historically experienced, and may
continue to experience, high rates of inflation, high interest rates, exchange
rate trade difficulties and extreme poverty and unemployment. Many of these
countries are also characterized by political uncertainty or instability.
Additional factors which may influence the ability or willingness to service
debt include, but are not limited to, a country's cash flow situation, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of its debt service burden to the economy as a whole, and its
government's policy towards the International Monetary Fund, the World Bank and
other international agencies.

The ability of a foreign sovereign obligor to make timely payments on its
external debt obligations will also be strongly influenced by the obligor's
balance of payments, including export performance, its access to international
credits and investments, fluctuations in interest rates and the extent of its
foreign reserves. A country whose exports are concentrated in a few commodities
or whose economy depends on certain strategic imports could be vulnerable to
fluctuations in international prices of these commodities or imports. To the
extent that a country receives payment for its exports in currencies other than
dollars, its ability to make debt payments denominated in dollars could be
adversely affected. If a foreign sovereign obligor cannot generate sufficient
earnings from foreign trade to service its external debt, it may need to depend
on continuing loans and aid from foreign governments, commercial banks and
multilateral organizations, and inflows of foreign investment. The commitment on
the part of these foreign governments, multilateral organizations and others to
make such disbursements may be conditioned on the government's implementation of
economic reforms and/or economic performance and the timely service of its
obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds, which may further
impair the obligor's ability or willingness to timely service its debts. The
cost of servicing external debt will also generally be adversely affected by
rising international interest rates, because many external debt obligations bear
interest at rates which are adjusted based upon international interest rates.
The ability to service external debt will also depend on the level of the
relevant government's international currency reserves and its access to foreign
exchange. Currency devaluations may affect the ability of a sovereign obligor to
obtain sufficient foreign exchange to service its external debt.

As a result of the foregoing or other factors, a governmental obligor may
default on its obligations. If such an event occurs, a Fund may have limited
legal recourse against the issuer and/or guarantor. Remedies must, in some
cases, be pursued in the courts of the defaulting party itself, and the ability
of the holder of foreign sovereign debt securities to obtain recourse may be
subject to the political climate in the relevant country. In addition, no
assurance can be given that the holders of commercial bank debt will not contest
payments to the holders of other foreign sovereign debt obligations in the event
of default under their commercial bank loan agreements.

Certain debt obligations, customarily referred to as "Brady Bonds," are created
through the exchange of existing commercial bank loans to foreign entities for
new obligations in connection with debt restructuring under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be fully or partially collateralized or
uncollateralized and issued in various currencies (although most are U.S. dollar
denominated) and they are actively traded in the over-the-counter secondary
market. U.S. dollar denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at

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<PAGE> 28

maturity by U.S. Treasury zero coupon obligations which have the same maturity
as the Brady Bonds. Certain interest payments on these Brady Bonds may be
collateralized by cash or securities in an amount that, in the case of fixed
rate bonds, is typically equal to between 12 and 18 months of rolling interest
payments or, in the case of floating rate bonds, initially is typically equal to
between 12 and 18 months rolling interest payments based on the applicable
interest rate at that time and is adjusted at regular intervals thereafter with
the balance of interest accruals in each case being uncollateralized. Payment of
interest and (except in the case of principal collateralized Brady Bonds)
principal on Brady Bonds with no or limited collateral depends on the
willingness and ability of the foreign government to make payment. In the event
of a default on collateralized Brady Bonds for which obligations are
accelerated, the collateral for the payment of principal will not be distributed
to investors, nor will such obligations be sold and the proceeds distributed.
The collateral will be held by the collateral agent to the scheduled maturity of
the defaulted Brady Bonds, which will continue to be outstanding, at which time
the face amount of the collateral will equal the principal payments which would
have then been due on the Brady Bonds in the normal course. Based upon current
market conditions, a Fund would not intend to purchase Brady Bonds which, at the
time of investment, are in default as to payments. However, in light of the
residual risk of the Brady Bonds and, among other factors, the history of
default with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative. A substantial portion of the Brady Bonds and other sovereign debt
securities in which the High Yield Bond Fund and Emerging Markets Debt Fund
invest are likely to be acquired at a discount, which involves certain
considerations discussed below under "Dividends, Distributions and Taxes."

Sovereign obligors in developing and emerging market countries are among the
world's largest debtors to commercial banks, other governments, international
financial organizations and other financial institutions. These obligors have in
the past experienced substantial difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by negotiating
new or amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
Holders of certain foreign sovereign debt securities may be requested to
participate in the restructuring of such obligations and to extend further loans
to their issuers. There can be no assurance that the Brady Bonds and other
foreign sovereign debt securities in which the Funds may invest will not be
subject to similar restructuring arrangements or to requests for new credit
which may adversely affect a Fund's holdings. Furthermore, certain participants
in the secondary market for such debt may be directly involved in negotiating
the terms of these arrangements and may therefore have access to information not
available to other market participants.

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.

INVESTMENT FUNDS. Certain of the Funds may invest in unaffiliated investment
funds which invest principally in securities in which that 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. The Money Market Fund will only invest
in other money market funds which are subject to the requirements of Rule 2a-7
under the 1940 Act and which are considered to present minimal credit risks. To
the extent a Fund invests in other investment funds, the Fund's shareholders
will incur certain duplicative fees and expenses, including investment advisory
fees. A Fund's investment in certain investment funds will result in special
U.S. Federal income tax consequences described below under "Dividends,
Distributions and Taxes."

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<PAGE> 29

BORROWING. Each of the Funds 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 a Fund's shares and in the return
on the Fund's portfolio. Although the principal of any borrowing will be fixed,
a Fund's assets may change in value during the time the borrowing is
outstanding. A 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 SBAM's or SBAM AP's strategy and the
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 through" tax
treatment to shareholders. Furthermore, if a 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.

NON-DIVERSIFICATION. The Emerging Markets Debt Fund and the Asia Growth Fund are
classified as non-diversified investment companies under the 1940 Act, which
means that each Fund is not limited by the 1940 Act in the proportion of its
assets that may be invested in the obligations of a single issuer. Each Fund,
however, intends to comply with the diversification requirements imposed by the
Code for qualification as a regulated investment company. To the extent a Fund
invests a greater proportion of its assets in the securities of a smaller number
of issuers, the Fund may be more susceptible to any single economic, political
or regulatory occurrence than a more diversified fund and may be subject to
greater risk of loss with respect to its portfolio securities. See "Dividends,
Distributions and Taxes" and "Investment Limitations."

DERIVATIVES. Certain of the Funds may be authorized to 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 a Fund, or to seek to
increase a Fund's income or gain. The description in this Prospectus of each
Fund indicates which, if any, of these types of transactions may be used by that
Fund. Although these strategies are regularly used by some investment companies
and other institutional investors, it is not presently anticipated that any of
these strategies will be used to a significant degree by any Fund unless
otherwise specifically indicated in the description of the particular Fund
contained in this Prospectus. 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, a 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, Loan Participations and Assignments, currencies, futures
contracts, indices and other financial instruments, and a Fund may enter into
interest rate transactions, equity swaps and related transactions and other
similar transactions which may be developed to the extent the investment manager
determines that they are consistent with the applicable Fund's investment
objective and policies and applicable regulatory requirements (collectively,
these transactions are referred to in this Prospectus as "Derivatives"). A
Fund's interest rate transactions may take the form of swaps, caps, floors and
collars, and a Fund's currency transactions may take the form of currency
forward contracts, currency futures contracts, currency swaps and options on
currencies or currency futures contracts.

Derivatives may be used to attempt to protect against possible changes in the
market value of securities held or to be purchased for a Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations, to
protect a 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 a 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 a Fund's income or gain. A Fund may
use any or all types of Derivatives which it is authorized to use at any time;
no particular

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<PAGE> 30

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 a Fund to utilize Derivatives
successfully will depend on, in addition to the factors described above, the
investment manager's ability to predict pertinent market movements, which cannot
be assured. These skills are different from those needed to select a Fund's
portfolio securities. None of the Funds is 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 a 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 certain Derivatives in certain circumstances will require
that a Fund segregate cash, liquid high grade debt obligations or other assets
to the extent a 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. Use
of put and call options could result in losses to a Fund, force the purchase or
sale of portfolio securities at inopportune times or for prices higher or lower
than current market values, or cause a Fund to hold a security it might
otherwise sell. The use of currency transactions could result in a Fund
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 a 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. A Fund
might not be able to close out certain positions without incurring substantial
losses. To the extent a 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. Losses resulting from the use of Derivatives will
reduce a Fund's net asset value, and possibly income, 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 Appendix B to this Prospectus and the Statement of
Additional Information.

The degree of a Fund's use of Derivatives may be limited by certain provisions
of the Code. See "Dividends, Distributions and Taxes."

PORTFOLIO TURNOVER. Purchases and sales of portfolio securities may be made as
considered advisable by the investment manager in the best interests of the
shareholders. Each Fund intends to limit portfolio trading to the extent
practicable and consistent with its investment objectives. Each Fund's portfolio
turnover rate may vary from year to year, as well as within a year. The High
Yield Bond Fund and the Emerging Markets Debt Fund each anticipates that its
annual portfolio turnover rate generally will not exceed 150% and the Asia
Growth Fund anticipates that its annual portfolio turnover rate generally will
not exceed 100%. However, the expected portfolio rates may be exceeded if
conditions warrant. Short-term gains realized from portfolio transactions are
taxable to shareholders

PAGE 29
<PAGE> 31

as ordinary income. In addition, higher portfolio turnover rates can result in
corresponding increases in portfolio transaction costs for a Fund.

With respect to the Money Market Fund, SBAM seeks to enhance the Fund's yield by
taking advantage of yield disparities or other factors that occur in the money
market. For example, market conditions frequently result in similar securities
trading at different prices. The Money Market Fund may dispose of any portfolio
security prior to its maturity if such disposition and reinvestment of the
proceeds are expected to enhance yield consistent with SBAM's judgment as to a
desirable portfolio maturity structure or if such disposition is believed to be
advisable due to other circumstances or considerations. Subsequent to its
purchase, a portfolio security may be assigned a lower rating or cease to be
rated. Such an event would not require the disposition of the instrument, but
SBAM will consider such an event in determining whether the Fund should continue
to hold the security. The policy of the Money Market Fund regarding dispositions
of portfolio securities and its policy of investing in securities deemed to have
maturities of thirteen months or less will result in high portfolio turnover. A
higher rate of portfolio turnover results in increased transaction costs to the
Fund in the form of dealer spreads. See "Portfolio Transactions" in the
Statement of Additional Information.

INVESTMENT LIMITATIONS
- ----------------------------------------------

The following investment restrictions and certain of those described in the
Statement of Additional Information are fundamental policies applicable to the
individual Funds which may be changed only when permitted by law and approved by
the holders of a majority of each 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 each Fund's investment
objective, the other policies and percentage limitations referred to in this
Prospectus and in the Statement of Additional Information are not fundamental
policies of the Funds and may be changed by the applicable Fund's Board of
Directors without shareholder approval.

If a percentage restriction on investment or use of assets set forth below is
adhered to at the time a transaction is effected, later changes in percentages
resulting from changing values will not be considered a violation.

MONEY MARKET FUND

The Money Market Fund may not:

(1) invest more than 5% of the current value of its total assets in the
securities of any one issuer, other than obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities; however, up to
25% of the value of the total assets of the Fund may be invested without
regard to this limitation;

(2) purchase any securities which would cause more than 25% of the value of
its total assets at the time of such purchase to be invested in securities
of one or more issuers conducting their principal business activities in
the same industry, provided that there is no limitation with respect to
investment in obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, with respect to bank obligations or with
respect to repurchase agreements collateralized by any of such obligations;

(3) borrow money except as a temporary measure from banks for extraordinary
or emergency purposes, and in no event in excess of 15% of the value of its
total assets, except that for the purpose of this restriction, short-term
credits necessary for settlement of securities transactions

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<PAGE> 32

are not considered borrowings (the Fund will not purchase any securities
at any time while such borrowings exceed 5% of the value of its total
assets); or

(4) pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 20% of the value of its total assets, and then only to secure
borrowings permitted by (3) above.

With respect to investment limitation (1), the Fund intends (as a matter of
non-fundamental policy) to limit investments in the securities of any single
issuer (other than securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities) to not more than 5% of the Fund's total assets at
the time of purchase, provided that the Fund may invest up to 25% of its total
assets in the securities of a single issuer for a period of up to three Business
Days.

HIGH YIELD BOND FUND, EMERGING MARKETS DEBT FUND AND
ASIA GROWTH FUND

The High Yield Bond Fund, Emerging Markets Debt Fund and Asia Growth Fund may
not:

(1) With respect to the High Yield Bond Fund only, invest more than 5% of
the current value of its total assets in the securities of any one issuer,
other than obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities; however, up to 25% of the value of the total
assets of the Fund may be invested without regard to this limitation, so
long as no more than 25% of its total assets are invested in the securities
of any one issuer;

(2) borrow money, except for temporary or emergency purposes and then not
in excess of 5% of the value of the total assets of the applicable 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 (no Fund will purchase
additional securities at any time its borrowings exceed 5% of total
assets); or

(3) invest more than 25% of the total assets of each 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 a Fund).

For purposes of investment limitations (1) and (3) above, both the borrower
under a Loan and the Lender selling a Participation will be considered an
"issuer." See "Additional Investment Activities and Risk Factors--Loan
Participations and Assignments."

PURCHASE AND
REDEMPTION OF SHARES

------------------------------------

NET ASSET VALUE

For the purpose of pricing purchase and redemption orders, the net asset value
per share of each Fund is calculated separately and is determined for each Fund
(other than the Money Market Fund) once daily as of the close of regularly
scheduled trading on the New York Stock Exchange ("NYSE") (normally 4:00 p.m.
(New York time)). The net asset value per share of the Money Market Fund is
determined twice daily, once at 12:00 noon (New York time) and again at 4:00
p.m. (New York time). With respect to each Fund, 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, President's Day, Good Friday,

PAGE 31
<PAGE> 33

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 each Fund is
calculated by dividing the value of the Fund's securities and other assets, less
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 applicable 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 will be
determined by consideration of other factors by or under the direction of the
applicable Fund's 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 a 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.

The Money Market Fund uses the amortized cost method to value its portfolio
securities and seeks to maintain a stable net asset value of $1.00 per share.
Each of the other Funds values short-term investments that mature in 60 days or
less at amortized cost. If a Fund acquires securities with more than sixty days
remaining to maturity, they will be valued at current market value until the
60th day prior to maturity, and will then be valued on an amortized cost basis
based upon the value on such date unless the Board determines during such 60-day
period that this amortized cost basis does not represent fair value. The
amortized cost method involves valuing a security at its cost and amortizing any
discount or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. See the
Statement of Additional Information for a more complete description of the
amortized cost method.

PURCHASE PROCEDURES

There is no sales charge imposed by the Funds on purchases of shares of the
Funds. The minimum initial investment in the Money Market Fund is $250,000 and
the minimum investment in the other Funds is $1,000,000. Subsequent purchases
may be in any amount. Each Fund reserves the right to waive the minimum initial
investment amount and to reject any purchase order in whole or in part.

Shares of each Fund may be made on any Business Day at the net asset value per
share next determined after receipt of a purchase order. Shares certificates
will not be issued.

Share purchase orders are effective on the date the Fund receives a completed
Account Application Form (and other required documents) and federal funds become
available to a Fund in such Fund's account with Investors Bank & Trust Company
("Investors Bank"), the Funds' transfer agent and dividend-disbursing agent.
Federal funds will not necessarily become available to a Fund and consequently
share purchase orders may not be deemed received on the same date a check is
received from the shareholder.

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<PAGE> 34

Purchases of shares of Funds can be made by wire transfer, check or money order
through Investors Bank. The shareholder's bank may impose a charge to execute a
wire transfer. The wiring instructions are:

Investors Bank & Trust Company
ABA #011-001-438
Account Name: Salomon Brothers Institutional Series Funds
Attn: (Name of Fund)
Salomon DDA#: 456789123
Name of Account:
Account #:
Amount of Wire:

Share purchase orders made with a check or money order should be mailed to the
following address:

Investors Bank & Trust Company
P.O. Box 1537
Boston, Massachusetts 02205-1537
Attention: Transfer Agent

For a share purchase order for any Fund other than the Money Market Fund to
become effective on a particular Business Day, prior to 4:00 p.m. (New York
time) (i) in the case of a wire transfer payment, a purchaser must call (800)
347-6028 to inform Investors Bank of an incoming wire transfer or (ii) in the
case of payment by check or money order, a complete share purchase order must be
actually received by Investors Bank, and, in either case, federal funds must be
received by a Fund. If federal funds are received by a Fund that same day, the
order will be effective on that day. If a Fund receives notification of a wire
transfer or a complete share purchase order after 4:00 p.m., or if federal funds
are not received by Investors Bank, such purchase order shall be executed as of
the date that federal funds are actually received. Purchase orders for shares of
the Money Market Fund placed by 12:00 noon (New York time) on any Business Day
will be executed and begin to earn dividends that same day if payment is
received in or converted into federal funds by 12:00 noon (New York time) that
day. Purchase orders received after 12:00 noon (New York time) or for which
payment is received in or converted into federal funds after 12:00 noon (New
York time) will be executed and begin to earn dividends on the following
Business Day.

REDEMPTION PROCEDURES

Each Fund will redeem all full and fractional shares of the Fund upon request of
shareholders. The redemption price is the net asset value per share next
determined after receipt by Investors Bank of proper notice of redemption as
described below. Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption. If notice of
redemption is received on any Business Day, the redemption will be effective on
the date of receipt. Payment will ordinarily be made by wire on the next
Business Day, but, in any case, within no more than seven Business Days from the
date of receipt. If the notice is received on a day that is not a Business Day
or after the close of regularly scheduled trading on the NYSE, the redemption
notice will be deemed received as of the next Business Day. The value of shares
at the time of redemption may be more or less than the shareholder's cost
depending on the market value of the securities held by the Fund at such time.

A shareholder may elect to receive payment upon redemption of their shares in
the form of a wire or check. There is no charge imposed by a Fund to redeem
shares of the Fund; however, in the case of a redemption by wire, a
shareholder's bank may impose its own wire transfer fee for receipt of the wire.
Redemptions may be executed in any amount requested by the shareholder up to the
total amount such shareholder has invested in that Fund.

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<PAGE> 35

REDEMPTION BY MAIL

A shareholder wishing to redeem shares may do so by mailing proper notice of
redemption directly to Investors Bank. Proper notice of redemption may be
accomplished by written letter requesting redemption. The notice requires the
signature of all persons in whose names the shares are registered, signed
exactly as the shares are registered. In certain instances, Investors Bank may
require additional documents such as, but not limited to, trust instruments,
death certificates, appointments as executor or administrator or certificates of
corporate authority. For shareholders redeeming directly with Investors Bank,
payment will be mailed to the address of record within seven days of receipt of
a proper notice of redemption. Each Fund reserves the right to reject any order
for redemption.

REDEMPTION BY WIRE

To redeem shares by wire, a shareholder or any authorized agent (so designated
on the Account Application Form) must provide Investors Bank with the dollar or
share amount to be redeemed, the account to which the redemption proceeds should
be wired (which account shall have been previously designated by the shareholder
on its Account Application Form), the name of the shareholder and the
shareholder's account number.

A shareholder may change its authorized agent, the address of record or the
account designated to receive redemption proceeds at any time by writing to
Investors Bank with a signature guaranteed by a national bank which is a member
of the Federal Reserve System (not a savings bank) or by a member firm of any
national or regional securities exchange. If the guarantor institution belongs
to one of the Medallion Signature Programs, it must use the specific Medallion
"Guaranteed" stamp. Notarized signatures are not sufficient. Further
documentation may be required when deemed appropriate by Investors Bank.

TELEPHONE REDEMPTION

A shareholder may request redemption by calling Investors Bank at (800)
347-6028. Telephone redemption is made available to shareholders of each Fund on
the Account Application Form. Shareholders should realize that by making
redemption requests by telephone, they may be giving up a measure of security
that they may have if they were to redeem their shares in writing. Each Fund
reserves the right to refuse a telephone request for redemption if it is
believed advisable to do so. Procedures for redeeming shares by telephone may be
modified or terminated at any time by the Funds. Neither the Funds nor Investors
Bank will be liable for following redemption instructions received by telephone,
which are reasonably believed to be genuine, and the shareholder will bear the
risk of loss in the event of unauthorized or fraudulent telephone instructions.
Each Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Each Fund may be liable for any losses
due to unauthorized or fraudulent instructions in the absence of following these
procedures. Each Fund may require personal identification codes. Checks will be
made payable to the registered shareholders and sent to the address of record on
file with Investors Bank. Payments by wire will only be made to the registered
holders through pre-existing bank account instructions. No bank instruction
changes will be accepted via telephone.

SMALL ACCOUNTS

Under each Fund's present policy, it reserves the right to redeem upon not less
than 30 days' notice, the shares in an account which has a value of $10,000 or
less, if the reduction in value is the result of shareholder redemptions or
transfers and not as a result of a decline in the net asset value. However, any
shareholder affected by the exercise of this right will be allowed to make
additional investments prior to the date fixed for redemption to avoid
liquidation of the account.

EXCHANGE PRIVILEGE

Shareholders of any Fund may exchange all or part of their shares for shares of
any other Fund at the applicable relative net asset value per share. The value
of the shares exchanged must meet the

PAGE 34
<PAGE> 36

investment minimum of the Fund into which the investor is exchanging. Shares of
a Fund are eligible for exchange 30 days after purchase.

Each Fund reserves the right to refuse a telephone request for exchange if it is
believed advisable to do so. Procedures for exchanging shares by telephone may
be modified or terminated at any time by a Fund. None of the Funds, Investors
Bank and Salomon Brothers will be liable for following exchange instructions
received by telephone, which are reasonably believed to be genuine, and the
shareholder will bear the risk of loss in the event of unauthorized or
fraudulent telephone instructions. The Funds, Investors Bank and Salomon
Brothers may employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The Funds, Investors Bank and Salomon
Brothers may be liable for any losses due to unauthorized or fraudulent
instructions in the absence of following these procedures. When requesting an
exchange by telephone, shareholders should have available the correct account
registration and account numbers or tax identification number.

The exchange of shares of one Fund for shares of another Fund is treated for
federal income tax purposes as a sale of the shares given in exchange by the
shareholder, and an exchanging shareholder may, therefore, realize a taxable
gain or loss in connection with an exchange. See "Dividends, Distributions and
Taxes."

The exchange privilege is available to shareholders residing in any state in
which the shares of the Fund being acquired may be legally sold. Investors Bank
and Salomon Brothers reserve the right to reject any exchange request. The
exchange privilege may be modified or terminated at any time after notice to
shareholders.

DISTRIBUTOR

Salomon Brothers is the Funds' distributor. Salomon Brothers, located at 7 World
Trade Center, New York, New York 10048, is a wholly-owned subsidiary of Salomon
Brothers Holding Company Inc, which is in turn wholly-owned by Salomon Inc. It
is also one of the largest securities dealers in the world and a registered
broker-dealer. Salomon Brothers 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 from
time to time may receive fees from SBAM in connection with processing and other
services that it provides for certain shareholder accounts.
---------------

Under certain circumstances, certain broker/dealers may impose transaction fees
on the purchase and/or sale of shares.
MANAGEMENT

------------------------------------

DIRECTORS AND OFFICERS

The business and affairs of each Fund are managed under the direction of its
Board of Directors. The Board of Directors approves all significant agreements
between a 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 the Fund's investment manager and administrator. The Statement of
Additional Information contains general background information regarding the
Directors and officers of each Fund.

INVESTMENT MANAGER

Each Fund retains SBAM as its investment manager under an investment management
contract. SBAM was incorporated in 1987 and together with affiliates in London,
Frankfurt and Hong Kong, SBAM 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 January 31, 1996, SBAM had approximately $14 billion
of assets under management of which approximately $673 million is invested in
high yield securities and

PAGE 35
<PAGE> 37

approximately $1.15 billion of which is invested in emerging market country debt
securities. SBAM has access to Salomon Inc's more than 250 economists, mortgage,
bond, sovereign, and equity analysts. The business address of SBAM is 7 World
Trade Center, New York, New York 10048.

Pursuant to a Subadvisory Agreement, SBAM has retained Salomon Brothers Asset
Management Asia Pacific Limited to act as sub-adviser to the Asia Growth Fund,
subject to the supervision of SBAM. Like SBAM, SBAM AP is an indirect,
wholly-owned subsidiary of Salomon Inc. SBAM AP, which was formed in 1995, is a
member of the Hong Kong Securities and Futures Commission and is registered as
an investment adviser in the United States pursuant to the Investment Advisers
Act of 1940, as amended. The business address of SBAM AP is Three Exchange
Square, Hong Kong.

Peter J. Wilby is primarily responsible for the day-to-day management of the
High Yield Bond Fund and the Emerging Markets Debt Fund. Mr. Wilby, who joined
SBAM in 1989, is a Managing Director, responsible for SBAM's investment company
and institutional portfolios which invest in high yield non-U.S. and U.S.
corporate debt securities, high yield foreign sovereign debt securities and
emerging market debt securities. Mr. Wilby is the portfolio manager for Salomon
Brothers High Yield Bond Fund, a portfolio of Series Funds, Global Partners
Income Fund Inc., The Emerging Markets Income Fund Inc., The Emerging Markets
Income Fund II Inc., The Emerging Markets Floating Rate Fund Inc., Salomon
Brothers Worldwide Income Fund Inc, Salomon Brothers High Income Fund Inc, the
high yield and sovereign bond portions of the Salomon Brothers Strategic Bond
Fund, a portfolio of Series Funds and the foreign sovereign debt component of
Salomon Brothers 2008 Worldwide Dollar Government Term Trust Inc.

Giampaolo G. Guarnieri will be primarily responsible for the day-to-day
management of the Asia Growth Fund. Mr. Guarnieri has been employed by SBAM AP
as a Vice President and Senior Portfolio Manager since April 1995. Prior to
joining SBAM AP, Mr. Guarnieri spent five years at Credit Agricole Asset
Management (South East Asia) Limited in Hong Kong, a wholly-owned subsidiary of
the Credit Agricole Group as a senior portfolio manager since 1992 and as head
of direct investment activities prior to that. Mr. Guarnieri is also portfolio
manager of Salomon Brothers Asia Growth Fund, a portfolio of Series Funds.

Subject to policy established by the Board of Directors, which has overall
responsibility for the business and affairs of each Fund, SBAM manages the
investment and reinvestment of each Fund's assets pursuant to the applicable
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 each 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 Funds' officers, employees
and directors affiliated with SBAM. Except for the expenses paid by SBAM that
are described herein, each Fund bears all costs of its operations.

As compensation for its services, the Money Market Fund pays SBAM a monthly fee
at an annual rate of .20% of the Fund's average daily net assets. On November
16, 1995, the Board approved, subject to shareholder approval, an increase in
the management fee from .10% of the Money Market Fund's average daily net assets
to .20%. The shareholders approved the amendment on March 26, 1996, to become
effective as of the date of this Prospectus. SBAM has voluntarily agreed to
reduce or otherwise limit expenses of the Money Market Fund (exclusive of taxes,
interest and extraordinary expenses such as litigation and indemnification
expenses), on an annualized basis, to .18% of the Fund's average daily net
assets for a period of at least one year from the date of this Prospectus, and
no more than .25% thereafter.

PAGE 36
<PAGE> 38

annualized basis to .55%, .75% and 1.00%, respectively, of the applicable Fund's
average daily net assets.

The services of SBAM and SBAM AP 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
any of the Funds) or from engaging in other activities.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers Inc. and subject to seeking the most favorable price and
execution available, SBAM and SBAM AP may consider sales of shares of the Funds
as a factor in the selection of brokers to execute portfolio transactions for
the Funds. The Funds may use Salomon Brothers to execute portfolio transactions
when SBAM or SBAM AP believe 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 Funds' policies
with respect to portfolio transactions.

PERFORMANCE OF ACCOUNTS

Set forth in the chart below is performance data provided by SBAM AP relating,
for the period from January 1, 1992 to February 28, 1995, to a non-U.S.
collective investment vehicle (the "Offshore Fund I") managed by the portfolio
manager of the Asia Growth Fund while he was employed by a different investment
adviser unaffiliated with SBAM and, for the period from September 1, 1995 to
December 31, 1995, to a non-U.S. collective investment vehicle managed by the
portfolio manager after commencement of employment with an affiliate of SBAM
(the "Offshore Fund II"). Both Offshore Fund I and Offshore Fund II have
substantially similar, though not identical, investment objectives, policies and
strategies as those of the Fund. With respect to Offshore Fund I, the period
shown reflects the period for which the portfolio manager was primarily
responsible for the day-to-day management of the portfolio of Offshore Fund I.
During the period shown for Offshore Fund I, the size of the fund ranged from
approximately $45 million to $95 million and during the period shown for
Offshore Fund II, the size of the fund ranged from approximately $8 million to
$10 million.

The Morgan Stanley Capital International Combined Asia Ex-Japan Index is a
widely recognized market index of Asian country equity issues. The index is
composed of a sample of companies from the following ten countries: Hong Kong,
India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Singapore, Sri Lanka
and Thailand. Constituent stocks are selected for the index on the basis of
industry representation, liquidity and sufficient float. The index is unmanaged
and accordingly, does not reflect the effect of operating expenses, including
advisory fees, transaction costs and other expenses but does reflect
reinvestment of dividends.

The performance data shown below should be read in conjunction with the
information in "General" that follows:

<TABLE>
<CAPTION>
AVERAGE
ANNUAL
TOTAL TOTAL
1/1/95- RETURN RETURN
1/1/92- 1/1/93- 1/1/94- 2/28/95 1/1/92- 1/1/92-
12/31/92 12/31/93 12/31/94 (ANNUALIZED) 2/28/95 2/28/95
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Offshore Fund I 29.50% 95.05% (13.55)% (5.47)% 106.42% 25.72%
Morgan Stanley Capital International
Combined Asia Ex-Japan Index 18.45 98.80 (18.38) (3.01) 86.42 21.74
</TABLE>

<TABLE>
<CAPTION>
TOTAL
FOR THE MONTH ENDING: RETURN
---------------------------------------------------------------------------- SINCE
9/29/95 10/31/95 11/30/95 12/29/95 1/31/96 2/29/96 3/29/96 INCEPTION
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Offshore Fund II 2.12% (1.16)% 0.21% 4.22% 10.77% (0.61)% 0.09% 16.17%
Morgan Stanley Capital
International
Combined Asia
Ex-Japan Index 1.04 (1.84) (2.40) 4.81 7.65 0.95 0.56 10.87
</TABLE>

PAGE 37
<PAGE> 39

GENERAL. The performance results shown above are based on total returns
reflecting realized and unrealized gains and losses and income, including that
derived from cash positions. Returns are calculated monthly for Offshore Fund I
and Offshore Fund II and are compounded monthly. The investment results are
time-weighted based on market values determined as of the last business day of
each month. The performance results are net of transaction costs and advisory
and other fees incurred and reflect reinvestment of dividends and capital gains
distributions, if any.

The performance results shown above are not performance results for the Asia
Growth Fund, which has no history of operations. The results shown above should
not be deemed to be indicative of future results for the Asia Growth Fund owing
to differences in brokerage commissions and dealer spreads, expenses, including
investment advisory fees, the size of positions taken in relation to fund size,
timing of purchases and sales and market conditions at the time of a
transaction, timing of cash flows and availability of cash for new investments.

Although substantially similar, the investment objectives, policies and
strategies for Offshore Fund I and Offshore Fund II above differ in certain
respects from those of the Asia Growth Fund. In addition, such accounts were
managed without regard to certain tax requirements applicable to U.S. registered
investment companies that limit the proportions of short-term gains that such
companies may realize to maintain their tax status. See "Dividends,
Distributions and Taxes." Accordingly, the performance results shown above and
that of the Asia Growth Fund are expected to differ.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTORS SHOULD ALSO BE
AWARE THAT THE USE OF METHODS OF DETERMINING PERFORMANCE DIFFERENT THAN THAT
USED BY SBAM AP WOULD RESULT IN DIFFERENT PERFORMANCE DATA. NO ADJUSTMENT HAS
BEEN MADE FOR ANY INCOME TAXES WHICH ARE PAYABLE ON INCOME DIVIDENDS OR CAPITAL
GAINS DISTRIBUTIONS. THE EFFECT OF TAXES ON ANY INVESTOR WILL DEPEND ON SUCH
INVESTOR'S TAX STATUS. SEE "DIVIDENDS, DISTRIBUTIONS AND TAXES."

ADMINISTRATOR

Each Fund employs Investors Bank, 89 South Street, Boston, Massachusetts 02111,
under an administration agreement to provide certain administrative services to
each Fund. Investors Bank is not involved in the investment decisions made with
respect to the Funds. The services provided by Investors Bank under the
administration agreements include certain accounting, clerical and bookkeeping
services, Blue Sky compliance, 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, transfer agent and custodian to the High
Yield Bond Fund, Emerging Markets Debt Fund and Asia Growth Fund, each Fund pays
Investors Bank a fee at an annual rate of .10% of each Fund's average daily net
assets up to $500 million in net assets and .05% of each Fund's average daily
net assets in excess of $500 million. For its services as administrator to the
Money Market Fund, Investors Bank receives a fee at an annual rate of .08% of
the Fund's average daily net assets.

Investors Bank acts as transfer agent for the High Yield Bond Fund, Emerging
Markets Debt Fund and Asia Growth Fund pursuant to a transfer agency, dividend
disbursing agency and shareholder servicing agency agreement. First Data
Investors Services Group , Inc. ("FDISG"), a subsidiary of First Data
Corporation, which is located at One Exchange Place, Boston, Massachusetts
02109, serves as transfer agent for the Money Market Fund. Each of Investors
Bank and FDISG are responsible for the issuance, transfer and redemption of
shares and the opening and maintenance of shareholder accounts.

EXPENSES

Each 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

PAGE 38
<PAGE> 40

distribution to existing shareholders, advisory and administration fees, charges
of the custodian, transfer agent and dividend disbursing agent, certain
insurance premiums, outside auditing and legal expenses, costs of shareholder
reports and shareholder meetings and any extraordinary expenses. Each Fund also
pays for brokerage fees and commissions (if any) in connection with the purchase
and sale of portfolio securities.

DIVIDENDS, DISTRIBUTIONS
AND TAXES

------------------------------------

DIVIDENDS AND DISTRIBUTIONS

The Money Market Fund intends to declare as a dividend substantially all of its
net investment income at the close of each Business Day to the Fund's
shareholders of record at 12:00 noon (New York time) on that day, and will pay
such dividends monthly. The High Yield Bond Fund, the Emerging Markets Debt Fund
and the Asia Growth Fund will declare dividends from net investment income
annually and pay them 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 accredited or premium amortized
to the date of maturity, minus estimated expenses.

Shares of a Fund (other than the Money Market Fund, as described below) are
entitled to dividends declared beginning on the day after the purchase order is
received in good order. Purchase orders for shares of the Money Market Fund for
which payment is received in or converted into federal funds by 12:00 noon (New
York time) on any Business Day will become effective that day and begin to earn
dividends on that day. Purchase orders for shares of the Money Market Fund for
which payment is received in or converted into federal funds after 12:00 noon
(New York time) on any Business Day will become effective that day and begin to
earn dividends on the following Business Day. With respect to the Money Market
Fund, shares redeemed by 12:00 noon (New York time) will accrue dividends
through the day prior to redemption, shares redeemed after 12:00 noon (New York
time) will accrue dividends on the day of redemption. Net investment income for
a Saturday, Sunday or holiday will be declared as a dividend on the previous
Business Day.

Net realized short-term capital gains of each 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. Each 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). The Money Market Fund does not expect to realize any
long-term capital gains.

If, for any full fiscal year, a 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 a 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.

PAGE 39
<PAGE> 41

Dividend and/or capital gain distributions will be reinvested automatically in
additional shares of a Fund at net asset value 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. If such
distributions are to be sent to an address other than the address on record or
the account designated to receive redemption proceeds a signature guarantee is
required. See "Redemptions Procedures" above for instructions concerning
signature guarantees. Such signature must be signed exactly as registered with
Investors Bank. Shareholders may change the distribution option at any time by
notification to Investors Bank prior to the record date of any such dividend or
distribution.

If a shareholder elects to receive dividends and/or distributions in cash and
the check cannot be delivered to a shareholder due to an invalid address or
otherwise remains uncashed by the shareholder for a period of six months, each
Fund reserves the right to reinvest the dividend and/or distribution in a
shareholder's account at the then-current net asset value and to convert the
shareholder's election to automatic reinvestment in shares of that Fund.

TAXES

FEDERAL INCOME TAX MATTERS. Each Fund intends to qualify and elect to be treated
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). If it so qualifies, a 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 a Fund's net 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 a 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.

Each Fund will be subject to federal corporate income tax (currently at a
maximum rate of 35%) on any undistributed income other than tax-exempt income
from municipal obligations and to alternative minimum tax (currently at a
maximum rate of 28%) on alternative minimum taxable income, which includes
interest income on certain "private activity" obligations that is otherwise
exempt from tax.

Each Fund is subject to a nondeductible 4% excise tax calculated as a percentage
of certain undistributed amounts of ordinary income and net realized capital
gains. To the extent possible, each Fund intends to make sufficient
distributions to avoid the application of both the corporate income and excise
taxes.

All dividends and distributions to shareholders of a Fund of investment company
taxable income will be taxable to shareholders whether paid in cash or
reinvested in additional shares. For federal income tax purposes, distributions
of net investment income, which includes the excess of the Fund's net realized
short-term capital gains realized over net realized long-term capital losses,
are taxable to shareholders as ordinary income.

Distributions of "net capital gains" designated by a Fund as "capital gain
dividends" will be taxable as long-term capital gains, whether paid in cash or
additional shares, regardless of how long the shares have been held by such
shareholders, and such distributions will not be eligible for the dividends
received deduction. A portion of a Fund's dividends may qualify for the
dividends received deduction available to corporations. In general, the maximum
federal income tax rate imposed on individuals with respect to capital gain
dividends will be limited to 28%, whereas the maximum federal income tax rate
imposed on individuals with respect to ordinary income (and short-term capital
gains, which currently are taxed at the same rates as ordinary income) will be
39.6%. With respect to corporate taxpayers, long-term capital gains currently
are taxed at the same federal income tax rates as ordinary income and short-term
capital gains. Investors should consider the tax implications of buying shares

PAGE 40
<PAGE> 42

shortly before the record date of a distribution because distributions will be
taxable even though the net asset value of shares of a Fund is reduced by the
distribution.

Funds investing in foreign securities or currencies may be required to pay
withholding or other taxes to foreign governments on dividends and interest. The
investment yield of a Fund investing in foreign securities or currencies will be
reduced by these foreign taxes. Shareholders will bear the cost of any foreign
taxes but may not be able to claim a foreign tax credit or deduction for these
foreign taxes. In addition, a Fund investing in securities of passive foreign
investment companies may be subject to U.S. federal income taxes (and interest
on such taxes) as a result of such investments. The investment yield of a Fund
making such investments will be reduced by these taxes and interest.
Shareholders will bear the cost of these taxes and interest, but will not be
able to claim a deduction for these amounts.

The redemption, sale or exchange of shares of one Fund for shares of another is
a taxable event and may result in a gain or loss. Gain or loss, if any,
recognized on the sale or other disposition of shares of a Fund will be taxed as
capital gain or loss if the shares are capital assets in the shareholder's
hands. Generally, a shareholder's gain or loss will be a long-term gain or loss
if the shares have been held for more than one year. If a shareholder sells or
otherwise disposes of shares of a Fund before holding them for more than six
months, any loss on the sale or other disposition of such shares shall be
treated as a long-term capital loss to the extent of any capital gain dividends
received by the shareholder with respect to such shares. A loss realized on a
sale or exchange of shares may be disallowed if other shares are acquired within
a 61-day period beginning 30 days before and ending 30 days after the date that
the shares are disposed of.

Generally, shareholders will be taxable on dividends or distributions in the
year of receipt. However, if a Fund declares a dividend or distribution in
October, November or December to shareholders of record on a specified date in
such a month which is actually paid during the following January, it will be
deemed to have been received by the shareholders and paid by the Fund no later
than December 31 of the year in which the dividend or distribution is declared.

A Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in Pay-In-Kind
bonds or in obligations such as certain Brady Bonds or zero coupon securities
having original issue discount (i.e., an amount equal to the excess of the
stated redemption price of the security at maturity over its issue price), or
market discount (i.e., an amount equal to the excess of the stated redemption
price of the security over the basis of such bond immediately after it was
acquired) if the Fund elects to accrue market discount on a current basis. In
addition, income may continue to accrue for federal income tax purposes with
respect to a non-performing investment. Any such income would be treated as
income earned by a Fund and therefore would be subject to the distribution
requirements of the Code. Because such income may not be matched by a
corresponding cash distribution to a Fund, such Fund may be required to borrow
money or dispose of other securities to be able to make distributions to its
investors. The extent to which a Fund may liquidate securities at a gain may be
limited by the requirement that less than 30% of its annual gross income be
derived from the sale or other disposition of securities and certain other
investments held for less than three months (the "short-short test"). In
addition, if an election is not made to currently accrue market discount with
respect to a market discount bond, all or a portion of any deduction or any
interest expense incurred to purchase or hold such bond may be deferred until
such bond is sold or otherwise disposed of.

Each Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
noncorporate shareholders. This tax may be withheld from dividends if (i) the
payee fails to furnish the Fund with the payee's correct taxpayer identification
number (e.g., an individual's social security number), (ii) the Internal Revenue
Service ("IRS") notifies the Fund that the payee has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (iii) when required to do so, the payee

PAGE 41
<PAGE> 43

fails to certify that he or she is not subject to backup withholding. Redemption
proceeds may be subject to withholding under the circumstances described in (i)
above. Backup withholding is not an additional tax and any amounts withheld may
be credited against the shareholder's federal income tax liability.

HONG KONG TAX MATTERS. The Asia Growth Fund would be subject to Hong Kong
profits tax, which is currently charged at the rate of 16.5% for corporations
and 15% for individuals, if, by virtue of the fact that SBAM AP is located in
Hong Kong, (a) the Fund or its agents were deemed to carry on a trade,
profession or business in Hong Kong and (b) profits from that trade, profession
or business were to arise in or be derived from Hong Kong. Hong Kong profits tax
will not be payable in respect of profits from the sale of shares and other
securities transacted outside Hong Kong, interest arising or derived from
outside Hong Kong and profits in the nature of capital gains. The sale of
securities will not be treated as the sale of capital assets if the profit or
loss from such sale is regarded as attributable to a trade or business carried
on in Hong Kong. The Asia Growth Fund does not currently believe that it will be
subject to Hong Kong profits tax.

Dividends which the Fund pays to its shareholders are not taxable in Hong Kong
(whether through withholding or otherwise) under current legislation and
practice. No Hong Kong stamp duty will be payable in respect of transactions in
shares of the Asia Growth Fund provided that the register of shareholders is
maintained outside of Hong Kong.
------------------------

Depending on the residence of the shareholder for tax purposes, distributions
may also be subject to state and local taxes or withholding taxes. Statements
detailing the tax status of each shareholders' dividends and distributions will
be mailed annually.

The foregoing is intended to be general information to shareholders and
potential investors in a Fund and does not constitute tax advice. Shareholders
and potential investors should consult their own tax advisers regarding federal,
state, local and foreign tax consequences of ownership of shares in a Fund.

ACCOUNT SERVICES
- ----------------------------------------------

Shareholders of each Fund will be kept informed through semi-annual reports
showing diversification of investments and other financial data for such Fund.
Annual reports for all Funds will include audited financial statements.
Shareholders of each Fund will receive a Statement of Account following each
share transaction, except for shareholders of the Money Market Fund, who will
receive a Statement of Account at least monthly showing transactions in the
account, the total number of shares owned, and any dividends or distributions
paid. Shareholders can write or call a Fund at the address and telephone number
on the front cover of this Prospectus with any questions relating to their
investment in shares of such Fund.

CAPITAL STOCK
- ----------------------------------------------

The Institutional Series Funds was incorporated in Maryland on January 19, 1996.
The authorized capital stock of the Institutional Series Funds consists of
10,000,000,000 shares of common stock having a par value of $.001 per share.
Pursuant to the Institutional Series Funds' Articles of Incorporation, the Board
of Directors has authorized the issuance of three series of shares, each
representing shares in one of three separate funds. The High Yield Bond Fund,
the Emerging Markets Debt Fund and the Asia Growth Fund are the currently
existing portfolios of the Institutional Series Funds. The assets of each Fund
are segregated and separately managed. The Institutional Series Funds' Board of
Directors may, in the future, authorize the issuance of additional classes of
capital stock representing shares of additional investment portfolios.

PAGE 42
<PAGE> 44

The Money Market Fund, a portfolio of the Series Funds, changed its name from
Salomon Brothers U.S. Treasury Securities Money Market Fund to its current name
on March 26, 1996. The Series Funds was incorporated in Maryland on April 17,
1990. On March 26, 1996, shareholders of the Money Market Fund approved a change
in the Fund's investment objective and policies and certain investment
restrictions to those described herein. The authorized capital stock of the
Series Funds consists of 10,000,000,000 shares of common stock having a par
value of $.001 per share. Pursuant to the Series Funds' Articles of
Incorporation and Articles Supplementary, the Board of Directors has authorized
the issuance of ten series of shares, each representing shares in one of ten
separate funds. In addition to the Money Market Fund, the portfolios of the
Series Funds include Salomon Brothers National Intermediate Municipal Fund,
Salomon Brothers U.S. Government Income Fund, Salomon Brothers High Yield Bond
Fund, Salomon Brothers Strategic Bond Fund, Salomon Brothers Total Return Fund,
Salomon Brothers Asia Growth Fund, Salomon Brothers Cash Management Fund,
Salomon Brothers New York Municipal Bond Fund and Salomon Brothers New York
Municipal Money Market Fund. The assets of each fund are segregated and
separately managed. The 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 and Salomon Brothers Holding Company Inc, the parent company of SBAM, own
all of the outstanding shares of the High Yield Bond Fund, the Emerging Markets
Debt Fund and the Asia Growth Fund, and consequently are controlling persons of
such Funds.

Although each Fund is offering only its own shares, it is possible that a Fund
could become liable for a misstatement in this Prospectus about another Fund.
The Directors of the Institutional Series Funds and the Series Funds have
considered this factor in approving the use of a combined Prospectus.

All shares of each Fund have equal voting rights and will be voted in the
aggregate, and not by series or class, except where voting by series or class is
required by law or where the matter involved affects only one series or class.
Each shareholder is entitled to cast, at all meetings of shareholders, such
number of votes as is equal to the number of full and fractional shares held by
such shareholder. All shares of each Fund will, when issued, be fully paid and
nonassessable. None of the Funds will issue any senior securities. Under the
corporate law of Maryland, the state of incorporation of the Institutional
Series Funds and the Series Funds, and the By-Laws of both the Institutional
Series Funds and the Series Funds, neither the Institutional Series Funds nor
the Series Funds is 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.

PAGE 43
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APPENDIX A:
DESCRIPTION OF RATINGS

------------------------------------

A DESCRIPTION OF THE RATING POLICIES OF MOODY'S, S&P AND FITCH WITH RESPECT TO
BONDS AND COMMERCIAL PAPER APPEARS BELOW.

MOODY'S INVESTORS SERVICE'S CORPORATE BOND RATINGS

Aaa--Bonds which are rated "Aaa" are judged to be of the best quality and carry
the service fees 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 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 ratings
classifications. The modifier "1" indicates that the security ranks in the
higher end of 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.

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STANDARD & POOR'S RATING GROUP CORPORATE BOND RATINGS

AAA--This is the highest rating assigned by Standard & Poor's 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
repay 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" 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 both above may be modified by the addition of a plus or minus to
show relative standing within the major rating categories.

MOODY'S INVESTORS SERVICE'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 obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratio, while sound, will be more subject to
variation. Capitalization 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.

PAGE A-2
<PAGE> 47

STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS

A--S&P commercial paper rating is a current assessment of the likelihood of
timely repayment 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.

MOODY'S INVESTORS SERVICE'S MUNICIPAL 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 pursuant 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.

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 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.

PAGE A-3
<PAGE> 48

STANDARD & POOR'S MUNICIPAL BOND RATING

AAA--is the highest rating assigned by S&P to a debt obligation and indicates an
extremely strong capacity to pay principal and interest.

AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degrees.

A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.

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 INVESTORS SERVICE'S RATINGS OF STATE AND MUNICIPAL NOTES

MIG-1/VMIG-1--Notes rated MIG-1/VMIG-1 are of the best quality. There is present
strong protection by established cash flows, superior liquidity support or
broad-based access to the market for refinancing.

MIG-2/VMIG-2--Notes which are rated MIG-2/VMIG-2 are of high-quality. Margins of
protection are ample though not so large as in the preceding group.

STANDARD & POOR'S RATINGS OF STATE AND MUNICIPAL NOTES

SP-1--Notes which are rated SP-1 have a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.

SP-2--Notes which are rated SP-2 have a satisfactory capacity to pay principal
and interest.

FITCH MUNICIPAL BOND RATING

AAA--Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA--Bonds rated AA by Fitch are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated F-1+ by Fitch.

A--Bonds rated A by Fitch are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.

BBB--Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse consequences on
these bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with higher ratings.

PAGE A-4
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Plus and minus signs are used by Fitch to indicate the relative position of a
credit within a rating category. Plus and minus signs, however, are not used in
the AAA category.

FITCH SHORT-TERM RATINGS

Fitch short-term ratings apply, to debt obligations that are payable on demand
or have original maturities of, generally, up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.

The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.

FITCH'S SHORT-TERM RATINGS ARE AS FOLLOWS:

F-1+--Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.

F-1--Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.

F-2--Issues assigned this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as for issues assigned
F-1+ and F-1 ratings.

F-3--Issues assigned this rating have characteristics suggesting that the degree
of assurance for timely payment is adequate, although near-term adverse changes
could cause these securities to be rated below investment grade.

LOC--The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.

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 a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by such Fund. Neither event will
require a sale of such security by a Fund. However, SBAM will consider such
event in its determination of whether such 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, a 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.

PAGE A-5
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APPENDIX B:
GENERAL CHARACTERISTICS AND
RISKS OF DERIVATIVES

------------------------------------

A detailed discussion of Derivatives (as defined below) that may be used by the
investment manager on behalf of certain Funds follows below. The description in
this Prospectus of each Fund indicates which, if any, of these types of
transactions may be used by that Fund. A Fund will not be obligated, however, to
use any Derivatives and makes no representation as to the availability of these
techniques at this time or at any time in the future. "Derivatives," as used in
this Appendix B, refers to interest rate, currency or stock or bond index
futures contracts, currency forward contracts and currency swaps, the purchase
and sale (or writing) of exchange listed and over-the-counter ("OTC") put and
call options on debt and equity securities, currencies, interest rate, currency
or stock index futures and fixed-income and stock indices and other financial
instruments, entering into various interest rate transactions such as swaps,
caps, floors, collars, entering into equity swaps, caps, floors or trading in
other similar types of instruments.

A Fund's ability to pursue certain of these strategies may be limited by the
Commodity Exchange Act, as amended, applicable regulations of the Commodity
Futures Trading Commission ("CFTC") thereunder and the federal income tax
requirements applicable to regulated investment companies which are not operated
as commodity pools.

GENERAL CHARACTERISTICS OF OPTIONS

Put options and call options typically have structural characteristics and
operational mechanics regardless of the underlying instrument on which they are
purchased or sold. Thus, the following general discussion relates to each of the
particular types of options discussed in greater detail below. In addition, many
Derivatives involving options require segregation of Fund assets in special
accounts, as described below under "Use of Segregated and Other Special
Accounts."

A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer of the obligation to buy, the underlying security,
index, currency or other instrument at the exercise price. A Fund's purchase of
a put option on a security, for example, might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value of such instrument by giving
the Fund the right to sell the instrument at the option exercised price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
futures contract, index, currency or other instrument might be intended to
protect the Fund against an increase in the price of the underlying instrument
that it intends to purchase in the future by fixing the price at which it may
purchase the instrument. An "American" style put or call option may be exercised
at any time during the option period, whereas a "European" style put or call
option may be exercised only upon expiration or during a fixed period prior to
expiration. Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to the options. The discussion below uses the OCC
as an example, but is also applicable to other similar financial intermediaries.

OCC-issued and exchange-listed options, with certain exceptions, generally
settle by physical delivery of the underlying security or (currency, although in
the future, cash settlement may become available. Index options are cash settled
for the net amount, if any, by which the option is "in-the-money" (that is, the
amount by which the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is

PAGE B-1
<PAGE> 51

exercised. Frequently, rather than taking or making delivery of the underlying
instrument through the process of exercising the option, listed options are
closed by entering into offsetting purchase or sale transactions that do not
result in ownership of the new option.

A Fund's ability to close out its position as a purchaser or seller of an
OCC-issued or exchange-listed put or call option is dependent, in part, upon the
liquidity of the particular option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (1) insufficient trading
interest in certain options, (2) restrictions on transactions imposed by an
exchange, (3) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities,
including reaching daily price limits, (4) interruption of the normal operations
of the OCC or an exchange, (5) inadequacy of the facilities of an exchange or
the OCC to handle current trading volume or (6) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the relevant market for that option on that exchange
would cease to exist, although any such outstanding options on that exchange
would continue to be exercisable in accordance with their terms.

The hours of trading for listed options may coincide with the hours during which
the underlying financial instruments are traded. To the extent that the option
markets close before the markets for the underlying financial instruments,
significant price and rate movements can take place in the underlying markets
that would not be reflected in the corresponding option markets.

Over-the-counter ("OTC") options are purchased from or sold to securities
dealers, financial institutions or other parties (collectively referred to as
"Counterparties" and individually referred to as a "Counterparty") through a
direct bilateral agreement with the Counterparty. In contrast to exchange-listed
options, which generally have standardized terms and performance mechanics, all
the terms of an OTC option, including such terms as method of settlement, term,
exercise price, premium guaranties and security, are determined by negotiation
of the parties. It is anticipated that any Portfolio authorized to use OTC
options will generally only enter into OTC options that have cash settlement
provisions, although it will not be required to do so.

Unless the parties provide for it, no central clearing or guaranty function is
involved in an OTC option. As a result, if a Counterparty fails to make or take
delivery of the security, currency or other instrument underlying an OTC option
it has entered into with the Fund or fails to make a cash settlement payment due
in accordance with the terms of that option, the Fund will lose any premium it
paid for the option as well as any anticipated benefit of the transaction. Thus,
the investment manager must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be met. A Fund
will enter into OTC option transactions only with U.S. government securities
dealers recognized by the Federal Reserve Bank of New York as "primary dealers,"
or broker-dealers, domestic or foreign banks, or other financial institutions
that the investment manager deems to be creditworthy. In the absence of a change
in the current position of the staff of the SEC, OTC options purchased by a Fund
and the amount of a Fund's obligation pursuant to an OTC option sold by the Fund
(the cost of the sell-back plus the in-the-money amount, if any) or the value of
the assets held to cover such options will be deemed illiquid.

If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments held by the Fund or will
increase the Fund's income. Similarly, the sale of put options can also provide
gains for a Fund.

A Fund may purchase and sell call options on securities that are traded on U.S.
and foreign securities exchanges and in the OTC markets, and on securities
indices, currencies and futures contracts. All calls sold by a Fund must be
"covered" (that is, the Fund must own the securities or futures contract subject
to the call), or must otherwise meet the asset segregation requirements
described below for so

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<PAGE> 52

long as the call is outstanding. Even though the Fund will receive the option
premium to help protect it or against loss, a call sold by a Fund will expose
the Fund during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or
instrument and may require the Fund to hold a security or instrument that it
might otherwise have sold.

A Fund reserves the right to purchase or sell options on instruments and
indices, (whether or not it holds the securities in its portfolio) and on
securities indices, currencies and futures contracts. In selling put options, a
Fund faces the risk that it may be required to buy the underlying security at a
disadvantageous price above the market price.

A Fund may purchase and sell put options on securities (whether or not it holds
the securities in its portfolio) and on securities indices, currencies and
futures contracts. In selling put options, a Fund faces the risk that it may be
required to buy the underlying security at a disadvantageous price above the
market price.

GENERAL CHARACTERISTICS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

A Fund may trade financial futures contracts or purchase or sell put and call
options on those contracts as a hedge against anticipated interest rate currency
or market changes, and for risk management purposes or a Fund may seek to
increase its income or gain. Futures contracts are generally bought and sold on
the commodities exchange on which they are listed with payment of initial and
variation margin as described below. The sale of a futures contract creates a
firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to certain instruments, the net
cash amount). Options on futures contracts are similar to options on securities
except that an option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract and
obligates the seller to deliver that position.

A Fund's use of financial futures contracts and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the CFTC. Maintaining a futures contract or selling
an option on a futures contract will typically require the Fund to deposit with
a financial intermediary, as security for its obligations, an amount of cash or
other specified asset ("initial margin") that initially is from 1% to 10% of the
face amount of the contract (but may be higher in some circumstances).
Additional cash or assets ("variation margin") may be required to be deposited
thereafter daily as the mark-to market value of the futures contract fluctuates.
The purchase of an option on a financial futures contract involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potentially variation margin) for the resulting futures
position just as it would for any futures position. Futures contracts and
options thereon are generally settled by entering into an offsetting
transaction, but no assurance can be given that a position can be offset prior
to settlement or that delivery will occur.

A Fund will not enter into a futures contract or option thereon if, immediately
thereafter, the sum of the amount of its initial margin and premiums required to
maintain permissible non-bona fide hedging positions in futures contracts and
options thereon would exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and losses on existing
contracts; however in the case of an option that is in-the-money at the time of
the purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The value of all futures contracts sold by the Fund (adjusted for
the historical volatility relationship between the Fund and the contracts) will
not exceed the total market value of the Fund's securities. The segregation
requirements with respect to futures contracts and options thereon are described
below under "Use of Segregated and Other Special Accounts."

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OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES

A Fund may purchase and sell call and put options on securities indices and
other financial indices. In doing so, the Fund can achieve many of the same
objectives it would achieve through the sale or purchase of options on
individual securities or other instruments. Options on securities indices and
other financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, options on indices settle by cash settlement; that is, an option on
an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the excess of the
closing price of the index over the exercise price of the option, which also may
be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount. The gain or
loss on an option on an index depends on price movements in the instruments
comprising the market, market segment, industry or other composite on which the
underlying index is based, rather than price movements in individual securities,
as is the case with respect to options on securities.

CURRENCY TRANSACTIONS

A Fund may engage in currency transactions with Counterparties to hedge the
value of portfolio securities denominated in particular currencies against
fluctuations in relative value or to generate income or gain. Currency
transactions include currency forward contracts, exchange-listed currency
futures contracts and options thereon, exchange-listed and OTC options on
currencies, and currency swaps. A forward currency contract involves a privately
negotiated obligation to purchase or sell (with delivery generally required) a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. A currency swap is an agreement to exchange cash flows based on
the notional difference among two or more currencies and operates similarly to
an interest rate swap, which is described below under "Swaps, Caps, Floors and
Collars." A Fund may enter into currency transactions only with Counterparties
that the investment manager deems to be creditworthy.

Transaction hedging is entering into a currency transaction with respect to
specific assets or liabilities of the Fund, which will generally arise in
connection with the purchase or sale of the Fund's portfolio securities or the
receipt of income from them. Position hedging is entering into a currency
transaction with respect to portfolio securities positions denominated or
generally quoted in that currency. A Fund will not enter into a transaction to
hedge currency exposure to an extent greater, after netting all transactions
intended wholly or partially to offset other transactions, than the aggregate
market value (at the time of entering into the transaction) of the securities
held by the Fund that are denominated or generally quoted in or currently
convertible into the currency, other than with respect to proxy hedging as
described below.

A Fund may cross-hedge currencies by entering into transactions to purchase or
sell one or more currencies that are expected to increase or decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have exposure. To reduce the effect of currency fluctuations on the value of
existing or anticipated holdings of its securities, a Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
holdings is exposed is difficult to hedge generally or difficult to hedge
against the dollar. Proxy hedging entails entering into a forward contract to
sell a currency, the changes in the value of which are generally considered to
be linked to a currency or currencies in which some or all of the Fund's
securities are or are expected to be denominated, and to buy dollars. The amount
of the contract would not exceed the market value of the Fund's securities
denominated in linked currencies.

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<PAGE> 54

Currency transactions are subject to risks different from other portfolio
transactions, as discussed below under "Risk Factors." If a Fund enters into a
currency hedging transaction, the Fund will comply with the asset segregation
requirements described below under "Use of Segregated and Other Special
Accounts."

COMBINED TRANSACTIONS

A Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts), multiple interest rate transactions and
any combination of futures, options, currency and interest rate transactions,
instead of a single Derivative, as part of a single or combined strategy when,
in the judgment of the investment manager, it is in the best interests of the
Fund to do so. A combined transaction will usually contain elements of risk that
are present in each of its component transactions. Although combined
transactions will normally be entered into by a Fund based on the investment
manager's judgment that the combined strategies will reduce risk or otherwise
more effectively achieve the desired portfolio management goal, it is possible
that the combination will instead increase the risks or hinder achievement of
the Fund management objective.

SWAPS, CAPS, FLOORS AND COLLARS

A Fund may enter into interest rate, currency and equity swap, the purchase or
sale of related caps, floors and collars and other similar arrangements. A Fund
will enter into these transactions primarily to seek to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique, to protect
against any increase in the price of securities the Fund anticipates purchasing
or selling at a later date or to generate income or gain. Interest rate swaps
involve the exchange by the Fund with another party of their respective
commitments to pay or receive interest (for example, an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal). An equity swap is an agreement to exchange cash flows on a national
principal amount based on changes in the values of the reference index. A
currency swap is an agreement to exchange cash flows on a notional amount based
on changes in the values of the currency exchange rates. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling the cap to the extent that a specified interest rate, currency
exchange rate or index exceeds a predetermined rate or amount. The purchase of a
floor entitles the purchaser to receive payments on a notional principal amount
from the party selling the floor to the extent that a specified interest rate
currency exchange rate or index falls below a predetermined rate or amount. A
collar is a combination of a cap and a floor that preserves a certain return
with a predetermined range of rates or values.

A Fund will usually enter into swaps on a net basis, that is, the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument with the Fund receiving or paying, as the case may
be, only the net amount of the two payments.

Inasmuch as these swaps, caps, floors, collars and other similar types of
instruments are entered into for good faith hedging or other non-speculative
purposes, they do not constitute senior securities under the 1940 Act, and,
thus, will not be treated as being subject to the Fund's applicable borrowing
restrictions. A Fund will not enter into any swap, cap, floor, collar or other
similar type of transaction unless the investment manager deems the Counterparty
to be creditworthy. If a Counterparty defaults, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and, for that
reason, they are less liquid than swaps.

PAGE B-5
<PAGE> 55

The liquidity of swap agreements will be determined by the investment manager
based on various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). Such determination will govern whether a swap will
be deemed within the 10% restriction on investment in securities that are not
readily marketable.

A Fund will maintain cash and appropriate liquid assets (i.e., high grade debt
securities) in a segregated custodial account to cover its current obligations
under swap agreements. If a Fund enters into a swap agreement on a net basis, it
will segregate assets with a daily value at least equal to the excess, if any,
of the Fund's accrued obligations under the swap agreement over the accrued
amount the Fund is entitled to receive under the agreement. If a Fund enters
into a swap agreement on other than a net basis, it will segregate assets with a
value equal to the full amount of the Fund's accrued obligations under the
agreement. See "Use of Segregated and Other Special Accounts" below.

RISK FACTORS

Derivatives have special risks associated with them, including possible default
by the Counterparty 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 the Derivatives could result in losses greater than if they had
not been used. Use of put and call options could result in losses to a Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, or cause a Fund to hold a security it might
otherwise sell.

The use of futures and options transactions entails certain special risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related securities position of a
Fund could create the possibility that losses on the hedging instrument are
greater than gain 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. As a result, in certain markets,
a Fund might not be able to close out a transaction without incurring
substantial losses. Although a Fund's use of futures and options transactions
for hedging should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time it will tend to limit any
potential gain to the Fund that might result from an increase in value of the
position. There is also the risk of loss by a Fund of margin deposits in the
event of bankruptcy of a broker with whom the Fund has an open position in a
futures contract or option thereon. 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. However, because option premiums paid by a Fund
are small in relation to the market value of the investments underlying the
options, buying options can result in large amounts of leverage. The leverage
offered by trading in options could cause a Fund's net asset value to be subject
to more frequent and wider fluctuation than would be the case if the Fund did
not invest in options.

As is the case with futures and options strategies, the effective use of swaps
and related transactions by a Fund may depend, among other things, on a Fund's
ability to terminate the transactions at times when the investment manager deems
it desirable to do so. To the extent a Fund does not, or cannot, terminate such
a transaction in a timely manner, a Fund may suffer a loss in excess of any
amounts that it may have received, or expected to receive, as a result of the
investment manager entering into the transaction.

Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to a Fund if the currency being hedged fluctuates in value to a degree or
in a direction that is not anticipated. Further, the risk exists that the

PAGE B-6
<PAGE> 56

perceived linkage between various currencies may not be present or may not be
present during the particular time that the Fund is engaging in proxy hedging.
Currency transactions are also subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be adversely affected by
government exchange controls, limitations or restrictions on repatriation of
currency, and manipulations or exchange restrictions imposed by governments.
These forms of governmental actions can result in losses to a Fund if it is
unable to deliver or receive currency or monies in settlement of obligations and
could also cause hedges it has entered into to be rendered useless, resulting in
full currency exposure as well as incurring transaction costs. Buyers and
sellers of currency futures contracts are subject to the same risks that apply
to the use of futures contracts generally. Further, settlement of a currency
futures contract for the purchase of most currencies must occur at a bank based
in the issuing nation. Trading options on currency futures contracts is
relatively new, and the ability to establish and close out positions on these
options is subject to the maintenance of a liquid market that may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.

Losses resulting from the use of Derivatives will reduce a Fund's net asset
value, and possibly income, and the losses can be greater than if Derivatives
had not been used.

RISK OF DERIVATIVES OUTSIDE THE UNITED STATES

When conducted outside the United States, Derivatives may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and will be subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. In addition, the price of any foreign futures or foreign options
contract and, therefore, the potential profit and loss thereon, may be affected
by any variance in the foreign exchange rate between the time an order is placed
and the time it is liquidated, offset or exercised. The value of positions taken
as part of non-U.S. Derivatives also could be adversely affected by: (1) other
complex foreign political, legal and economic factors, (2) lesser availability
of dates on which to make trading decisions than in the United States, (3)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during nonbusiness hours in the United States, (4) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the United States and (5) lower trading volume and liquidity.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS

Use of many Derivatives by a Fund will require, among other things, that the
Fund segregate cash, liquid high grade debt obligations or other assets with its
custodian, or a designated sub-custodian, to the extent the Fund's obligations
are not otherwise "covered" through ownership of the underlying security,
financial instrument or currency. In general, either the full amount of any
obligation by a Fund to pay or deliver securities or assets must be covered at
all times by the securities, instruments or currency required to be delivered,
or, subject to any regulatory restrictions, an amount of cash or liquid high
grade debt obligations at least equal to the current amount of the obligation
must be segregated with the custodian or sub-custodian. The segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. A call option on
securities written by a Fund, for example, will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate liquid high grade
debt obligations sufficient to purchase and deliver the securities if the call
is exercised. A call option sold by a Fund on an index will require the Fund to
own portfolio securities that correlate with the index or to segregate liquid
high grade debt obligations equal to the excess of the index value over the
exercise price on a current basis. A put option on securities written by a Fund
will require the Fund to segregate liquid high grade debt obligations equal to
the exercise price. Except when a Fund enters into a forward contract in

PAGE B-7
<PAGE> 57

connection with the purchase or sale of a security denominated in a foreign
currency or for other non-speculative purposes, which requires no segregation, a
currency contract that obligates the fund to buy or sell a foreign currency will
generally require the Fund to hold an amount of that currency or liquid
securities denominated in that currency equal to the Fund's obligations or to
segregate liquid high grade debt obligations equal to the amount of the Fund's
obligations.

OTC options entered into by a Fund, including those on securities, currency,
financial instruments or indices, and OCC-issued and exchange-listed index
options will generally provide for cash settlement, although the Fund will not
be required to do so. As a result, when a Fund sells these instruments it will
segregate an amount of assets equal to its obligations under the Options.
OCC-issued and exchange-listed options sold by a Fund other than those described
above generally settle with physical delivery, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.

In the case of a futures contract or an option on a futures contract, a Fund
must deposit initial margin and, in some instances, daily variation margin in
addition to segregating assets sufficient to meet its obligations to purchase or
provide securities or currencies, or to pay the amount owed at the expiration of
an index-based futures contract. These assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets. A Fund
will accrue the net amount of the excess, if any, of its obligations relating to
swaps over its entitlements with respect to each swap on a daily basis and will
segregate with its custodian, or designated sub-custodian, an amount of cash or
liquid high grade debt obligations having an aggregate value equal to at least
the accrued excess. Caps, floors and collars require segregation of assets with
a value equal to the Fund's net obligation, if any.

Derivatives may be covered by means other than those described above when
consistent with applicable regulatory policies. A Fund may also enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related Derivatives.
A Fund could purchase a put option, for example, if the strike price of that
option is the same or higher than the strike price of a put option sold by the
Fund. Moreover, instead of segregating assets if it holds a futures contract or
forward contract, a Fund could purchase a put option on the same futures
contract or forward contract with a strike price as high or higher than the
price of the contract held. Other Derivatives may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction, no segregation is required, but if it terminates prior
to that time, assets equal to any remaining obligation would need to be
segregated.

PAGE B-8
<PAGE> 58

TELEPHONES

(800) SALOMON
(800) 725-6666

DISTRIBUTOR

Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048

INVESTMENT MANAGER

Salomon Brothers Asset
Management Inc
Seven World Trade Center
New York, New York 10048

CUSTODIAN, TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT

Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP
New York, New York 10036

LEGAL COUNSEL

Simpson Thacher & Bartlett
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 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.

- --------------------------------------------------------------------------------
SALOMON BROTHERS INSTITUTIONAL INVESTMENT SERIES
- --------------------------------------------------------------------------------

SBII-5/96
<PAGE> 59

SALOMON BROTHERS INSTITUTIONAL INVESTMENT SERIES

7 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) SALOMON
(800) 725-6666

STATEMENT OF ADDITIONAL INFORMATION

Salomon Brothers Institutional Investment Series consists of Salomon
Brothers Institutional Money Market Fund (the "Money Market Fund"), Salomon
Brothers Institutional High Yield Bond Fund (the "High Yield Bond Fund"),
Salomon Brothers Institutional Emerging Markets Debt Fund (the "Emerging
Markets Debt Fund") and Salomon Brothers Institutional Asia Growth Fund (the
"Asia Growth Fund") (each, a "Fund" and collectively, the "Funds"). Each of the
Funds, except the Money Market Fund, is a no-load investment portfolio of
Salomon Brothers Institutional Series Funds Inc, an open-end investment company
incorporated in Maryland on January 19, 1996 ("Institutional Series Funds").
The Money Market Fund is a no-load investment portfolio of Salomon Brothers
Series Funds Inc, an open-end investment company incorporated in Maryland on
April 17, 1990 ("Series Funds").

This Statement of Additional Information is not a Prospectus and is only
authorized for distribution when preceded or accompanied by the Prospectus
dated April 29, 1996 (the "Prospectus"). This Statement of Additional
Information contains additional information to that set forth in the Prospectus
and should be read in conjunction with the Prospectus, additional copies of
which may be obtained without charge by writing or calling the Funds at the
address and telephone number printed above.

April 29, 1996

<PAGE> 60

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . 3

INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

VALIDITY OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>

<PAGE> 61

ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES

The Prospectus indicates the extent to which each of the Funds may
purchase the instruments or engage in the investment activities described
below. The discussion below supplements the information set forth in the
Prospectus under "Investment Objective and Policies" and "Additional Investment
Activities and Risk Factors". References herein to the investment manager
means, with respect to the Money Market Fund, the High Yield Bond Fund and the
Emerging Markets Debt Fund, Salomon Brothers Asset Management Inc ("SBAM") and
with respect to the Asia Growth Fund, Salomon Brothers Asset Management Asia
Pacific Limited ("SBAM AP").

FOREIGN SECURITIES

As discussed in the Prospectus, investing in the securities of foreign
issuers generally, and particularly in emerging market issuers, involves
special considerations which are not typically associated with investing in
securities of U.S. issuers. The following discussion supplements the discussion
contained in the Prospectus under "Additional Investment Activities and Risk
Factors--Foreign Securities" and "--High Yield Securities--High Yield Foreign
Sovereign Debt Securities." See also "--Brady Bonds" below.

Certain of the risks associated with international investments and
investing in smaller capital markets are heightened for investments in emerging
market countries. For example, some of the currencies of emerging market
countries have experienced devaluations relative to the U.S. dollar, and major
adjustments have been made periodically in certain of such currencies. Certain
of such countries face serious exchange constraints. In addition, governments
of many emerging market countries have exercised and continue to exercise
substantial influence over many aspects of the private sector. In certain
cases, the government owns or controls many companies, including the largest in
the country. Accordingly, government actions in the future could have a
significant effect on economic conditions in developing countries which could
affect private sector companies and a Fund, as well as the value of securities
in the Fund.

Certain markets are in only the earliest stages of development. There
is also a high concentration of market capitalization and trading volume in a
small number of issuers representing a limited number of industries, as well as
a high concentration of investors and financial intermediaries. Many of such
markets also may be affected by developments with respect to more established
markets in the region. Brokers in emerging market countries typically are fewer
in number and less capitalized than brokers in the United States. These
factors, combined with the U.S. regulatory requirements for open-end investment
companies and the restrictions on foreign investment, result in potentially
fewer investment opportunities for a Fund and may have an adverse impact on the
investment performance of a Fund.

There generally is less governmental supervision and regulation of
exchanges, brokers and issuers in foreign countries than there is in the United
States. For example, there may be no comparable provisions under certain
foreign laws to insider trading and similar investor protection securities laws
that apply with respect to securities transactions consummated in the United
States. Further, brokerage commissions and other transaction costs on foreign
securities exchanges generally are higher than in the United States.
<PAGE> 62

With respect to investments in certain emerging market countries,
archaic legal systems may have an adverse impact on a Fund. For example, while
the potential liability of a shareholder in a U.S. corporation with respect to
acts of the corporation is generally limited to the amount of the shareholder's
investment, the notion of limited liability is less clear in certain emerging
market countries. Similarly, the rights of investors in emerging market
companies may be more limited than those of shareholders of U.S. corporations.

In some countries, banks or other financial institutions may
constitute a substantial number of the leading companies or companies with the
most actively traded securities. The Investment Company Act of 1940 (the "1940
Act") limits a Fund's ability to invest in any equity security of an issuer
which, in its most recent fiscal year, derived more than 15% of its revenues
from "securities related activities", as defined by the rules thereunder. These
provisions may also restrict a Fund's investments in certain foreign banks and
other financial institutions.

The manner in which foreign investors may invest in companies in
certain emerging market countries, as well as limitations on such investments,
also may have an adverse impact on the operations of a Fund. For example, the
Fund may be required in certain of such countries to invest initially through a
local broker or other entity and then have the shares purchased re-registered
in the name of the Fund. Re-registration may in some instances not be able to
occur on a timely basis, resulting in a delay during which the Fund may be
denied certain of its rights as an investor.

Foreign markets have different clearance and settlement procedures,
and in certain markets there have been times when settlements have failed to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Further, satisfactory custodial services for
investment securities may not be available in some countries having smaller,
emerging capital markets, which may result in a Fund incurring additional costs
and delays in transporting and custodying such securities outside such
countries. Delays in settlement or other problems could result in periods when
assets of a Fund are uninvested and no return is earned thereon. The inability
of a Fund to make intended security purchases due to settlement problems or the
risk of intermediary counterparty failures could cause a Fund to miss
attractive investment opportunities. The inability to dispose of a portfolio
security due to settlement problems could result either in losses to a Fund due
to subsequent declines in the value of such portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser.

Rules adopted under the 1940 Act permit a Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and
securities depositories. Certain banks in foreign countries may not be eligible
sub-custodians for a Fund, in which event the Fund may be precluded from
purchasing securities in certain foreign countries in which it otherwise would
invest or which may result in the Fund's incurring additional costs and delays
in providing transportation and custody services for such securities outside of
such countries. A Fund may encounter difficulties in effecting on a timely
basis portfolio transactions with respect to any securities of issuers held
outside their countries. Other banks that are eligible foreign sub-custodians
may be recently organized or otherwise lack extensive operating experience. In
addition, in certain countries there may be legal restrictions or limitations
on the ability of a Fund to recover assets held in custody by foreign
sub-custodians in the event of the bankruptcy of the sub-custodian.
<PAGE> 63

BANK OBLIGATIONS

Banks are subject to extensive governmental regulations which may
limit both the amounts and types of loans and other financial commitments which
may be made and interest rates and fees which may be charged. The profitability
of this industry is largely dependent upon the availability and cost of capital
funds for the purpose of financing lending operations under prevailing money
market conditions. Also, general economic conditions play an important part in
the operations of this industry and exposure to credit losses arising from
possible financial difficulties of borrowers might affect a bank's ability to
meet its obligations.

Investors should also be aware that securities issued or guaranteed by
foreign banks, foreign branches of U.S. banks, and foreign government and
private issuers may involve investment risks in addition to those relating to
domestic obligations. See "Additional Investment Activities and Risk
Factors--Foreign Securities" in the Prospectus and "--Foreign Securities"
above.

As stated in the Prospectus, bank obligations that may be purchased by
a Fund include certificates of deposit, banker's acceptances and fixed time
deposits. A certificate of deposit is a short-term negotiable certificate
issued by a commercial bank against funds deposited in the bank and is either
interest-bearing or purchased on a discount basis. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in
connection with an international commercial transaction. The borrower is liable
for payment as is the bank, which unconditionally guarantees to pay the draft
at its face amount on the maturity date. Fixed time deposits are obligations of
branches of U.S. banks or foreign banks which are payable at a stated maturity
date and bear a fixed rate of interest. Although fixed time deposits do not
have a market, there are no contractual restrictions on the right to transfer a
beneficial interest in the deposit to a third party.

Bank obligations may be general obligations of the parent bank or may
be limited to the issuing branch by the terms of the specific obligations or by
government regulation.

FLOATING AND VARIABLE RATE INSTRUMENTS

As stated in the Prospectus, certain of the floating or variable rate
obligations that may be purchased by a Fund may carry a demand feature that
would permit the holder to tender them back to the issuer of the instrument or
to a third party at par value prior to maturity. Some of the demand instruments
purchased by the Funds are not traded in a secondary market and derive their
liquidity solely from the ability of the holder to demand repayment from the
issuer or third party providing credit support. If a demand instrument is not
traded in a secondary market, each Fund will nonetheless treat the instrument
as "readily marketable" for the purposes of its investment restriction limiting
investments in illiquid securities unless the demand feature has a notice
period of more than seven days; if the notice period is greater than seven
days, such a demand instrument will be characterized as "not readily marketable"
for such purpose.

A Fund's right to obtain payment at par on a demand instrument could
be affected by events occurring between the date such Fund elects to demand
payment and the date payment is due that may affect the ability of the issuer
of the instrument or a third party providing credit support to make payment
when due, except when such demand instruments permit same day settlement. To
facilitate settlement, these same day demand instruments may be held in book
entry form at a bank other than a Fund's custodian subject to a sub-custodian
agreement approved by the Fund between that bank and the Fund's custodian.
<PAGE> 64

ASSET-BACKED SECURITIES

Asset-backed securities are generally issued as pass through
certificates, which represent undivided fractional ownership interests in the
underlying pool of assets, or as debt instruments, which are generally issued
as the debt of a special purpose entity organized solely for the purpose of
owning such assets and issuing such debt. Asset-backed securities are often
backed by a pool of assets representing the obligations of a number of
different parties. Asset-backed securities frequently carry credit protection
in the form of extra collateral, subordinated certificates, cash reserve
accounts, letters of credit or other enhancements. For example, payments of
principal and interest may be guaranteed up to certain amounts and for a
certain time period by a letter of credit or other enhancement issued by a
financial institution unaffiliated with the entities issuing the securities.
Assets which, to date, have been used to back asset-backed securities include
motor vehicle installment sales contracts or installment loans secured by motor
vehicles, and receivables from revolving credit (credit card) agreements.

Asset-backed securities present certain risks which are, generally,
related to limited interests, if any, in related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Other types of asset-backed securities will be subject to the risks associated
with the underlying assets. If a letter of credit or other form of credit
enhancement is exhausted or otherwise unavailable, holders of asset-backed
securities may also experience delays in payments or losses if the full amounts
due on underlying assets are not realized. Because asset-backed securities are
relatively new, the market experience in these securities is limited and the
market's ability to sustain liquidity through all phases of the market cycle
has not been tested.

LOANS OF PORTFOLIO SECURITIES

Certain Funds may lend portfolio securities to brokers or dealers or
other financial institutions. The procedure for the lending of securities will
include the following features and conditions. The borrower of the securities
will deposit cash with the Fund in an amount equal to a minimum of 100% of the
market value of the securities lent. The Fund will invest the collateral in
short-term debt securities and earn the interest thereon. A negotiated portion
of the income so earned may be paid to the borrower or the broker who arranged
the loan. If the deposit drops below the required minimum at any time, the
borrower may be called upon to post additional cash. If the additional cash is
not paid, the loan will be immediately due and the Fund may use the collateral
or its own cash to replace the securities by purchase in the open market
charging any loss to the borrower. These will be "demand" loans and may be
terminated by the Fund at any time. A Fund will receive any dividends and
interest paid on the securities lent and the loans will be structured to assure
that the Fund will be able to exercise its voting rights on the securities.
Such loans will be authorized only to the extent that the receipt of income
from such activity would not cause any adverse tax consequences to a Fund's
<PAGE> 65

shareholders and only in accordance with applicable rules and regulations. The
borrowers may not be affiliated, directly or indirectly, with a Fund.

RULE 144A SECURITIES

As indicated in the Prospectus, certain Funds 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, as amended (the "1933 Act"). Rule 144A provides an
exemption from the registration requirements of the 1933 Act for the resale of
certain restricted securities to qualified institutional buyers.

One effect of Rule 144A is that certain restricted securities may now
be liquid, though there is no assurance that a liquid market for Rule 144A
securities will develop or be maintained. In promulgating Rule 144A the
Securities and Exchange Commission (the "SEC") stated that the ultimate
responsibility for liquidity determinations is that of an investment company's
board of directors. However, the SEC stated that the board may delegate the
day-to-day function of determining liquidity to the fund's investment adviser,
provided that the board retains sufficient oversight. The Board of Directors of
Institutional Series Funds and Series Funds have adopted policies and
procedures for the purpose of determining whether securities that are eligible
for resale under Rule 144A are liquid or illiquid for purposes of a Fund's
limitation on investment in illiquid securities. Pursuant to those policies and
procedures, each Board of Directors has delegated to the investment manager the
determination as to whether a particular security is liquid or illiquid,
requiring that consideration be given to, among other things, the frequency of
trades and quotes for the security, the number of dealers willing to sell the
security and the number of potential purchasers, dealer undertakings to make a
market in the security, the nature of the security and the time needed to
dispose of the security. Each Board of Directors periodically reviews Fund
purchases and sales of Rule 144A securities.

To the extent that liquid Rule 144A securities that a Fund holds
become illiquid, due to the lack of sufficient qualified institutional buyers
or market or other conditions, the percentage of a Fund's assets invested in
illiquid assets would increase. The investment manager under the supervision
of the Board of Directors, will monitor Fund investments in Rule 144A
securities and will consider appropriate measures to enable a Fund to maintain
sufficient liquidity for operating purposes and to meet redemption requests.

BRADY BONDS

Brady Bonds are debt securities, generally denominated in U.S.
dollars, issued under the framework of the Brady Plan. The Brady Plan is an
initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in
1989 as a mechanism for debtor nations to restructure their outstanding
external commercial bank indebtedness. In restructuring its external debt under
the Brady Plan framework, a debtor nation negotiates with its existing bank
lenders as well as multilateral institutions such as the International Bank for
Reconstruction and Development (the "World Bank") and the International
Monetary Fund (the "IMF"). The Brady Plan framework, as it has developed,
contemplates the exchange of external commercial bank debt for newly issued
bonds (Brady Bonds). Brady Bonds may also be issued in respect of new money
being advanced by existing lenders in connection with the debt restructuring.
The World Bank and/or the IMF support the restructuring by providing funds
pursuant to loan agreements or other arrangements which enable the debtor
nation to collateralize the new Brady Bonds or to repurchase outstanding bank
debt at a discount. Under these
<PAGE> 66

arrangements with the World Bank and/or the IMF, debtor nations have been
required to agree to the implementation of certain domestic monetary and fiscal
reforms. Such reforms have included the liberalization of trade and foreign
investment, the privatization of state-owned enterprises and the setting of
targets for public spending and borrowing. These policies and programs seek to
promote the debtor country's economic growth and development. Investors should
also recognize that the Brady Plan only sets forth general guiding principles
for economic reform and debt reduction, emphasizing that solutions must be
negotiated on a case-by-case basis between debtor nations and their creditors.
SBAM believes that economic reforms undertaken by countries in connection with
the issuance of Brady Bonds make the debt of countries which have issued or
have announced plans to issue Brady Bonds an attractive opportunity for
investment. However, there can be no assurance that SBAM's expectations with
respect to Brady Bonds will be realized.

Investors should recognize that Brady Bonds have been issued only
recently, and accordingly do not have a long payment history. Brady Bonds which
have been issued to date are rated in the categories "BB" or "B" by Standard &
Poor's Rating Services Group ("S&P") or "Ba" or "B" by Moody's or, in cases in
which a rating by S&P or Moody's Investors Services ("Moody's") has not been
assigned, are generally considered by the investment manager to be of
comparable quality.

Agreements implemented under the Brady Plan to date are designed to
achieve debt and debt-service reduction through specific options negotiated by
a debtor nation with its creditors. As a result, the financial packages offered
by each country differ. The types of options have included the exchange of
outstanding commercial bank debt for bonds issued at 100% of face value of such
debt which carry a below-market stated rate of interest (generally known as par
bonds), bonds issued at a discount from the face value of such debt (generally
known as discount bonds), bonds bearing an interest rate which increases over
time and bonds issued in exchange for the advancement of new money by existing
lenders. Discount bonds issued to date under the framework of the Brady Plan
have generally borne interest computed semiannually at a rate equal to 13/16 of
one percent above the then current six month LIBOR rate. Regardless of the
stated face amount and stated interest rate of the various types of Brady
Bonds, the applicable Funds will purchase Brady Bonds in secondary markets, as
described below, in which the price and yield to the investor reflect market
conditions at the time of purchase. Brady Bonds issued to date have traded at a
deep discount from their face value. Certain sovereign bonds are entitled to
"value recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Certain
Brady Bonds have been collateralized as to principal due at maturity (typically
30 years from the date of issuance) by U.S. Treasury zero coupon bonds with a
maturity equal to the final maturity of such Brady Bonds, although the
collateral is not available to investors until the final maturity of the Brady
Bonds. Collateral purchases are financed by the IMF, the World Bank and the
debtor nations' reserves. In addition, interest payments on certain types of
Brady Bonds may be collateralized by cash or high-grade securities in amounts
that typically represent between 12 and 18 months of interest accruals on these
instruments with the balance of the interest accruals being uncollateralized.
The applicable Funds may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest and (except in
the case of principal collateralized Brady Bonds) principal primarily on the
willingness and ability of the foreign government to make payment in accordance
with the terms of the Brady Bonds. Brady Bonds issued to date are purchased and
sold in secondary markets through U.S. securities dealers and other financial
institutions and are generally maintained through European transnational
securities depositories. A substantial portion of the Brady Bonds and other
sovereign debt securities in which the Fund invests are likely to be acquired
at a discount, which involves certain considerations discussed below under
"Additional Information Concerning Taxes."
<PAGE> 67

STRUCTURED INVESTMENTS

Included among the issuers of emerging market country debt securities
in which the Emerging Markets Debt Fund may invest are entities organized and
operated solely for the purpose of restructuring the investment characteristics
of various securities. These entities are typically organized by investment
banking firms which receive fees in connection with establishing each entity
and arranging for the placement of its securities. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as Brady Bonds) and the issuance by that
entity of one or more classes of securities ("Structured Investments") backed
by, or representing interests in, the underlying instruments. The cash flow on
the underlying instruments may be apportioned among the newly issued Structured
Investments to create securities with different investment characteristics such
as varying maturities, payment priorities or interest rate provisions; the
extent of the payments made with respect to Structured Investments is dependent
on the extent of the cash flow on the underlying instruments. Because
Structured Investments of the type in which the Emerging Markets Debt Fund
anticipates investing typically involve no credit enhancement, their credit
risk will generally be equivalent to that of the underlying instruments.

The Emerging Markets Debt Fund is permitted to invest in a class of
Structured Investments that is either subordinated or unsubordinated to the
right of payment of another class. Subordinated Structured Investments
typically have higher yields and present greater risks than unsubordinated
Structured Investments. Although the Fund's purchase of subordinated Structured
Investments would have a similar economic effect to that of borrowing against
the underlying securities, the purchase will not be deemed to be borrowing for
purposes of the limitations placed on the extent of the Fund's assets that may
be used for borrowing. See "Additional Investment Activities and Risk
Factors--Borrowing" in the Prospectus.

Certain issuers of Structured Investments may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, the Fund's
investment in these Structured Investments may be limited by the restrictions
contained in the 1940 Act described in the Prospectus under "Additional
Investment Activities and Risk Factors--Investment Funds." Structured
Investments are typically sold in private placement transactions, and there
currently is no active trading market for Structured Investments.

DERIVATIVES

The description in the Prospectus of each Fund indicates which, if
any, of these types of transactions may be used by that Fund.

FORWARD CURRENCY EXCHANGE CONTRACTS. As indicated in the Prospectus,
in order to hedge against currency exchange rate risks or to increase income or
gain, certain Funds may enter into forward currency exchange contracts with
securities dealers, financial institutions or other parties, through direct
bilateral agreements with such counterparties. A Fund will enter into forward
currency exchange contracts only with counterparties which the investment
manager deems creditworthy. In connection with a Fund's forward currency
transactions, the Fund will set aside in a segregated account with its
custodian, cash, cash equivalents or high quality debt securities in an amount
equal to the amount of the contract, to be used to pay for the commitment. The
segregated account will be marked-to-market on a daily basis. In addition to
the circumstances set forth in the Prospectus, a Fund may enter into forward
currency exchange contracts when the investment manager believes that the
currency of a particular country may suffer a substantial decline against the
U.S. dollar. In those

<PAGE> 68

circumstances, a Fund may enter into a forward contract to sell, for a fixed
amount of U.S. dollars, the amount of that currency approximating the value of
some or all of the Fund's portfolio securities denominated in such currency.
Forward contracts may limit potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies.

FUTURES CONTRACTS. As indicated in the Prospectus, certain Funds may
trade futures contracts (1) on domestic and foreign exchanges on currencies,
interest rates and bond indices and (2) on domestic and, to the extent
permitted by the Commodity Futures Trading Commission ("CFTC"), foreign
exchanges on stock indices. None of the Funds is a commodity pool, and a Fund
will use futures contracts and options thereon solely (i) for bona fide hedging
purposes and (ii) for other purposes in amounts permitted by the rules and
regulations promulgated by the CFTC. A Fund may not enter into any futures
contract or related option other than for bona fide hedging purposes if,
immediately thereafter, the sum of the amount of aggregate initial margin
deposits on the Fund's existing futures contracts and premiums paid for options
on futures contracts would exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and losses on existing
contracts. In addition, the value of a Fund's long futures and options
positions (futures contracts on stock or bond indices, interest rates or
foreign currencies and call options on such futures contracts) will not exceed
the sum of (a) cash, cash equivalents or high quality debt securities
segregated for this purpose, (b) cash proceeds on existing investments due
within thirty days and (c) accrued profits on the particular futures or options
positions. Furthermore, with respect to the sale of futures contracts by a
Fund, the value of such contracts may not exceed the total market value of such
Fund's portfolio securities.

Interest Rate Futures Contracts. A Fund may enter into interest rate
futures contracts in order to protect it from fluctuations in interest rates
without necessarily buying or selling fixed income securities. An interest rate
futures contract is an agreement to take or make delivery of either (i) an
amount of cash equal to the difference between the value of a particular index
of debt securities at the beginning and at the end of the contract period or
(ii) a specified amount of a particular debt security at a future date at a
price set at time of the contract. For example, if a Fund owns bonds, and
interest rates are expected to increase, the Fund might sell futures contracts
on debt securities having characteristics similar to those held in the
portfolio. Such a sale would have much the same effect as selling an
equivalent value of the bonds owned by the Fund. If interest rates did
increase, the value of the debt securities in the portfolio would decline, but
the value of the futures contracts to the Fund would increase at approximately
the same rate, thereby keeping the net asset value of the Fund from declining
as much as it otherwise would have. A Fund could accomplish similar results by
selling bonds with longer maturities and investing in bonds with shorter
maturities when interest rates are expected to increase. However, since the
futures market may be more liquid than the cash market, the use of futures
contracts as a risk management technique allows a Fund to maintain a defensive
position without having to sell its portfolio securities.

Similarly, when the investment manager expects that interest rates may
decline, a Fund may purchase interest rate futures contracts in an attempt to
hedge against having to make subsequently anticipated purchases of bonds at the
higher prices subsequently expected to prevail. Since the fluctuations in the
value of appropriately selected futures contracts should be similar to that of
the bonds that will be purchased, a Fund could take advantage of the
anticipated rise in the cost of the bonds without actually buying them until
the market had stabilized. At that time, a Fund could make the intended
purchase of the bonds in the cash market and the futures contracts could be
liquidated.

At the time of delivery of securities pursuant to an interest rate
futures contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
<PAGE> 69

rate from that specified in the contract. In some (but not many) cases,
securities called for by a futures contract may have a shorter term than the
term of the futures contract and, consequently, may not in fact have been
issued when the futures contract was entered.

OPTIONS. As indicated in the Prospectus, in order to hedge against
adverse market shifts or to increase income or gain, certain Funds may purchase
put and call options or write "covered" put and call options on futures
contracts on stock indices, interest rates and currencies. In addition, in order
to hedge against adverse market shifts or to increase its income, a Fund may
purchase put and call options and write "covered" put and call options on
stocks, Loan Participations and Assignments (as defined in the Prospectus),
stock indices and currencies. A Fund may utilize options on currencies in order
to hedge against currency exchange rate risks. A call option is "covered" if,
so long as the Fund is obligated as the writer of the option, it will own (i)
the underlying investment subject to the option; (ii) securities convertible or
exchangeable without the payment of any consideration into the securities
subject to the option or (iii) a call option on the relevant security or
currency with an exercise price no higher than the exercise price on the call
option written. A put option is "covered" if, to support its obligation to
purchase the underlying investment if a put option that a Fund writes is
exercised, the Fund will either (a) deposit with its custodian in a segregated
account cash, U.S. government securities or other high grade liquid debt
obligations having a value at least equal to the exercise price of the
underlying investment or (b) continue to own an equivalent number of puts of
the same "series" (that is, puts on the same underlying investment having the
same exercise prices and expiration dates as those written by the Fund), or an
equivalent number of puts of the same "class" (that is, puts on the same
underlying investment) with exercise prices greater than those that it has
written (or, if the exercise prices of the puts it holds are less than the
exercise prices of those it has written, it will deposit the difference with
its custodian in a segregated account). Parties to options transactions must
make certain payments and/or set aside certain amounts of assets in connection
with each transaction, as described in the Prospectus.

In all cases except for certain options on interest rate futures
contracts, by writing a call, a Fund will limit its opportunity to profit from
an increase in the market value of the underlying investment above the exercise
price of the option for as long as the Fund's obligation as writer of the
option continues. By writing a put, a Fund will limit its opportunity to profit
from a decrease in the market value of the underlying investment below the
exercise price of the option for as long as the Fund's obligation as writer of
the option continues. Upon the exercise of a put option written by a Fund, the
Fund may suffer an economic loss equal to the difference between the price at
which the Fund is required to purchase the underlying investment and its market
value at the time of the option exercise, less the premium received for writing
the option. Upon the exercise of a call option written by a Fund, the Fund may
suffer an economic loss equal to an amount not less than the excess of the
investment's market value at the time of the option exercise over the Fund's
acquisition cost of the investment, less the sum of the premium received for
writing the option and the positive difference, if any, between the call price
paid to the Fund and the Fund's acquisition cost of the investment.

In all cases except for certain options on interest rate futures
contracts, in purchasing a put option, a Fund will seek to benefit from a
decline in the market price of the underlying investment, while in purchasing a
call option, a Fund will seek to benefit from an increase in the market price
of the underlying investment. If an option purchased is not sold or exercised
when it has remaining value, or if the market price of the underlying
investment remains equal to or greater than the exercise price, in the case of
a put, or remains equal to or below the exercise price, in the case of a call,
during the life of the option, the Fund will lose its investment in the option.
For the purchase of an option to be profitable, the market price of the
underlying investment must decline sufficiently below the exercise
<PAGE> 70

price, in the case of a put, and must increase sufficiently above the exercise
price, in the case of a call, to cover the premium and transaction costs.

In the case of certain options on interest rate futures contracts, a
Fund may purchase a put option in anticipation of a rise in interest rates, and
purchase a call option in anticipation of a fall in interest rates. By writing
a covered call option on interest rate futures contracts, a Fund will limit its
opportunity to profit from a fall in interest rates. By writing a covered put
option on interest rate futures contracts, a Fund will limit its opportunity to
profit from a rise in interest rates.

A Fund may choose to exercise the options it holds, permit them to
expire or terminate them prior to their expiration by entering into closing
transactions. A Fund may enter into a closing purchase transaction in which the
Fund purchases an option having the same terms as the option it had written or
a closing sale transaction in which the Fund sells an option having the same
terms as the option it had purchased. A covered option writer unable to effect
a closing purchase transaction will not be able to sell the underlying security
until the option expires or the underlying security is delivered upon exercise,
with the result that the writer will be subject to the risk of market decline
in the underlying security during such period. Should a Fund choose to exercise
an option, the Fund will purchase in the open market the securities,
commodities or commodity futures contracts underlying the exercised option.

Exchange-listed options on securities and currencies, with certain
exceptions, generally settle by physical delivery of the underlying security or
currency, although in the future, cash settlement may become available.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option. Index options are cash settled for the net amount,
if any, by which the option is "in-the-money" (that is, the amount by which the
value of the underlying instrument exceeds, in the case of a call option, or is
less than, in the case of a put option, the exercise price of the option) at
the time the option is exercised.

A Fund's ability to close out its position as a purchaser or seller of
an exchange-listed put or call option is dependent upon the existence of a
liquid secondary market on option exchanges. Among the possible reasons for the
absence of a liquid secondary market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions imposed
by an exchange; (iii) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities; (iv) interruption of the normal operations on an exchange; (v)
inadequacy of the facilities of an exchange or the Options Clearing Corporation
("OCC") to handle current trading volume; or (vi) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange that had been listed by the OCC as a result of trades
on that exchange would generally continue to be exercisable in accordance with
their terms.

Over-the-counter options are purchased from or sold to securities
dealers, financial institutions or other parties, through direct bilateral
agreement with such counterparties. A Fund will purchase and sell
over-the-counter options only from and to counterparties which the investment
manager deems to be creditworthy.

The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the
<PAGE> 71

underlying securities, significant price and rate movements can take place in
the underlying markets that cannot be reflected in the options markets.

(a) Options on Stocks and Stock Indices. A Fund may purchase put and
call options and write covered put and call options on stocks and stock indices
listed on domestic and foreign securities exchanges in order to hedge against
movements in the equity markets or to increase income or gain to the Fund. In
addition, the Fund may purchase options on stocks that are traded over-the-
counter. Options on stock indices are similar to options on specific securities.
However, because options on stock indices do not involve the delivery of an
underlying security, the option represents the holder's right to obtain from
the writer cash in an amount equal to a fixed multiple of the amount by which
the exercise price exceeds (in the case of a put) or is less than (in the case
of a call) the closing value of the underlying stock index on the exercise
date. Currently, options traded include the Standard & Poor's 100 Index of
Composite Stocks, Standard & Poor's 500 Index of Composite Stocks (the "S&P 500
Index"), the New York Stock Exchange ("NYSE") Composite Index, the American
Stock Exchange ("AMEX") Market Value Index, the National Over-the-Counter Index
and other standard broadly based stock market indices. Options are also traded
in certain industry or market segment indices such as the Oil Index, the
Computer Technology Index and the Transportation Index. Stock index options are
subject to position and exercise limits and other regulations imposed by the
exchange on which they are traded.

If the investment manager expects general stock market prices to rise,
a Fund might purchase a call option on a stock index or a futures contract on
that index as a hedge against an increase in prices of particular equity
securities it wants ultimately to buy. If in fact the stock index does rise,
the price of the particular equity securities intended to be purchased may also
increase, but that increase would be offset in part by the increase in the
value of the Fund's index option or futures contract resulting from the
increase in the index. If, on the other hand, the investment manager expects
general stock market prices to decline, it might purchase a put option or sell
a futures contract on the index. If that index does in fact decline, the value
of some or all of the equity securities in a Fund's portfolio may also be
expected to decline, but that decrease would be offset in part by the increase
in the value of the Fund's position in such put option or futures contract.

(b) Options on Currencies. A Fund may invest in options on currencies
traded on domestic and foreign securities exchanges in order to hedge against
currency exchange rate risks or to increase income or gain, as described above
in "Forward Currency Exchange Contracts."

(c) Options on Futures Contracts. A Fund may purchase put and call
options and write covered put and call options on futures contracts on stock
indices, interest rates and currencies traded on domestic and, to the extent
permitted by the CFTC, foreign exchanges, in order to hedge all or a portion of
its investments or to increase income or gain and may enter into closing
transactions in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. An option on a stock index
futures contract, interest rate futures contract or currency futures contract,
as contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in the
underlying contract at a specified exercise price at any time on or before the
expiration date of the option. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will
be accompanied by delivery of the accumulated balance in the writer's futures
margin account. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus
transaction costs). While the price of the option is fixed at the point of
sale, the value of the option does change daily and the change would be
reflected in the net asset value of the Fund.

<PAGE> 72

INTEREST RATE AND EQUITY SWAPS AND RELATED TRANSACTIONS. Certain Funds
may enter into interest rate and equity swaps and may purchase or sell (i.e.,
write) interest rate and equity caps, floors and collars. A Fund expects to
enter into these transactions in order to hedge against either a decline in the
value of the securities included in the Fund's portfolio, or against an
increase in the price of the 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. Interest rate and equity swaps involve the
exchange by a Fund with another party of their respective commitments to make
or receive payments based on a notional principal amount. The purchase of an
interest rate or equity cap entitles the purchaser, to the extent that a
specified index exceeds a predetermined level, to receive payments on a
contractually-based principal amount from the party selling the interest rate
or equity cap. The purchase of an interest rate or equity floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
rate, to receive payments on a contractually-based principal amount from the
party selling the interest rate or equity floor. A collar is a combination of a
cap and a floor which preserve a certain return within a predetermined range of
values.

A Fund may enter into interest rate and equity swaps, caps, floors and
collars on either an asset-based or liability-based basis, depending on whether
it is hedging its assets or its liabilities, and will usually enter into
interest rate and equity swaps on a net basis (i.e., the two payment streams
are netted out), with the Fund receiving or paying, as the case may be, only
the net amount of the two payments. The net amount of the excess, if any, of a
Fund's obligations over its entitlements with respect to each interest rate or
equity swap will be accrued on a daily basis, and an amount of cash and/or
liquid high grade debt securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated account by the
Fund's custodian. If a Fund enters into an interest rate or equity swap on
other than a net basis, the Fund will maintain a segregated account in the full
amount accrued on a daily basis of the Fund's obligations with respect to the
swap. A Fund will only enter into interest rate and equity swap, cap, floor or
collar transactions with counterparties the investment manager deems to be
creditworthy. The investment manager will monitor the creditworthiness of
counterparties to its interest rate and equity swap, cap, floor and collar
transactions on an ongoing basis. If there is a default by the other party to
such a transaction, a Fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms
acting both as principals and agents utilizing standardized swap documentation.
The investment manager has determined that, as a result, the swap market has
become relatively liquid. Caps, floors and collars are more recent innovations
for which standardized documentation has not yet been developed and,
accordingly, they are less liquid than swaps. To the extent a Fund sells caps,
floors, and collars it will maintain in a segregated account cash and/or liquid
high grade debt securities having an aggregate net asset value at least equal
to the full amount, accrued on a daily basis, of the Fund's obligations with
respect to the caps, floors or collars. The use of interest rate and equity
swaps is a highly specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the investment manager is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment performance
of a Fund would diminish compared with what it would have been if these
investment techniques were not utilized. Moreover, even if the investment
manager is correct in its forecasts, there is a risk that the swap position may
correlate imperfectly with the price of the asset or liability being hedged.

There is no limit on the amount of interest rate and equity swap
transactions that may be entered into by a Fund. These transactions do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate and equity swaps is
limited to the net amount of payments that a Fund is contractually obligated to
make, if any. The effective use of
<PAGE> 73

swaps and related transactions by a Fund may depend, among other things on the
Fund's ability to terminate the transactions at times when the investment
manager deems it desirable to do so. Because swaps and related transactions are
bilateral contractual arrangements between a Fund and counterparties to the
transactions, the Fund's ability to terminate such an arrangement may be
considerably more limited than in the case of an exchange traded instrument. To
the extent a Fund does not, or cannot, terminate such a transaction in a timely
manner, the Fund may suffer a loss in excess of any amounts that it may have
received, or expected to receive, as a result of entering into the transaction.
If the other party to a swap defaults, a Fund's risk of loss is the net amount
of payments that the Fund contractually is entitled to receive, if any. A Fund
may purchase and sell caps, floors and collars without limitation, subject to
the segregated account requirement described above.

OTHER INVESTMENT COMPANIES

As indicated under "Investment Restrictions" below, a Fund may from
time to time invest in securities of other investment companies. The return on
such investments will be reduced by the operating expenses, including
investment advisory and administration fees, of such investment funds, and will
be further reduced by Fund expenses, including management fees; that is, there
will be a layering of certain fees and expenses.

INVESTMENT LIMITATIONS

Except for (i) the investment limitations set forth below which are
indicated as fundamental policies, (ii) the investment restrictions set forth
in the Prospectus and (iii) each Fund's investment objective as described in
the Prospectus, the other policies and percentage limitations referred to in
this Statement of Additional Information and the Prospectus are not fundamental
policies of the Funds and may be changed by the applicable Board of Directors
without shareholder approval. The investment restrictions which are fundamental
policies may be changed only when permitted by law, if applicable, and approved
by the holders of a majority of a Fund's outstanding voting securities, which,
as defined by the 1940 Act, means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares.

If a percentage restriction on investment or use of assets set forth
below is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.

MONEY MARKET FUND. The Money Market Fund may not:

(1) invest more than 10% of the value of its net assets in
securities which are illiquid;
<PAGE> 74

(2) purchase shares of other investment companies (except as part
of a merger, consolidation or reorganization or purchase of
assets approved by the Fund's shareholders), provided that the
Fund may purchase shares of any registered open-end investment
company that determines its net asset value per share based on
the amortized cost or penny-rounding method, if immediately
after any such purchase the Fund does not (a) own more than 3%
of the outstanding voting stock of any one investment company,
(b) invest more than 5% of the value of its total assets in
any one investment company, or (c) invest more than 10% of the
value of its total assets in the aggregate in securities of
investment companies;

(3) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are
necessary for the clearance of transactions);

(4) sell securities short;

(5) purchase or sell commodities or commodity contracts, including
futures contracts;

(6) invest for the purpose of exercising control over management
of any company;

(7) make loans, except that the Fund may (a) purchase and hold
debt instruments in accordance with its investment objective
and policies and (b) enter into repurchase agreements with
respect to portfolio securities;

(8) underwrite the securities of other issuers, except to the
extent that the purchase of investments directly from the
issuer thereof and later disposition of such securities in
accordance with the Fund's investment program may be deemed to
be an underwriting;

(9) purchase real estate or real estate limited partnership
interests (other than securities issued by companies that
invest in real estate or interests therein);

(10) invest directly in interests in oil, gas or other mineral
exploration development programs or mineral leases; or

(11) purchase warrants.

Each of the above restrictions are fundamental policies of the Money
Market Fund. For the purpose of applying the above percentage restrictions and
the percentage investment limitations set forth in the Prospectus to
receivables-backed obligations, the special purpose entity issuing the
receivables-backed obligations and/or one or more of the issuers of the
underlying receivables will be considered an issuer in accordance with
applicable regulations.

<PAGE> 75

HIGH YIELD BOND FUND, EMERGING MARKETS FUND AND ASIA GROWTH FUND. Each of the
High Yield Bond Fund, Emerging Markets Fund and Asia Growth Fund may not:

(1) underwrite securities of other issuers, except to the extent that
the purchase of investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an
underwriting;

(2) purchase or sell real estate, although a Fund may purchase and
sell securities of companies which deal in real estate, may purchase and sell
marketable securities which are secured by interests in real estate and may
invest in mortgages and mortgage-backed securities;

(3) purchase or sell commodities or commodity contracts except that a
Fund may engage in derivative transactions to the extent permitted by its
investment policies as such policies are set forth from time to time in the
Prospectus and this Statement of Additional Information;

(4) make loans, except that (a) a Fund may purchase and hold debt
securities in accordance with its investment objective and policies, (b) a Fund
may enter into repurchase agreements with respect to portfolio securities,
subject to applicable limitations of its investment policies, (c) a Fund may
lend portfolio securities with a value not in excess of one-third of the value
of its total assets, provided that collateral arrangements with respect to
options, forward currency and futures transactions will not be deemed to
involve loans of securities, and (d) delays in the settlement of securities
transactions will not be considered loans;

(5) purchase the securities of other investment companies except as
permitted under the 1940 Act or in connection with a merger, consolidation,
acquisition or reorganization;

(6) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for the
clearance of transactions, and except for initial and variation margin payments
in connection with purchases or sales of futures contracts);

(7) sell securities short; provided that short positions in a futures
contract or forward contract are permitted;

(8) purchase or retain any securities of an issuer if one or more
persons affiliated with a Fund owns beneficially more than 1/2 of 1% of the
outstanding securities of such issuer and such affiliated persons so owning 1/2
of 1% together own beneficially more than 5% of such securities;
<PAGE> 76

(9) invest in oil, gas and other mineral leases, provided, however,
that this shall not prohibit a Fund from purchasing publicly traded securities
of companies engaging in whole or in part in such activities;

(10) with respect to the High Yield Bond Fund only, purchase the
securities of any issuer if by reason thereof the value of its investment in
all securities of that issuer will exceed 5% of the value of its total assets;

(11) invest more than 5% of its total assets in securities of
unseasoned issuers (other than securities issued or guaranteed by U.S. federal
or state or foreign governments or agencies, instrumentalities or political
subdivisions thereof) which, including their predecessors, have been in
operation for less than three years;

(12) purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets; or

(13) invest in warrants (other than warrants acquired by a Fund as
part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed 5%
of the value of the Fund's net assets or if, as a result, more than 2% of the
Fund's net assets would be invested in warrants that are not listed on AMEX or
NYSE.

Investment restrictions (1) through (5) described above are
fundamental policies of each of the High Yield Bond Fund, Emerging Markets Fund
and Asia Growth Fund. Restrictions (6) through (13) are non-fundamental
policies of such Fund.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Certificates representing shares of the Funds will not be issued to
shareholders. Investors Bank and Trust Company ("Investors Bank"), the Fund's
transfer agent, will maintain an account for each shareholder upon which the
registration and transfer of shares are recorded, and any transfers shall be
reflected by bookkeeping entry, without physical delivery. Detailed
confirmations of each purchase or redemption are sent to each shareholder.
Monthly statements of account are sent which include shares purchased as a
result of a reinvestment of Fund distributions.

Investors Bank will require that a shareholder provide requests in
writing, accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.).
<PAGE> 77

If the Board of Directors of each of Institutional Series Funds and
Series Funds shall determine that it is in the best interests of the remaining
shareholders of a Fund, the Fund may pay the redemption price in whole, or in
part, by a distribution in kind from the portfolio of the Fund, in lieu of
cash, taking such securities at their value employed for determining such
redemption price, and selecting the securities in such manner as such Board of
Directors may deem fair and equitable. However, each Fund has made an election
pursuant to Rule 18f-1 under the 1940 Act requiring that all redemptions be
effected in cash to each redeeming shareholder, during periods of 90 days, up
to the lesser of $250,000 or 1% of the net assets of such Fund. A shareholder
who receives a distribution in kind may incur a brokerage commission upon a
later disposition of such securities and may receive less than the redemption
value of such securities or property upon sale, particularly where such
securities are sold prior to maturity. Redemption in kind is not as liquid as
a cash redemption.

Under the 1940 Act, a Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC by rule or regulation) an emergency exists as a result of which disposal or
valuation of portfolio securities is not reasonably practicable, or for such
other periods as the SEC may permit. A Fund may also suspend or postpone the
recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.

EXCHANGE PRIVILEGE. Shareholders may exchange all or part of their
shares for shares of other Funds in the Salomon Brothers Institutional
Investment Series, as indicated in the Prospectus. The value of the shares
exchanged must meet the investment minimum of the Fund into which the investor
is exchanging.

The exchange privilege enables shareholders of a Fund to acquire
shares in a Fund with a different investment objective when they believe that a
shift between Funds is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the Fund shares being
acquired may legally be sold.

Exercise of the exchange privilege is treated as a sale and purchase
for federal income tax purposes and, depending on the circumstances, a short-
or long-term capital gain or loss may be realized. The price of the shares of
the Fund into which shares are exchanged will be the new cost basis for tax
purposes.

Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value and the proceeds immediately invested in shares of the Fund being
acquired at a price equal to the then current net asset value of such shares.

All accounts involved in a telephone or telegram exchange must have
the same registration. If a new account is to be established, the dollar amount
to be exchanged must be at least as much as the minimum initial investment of
the Fund whose shares are being
<PAGE> 78

purchased. Any new account established by exchange will automatically be
registered in the same way as the account from which shares are exchanged and
will carry the same dividend option.

The exchange privilege is not designed for investors trying to catch
short-term savings in market prices by making frequent exchanges. A Fund
reserves the right to impose a limit on the number of exchanges a shareholder
may make. Call or write the applicable Fund for further details.

PORTFOLIO TRANSACTIONS

Subject to policy established by the applicable Fund's Board of
Directors, the investment manager is primarily responsible for each Fund's
portfolio decisions and the placing of the Fund's portfolio transactions.

Fixed-income, certain short-term securities and certain equities
normally will be purchased or sold from or to issuers directly or to dealers
serving as market makers for the securities at a net price, which may include
dealer spreads and underwriting commissions. Equity securities may also be
purchased or sold through brokers who will be paid a commission.

The general policy of each Fund in selecting brokers and dealers is to
obtain the best results taking into account factors such as the general
execution and operational facilities of the broker or dealer, the type and size
of the transaction involved, the creditworthiness of the broker or dealer, the
stability of the broker or dealer, execution and settlement capabilities, time
required to negotiate and execute the trade, research services and the
investment manager's arrangements related thereto (as described below), overall
performance, the dealer's risk in positioning the securities involved, and the
broker's commissions and dealer's spread or mark-up. While the investment
manager generally seeks the best price in placing its orders, a Fund may not
necessarily be paying the lowest price available.

Notwithstanding the above, in compliance with Section 28(e) of the
Securities Exchange Act of 1934, the investment manager may select brokers who
charge a commission in excess of that charged by other brokers, if the
investment manager determines in good faith that the commission to be charged
is reasonable in relation to the brokerage and research services provided to
the investment manager by such brokers. Research services generally consist of
research or statistical reports or oral advice from brokers and dealers
regarding particular companies, industries or general economic conditions. The
investment manager may also have arrangements with brokers pursuant to which
such brokers provide research services to the investment manager in exchange
for a certain volume of brokerage transactions to be executed by such broker.
While the payment of higher commissions increases a Fund's costs, the
investment manager does not believe that the receipt of such brokerage and
research services significantly reduces its expenses as a Fund's investment
manager. Arrangements for the receipt of research services from brokers may
create conflicts of interest.
<PAGE> 79

Research services furnished to the investment manager by brokers who
effect securities transactions for a Fund may be used by the investment manager
in servicing other investment companies and accounts which it manages.
Similarly, research services furnished to the investment manager by brokers who
effect securities transactions for other investment companies and accounts
which the investment manager manages may be used by the investment manager in
servicing a Fund. Not all of these research services are used by the investment
manager in managing any particular account, including the Funds.

Affiliated persons of a Fund, or affiliated persons of such persons,
may from time to time be selected to execute portfolio transactions for such
Fund. Subject to the considerations discussed above and in accordance with
procedures adopted by the applicable Fund's Board of Directors, in order for
such an affiliated person to be permitted to effect any portfolio transactions
for a Fund, the commissions, fees or other remuneration received by such
affiliated person must be reasonable and fair compared to the commissions, fees
or other remuneration received by other brokers in connection with comparable
transactions. This standard would allow such an affiliated person to receive no
more than the remuneration which would be expected to be received by an
unaffiliated broker in a commensurate arm's-length transaction.

Under the 1940 Act, persons affiliated with a Fund are prohibited from
dealing with it as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the SEC. However, a
Fund may purchase securities from underwriting syndicates of which the
investment manager or any of their affiliates (including Salomon Brothers Inc)
is a member under certain conditions, in accordance with the provisions of Rule
10f-3 under the 1940 Act.

MANAGEMENT

DIRECTORS AND OFFICERS

The principal occupations of the directors and executive officers of
the Institutional Series Funds and the Series Funds for the past five years are
listed below. The board composition of Institutional Series Funds and Series
Funds is identical. Certain of the directors and officers are also directors and
officers of one or more other investment companies for which SBAM acts as
investment manager.

Except as indicated below, the address of Mr. Hyland and each
executive officer is Salomon Brothers Asset Management Inc, 7 World Trade
Center, New York, New York 10048.
<PAGE> 80

DIRECTORS OF SERIES FUNDS

<TABLE>
<CAPTION>
POSITION(S) Principal
HELD WITH Occupation(s)
NAME AND ADDRESS Series Funds Past 5 Years
---------------- ------------ ------------
<S> <C> <C>
Charles F. Barber Director Consultant; formerly Chairman
66 Glenwood Drive (Audit Committee of the Board, ASARCO
Greenwich, CT 06830 Member) Incorporated
Age 79

Carol L. Colman Director President, Colman Consulting
Colman Consulting (Audit Committee Co., Inc.; formerly Managing
Co., Inc. Member) Partner of Inferential Focus
P.O. Box 212
North Salem, NY 10560
Age 50

Daniel P. Cronin Director Vice President and General
Pfizer, Inc (Audit Committee Counsel,
253 East 42nd Street Member) Pfizer International Inc
New York, NY 10017 since 1987;
Age 50 Senior Assistant General
Counsel,
Pfizer, Inc since 1989

Michael S. Hyland* Director and President, SBAM and Managing
Age 50 President Director, Salomon Brothers
since 1989; formerly Managing
Director,
First Boston Asset Management
and Managing Director, The
First Boston Corporation
</TABLE>
<PAGE> 81

[Directors of Institutional Series Funds to be named]

* Interested Person as defined in the 1940 Act.
<PAGE> 82

EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
PRINCIPAL
POSITION(S) OCCUPATION(S)
NAME AND ADDRESS HELD PAST 5 YEARS
---------------- ----------- -------------
<S> <C> <C>
Giampaolo G. Guarnieri Executive Vice Vice President and Portfolio Manager,
Salomon Brothers Asset President SBAM AP since April 1995; formerly
Management Asia Senior Portfolio Investment Manager,
Pacific Limited Credit Agricole Asset Management
Three Exchange Square, (South East Asia) Limited since 1992
Hong Kong and head of direct investment
Age 32 activities from 1990-1992

Steven Guterman (Series Executive Vice Managing Director, SBAM and Salomon
Funds only) President Brothers Inc since January 1996;
Age 42 formerly Vice President, SBAM and
Salomon Brothers Inc.

Peter J. Wilby Executive Vice Managing Director, SBAM and Salomon
Age 37 President Brothers Inc since January 1996;
formerly Vice President, SBAM and
Salomon Brothers Inc.

Richard E. Dahlberg Executive Vice Managing Director, SBAM and Salomon
(Series Funds only) President Brothers Inc since January 1996;
Age 58 formerly Vice President SBAM since
June 1995; prior to that employed by
Massachusetts Financial Services
Company.

Lawrence H. Kaplan Executive Vice Vice President and Chief Counsel, SBAM
Age 39 President and General and Vice President, Salomon Brothers
Counsel Inc since May 1995; formerly Senior
Vice President, Director and General
Counsel, Kidder Peabody Asset
Management, Inc. and Senior Vice
President, Kidder, Peabody & Co.
Incorporated since November 1990

Eliza Lau Vice President Vice President, SBAM since 1995;
Age 33 previously research analyst, Salomon
Brothers Inc.

James E. Craige Vice President Vice President, SBAM and Salomon
(Institutional Series Brothers Inc since 1992; prior to that
Funds only) employed as an associate, Shearson
Age 28 Lehman Advisors.

Thomas K. Flanagan Vice President Director, SBAM and Salomon Brothers
(Institutional Series Inc since 1996; formerly Vice
Funds only) President, SBAM and Salomon Brothers
Age 43 Inc since 1991; prior to that employed
as a Director, Merrill Lynch & Co.

Nancy Noyes (Series Vice President Director, SBAM and Salomon Brothers
Funds officer only) Inc since January 1996; formerly Vice
Age 37 President, SBAM and Salomon Brothers
Inc.

Alan M. Mandel Treasurer Vice President, SBAM since January
Age 38 1995; formerly Chief Financial
Officer, Hyperion Capital Management
since 1991; prior to which he was Vice
President, Mitchell Hutchins Asset
Management ("MHAM".)
</TABLE>
<PAGE> 83

<TABLE>
<S> <C> <C>
Tana E. Tselepis Secretary Compliance Officer, SBAM since 1993
Age 60 and Senior Administrator since 1989;
Vice President, Salomon Brothers since
1991; formerly Vice President and
Senior Administrator at First Boston
Asset Management Corporation, 1985-
1989.

Reji Paul Assistant Treasurer Investment Accounting Manager, SBAM
Age 33 since 1995; formerly Assistant Vice
President, MHAM since 1994; prior to
which he was Supervisor at MHAM.

Janet Tolchin Assistant Treasurer Investment Accounting Manager, SBAM
(Series Funds officer only)
Age 37

Amy Yeung Assistant Treasurer Investment Accounting Manager, SBAM
(Institutional Series Only) since April 1995; formerly Manager of
Age 31 McGladrey & Pullen, LLP (accounting
firm).

Jennifer G. Muzzey Assistant Secretary Employee of SBAM since June 1994;
Age 36 formerly Vice President of SunAmerica
Asset Management Corporation.
</TABLE>

Certain of the officers and directors of both Institutional Series
Funds and Series Funds are also officers and directors of one or more other
investment companies for which SBAM, the Funds' investment manager, acts as
investment adviser.

COMPENSATION TABLE

The following table provides information concerning the compensation
paid during the fiscal year ended December 31, 1995 to each director of the
Series Funds. It is estimated that each Director of Institutional Series Funds,
except Mr. Hyland will receive $5,000 for the 1996 fiscal year as compensation
for serving as director. Neither the Institutional Series Funds nor the Series
Funds provide any pension or retirement benefits to directors. In addition,
no remuneration was paid during the fiscal year ended December 31, 1995 by the
Series Funds or will be paid during the 1996 fiscal year by the Institutional
Series Funds to officers of the Series Funds or to Mr. Hyland, who as an
employee of SBAM may be defined as an "interested person" under the 1940 Act.

SERIES FUNDS

<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION TOTAL COMPENSATION
NAME OF PERSON, FROM THE FROM OTHER FUNDS
POSITION SERIES FUNDS ADVISED BY SBAM(A) TOTAL COMPENSATION
-------- ------------ ------------------ ------------------
<S> <C> <C> <C>
Charles F. Barber
Director $4,326 $110,149(12) $114,475

Daniel P. Cronin
Director $3,544 $26,399(3) $29,943
Carol L. Colman
Director $4,416 $28,250(3) $32,666
</TABLE>

- -----------------
(A) The numbers in parenthesis indicate the applicable number of
investment company directorships held by that director.
<PAGE> 84

PRINCIPAL HOLDERS OF SECURITIES

As of the date of this Statement of Additional Information, Salomon
Brothers Asset Management Inc, 7 World Trade Center, New York, NY 10048, owns
all of the outstanding shares of the High Yield Bond Fund, the Emerging Markets
Debt Fund and the Asia Growth Fund and, accordingly, is a control person of
each of these Funds.

<TABLE>
<CAPTION>
LARGEST SHAREHOLDERS % OF SHARES
<S> <C> <C>
1 SALOMON BROTHERS INC A/C NYS6734 24.34%
7 WORLD TRADE CENTER, 40TH FLOOR
NEW YORK, NY 10048

2 STATE STREET BANK & TRUST CO FBO 18.82%
SALOMON BROTHERS NY MUNICIPAL DEPT
7 WORLD TRADE CENTER, 38TH FLOOR
NEW YORK, NY 10048

3 SALOMON BROTHERS A/C VO263 7.60%
7 WORLD TRADE CENTER, 40TH FLOOR
NEW YORK, NY 10048

4 MARTIN L LEIBOWITZ 7.24%
ONE FIFTH AVENUE
APT. #13K
NEW YORK, NY 10005
</TABLE>

Directors of the Series Funds and Institutional Series Funds not
affiliated with SBAM receive from their respective Funds an annual fee and a
fee for each Board of Directors and Board committee meeting attended and are
reimbursed for all out-of-pocket expenses relating to attendance at meetings.
Directors who are affiliated with SBAM do not receive compensation but are
reimbursed for all out-of-pocket expenses relating to attendance at meetings.

As of December 31, 1995, directors and officers of the Series Funds as a
group beneficially owned less than 1% of the outstanding shares of any series
of the Series Fund.

INVESTMENT MANAGER

Each Fund retains SBAM to act as its investment manager. SBAM, an indirect
wholly-owned subsidiary of Salomon Inc, serves as the investment manager to
numerous individuals and institutions and other investment companies.

The management contract between SBAM and each respective Fund provides
that SBAM shall manage the operations of such Fund, subject to policy
established by the Board of Directors. Pursuant to the applicable management
contract, SBAM manages each Fund's investment portfolio, directs purchases and
sales of portfolio securities and reports thereon to the Fund's officers and
directors regularly. SBAM also provides the office space, facilities, equipment
and personnel necessary to perform the following services for each Fund: SEC
compliance, including record keeping, reporting requirements and registration
statements and proxies; supervision of Fund operations, including custodian,
accountants and counsel and other parties performing services or operational
functions for each Fund, certain administrative and clerical services,
including certain accounting services, facilitation of redemption requests,
exchange privileges, and account adjustments, development of new shareholder
services and maintenance of certain books and records; and certain services to
each Fund's shareholders, including assuring that investments and redemptions
are completed efficiently,
<PAGE> 85

responding to shareholder inquiries and maintaining a flow of information to
shareholders. In addition, SBAM pays the compensation of each Fund's officers,
employees and directors affiliated with SBAM. Each Fund bears all other costs
of its operations, including the compensation of its directors not affiliated
with SBAM.

Pursuant to a sub-advisory agreement (the "Subadvisory Agreement"), SBAM
has retained Salomon Brothers Asia Pacific Limited ("SBAM AP") as sub-adviser to
the Asia Growth Fund. Subject to the supervision of SBAM, SBAM AP will have
responsibility for the day-to-day management of the Fund's portfolio. Pursuant
to a sub-administration agreement (the "Subadministration Agreement"), SBAM has
retained Salomon Brothers Asset Management Limited ("SBAM Limited") to provide
certain administrative services to SBAM relating to the Asia Growth Fund. Like
SBAM, SBAM AP and SBAM Limited are indirect, wholly-owned subsidiaries of
Salomon Inc. SBAM AP is a member of the Hong Kong Securities and Futures
Commission, SBAM Limited is a member of the Investment Management Regulatory
Organization in the United Kingdom and both SBAM AP and SBAM Limited are
registered as investment advisers in the United States pursuant to the
Investment Advisers Act of 1940, as amended.

As compensation for its services, the Money Market Fund pays SBAM a monthly
fee at an annual rate of .20% of the Fund's average daily net assets. On
November 16, 1995, the Board of Directors of the Series Funds approved an
amendment to the management contract of the Money Market Fund, subject to
shareholder approval, to increase the management fee from .10% of average daily
net assets to .20%. The shareholders approved the amendment on March 26, 1996,
to become effective as of the date of this Prospectus. As of the date of this
Statement of Additional Information, SBAM has voluntarily agreed to reduce or
otherwise limit the expenses of the Fund (exclusive of taxes, interest and
extraordinary expenses such as litigation and indemnification expenses), on an
annualized basis, to .25% of the Fund's average daily net assets and for a
period of at least one year from the date of the Prospectus such expenses shall
not exceed .18% of the Fund's average daily net assets. See "Fee Table" in the
Prospectus. For the fiscal years ended December 31, 1993, December 31, 1994 and
December 31, 1995, the Money Market Fund paid SBAM $39,189, $29,658 and $7,609
(which reflects a waiver of $7,609) respectively, for its services.

As compensation for its services, the High Yield Bond Fund pays SBAM a
monthly fee at an annual rate of .50% of the Fund's average daily net assets;
the Emerging Markets Debt Fund pays SBAM a monthly fee at an annual rate of .70%
of the Fund's average daily net assets and the Asia Growth Fund pays SBAM a
monthly fee at an annual rate of .75% of the Fund's average daily net assets.
Effective as of the date of the Prospectus, SBAM has voluntarily agreed to
reduce or otherwise limit the expenses of the High Yield Bond Fund, Emerging
Markets Debt Fund and Asia Growth Fund (exclusive of taxes, interest and
extraordinary expenses such as litigation and indemnification expenses) on an
annualized basis, to .55%, .75% and 1.00%, respectively, of the applicable
Fund's average daily net assets. See "Fee Table" in the Prospectus. For its
services under the Subadvisory Agreement, SBAM AP is compensated by SBAM at no
additional expense to the Asia Growth Fund. For its services under the
Subadministration Agreement, SBAM Limited is compensated by SBAM at no
additional cost to the Asia Growth Fund at an annual rate of .10% of the Asia
Growth Fund's daily net assets.

The management contract for the Money Market Fund was approved by the
Series Funds Board of Directors on November 29, 1990, by the Fund's sole
shareholder, SBAM, on December 7, 1990 and ratified by shareholders on
September 20, 1991. The management contract for each of the High Yield Bond
Fund, the Emerging Markets Debt Fund and the Asia Growth Fund was approved by
the Institutional Series Fund Board of Directors on March 19, 1996 and by the
sole shareholder of each Fund, SBAM, on March 22, 1996. The management
contract for each Fund provides that it will continue automatically for
successive annual periods provided that such continuance is approved at least
annually (a) by the vote of a majority of the directors not parties to the
management contract or interested persons of such parties, which votes are cast
in person at a meeting called for the purpose of voting on such management
contract and (b) either by the Board
<PAGE> 86

of Directors or a majority of the outstanding voting securities. Each
management contract may be terminated by either party on 60 days' written
notice, and will terminate immediately in the event of its assignment.

Under the terms of the management contract between each Fund and SBAM,
neither SBAM nor its affiliates shall be liable for losses or damages incurred
by the Fund (including, with respect to the Asia Growth Fund, the imposition of
certain Hong Kong tax liabilities on the Fund), unless such losses or damages
are attributable to the wilful misfeasance, bad faith or gross negligence on
the part of either SBAM or its affiliates or from reckless disregard by it of
its obligations and duties under the Management Contract ("disabling conduct").
In addition, each of the High Yield Bond Fund, Emerging Markets Debt Fund and
Asia Growth Fund will indemnify SBAM and its affiliates and hold each of them
harmless against any losses or damages (including, with respect to the Asia
Growth Fund, the imposition of certain Hong Kong tax liabilities on the Fund),
not resulting from disabling conduct.

Investment decisions for a particular Fund are made independently from
those for other funds and accounts advised or managed by SBAM or SBAM AP. Such
other funds and accounts may also invest in the same securities as a Fund. If
those funds or accounts are prepared to invest in, or desire to dispose of, the
same security at the same time as a Fund, however, transactions in such
securities will be made, insofar as feasible, for the respective funds and
accounts in a manner deemed equitable to all. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by a Fund
or the price paid or received by a Fund. In addition, because of different
investment objectives, a particular security may be purchased for one or more
funds or accounts when one or more funds or accounts are selling the same
security.

If in any fiscal year expenses borne by a Fund (excluding interest, taxes,
brokerage commissions and other portfolio transaction expenses and any
extraordinary expenses, but including the management fee) exceed expense
limitations imposed by applicable state securities regulations, SBAM, in its
capacity as investment manager, will reimburse that Fund for any such excess to
the extent required by such regulations up to the amount of the fees payable to
it. California is the only state which currently imposes such an expense
limitation. The limitation is 2.5% of the first $30 million of the average net
assets, 2.0% of the next $70 million of the average net-assets and 1.5% of the
remaining average net assets. Such reimbursement, if any, will be estimated and
paid on a monthly basis. There was no reimbursement to the Money Market Fund
for the years ended December 31, 1995, 1994 or 1993.

Rule 17j-1 under the 1940 Act requires all registered investment companies
and their investment advisers and principal underwriters to adopt written codes
of ethics and institute procedures designed to prevent "access persons" (as
defined in Rule 17j- 1) from engaging in any fraudulent, deceptive or
manipulative trading practices. The Board of Directors for the Series Funds and
the Institutional Series Funds has adopted a code of ethics (the "Fund Code")
that incorporates personal trading policies and procedures applicable to access
persons of each Fund, which includes officers, directors and other specified
persons who may make, participate in or otherwise obtain information concerning
the purchase or sale of securities by the Fund. In addition, the Fund Code
attaches and incorporates personal trading policies and procedures applicable
to access persons of SBAM, as the investment adviser to each Fund, and, in the
case Asia Growth Fund, access persons of SBAM AP, as the Fund's sub-adviser,
which policies serve as SBAM's and SBAM AP's code of ethics, respectively (the
"Adviser Code"). The Fund and Adviser Codes have been designed to address
potential conflicts of interest that can arise in connection with the personal
trading activities of investment company and investment advisory personnel.

Pursuant to the Fund and Adviser Codes, access persons are generally
permitted to engage in personal securities transactions, provided that a
transaction does not involve securities that are being purchased or sold, are
being considered for purchase or sale, or are being recommended for purchase or
sale by or for a Fund. In
<PAGE> 87

addition, the Adviser Codes contains specified prohibitions and blackout
periods for certain categories of securities and transactions, including a
prohibition on short-term trading and purchasing securities during an initial
public offering. The Adviser Codes also require that access persons obtain
preclearance to engage in personal securities transactions with certain
exceptions. Finally, the Fund and Adviser Codes require access persons to
report all personal securities transactions periodically. The restrictions
contained in the Fund and Adviser Codes are generally inapplicable to
transactions in money market securities.

ADMINISTRATOR

Institutional Series Funds and Series Funds employ Investors Bank under
their applicable administration agreement to provide certain administrative
services to the respective Funds. For its services to the Money Market Fund,
Investors Bank receives a fee from the Fund, at an annual rate of .08% of
the Fund's average daily net assets. For its services as administrator,
custodian and transfer agent to the High Yield Bond Fund, Emerging Markets Debt
Fund and Asia Growth Fund, each Fund pays Investors Bank a fee of each Fund's
average daily net assets at an annual rate of .10% up to $500 million in net
assets and .05% of each Funds average daily net assets in excess of $500
million. The services provided by Investors Bank under the applicable
administration agreement include certain accounting, clerical and bookkeeping
services; Blue Sky compliance; corporate secretarial services and assistance in
the preparation and filing of tax returns and reports to shareholders and the
SEC. Investors Bank is located at 89 South Street, Boston, Massachusetts 02111.
The Series Funds paid the Boston Company Advisors, Inc., the Money Market
Fund's previous administrator ("Boston Company"), a fee calculated daily and
payable monthly, at annual rate of .08% of that Fund's average daily net
assets. For the fiscal years ended December 31, 1993 and 1994, Boston Company
received fees totaling $32,105 and $21,964. Investors Bank received fees
totaling $1,762 and $12,208 for the fiscal years ended December 31, 1994
and 1995 from the Money Market Fund.

DISTRIBUTOR

Salomon Brothers, located at 7 World Trade Center, New York, New York
10048, serves as each Fund's distributor. Salomon Brothers is an indirect
wholly-owned subsidiary of Salomon Inc.

EXPENSES

Each Fund's expenses include taxes, interest, fees and salaries of such
Fund 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 and of the transfer and dividend disbursing agent,
certain insurance premiums, outside auditing and legal expenses, costs of
shareholder reports and shareholder meetings and any extraordinary expenses.
Each Fund also pays for brokerage fees and commissions (if any) in connection
with the purchase and sale of portfolio securities.

NET ASSET VALUE

The Prospectus discusses the time at which the net asset value of a Fund
is determined for purposes of sales and redemptions. The following is a
description of the procedures used by each Fund in valuing its assets.

In calculating net asset value, portfolio securities listed or traded on
national securities exchanges, or reported by the NASDAQ National Market
reporting system, are valued at the last sale price, or, if there have
<PAGE> 88

been no sales on that day, at the mean of the current bid and ask price which
represents the current value of the security. Over- the-counter securities are
valued at the mean of the current bid and ask price.

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 will be determined by consideration of other factors by or under the
direction of the applicable Fund's Board of Directors or its delegates. In
valuing assets, prices denominated in foreign currencies are converted to U.S.
dollar equivalents at the current exchange rate. 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. Short-term obligations with maturities
of 60 days or less are valued at amortized cost, which constitutes fair value
as determined by the Board of Directors. Amortized cost involves valuing an
instrument at its original cost to a Fund and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the instrument. All other
securities and other assets of a Fund will be valued at fair value as
determined in good faith pursuant to procedures adopted by the Board of
Directors of the applicable Fund.

As stated in the Prospectus, the Money Market Fund seeks to maintain a net
asset value of $1.00 per share with respect to the Fund and, in this
connection, values the Fund's instruments on the basis of amortized cost
pursuant to Rule 2a-7 under the 1940 Act. While this method provides certainty
in valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the instrument. During such periods the yield to investors in the Fund may
differ somewhat from that obtained in a similar company which uses market
values for all its portfolio securities. For example, if the use of amortized
cost resulted in a lower (higher) aggregate portfolio value on a particular
day, a prospective investor in the Fund would be able to obtain a somewhat
higher (lower) yield than would result from investment in such a similar
company, and existing investors would receive less (more) investment income.
The purpose of using the amortized cost method of calculation is to attempt to
maintain a stable net asset value per share of $1.00.

The Board of Directors of Series Funds has established procedures
applicable to the Money Market Fund, reasonably designed, taking into account
current market conditions and the Money Market Fund's investment objective, to
stabilize the net asset value per share as computed for the purposes of sales
and redemptions at $1.00. These procedures include periodic review, as the
Board of Directors deem appropriate and at such intervals as are reasonable in
light of current market conditions, of the relationship between the amortized
cost value per share and net asset value per share based upon available
indications of market value.

In the event of a deviation of 1/2 of 1% between the Money Market Fund's
net asset value based upon available market quotations or market equivalents
and $1.00 per share based on amortized cost, the Board of Directors will
promptly consider what action, if any, should be taken. The Board of Directors
will also take such action as they deem appropriate to eliminate or to reduce
to the extent reasonably practicable any material dilution or other unfair
result which might arise from differences between the two. Such action may
include redemption in kind, selling instruments prior to maturity to realize
capital gains or losses or to shorten the average maturity, withholding
dividends, or utilizing a net asset value per share as determined by using
available market quotations.

<PAGE> 89

ADDITIONAL INFORMATION CONCERNING TAXES

TAXATION OF A FUND

The following discussion is a brief summary of certain additional tax
considerations affecting a Fund and its shareholders. No attempt is made to
present a detailed explanation of all federal, state, local and foreign tax
concerns, and the discussions set forth here and in the Prospectus do not
constitute tax advice. Investors are urged to consult their own tax advisers
with specific questions relating to federal, state, local or foreign taxes.

Each Fund intends to qualify and elect to be treated as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code").

Qualification as a RIC requires, among other things, that a Fund: (a)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or other income (including gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; (b) derive less than 30% of
its gross income in each taxable year from the sale or other disposition of any
of the following held for less than three months: stock, securities, and
certain options, futures or forward contracts; and (c) diversify its holdings
so that, at the end of each quarter of each taxable year, (i) at least 50% of
the market value of a Fund's assets is represented by cash, cash items, United
States government securities, securities of other regulated investment
companies and other securities with such other securities limited, in respect
of any one issuer, to an amount not greater than 5% of the value of a Fund's
assets and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than United States government securities or the
securities of other regulated investment companies).

As a RIC, a Fund will not be subject to Federal income tax 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 gains" (the excess of the Fund's net long-term capital
gains over net short-term capital losses), if any, that it distributes in each
taxable year to its shareholders, provided that the Fund distributes at least
90% of its net investment income for such taxable year. However, a Fund would
be subject to corporate income tax (currently at a maximum rate of 35%) on any
undistributed net investment income and net capital gains. Each Fund expects to
designate amounts retained as undistributed net capital gains in a notice to
its shareholders who (i) will be required to include in income for United
States federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (ii) will be entitled to
credit their proportionate shares of the 35% tax paid by a Fund on the
undistributed amount, against their federal income tax liabilities and to claim
refunds to the extent such credits exceed their liabilities and (iii) will be
entitled to increase their tax basis, for federal income tax purposes, in their
shares by an amount equal to 65% of the amount of undistributed net capital
gains included in the shareholder's income.

A Fund will be subject to a nondeductible 4% excise tax to the extent that
it does not distribute by the end of each calendar year: (a) at least 98% of
its ordinary income for such calendar year; (b) at least 98% of the excess of
its capital gains over its capital losses for the one year period ending, as a
general rule, on October 31 of each year; and (c) 100% of the undistributed
income and gains from the preceding calendar year (if any) pursuant to the
calculations in (a) and (b). For this purpose any income or gain retained by a
Fund that is subject to corporate tax will be considered to have been
distributed by year-end.

A Fund's investment in options, swaps and related transactions, futures
contracts and forward contracts, options on futures contracts and stock indices
and certain other securities, including transactions involving actual or deemed
short sales or foreign exchange gains or losses are subject to many complex and
special tax rules. For example, over-the-counter options on debt securities and
equity options, including options on stock and on narrow-based stock indexes,
will be subject to tax under Section 1234 of the Code, generally producing
<PAGE> 90

a long-term or short-term capital gain or loss upon exercise, lapse or closing
out of the option or sale of the underlying stock or security. By contrast, a
Fund's treatment of certain other options, futures and forward contracts
entered into by a Fund is generally governed by Section 1256 of the Code. These
"Section 1256" positions generally include listed options on debt securities,
options on broad-based stock indexes, options on securities indexes, options on
futures contracts, regulated futures contracts and certain foreign currency
contracts and options thereon.

Absent a tax election to the contrary, each such Section 1256 position
held by a Fund will be marked-to-market (i.e., treated as if it were sold for
fair market value) on the last business day of a Fund's fiscal year, and all
gain or loss associated with fiscal year transactions and mark-to-market
positions at fiscal year end (except certain currency gain or loss covered by
Section 988 of the Code) will generally be treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. The effect of Section
1256 mark-to-market rules may be to accelerate income or to convert what
otherwise would have been long-term capital gains into short-term capital gains
or short-term capital losses into long-term capital losses within a Fund. The
acceleration of income on Section 1256 positions may require a Fund to accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, a Fund may be
required to dispose of portfolio securities that they otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares. In these ways, any or all of these rules may affect the amount,
character and timing of income earned and in turn distributed to shareholders
by a Fund.

When a Fund holds options or contracts which substantially diminish their
risk of loss with respect to other positions (as might occur in some hedging
transactions), this combination of positions could be treated as a "straddle"
for tax purposes, resulting in possible deferral of losses, adjustments in the
holding periods of Fund securities and conversion of short-term capital losses
into long-term capital losses. Certain tax elections exist for mixed straddles
i.e., straddles comprised of at least one Section 1256 position and at least
one non-Section 1256 position which may reduce or eliminate the operation of
these straddle rules.

As a RIC, a Fund is also subject to the requirement that less than 30% of
its annual gross income be derived from the sale or other disposition of
securities and certain other investment held for less than three months (the
"short-short test"). This requirement may limit a Fund's ability to engage in
options, spreads, straddles, hedging transactions, forward or futures contracts
or options on any of these positions because these transactions are often
consummated in less than three months, may require the sale of portfolio
securities held less than three months and may, as in the case of short sales
of portfolio securities reduce the holding periods of certain securities within
a Fund, resulting in additional short-short income for such Fund.

A Fund will monitor its transactions in such options and contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and to prevent disqualification of the Fund as a RIC under Subchapter M
of the Code.

A Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments pay-in-kind
bonds or in obligations such as certain Brady Bonds or zero-coupon securities
having original issue discount (i.e., an amount equal to the excess of the
stated redemption price of the security at maturity over its issue price), or
market discount (i.e., an amount equal to the excess of the stated redemption
price of the security over the basis of such bond immediately after it was
acquired) if the Fund elects to accrue market discount on a current basis. In
addition, income may continue to accrue for federal income tax purposes with
respect to a non-performing investment. Any such income would be treated as
income earned by a Fund and therefore would be subject to the distribution
requirements of the Code. Because such income may not be matched by a
corresponding cash distribution to a Fund, the Fund may be required to borrow
money or dispose of other securities to be able to make distributions to its
<PAGE> 91

investors. The extent to which a Fund may liquidate securities at a gain may be
limited by the short-short test discussed above. In addition, if an election is
not made to currently accrue market discount with respect to a market discount
bond, all or a portion of any deduction for any interest expense incurred to
purchase or hold such bond may be deferred until such bond is sold or otherwise
disposed.

If a Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies" ("PFICs"), the Fund may be subject to
U.S. federal income tax on a portion of any "excess distribution" or gain from
the disposition of shares even if the income is distributed as a taxable
dividend by the Fund to its shareholders. Additional charges in the nature of
interest may be imposed on either a Fund or its shareholders with respect to
deferred taxes arising from the distributions or gains. If a Fund were to
invest in a PFIC and (if the Fund received the necessary information available
from the PFIC, which may be difficult to obtain) elected to treat the PFIC as a
"qualified electing fund" under the Code (a "QEF"), in lieu of the foregoing
requirements, the Fund might be required to include in income each year a
portion of the ordinary earnings and net capital gains of the PFIC, even if not
distributed to the Fund, and the amounts would be subject to the 90% and excise
tax distribution requirements described above. Because of the expansive
definition of a PFIC, it is possible that a Fund may invest a portion of its
assets in PFICs.

In the case of PFIC stock owned by a RIC, H.R. 2491, as passed by Congress
and vetoed by President Clinton, contained a provision that would have
permitted a RIC to elect to annually mark-to-market stock in the PFIC and
thereby avoid the need for a RIC to make a QEF election. It is unclear whether
similar legislation will be included as part of the 1996 budget compromise.
Moreover, on April 1, 1992 the Internal Revenue Service proposed regulations
providing a mark-to-market election for RICs that would have effects similar to
the proposed legislation. These regulations would be effective for taxable
years ending after promulgation of the regulations as final regulations.

A Fund may be subject to certain taxes, including without limitation,
taxes imposed by foreign countries with respect to its income and capital
gains. If a Fund qualifies as a RIC, certain distribution requirements are
satisfied and more than 50% of the value of the Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, which for this purpose may include obligations of foreign
governmental issuers, the Fund may elect, for United States federal income tax
purposes, to treat any foreign country's income or withholding taxes paid by
the Fund that can be treated as income taxes under the United States income tax
principles, as paid by its shareholders.

The Asia Growth Fund and the Emerging Markets Debt Fund expect to qualify
for and make this election. For any year that either Fund makes such an
election, each shareholder in such Fund will be required to include in its
income an amount equal to his or her allocable share of such income taxes paid
by such Fund to a foreign country's government and shareholders will be
entitled, subject to certain limitations, to credit their portions of these
amounts against their United States federal income tax due, if any, or to
deduct their portions from their United States taxable income, if any. No
deductions for foreign taxes paid by such Funds may be claimed, however, by
non-corporate shareholders (including certain foreign shareholders described
below) who do not itemize deductions. Shareholders that are exempt from tax
under Section 501(a) of the Code, such as pension plans, generally will derive
no benefit from this election. However, such shareholders should not be
disadvantaged either because the amount of additional income they are deemed to
receive equal to their allocable share of such foreign countries' income taxes
paid by such Funds generally will not be subject to United States federal
income tax.

<PAGE> 92

TAXATION OF UNITED STATES SHAREHOLDERS

The Prospectus describes each Fund's policy with respect to distribution
of net investment income and any net capital and long-term capital gains.
Shareholders should consider the tax implications of buying shares just prior
to a distribution. Although the price of shares purchased at that time may
reflect the amount of the forthcoming distribution, those purchasing just prior
to a distribution will receive a distribution which will nevertheless be
taxable to them.

Shareholders receiving a distribution in the form of additional shares
will be treated for federal income tax purposes as receiving a distribution in
an amount equal to the fair market value, determined as of the distribution
date, of the shares received and will have a cost basis in each share received
equal to the fair market value of a share of a Fund on the distribution date.
Shareholders will be notified annually as to the federal tax status of
distributions, and shareholders receiving distributions in the form of shares
will receive a report as to the fair market value of the shares received.

Gain or loss on the sale or other disposition of Fund shares will result
in capital gain or loss to shareholders. Generally, a shareholder's capital
gain or loss will be long-term gain or loss if the shares have been held for
more than one year. In general, the maximum federal income tax rate imposed on
individuals with respect to net realized long-term capital gains will be
limited to 28%, whereas the maximum federal income tax rate imposed on
individuals with respect to net realized short-term capital gains (which are
taxed at ordinary income rates) will be 39.6%. With respect to corporate
taxpayers, long-term capital gains are taxed at the same federal income tax
rates as short-term capital gains, the maximum being 35%. If a shareholder
redeems or exchanges shares of a Fund before he or she has held them for more
than six months, any short-term capital loss on such redemption or exchange
will be treated as a long-term capital loss to the extent of any capital gain
dividends received by the shareholder (or credited to the shareholder as an
undistributed capital gain) with respect to such shares. Under H.R. 2491, as
passed by Congress and vetoed by President Clinton, individual taxpayers would
have been permitted a 50 percent deduction for any capital gains that they
recognized, and corporations would have been taxed at a 28 percent rate on
capital gains, in lieu of the regular corporate rate. The provisions generally
were to have retroactive effect to January 1, 1995. It is unclear whether
similar legislation will be included as part of the 1996 budget compromise and,
if so, what the effective date will be.

It is expected that a portion of the dividends of net investment income
received by corporate shareholders from a Fund (other than the Money Market
Fund) will qualify for the federal dividends received deduction generally
available to corporations. The dividends received deduction for corporate
shareholders may be reduced if the securities with respect to which dividends
are received by a Fund are (1) considered to be "debt-financed" (generally,
acquired with borrowed funds), (2) held by a Fund for less than 46 days (91
days in the case of certain preferred stock) or (3) subject to certain forms of
hedges or short sales. The amount of any dividend distribution eligible for the
corporate dividends received deduction will be designated by a Fund in a
written notice within 60 days of the close of the taxable year.

PERFORMANCE DATA

As indicated in the Prospectus, from time to time, a Fund may quote its
"yield," "effective yield," "average annual total return" and/or "aggregate
total return" in advertisements or in reports and other communications to
shareholders and compare its performance figures to those of other funds or
accounts with similar objectives and to relevant indices. Such performance
information will be calculated as described below.
<PAGE> 93

AVERAGE ANNUAL TOTAL RETURN

A Fund's "average annual total return" figures, as described and shown in
the Prospectus, are computed according to a formula prescribed by the SEC. The
formula can be expressed as follows:

P(1+T)N = ERV

WHERE: P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000

T = AVERAGE ANNUAL TOTAL RETURN

N = NUMBER OF YEARS

ERV = Ending Redeemable Value of a hypothetical $1,000 payment made at the
beginning of a 1, 5, or 10 year period at the end of such period (or fractional
portion thereof), assuming reinvestment of all dividends and distributions.

The performance data represents past performance; investment returns and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.

AGGREGATE TOTAL RETURN

The "aggregate total return" figures for a Fund, as described in the
Prospectus, represent the cumulative change in the value of an investment in
Fund shares of such class for the specified period and are computed by the
following formula:

AGGREGATE TOTAL
RETURN = ERV - P
_______
P

WHERE: P = A HYPOTHETICAL INITIAL PAYMENT OF $10,000.

ERV = Ending Redeemable Value of a hypothetical $10,000 investment made at
the beginning of a 1-, 5-, or 10-year period at the end of such period (or
fractional portion thereof), assuming reinvestment of all dividends and
distributions.

YIELD

With respect to the Money Market Fund, yield quotations are expressed in
annualized terms and may be quoted on a compounded basis.
<PAGE> 94

The current yield for the Money Market Fund is computed by (a) determining
the net change in the value of a hypothetical pre-existing account in the Fund
having a balance of one share at the beginning of a seven calendar day period
for which yield is to be quoted; (b) dividing the net change by the value of
the account at the beginning of the period to obtain the base period return;
and (c) annualizing the results (i.e., multiplying the base period return by
365/7). The net change in the value of the account reflects the value of
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. In addition, the Money Market Fund may calculate
a compound effective annualized yield by adding 1 to the base period return
(calculated as described above), raising the sum to a power equal to 365/7 and
subtracting 1.

For the seven-day period ended December 31, 1995, the annualized yield and
effective yield of the Money Market Fund were 4.42% and 4.52%, respectively.

In periods of declining interest rates the Money Market Fund's yield will
tend to be somewhat higher than prevailing market rates on short-term
obligations, and in periods of rising interest rates the Fund's yield will tend
to be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the Money Market Fund from the continuous sale of shares will
likely be invested in portfolio instruments producing lower yields than the
balance of the Fund's portfolio, thereby reducing the Fund's current yield. In
periods of rising interest rates, the opposite can be expected to occur.

Any quotation of performance stated in terms of yield will be given no
greater prominence than the information prescribed under SEC rules. In
addition, all advertisements containing performance data of any kind will
include a legend disclosing that such performance data represents past
performance and that the investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost.

Advertisements and communications may compare a Fund's performance with
that of other mutual funds, as reported by Lipper Analytical Services, Inc. or
similar independent services or financial publications. From time to time,
advertisements and other Fund materials and communications may cite statistics
to reflect a Fund's performance over time utilizing comparisons to indices.

A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and operating expenses.
Consequently, any given performance quotation should not be considered
representative of the performance of Fund shares for any specified period in
the future. Because performance will vary, it may not provide a basis for
comparing an investment in Fund shares with certain bank deposits or other
investments that pay a fixed return for a stated period of time. Investors
comparing a Fund's performance with that of other mutual funds should give
consideration to the nature, quality and maturity of the respective investment
companies' portfolio securities and market conditions. An investor's principal
is not guaranteed by any Fund.

CAPITAL STOCK

As used in the Prospectus and this Statement of Additional Information,
the term "majority", when referring to the approvals to be obtained from
shareholders in connection with matters affecting a particular Fund or any
other single portfolio (e.g., approval of investment management contracts),
means the vote of the lesser of (i) 67% of the shares of the portfolio
represented at a meeting if the holders of more than 50% of the outstanding
shares of the portfolio are present in person or by proxy or (ii) more than 50%
of the outstanding shares of the portfolio. Shareholders are entitled to one
vote for each full share held and fractional votes for fractional shares held.
<PAGE> 95

Each share of a Fund is entitled to such dividends and distributions out
of the income earned on the assets belonging to that Fund as are declared in
the discretion of the Fund's Board of Directors.

In the event of the liquidation or dissolution of the Institutional Series
Funds or Series Funds, as the case may be, shares of a Fund are entitled to
receive the assets attributable to it that are available for distribution, and
a proportionate distribution, based upon the relative net assets of a Fund, of
any general assets not attributable to a Fund that are available for
distribution. Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid, non-assessable, fully transferable and
redeemable at the option of the holder.

CUSTODIAN AND TRANSFER AGENT

Investors Bank serves as custodian for each Fund. As each Fund's custodian,
Investors Bank, among other things, maintains a custody account or accounts in
the name of the Fund; receives and delivers all assets for the Fund upon
purchase and upon sale or maturity; collects and receives all income and other
payments and distributions on account of the assets of the Fund; and makes
disbursements on behalf of the Fund. The custodian does not determine the
investment policies of a Fund, nor decide which securities a Fund will buy or
sell. For its services as custodian, Investors Bank receives a monthly fee based
upon the daily average market value of securities held in custody and also
receives securities transaction charges, including out-of-pocket expenses. The
assets of each Fund are held under bank custodianship in compliance with the
1940 Act. A Fund may also periodically enter into arrangements with other
qualified custodians with respect to certain types of securities or other
transactions such as repurchase agreements or derivatives transactions.
Investors Bank also serves as transfer agent for each Fund, other than the Money
Market Fund. First Data Investor Services Group, Inc. ("FDISG"), a subsidiary of
First Data Corporation, which is located at One Exchange Place, Boston,
Massachusetts 02109, serves as transfer agent for the Money Market Fund.
Investors Bank and FDISG registers and processes transfers of a Fund's stock,
process purchase and redemption orders, acts as dividend disbursing agent for
the Fund and maintains records and handles correspondence with respect to
shareholder accounts. For these services, Investors Bank and FDISG receive a
monthly fee. See "Administrator."

VALIDITY OF SHARES

The validity of the shares will be passed upon for the Company by Piper
and Marbury L.L.P., Baltimore, Maryland.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP ("Price Waterhouse") provides audit services, tax
return preparation and assistance and consultation in connection with review of
SEC filings. The financial statements and financial highlights included or
incorporated by reference in the Prospectus and included in this Statement of
Additional Information have been included in reliance upon the report of Price
Waterhouse, independent accountants, given on the authority of that firm as
experts in auditing and accounting. Price Waterhouse's address is 1177 Avenue
of the Americas, New York, New York 10036.

COUNSEL

Simpson Thacher & Bartlett (a partnership which includes professional
corporations) serves as counsel to each Fund, and is located at 425 Lexington
Avenue, New York, New York 10017-3954.
<PAGE> 96

OTHER INFORMATION

The Prospectus and this Statement of Additional Information do not contain
all the information included in the Registration Statement filed with the
Securities and Exchange Commission under the 1933 Act with respect to the
securities offered by the Prospectus. Certain portions of the Registration
Statement have been omitted from the Prospectus and this Statement of
Additional Information pursuant to the rules and regulations of the Securities
and Exchange Commission. The Registration Statement including the exhibits
filed therewith may be examined at the office of the Securities and Exchange
Commission in Washington, D.C.

Statements contained in the Prospectus or in this Statement of Additional
Information as to the contents of any contract or other document referred to
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
<PAGE> 97
39

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC (Note 1)
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 21, 1996

<TABLE>
<CAPTION>
Emerging
High Yield Markets Asia Growth
Bond Fund Debt Fund Fund
---------- --------- -----------
<S> <C> <C> <C>
Assets:

Cash $33,330 $33,330 $ 33,340
Deferred organization expenses (Note 2) 57,668 57,668 72,859
-------- -------- --------
Total assets 90,998 90,998 108,009
-------- -------- --------

Liabilities:

Organization expenses payable 57,668 57,668 72,669
Commitments and contingencies (Notes 2 and 3) - - -
-------- -------- --------
Total Liabilities 57,668 57,668 72,669
-------- -------- --------

Net assets $33,330 $33,330 $ 33,340
======== ======== ========

Shares outstanding 3,333 3,333 3,334
======== ======== ========

Net asset value, offering price
and redemption price per share $ 10.00 $ 10.00 $ 10.00
======== ======== ========
</TABLE>

See accompanying notes to Statements of Assets and Liabilities

<PAGE> 98
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES

NOTE 1

Salomon Brothers Institutional Series Funds Inc (the "Company") was
incorporated as a Maryland corporation on January 19, 1996 as an
open-end management investment company and currently operates as a series
company comprised of three portfolios. The Salomon Brothers Institutional High
Yield Bond Fund (the "High Yield Bond Fund"), Salomon Brothers Institutional
Emerging Markets Debt Fund (the "Emerging Markets Debt Fund") and Salomon
Brothers Institutional Asia Growth Fund (the "Asia Growth Fund") (each, a
"Fund" and collectively, the "Funds") were formed on March 21, 1996 and have
had no operations to date other than matters relating to their organization and
registration under the Investment Company Act of 1940, as amended, and the sale
and issuance to Salomon Brothers Asset Management Inc (the "Investment
Adviser") of 3,333 shares of common stock of the High Yield Bond Fund and and
Emerging Markets Debt Fund, and 3,334 shares of common stock of the Asia Growth
Fund for an aggregate purchase price of $100,000. The Company has authorized
capital stock of 10,000,000,000 shares having a par value of $0.001 per share.

NOTE 2

Organization expenses relating to the Funds incurred and to be incurred by
the Investment Adviser will be reimbursed by the Funds. Such expenses,
estimated at $57,668 for each of the High Yield Bond Fund and Emerging Markets
Debt Fund, and $72,669 for the Asia Growth Fund, will be deferred and amortized
on a straight-line basis for a five year period beginning with the commencement
of operations of the Funds.

NOTE 3

Each of the Funds will enter into a management agreement with the
Investment Adviser pursuant to which the Investment Adviser will provide
investment advisory services to the Funds and will be responsible for the
management of each Fund's portfolio in accordance with each Fund's investment
policies and for making decisions to buy, sell, or hold particular securities.
Investors Bank & Trust Company will serve as each Fund's Administrator (the
"Administrator") pursuant to an administration agreement entered into between
the Company and the Administrator.

Each Fund will pay the Investment Adviser a monthly fee for its advisory
services based on the following annual percentages of each Fund's average daily
net assets: .50% for the High Yield Bond Fund, .70% for the Emerging Markets
Debt Fund, and .75% for the Asia Growth Fund. Each Fund will pay the
Administrator a monthly fee for its custody, fund accounting, administration
and transfer agency services at an annual rate of .10% of each Fund's average
daily net assets up to $500 million in net assets and .05% of each Fund's
average daily net assets in excess of $500 million in net assets.
<PAGE> 99
Certain officers and/or directors of the Company are officers and/or
directors of the Investment Adviser.
<PAGE> 100
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder and Board of Directors
of Salomon Brothers Institutional Series Funds Inc

In our opinion, the accompanying statements of assets and liabilities present
fairly, in all material respects, the financial position of Salomon Brothers
Institutional High Yield Bond Fund, Salomon Brothers Institutional Emerging
Markets Debt Fund and Salomon Brothers Institutional Asia Growth Fund
(constituting Salomon Brothers Institutional Series Funds Inc, hereafter
referred to as the "Fund") at March 21, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluting the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion expressed above.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
March 21, 1996
<PAGE> 101

SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS

December 31, 1995

SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE* DATE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 98.8%
NEW YORK -- 92.8%
$ 1,050,000 Albany County, New York
Industrial Development Agency PUT....................... 4.150% 12/01/96 $ 1,050,000
800,000 Albany County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 800,000
1,139,000 Albany, New York
Housing Authority VR.................................... 3.900 01/03/96 1,139,000
2,410,000 Albany, New York
Industrial Development Agency PUT....................... 4.250 07/01/96 2,410,000
2,600,000 Amherst, New York
Industrial Development Agency VR........................ 5.300 01/04/96 2,600,000
400,000 Amherst, New York
Industrial Development Agency VR........................ 5.250 01/04/96 400,000
950,000 Auburn, New York
Industrial Development Agency VR........................ 5.450 01/03/96 950,000
875,000 Babylon, New York
Industrial Development Agency VR........................ 5.350 01/04/96 875,000
2,025,000 Broome County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 2,025,000
650,000 Broome County, New York
Industrial Development Agency VR........................ 4.800 01/03/96 650,000
2,250,000 Chautaqua County, New York
Industrial Development Agency VR........................ 5.450 01/03/96 2,250,000
3,000,000 Chemung County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 3,000,000
730,000 Colonie, New York
Housing Development Corporation VR...................... 3.900 01/03/96 730,000
3,525,000 Colonie, New York
Industrial Development Agency PUT....................... 4.150 12/01/96 3,525,000
585,000 Colonie, New York
Industrial Development Agency VR........................ 5.250 01/04/96 585,000
5,000,000 Connetquot Central School District, New York GO TAN....... 3.900 06/27/96 5,011,220
1,275,000 Dutchess County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 1,275,000
1,210,000 Erie County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 1,210,000
500,000 Erie County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 500,000
400,000 Erie County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 400,000
</TABLE>

See accompanying notes to financial statements.
PAGE 3
<PAGE> 102

SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS

December 31, 1995

SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE* DATE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 388,400 Erie County, New York
Industrial Development Agency VR........................ 5.250% 01/04/96 $ 388,400
1,140,000 Fulton County, New York
Industrial Development Agency PUT....................... 4.150 12/01/96 1,140,000
1,860,000 Fulton County, New York
Industrial Development Agency VR........................ 5.150 01/04/96 1,860,000
3,000,000 Islip, New York
Industrial Development Agency VR........................ 5.225 01/04/96 3,000,000
500,000 Lewis County, New York
Development Agency VR .................................. 4.900 01/03/96 500,000
1,820,000 Monroe County, New York
Industrial Development Agency PUT....................... 4.000 06/01/96 1,820,000
700,000 Monroe County, New York
Industrial Development Agency PUT....................... 4.400 06/15/96 700,000
6,500,000 Monroe County, New York
Industrial Development Agency VR........................ 5.450 01/03/96 6,500,000
4,375,000 Monroe County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 4,375,000
4,300,000 Monroe County, New York
Industrial Development Agency VR........................ 5.000 01/04/96 4,300,000
3,325,000 Monroe County, New York
Industrial Development Agency VR........................ 5.300 01/04/96 3,325,000
2,370,000 Monroe County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 2,370,000
2,200,000 Monroe County, New York
Industrial Development Agency VR........................ 4.150 01/02/96 2,200,000
1,740,000 Monroe County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 1,740,000
1,700,000 Monroe County, New York
Industrial Development Agency VR........................ 5.500 01/03/96 1,700,000
1,580,000 Monroe County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 1,580,000
945,000 Monroe County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 945,000
225,000 Monroe County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 225,000
</TABLE>

See accompanying notes to financial statements.
PAGE 4
<PAGE> 103

SALOMON BROTHERS MONEY MARKET FUNDS

SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE* DATE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 4,475,000 Mount Pleasant, New York
Industrial Development Agency VR........................ 5.200% 01/02/96 $ 4,475,000
3,000,000 Nassau County, New York GO BAN............................ 3.450 08/15/96 3,014,478
2,000,000 Nassau County, New York GO TAN............................ 3.700 04/15/96 2,004,309
1,090,000 Nassau County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 1,090,000
800,000 New York City, New York
Housing Development Corporation VR...................... 5.250 01/03/96 800,000
16,330,000 New York City, New York
Housing Development Corporation VR...................... 5.750 01/04/96 16,330,000
2,000,000 New York City, New York
Housing Development Corporation VR...................... 5.800 01/04/96 2,000,000
1,000,000 New York City, New York
Housing Development Corporation VR...................... 5.750 01/04/96 1,000,000
9,500,000 New York City, New York
Industrial Development Agency VR........................ 6.250 01/02/96 9,500,000
6,000,000 New York City, New York
Industrial Development Agency VR........................ 5.500 01/04/96 6,000,000
2,100,000 New York City, New York
Industrial Development Agency VR........................ 6.100 01/02/96 2,100,000
1,650,000 New York City, New York
Industrial Development Agency VR........................ 5.350 01/04/96 1,650,000
1,300,000 New York City, New York
Industrial Development Agency VR........................ 5.250 01/04/96 1,300,000
780,000 New York City, New York
Industrial Development Agency VR........................ 5.350 01/04/96 780,000
600,000 New York City, New York
Industrial Development Agency VR........................ 5.350 01/04/96 600,000
505,000 New York City, New York
Industrial Development Agency VR........................ 5.250 01/04/96 505,000
400,000 New York City, New York
Industrial Development Agency VR........................ 5.800 01/04/96 400,000
115,000 New York City, New York
Industrial Development Agency VR........................ 5.250 01/04/96 115,000
1,200,000 New York City, New York
Trust for Cultural Resources VR......................... 5.550 01/03/96 1,200,000
</TABLE>

See accompanying notes to financial statements.
PAGE 5
<PAGE> 104

SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS

December 31, 1995

SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE* DATE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,000,000 New York City, New York GO VR............................. 6.100% 01/02/96 $ 5,000,000
8,000,000 New York City, New York GO VR............................. 6.250 01/02/96 8,000,000
6,900,000 New York City, New York GO VR............................. 5.500 01/03/96 6,900,000
3,800,000 New York City, New York GO VR............................. 6.250 01/02/96 3,800,000
1,100,000 New York City, New York GO VR............................. 5.350 01/03/96 1,100,000
1,050,000 New York State, Dormitory Authority FGIC.................. 3.800 07/01/96 1,063,100
13,674,000 New York State, Dormitory Authority TECP.................. 4.900 01/03/96 13,674,000
500,000 New York State,
Energy Research & Development VR........................ 3.550 01/02/96 500,000
3,390,000 New York State,
Job Development Authority VR............................ 4.400 01/02/96 3,390,000
1,620,000 New York State,
Job Development Authority VR............................ 4.400 01/02/96 1,620,000
925,000 New York State,
Job Development Authority VR............................ 4.300 01/02/96 925,000
420,000 New York State,
Job Development Authority VR............................ 4.300 01/02/96 420,000
125,000 New York State,
Job Development Authority VR............................ 4.300 01/02/96 125,000
100,000 New York State,
Job Development Authority VR............................ 4.300 01/02/96 100,000
1,000,000 New York State,
Urban Development Corporation BIG P/R................... 3.500 01/01/96 1,020,000
1,350,000 New York State,
Urban Development Corporation P/R....................... 3.500 01/01/96 1,377,000
1,000,000 New York State,
Urban Development Corporation P/R....................... 5.750 01/01/96 1,020,000
600,000 New York State,
Urban Development Corporation P/R....................... 5.750 01/01/96 612,000
1,600,000 Newburgh, New York
Industrial Development Agency VR........................ 4.800 01/03/96 1,600,000
1,180,000 Niagara County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 1,180,000
2,050,000 Oneida County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 2,050,000
</TABLE>

See accompanying notes to financial statements.
PAGE 6
<PAGE> 105

SALOMON BROTHERS MONEY MARKET FUNDS

SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE* DATE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 379,000 Oneida County, New York
Industrial Development Agency VR........................ 5.100% 01/04/96 $ 379,000
3,900,000 Onondaga County, New York
Industrial Development Agency VR........................ 5.400 01/03/96 3,900,000
1,300,000 Onondaga County, New York
Industrial Development Agency VR........................ 5.400 01/03/96 1,300,000
3,500,000 Ontario County, New York
Industrial Development Agency VR........................ 6.650 01/02/96 3,500,000
1,650,000 Rockland County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 1,650,000
345,000 Schoharie County, New York
Industrial Development Agency VR........................ 5.100 01/04/96 345,000
75,000 St. Lawrence County, New York
Industrial Development Agency VR........................ 5.450 01/04/96 75,000
1,675,000 Suffolk County, New York GO AMBAC......................... 3.750 10/15/96 1,684,606
1,500,000 Syracuse, New York
Industrial Development Agency PUT....................... 4.400 06/15/96 1,500,000
3,550,000 Syracuse, New York
Industrial Development Agency VR........................ 5.500 01/03/96 3,550,000
2,000,000 Triborough Bridge & Tunnel Authority
New York P/R............................................ 4.000 01/01/96 2,040,000
6,660,000 Wyoming County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 6,660,000
640,000 Wyoming County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 640,000
1,440,000 Yates County, New York
Industrial Development Agency VR........................ 5.150 01/04/96 1,440,000
1,080,000 Yonkers, New York
Industrial Development Agency VR........................ 5.250 01/04/96 1,080,000
------------
210,137,113
</TABLE>

See accompanying notes to financial statements.
PAGE 7
<PAGE> 106

SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS

December 31, 1995

SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (concluded)
- --------------------------------------------------------------------------------

*Yield to maturity on date of purchase, except in the case of Variable Rate
Demand Notes (VR) and Put Bonds, whose yields are determined on date of the
last interest rate change. For Variable Rate Demand Notes and Put Bonds,
maturity date shown is the date of next interest rate change.

Abbreviations used in this statement:

<TABLE>
<S> <C> <C>
AMBAC -- Insured as to principal and interest by the American Municipal Bond Assurance Corporation.
BAN -- Bond Anticipation Note
BIG -- Insured as to principal and interest by the Bond Investors Guaranty Insurance Company.
FGIC -- Insured as to principal and interest by the Financial Guaranty Insurance Company.
GO -- General Obligation
P/R -- Pre-refunded in U.S. Treasury Securities.
PUT -- Optional or mandatory put. Maturity date shown is the put date as well as the date of the
next interest rate change.
TAN -- Tax Anticipation Note
TECP -- Tax Exempt Commercial Paper
</TABLE>

See accompanying notes to financial statements.
PAGE 8
<PAGE> 107

SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $223,737,113).................................................... $223,737,113
Cash......................................................................................... 22,069
Receivable for Fund shares sold.............................................................. 1,934,480
Interest receivable.......................................................................... 1,210,552
------------
Total assets......................................................................... 226,904,214
------------
LIABILITIES
Payable for Fund shares redeemed............................................................. 266,863
Dividend payable............................................................................. 15,997
Management fee payable....................................................................... 35,265
Accrued expenses............................................................................. 37,494
------------
Total liabilities.................................................................... 355,619
------------
NET ASSETS (equivalent to $1.00 per share on 226,776,791 shares of $.001 par value
capital stock outstanding)................................................................. $226,548,595
============
</TABLE>

- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

Year Ended December 31, 1995

SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INCOME
Interest.................................................................................... $9,231,307
EXPENSES
Management fee................................................................. $ 449,809
Custody and administration fees................................................ 258,054
Shareholder services........................................................... 113,900
Audit and tax return preparation fees.......................................... 77,282
Legal.......................................................................... 40,000
Printing....................................................................... 27,718
Amortization of organization expenses.......................................... 9,071
Directors' fees and expenses................................................... 1,617
Other.......................................................................... 30,000
----------
1,007,451
Management fee waived by investment advisor.................................... (31,455)
Credits earned from custodian on cash balances................................. (6,021) 969,975
---------- ----------
Net investment income....................................................................... 8,261,332
NET REALIZED GAIN ON SECURITIES SOLD............................................................ 27,905
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS...................................................... $8,289,237
==========
</TABLE>

See accompanying notes to financial statements.
PAGE 9
<PAGE> 108

SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS

SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income.............................................. $ 8,261,332 $ 6,160,954
Net realized gain (loss) on securities sold........................ 27,905 (65,622)
------------- -------------
Net increase in net assets from operations......................... 8,289,237 6,095,332
------------- -------------
DIVIDENDS FROM NET INVESTMENT INCOME................................... (8,261,332) (6,160,954)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares...................................... 298,776,320 424,692,601
Net asset value of shares issued in reinvestment of dividends...... 7,924,931 5,955,238
Payment for redemption of shares................................... (349,968,556) (423,206,832)
------------- -------------
Net increase (decrease) in net assets derived from share
transactions..................................................... (43,267,305) 7,441,007
------------- -------------
Net increase (decrease) in net assets.............................. (43,239,400) 7,375,385
NET ASSETS
Beginning of year.................................................. 269,787,995 262,412,610
------------- -------------
End of year........................................................ $ 226,548,595 $ 269,787,995
============= =============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:

SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income................................. 0.037* 0.027 0.023 0.031 0.047
Dividends from net investment income.................. (0.037) (0.027) (0.023) (0.031) (0.047)
-------- -------- -------- -------- --------
Net asset value, end of year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Net assets end of year (thousands).................... $226,549 $269,788 $262,413 $263,685 $154,782
Total investment return............................... +3.7% +2.7% +2.3% +3.1% +4.8%
Ratios to average net assets:
Expenses.......................................... 0.43%* 0.41% 0.41% 0.42% 0.60%
Net investment income............................. 3.67% 2.63% 2.31% 3.07% 4.63%
</TABLE>

* Net investment income per share would have been $.037 and the expense ratio
to average net assets would have been .45% before waiver of management fee
and credits earned on custodian cash balances.

See accompanying notes to financial statements.
PAGE 10
<PAGE> 109

SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS

December 31, 1995

SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YIELD TO
MATURITY ON
PRINCIPAL DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE DATE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. TREASURY BILLS -- 99.9%
$ 898,000 U.S. Treasury Bill......................................... 5.350% 01/11/96 $ 896,665
870,000 U.S. Treasury Bill......................................... 5.270 01/18/96 867,835
190,000 U.S. Treasury Bill......................................... 4.800 02/08/96 189,037
9,190,000 U.S. Treasury Bill......................................... 4.880 02/08/96 9,142,662
315,000 U.S. Treasury Bill......................................... 5.270 02/08/96 313,248
-----------
TOTAL INVESTMENTS -- 99.9% (COST $11,409,447)........................................ 11,409,447
Other assets in excess of liabilities -- 0.1%........................................ 16,021
-----------
NET ASSETS -- 100.0%................................................................. $11,425,468
===========
</TABLE>

See accompanying notes to financial statements.
PAGE 11
<PAGE> 110

SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $11,409,447)...................................................... $11,409,447
Cash.......................................................................................... 7,304
Receivable from investment advisor............................................................ 5,394
Receivable for Fund shares sold............................................................... 28,974
-----------
Total assets.......................................................................... 11,451,119
-----------
LIABILITIES
Payable for Fund shares redeemed.............................................................. 8,000
Dividend payable.............................................................................. 10,635
Accrued expenses.............................................................................. 7,016
-----------
Total liabilities..................................................................... 25,651
-----------
NET ASSETS (equivalent to $1.00 per share on 11,425,379 shares of $.001 par value
capital stock outstanding).................................................................. $11,425,468
===========
</TABLE>

- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

Year Ended December 31, 1995

SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INCOME
Interest..................................................................................... $843,023
EXPENSES
Management fee.................................................................... $ 15,217
Custody and administration fees................................................... 26,631
Registration and filing fees...................................................... 13,359
Amortization of organization expenses............................................. 11,241
Shareholder services.............................................................. 11,079
Audit and tax return preparation fees............................................. 9,200
Legal............................................................................. 7,144
Printing.......................................................................... 6,000
Directors' fees and expenses...................................................... 1,618
Other............................................................................. 4,551
--------
106,040
Management fee waived by investment advisor....................................... (7,096)
Credits earned from custodian on cash balances.................................... (31) 98,913
-------- --------
Net investment income........................................................................ 744,110
NET REALIZED GAIN ON SECURITIES SOLD............................................................. 6,443
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS....................................................... $750,553
========
</TABLE>

See accompanying notes to financial statements.
PAGE 12
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SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS

SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income............................................... $ 744,110 $ 1,045,249
Net realized gain (loss) on securities sold......................... 6,443 (2,037)
------------ -------------
Net increase in net assets from operations.......................... 750,553 1,043,212
------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income................................ (744,110) (1,045,249)
Distributions from net realized gains............................... (959) --
------------ -------------
(745,069) (1,045,249)
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares....................................... 79,773,668 127,781,043
Net asset value of shares issued in reinvestment of dividends....... 555,617 881,270
Payment for redemption of shares.................................... (96,624,438) (135,113,944)
------------ -------------
Net decrease in net assets derived from share transactions.......... (16,295,153) (6,451,631)
------------ -------------
Contribution from investment advisor (Note 2)....................... 48,447 --
------------ -------------
Net decrease in net assets.......................................... (16,241,222) (6,453,668)
NET ASSETS
Beginning of year................................................... 27,666,690 34,120,358
------------ -------------
End of year (including undistributed net investment income of $265
for 1995)......................................................... $ 11,425,468 $ 27,666,690
============ =============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:

SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Net investment income..................................... 0.049* 0.036 0.028 0.034 0.054*
Dividends from net investment income...................... (0.049) (0.036) (0.028) (0.034) (0.054)
------- ------- ------- ------- -------
Net asset value, end of year.............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Net assets end of year (thousands)........................ $11,425 $27,667 $34,120 $50,554 $35,414
Total investment return................................... +5.0% +3.6% +2.9% +3.4% +5.5%
Ratios to average net assets:
Expenses.............................................. 0.65%* 0.45% 0.35% 0.44% 0.54%*
Net investment income................................. 4.89% 3.53% 2.83% 3.42% 5.23%
</TABLE>

* Net investment income per share would have been $.049 and $.052 and the
expense ratios to average net assets would have been .70% and .64%,
respectively, for the years ended December 31, 1995 and 1991 before
applicable waiver of management fee, expenses absorbed by SBAM and credits
earned on custodian cash balances.

See accompanying notes to financial statements.
PAGE 13
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SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Salomon Brothers Series Funds Inc (the "Company") was incorporated in Maryland
on April 17, 1990 as an open-end management investment company, and currently
operates as a series company comprised of nine portfolios: Salomon Brothers Cash
Management Fund (the "Cash Management Fund"), Salomon Brothers New York
Municipal Money Market Fund, (the "New York Municipal Money Fund"), Salomon
Brothers U.S. Treasury Securities Money Market Fund (the "U.S. Treasury Fund"),
Salomon Brothers New York Municipal Bond Fund (the "New York Municipal Bond
Fund"), Salomon Brothers National Intermediate Municipal Fund (the "National
Intermediate Municipal Fund"), Salomon Brothers U.S. Government Income Fund (the
"U.S. Government Income Fund"), Salomon Brothers High Yield Bond Fund (the "High
Yield Bond Fund"), Salomon Brothers Strategic Bond Fund (the "Strategic Bond
Fund"), and Salomon Brothers Total Return Fund (the "Total Return Fund"). The
New York Municipal Money Fund and the U.S. Treasury Fund (individually, a
"Fund", collectively, the "Funds") are included in this report. The New York
Municipal Money Fund's objective is to seek as high a level of current income
exempt from federal, New York State and New York City personal income taxes as
is consistent with liquidity and the stability of principal. The U.S. Treasury
Fund's objective is to seek a high level of current income by investing only in
short-term United States government and government agency securities. The Cash
Management Fund, New York Municipal Bond Fund, National Intermediate Municipal
Fund, U.S. Government Income Fund, High Yield Bond Fund, Strategic Bond Fund,
and Total Return Fund are reported in a separate report and are not included
herein.

Following is a summary of significant accounting policies followed by each Fund
in the preparation of its financial statements. The policies are in conformity
with generally accepted accounting principles ("GAAP"). The preparation of
financial statements in accordance with GAAP requires management to make
estimates of certain reported amounts in the financial statements. Actual
amounts could differ from those estimates.

(A) SECURITIES VALUATION. Portfolio securities are valued using the
amortized cost method, which involves initially valuing an investment at
its cost and thereafter assuming a constant amortization to maturity of any
premium or discount. This method results in a value approximating market
value and does not include unrealized gains or losses.

(B) FEDERAL INCOME TAXES. Each Fund has complied and intends to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies, including the distribution
requirements of the Tax Reform Act of 1986, and to distribute all of its
income, including any net realized gains, to shareholders. Therefore, no
Federal income tax or excise tax provision is required.

PAGE 14
<PAGE> 113

SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------

(C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends on the
shares of each Fund are declared each business day to shareholders of
record that day, and paid on the last business day of the month.
Distributions of net realized gains to shareholders, if any, are declared
annually and recorded on the ex-dividend date. Dividends and distributions
are determined in accordance with income tax regulations, which may differ
from GAAP.

(D) EXPENSES. Direct expenses are charged to the Fund that incurred
them, and general expenses of the Company are allocated to the Funds based
on relative average net assets for the period the expense was incurred.

(E) OTHER. Investment transactions are recorded as of the trade date.
Interest income, including the accretion of discounts or the amortization
of premiums, is recognized when earned. Gains or losses on sales of
securities are calculated on the identified cost basis.

2. MANAGEMENT FEE AND OTHER AGREEMENTS

The Company retains Salomon Brothers Asset Management Inc ("SBAM"), an indirect
wholly owned subsidiary of Salomon Inc, to act as investment manager of each
Fund, subject to the supervision by the Board of Directors of the Company. SBAM
furnishes the Company with office space and certain services and facilities
required for conducting the business of the Company and pays the compensation of
its officers. The management fee for these services is payable monthly and is
based on the following annual percentages of the Funds' average daily net
assets: .20% for the New York Municipal Money Fund and .10% for the U.S.
Treasury Fund. For the year ended December 31, 1995, SBAM voluntarily waived
management fees of $31,455 and $7,096 for the New York Municipal Money Fund and
U.S. Treasury Fund, respectively.

If in any fiscal year total expenses of any Fund, excluding taxes, interest,
brokerage and extraordinary expenses, but including the management fee, exceed
the most stringent expense limitations imposed by state securities regulations
applicable to the Fund, SBAM will pay or reimburse the Fund for the excess.
Currently, the most restrictive of these limitations on an annual basis is 2.5%
of the first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets and 1.5% of average daily net assets in
excess of $100 million. No such expense reimbursement was required for the year
ended December 31, 1995.

PAGE 15
<PAGE> 114

SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS

The U.S. Treasury Fund incurred realized losses on the sale of certain
securities in current and previous years. In order to maintain a $1 net asset
value per share, SBAM contributed $48,447 to offset cumulative net realized
losses. For tax purposes, this contribution was applied against the realized
losses for the year ended December 31, 1995. Accordingly, such amount has been
reclassified from paid-in-capital to accumulated net realized loss on
investments in the composition of net assets detailed in Note 3.

Investors Bank & Trust Company serves as custodian and administrator for each
Fund, which includes performing custodial and certain administrative services in
connection with the operation of each Fund. During the year ended December 31,
1995, custodian fees were reduced by $6,021 and $31 for the New York Municipal
Money Fund and U.S. Treasury Fund, respectively, relating to credits earned on
cash balances held by the custodian.

Each Fund has an agreement with Salomon Brothers Inc to distribute its shares.

3. CAPITAL STOCK

At December 31, 1995, the Company had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share, of which the New York Municipal Money
Fund and the U.S. Treasury Fund each had 1,111,111,112 shares authorized.

Net assets, after re-classification of book/tax differences, consist of:

<TABLE>
<CAPTION>
NEW YORK U.S.
MUNICIPAL TREASURY
MONEY FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Par value....................................................................... $ 226,777 $ 11,425
Paid-in capital in excess of par................................................ 226,549,157 11,413,954
Undistributed net investment income............................................. -- 265
Accumulated net realized loss on investments.................................... (227,339) (176)
------------ -----------
Net assets...................................................................... $226,548,595 $11,425,468
============ ===========
</TABLE>

PAGE 16
<PAGE> 115

SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------

4. PORTFOLIO ACTIVITY

The New York Municipal Money Fund invests in money market instruments maturing
in thirteen months or less whose credit ratings are within the highest ratings
category of two nationally recognized statistical rating organizations
("NRSROs") or if rated by only one NRSRO, the highest rating of that NRSRO, or,
if not rated, are believed by the investment manager to be of comparable
quality. The U.S. Treasury Fund invests in U.S. Treasury Securities maturing in
thirteen months or less. The New York Municipal Money Fund pursues its
investment objectives by investing at least 65% of its net assets in obligations
that are exempt from regular Federal income tax and from personal income taxes
of the State and City of New York. Because the New York Municipal Money Fund
invests primarily in obligations of the State and City of New York, it is more
susceptible to factors adversely affecting issuers of such obligations than a
fund that is more diversified.

During the year ended December 31, 1995, the New York Municipal Money Fund and
U.S. Treasury Fund utilized $27,604 and $6,411, respectively, of capital loss
carry-forwards to offset net realized capital gains. At December 31, 1995, the
Funds had net capital loss carry-forwards available to offset future capital
gains as follows:

<TABLE>
<CAPTION>
NEW YORK U.S.
MUNICIPAL TREASURY
YEAR OF EXPIRATION MONEY FUND FUND
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1999.............................................................................. $ 67,240 --
2000.............................................................................. 94,778 --
2002.............................................................................. 65,321 $ 176
--------- -----
$ 227,339 $ 176
========= =====
</TABLE>

PAGE 17
<PAGE> 116

SALOMON BROTHERS MONEY MARKET FUNDS

- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Salomon Brothers New York Municipal Money Market Fund and
Salomon Brothers U.S. Treasury Securities Money Market Fund

In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Salomon Brothers New York Municipal
Money Market Fund and Salomon Brothers U.S. Treasury Securities Money Market
Fund (two of the portfolios constituting Salomon Brothers Series Funds Inc,
hereafter referred to as the "Funds") at December 31, 1995, the results of each
of their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.

PRICE WATERHOUSE LLP
New York, New York
February 16, 1996

PAGE 18