<PAGE>
<PAGE>
Salomon Brothers
Institutional
Series Funds Inc
Annual Report
February 28, 1997
- -----------------------------------------------------------------------------
High Yield Bond Fund
Emerging Markets Debt Fund
Asia Growth Fund
------------------------------------
---------------------------------------
Salomon Brothers Asset Management
------------------------------------
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
- --------------------------------------------------------------------------------
April 15, 1997
To Our Shareholders:
We are pleased to provide this first annual report for the Salomon Brothers
Institutional High Yield Bond Fund, the Salomon Brothers Institutional Emerging
Markets Debt Fund and the Salomon Brothers Institutional Asia Growth Fund for
the period ended February 28, 1997.
HIGH YIELD BOND FUND
The Salomon Brothers Institutional High Yield Bond Fund commenced investment
operations on May 15, 1996. For the period May 15, 1996 to February 28, 1997,
the Fund generated a total return of 15.11%. This compares favorably to the
11.16% return for the high yield bond market, as measured by the Salomon
Brothers High-Yield Market Index. The Salomon Brothers High-Yield Market Index
is valued at month-end only. As a result, while the Fund's total return
calculation used in the comparison is for the period May 15, 1996 through
February 28, 1997, the Index return is for the period June 1, 1996 through
February 28, 1997. The Fund's investment objective is to maximize total return
by investing primarily in a portfolio of high yield fixed income securities.
The U.S. high yield debt market's strong performance has been driven by both
fundamental and technical factors over the last year. A buoyant economy, which
combined solid growth and low inflation, has resulted in fundamental credit
improvement among a broad group of existing issuers. In addition, money flow
into high yield mutual funds has continued at a near record pace and has created
strong demand for new issues. As a result of credit improvement, well-below
average corporate default rates and demand created from new money entering the
market, the average market yield and spread to treasuries have tightened by over
30 basis points and 80 basis points, respectively.
Bonds which have outperformed over the last six months include single B-rated
(mid-quality) issues and those in the leisure/lodging, retail,
food/beverage/tobacco and textile/apparel industries. Groups that underperformed
the market included CCC-rated (lower quality) issues and those in the
publishing, restaurants, cable and containers industries.
EMERGING MARKETS DEBT FUND
The Salomon Brothers Institutional Emerging Markets Debt Fund commenced
investment operations on October 17, 1996. For the Period October 17, 1996 to
February 28, 1997, the net asset value per share increased from $10.00 per share
to $10.91. Dividends of 21.79 cents per share were paid on December 31, 1996.
Assuming reinvestment of these dividends in additional shares of the Fund, the
net asset value return from November 1, 1996, when the Fund was fully invested,
through February 28, 1997, was 12.52%. An impressive result when compared to the
JP Morgan Emerging Markets Bond Index Plus which returned 11.09% during the same
period. (See graph and additional performance information on page 4).
At February 28, 1997, approximately 92% of the Fund's assets were invested in
debt from emerging markets countries. The remainder of the Fund's assets was
invested in cash. As a percentage of assets, the Fund's largest country
concentrations on February 28, 1997 were in Argentina (17%), Brazil (16%),
Russia (12%), Ecuador (7%), Mexico (6%), and Morocco (6%). Geographically, the
Fund had approximately 58% of its assets invested in debt of countries from
Latin America, and 23% invested in the debt of countries located in Eastern
Europe or the former Soviet Union. The remainder of the Fund was invested in
Asian and African securities.
In contrast to the capitalization-weighted index, which is much more heavily
weighted in Latin American debt securities at 78% of its market value, we have
positioned the Fund with a geographic dispersion that is less heavily
concentrated in any one region. While this leaves us susceptible to
under-performance versus the index if significant divergence in returns between
geographic regions occurs, we feel it provides two important benefits. Our
investment across regions creates greater diversification and the opportunity to
extract incremental returns over the index by investing in countries that are
perhaps not as large as others, but which may have better return prospects.
PAGE 1
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<PAGE>
Our current outlook for growth among the emerging market debt countries is 4% to
6% which is 2% to 4% above the growth rates of industrialized countries. We
believe prospects for growth are especially strong in countries experiencing the
benefits of reform measures enacted over the past few years. Argentina, Brazil,
Mexico, Morocco, Poland, and to a certain extent Russia are the specific
countries we have targeted. Additional reforms are needed in many countries
including Argentina, Brazil, and Russia, where we have the most significant
exposure. We are confident these reforms will be forthcoming and that we are
adequately compensated for the risk while we wait. In addition, we believe
additional countries will take the necessary steps to improve their balance
sheets as the benefits of sound fiscal management and prudent structural reform
become more pronounced. This should lead to improved credit profiles which
encourage additional direct investment in the countries from established
companies, additional access to capital markets for the individual countries
themselves, and increased allocations to this market from institutional
investors.
In summary, our outlook for the overall market is optimistic. The effect a rise
in U.S. interest rates will have on high yielding global bond prices does cause
some near-term concerns, but we are confident the combination of improving
fundamentals and attractive yields in the countries we are currently invested in
will cause spreads to tighten.
Since our U.S. interest rate forecast is somewhat mixed, we are not looking for
significant price appreciation to be driven by lower U.S. interest rates.
Accordingly, we are neutral to slightly short treasury duration versus the
index. Since our overall outlook for spread tightening in this market is
positive, we are long spread duration versus the index.
ASIA GROWTH FUND
The Salomon Brothers Institutional Asia Growth Fund commenced investment
operations on May 6, 1996 and, for the period through February 28, 1997, had a
total return of 9.56%. In comparison, the market, as measured by the Morgan
Stanley Capital International All Country Asia Free ex-Japan Index, posted -.37%
for the same period. The Morgan Stanley Capital International All Country Asia
Free ex-Japan Index is valued at month-end only. As a result, while the Fund's
total return calculation used in the comparison is for the period May 6, 1996,
through February 28, 1997, the Index return is for the period May 1, 1996
through February 28, 1997. The Fund's investment objective is to achieve
long-term capital appreciation by investing at least 65% of its assets in equity
and equity-related securities of 'Asian Companies' (as defined in the
prospectus).
The Asian equity markets were turbulent during the May to August period and
experienced large market declines in July. The sell-off reflected several
factors: rising long bond yields in the U.S., a falling Dow Jones Industrial
Average, a slowdown in international mutual fund cash in-flows and concerns
surrounding trade balances in Southern Asia (for example, Thailand, Malaysia and
Indonesia).
The markets bounced back in August, led by gains in Hong Kong and Malaysia, and
by the decision by the U.S. Federal Reserve to hold interest rates steady.
During this period, the Asia Growth Fund increased its allocation to Taiwan.
Taiwanese investments emphasized financials and securities poised to take
advantage of the cyclical recovery (for example, shipping stocks and plastics).
The Fund's Hong Kong exposure remains overweighted in conglomerates that we
believe represent relative value, such as Hutchinson Whampoa, a company with
diverse property, retailing and telecommunication holdings. The Fund's exposure
to China-sensitive companies, such as Shanghai Industrial and China Resources
also remains overweighted on the back of China's cyclical recovery.
We appreciate your interest in the Funds and encourage you to read the financial
statements that follow for details about each Fund's investments. Please call
(212) 783-7407 with any questions or to request a prospectus. For assistance
regarding your account, please call Investors Bank & Trust at (800) 347-6028.
Cordially,
/s/ Michael S. Hyland
Michael S. Hyland
Chairman and President
PAGE 2
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SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND
The following graph depicts the performance of the Institutional High Yield Bond
Fund versus the Salomon Brothers High-Yield Market Index.* It is important to
note that the Institutional High Yield Bond Fund is a professionally managed
mutual fund while the index is not available for investment and is unmanaged.
The comparison is shown for illustrative purposes only.
SB INSTITUTIONAL HIGH YIELD BOND FUND
COMPARISON OF A $10,000 INVESTMENT IN THE FUND TO THE
SALOMON BROTHERS HIGH-YIELD MARKET INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Benchmark SB Institutional High Yield Bond Fund
<S> <C> <C>
15-May-96 10,000 10,000
31-May-96 10,000 10,090
30-Jun-96 10,077 10,140
31-Jul-96 10,143 10,230
31-Aug-96 10,248 10,370
30-Sep-96 10,488 10,630
31-Oct-96 10,608 10,660
30-Nov-96 10,812 10,930
31-Dec-96 10,897 11,139
31-Jan-97 10,979 11,253
28-Feb-97 11,166 11,511
</TABLE>
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN
% RETURN
--------
<S> <C>
Twelve months ended 2/28/97....................................................... N/A
Five years ended 2/28/97.......................................................... N/A
Commencement of investment operations (5/15/96) through 2/28/97................... 15.11%
</TABLE>
* The Salomon Brothers High-Yield Market Index is valued at month-end only. As a
result, while the Fund's total return calculations used in this comparison are
for the period May 15, 1996 through February 28, 1997, the Index returns are
for the period June 1, 1996 through February 28, 1997.
NOTE
The average annual total returns reflect investment of dividends and/or capital
gains distributions in additional shares. The average annual return for a period
of less than one year has not been annualized.
During its fiscal year ended February 28, 1997, the Fund's investment adviser
reimbursed certain expenses of the Fund, as shown in the following audited
financial statements. Absent such reimbursements, the Fund's average annual
returns would have been lower.
The investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
PAGE 3
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SALOMON BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND
The following graph depicts the performance of the Institutional Emerging
Markets Debt Fund versus the J.P. Morgan Emerging Markets Bond Index Plus. It is
important to note that the Institutional Emerging Markets Debt Fund is a
professionally managed mutual fund while the index is not available for
investment and is unmanaged. The comparison is shown for illustrative purposes
only.
SB INSTITUTIONAL EMERGING MARKETS DEBT FUND
COMPARISON OF A $10,000 INVESTMENT IN THE FUND TO THE
J.P. MORGAN EMERGING MARKETS BOND INDEX PLUS
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Benchmark SB Institutional Emerging Markets Debt Fund
<S> <C> <C>
17-Oct-96 10,000 10,000
31-Oct-96 9,939 9,900
30-Nov-96 10,434 10,460
31-Dec-96 10,560 10,588
31-Jan-97 10,852 10,976
28-Feb-97 11,041 11,139
</TABLE>
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN
% RETURN
--------
<S> <C>
Twelve months ended 2/28/97....................................................... N/A
Five years ended 2/28/97.......................................................... N/A
Commencement of investment operations (10/17/96) through 2/28/97.................. 11.39%
</TABLE>
NOTE
The average annual total returns reflect investment of dividends and/or capital
gains distributions in additional shares. The average annual return for a period
of less than one year has not been annualized.
During its fiscal year ended February 28, 1997, the Fund's investment adviser
reimbursed certain expenses of the Fund, as shown in the following audited
financial statements. Absent such reimbursements, the Fund's average annual
returns would have been lower.
The investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
PAGE 4
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<PAGE>
SALOMON BROTHERS INSTITUTIONAL ASIA GROWTH FUND
The following graph depicts the performance of the Institutional Asia Growth
Fund versus the Morgan Stanley Capital International All Country Asia Free
ex-Japan Index.* It is important to note that the Institutional Asia Growth Fund
is a professionally managed mutual fund while the index is not available for
investment and is unmanaged. The comparison is shown for illustrative purposes
only.
SB INSTITUTIONAL ASIA GROWTH FUND
COMPARISON OF A $10,000 INVESTMENT IN THE FUND TO THE
MORGAN STANLEY CAPITAL INTERNATIONAL ALL COUNTRY ASIA FREE EX-JAPAN INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Morgan Stanley Capital International All Country SB Institutional Asia Growth Fund
Asia Free ex-Japan Index
<S> <C> <C>
30-Apr-96 10,000 10,000
6-May-96 No plot point 10,000
31-May-96 9,888 9,910
30-Jun-96 9,741 9,660
31-Jul-96 9,021 9,080
31-Aug-96 9,294 9,370
30-Sep-96 9,453 9,580
31-Oct-96 9,274 9,420
30-Nov-96 9,712 10,130
31-Dec-96 9,679 10,361
31-Jan-97 9,879 10,593
28-Feb-97 9,963 10,956
</TABLE>
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN
% RETURN
--------
<S> <C>
Twelve months ended 2/28/97....................................................... N/A
Five years ended 2/28/97.......................................................... N/A
Commencement of investment operations (5/6/96) through 2/28/97.................... 9.56%
</TABLE>
* The Morgan Stanley Capital International All Country Asia Free ex-Japan Index
is valued at month-end only. As a result, while the Fund's total return
calculations used in the comparison are for the period May 6, 1996, through
February 28, 1997, the Index returns are for the period May 1, 1996 through
February 28, 1997.
NOTE
The average annual total returns reflect investment of dividends and/or capital
gains distributions in additional shares. The average annual return for a period
of less than one year has not been annualized.
During its fiscal year ended February 28, 1997, the Fund's investment adviser
reimbursed certain expenses of the Fund, as shown in the following audited
financial statements. Absent such reimbursements, the Fund's average annual
returns would have been lower.
The investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
PAGE 5
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SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -------- ------------------------------------------------------------------ -------- -------- ----------
<C> <S> <C> <C> <C>
CORPORATE BONDS -- 95.1%
BASIC INDUSTRIES -- 17.1%
$100,000 Algoma Steel...................................................... 12.375% 07/15/05 $ 112,000
100,000 Alvey Systems..................................................... 11.375 01/31/03 105,500
100,000 Envirosource...................................................... 9.750 06/15/03 98,000
100,000 Fonda Group....................................................... 9.500 03/01/07 100,750
240,000 NL Industries
(Zero Coupon until 10/15/98, 13.00% thereafter)(a).............. 11.765 10/15/05 219,600
100,000 Norcal Waste Systems*............................................. 13.000 11/15/05 112,750
100,000 Renco Metals...................................................... 11.500 07/01/03 105,250
100,000 Shop Vac.......................................................... 10.625 09/01/03 106,250
150,000 Specialty Equipment............................................... 11.375 12/01/03 163,500
----------
1,123,600
----------
CONSUMER CYCLICALS -- 7.0%
100,000 CSK Auto.......................................................... 11.000 11/01/06 104,000
150,000 Revlon Worldwide(a)............................................... 10.750 03/15/01 98,438
25,000 Revlon Worldwide(a)............................................... 12.556 03/15/98 23,438
150,000 Waxman Industries
(Zero Coupon until 06/01/99, 12.75% thereafter)(a).............. 12.663 06/01/04 124,500
100,000 Wyndham Hotel..................................................... 10.500 05/15/06 107,000
----------
457,376
----------
CONSUMER NON-CYCLICALS -- 24.5%
100,000 Berry Plastics.................................................... 12.250 04/15/04 111,750
100,000 Doane Products.................................................... 10.625 03/01/06 107,000
150,000 Eyecare Centers of America........................................ 12.000 10/01/03 163,125
100,000 Hills Stores...................................................... 12.500 07/01/03 80,000
100,000 Iron Mountain..................................................... 10.125 10/01/06 108,000
100,000 Loomis Fargo...................................................... 10.000 01/15/04 102,375
100,000 Majestic Star Casino.............................................. 12.750 05/15/03 108,500
100,000 Pen-Tab Industries................................................ 10.875 02/01/07 104,500
200,000 Rayovac........................................................... 10.250 11/01/06 208,500
100,000 Remington Product................................................. 11.000 05/15/06 93,750
100,000 Smiths Food & Drug................................................ 11.250 05/15/07 113,500
200,000 Stroh Brewery..................................................... 11.100 07/01/06 210,500
100,000 Trump Atlantic City............................................... 11.250 05/01/06 96,500
----------
1,608,000
----------
ENERGY -- 11.3%
100,000 Benton Oil & Gas.................................................. 11.625 05/01/03 112,000
200,000 Costilla Energy................................................... 10.250 10/01/06 212,000
100,000 Dawson Product Services........................................... 9.375 02/01/07 102,250
100,000 National Energy Group............................................. 10.750 11/01/06 104,500
200,000 Parker Drilling................................................... 9.750 11/15/06 213,000
----------
743,750
----------
</TABLE>
See accompanying notes to financial statements.
PAGE 6
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<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -------- ------------------------------------------------------------------ -------- -------- ----------
<C> <S> <C> <C> <C>
FINANCIAL SERVICES -- 4.8%
$100,000 Dollar Financial.................................................. 10.875% 11/15/06 $ 105,500
200,000 Intertek Finance.................................................. 10.250 11/01/06 210,000
----------
315,500
----------
HEALTH CARE -- 1.6%
100,000 Maxxim Medical.................................................... 10.500 08/01/06 105,250
----------
MEDIA -- 12.8%
200,000 Adelphia Communications........................................... 12.500 05/15/02 212,500
100,000 Cablevision Systems............................................... 10.500 05/15/16 105,000
300,000 Diamond Cable
(Zero Coupon until 12/15/00, 11.75% thereafter)(a).............. 11.392 12/15/05 207,000
100,000 Hollinger International Publishing................................ 9.250 02/01/06 101,500
150,000 Marcus Cable
(Zero Coupon until 06/15/00, 14.125% thereafter)(a)............. 13.316 12/15/05 110,250
100,000 SFX Broadcasting.................................................. 10.750 05/15/06 108,000
----------
844,250
----------
TECHNOLOGY -- 8.8%
100,000 Packard Bioscience................................................ 9.375 03/01/07 101,750
200,000 Quest Diagnostic.................................................. 10.750 12/15/06 209,500
100,000 Talley Manufacturing & Technology................................. 10.750 10/15/03 104,500
150,000 UNC............................................................... 11.000 06/01/06 165,562
----------
581,312
----------
TELECOMMUNICATIONS & UTILITIES -- 4.3%
250,000 ICG Holdings
(Zero Coupon until 09/15/00, 13.50% thereafter)(a).............. 11.459 09/15/05 185,625
150,000 International CableTel
(Zero Coupon until 02/01/01, 11.500% thereafter)(a)............. 11.804 02/01/06 100,500
----------
286,125
----------
TRANSPORTATION -- 2.9%
200,000 Central Transport Rental Group.................................... 9.500 04/30/03 189,000
----------
TOTAL INVESTMENTS -- 95.1%
(cost $6,020,829).................................................................... 6,254,163
Other assets in excess of liabilities -- 4.9%............................................ 320,622
----------
NET ASSETS -- 100.0%..................................................................... $6,574,785
----------
----------
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
(a) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
See accompanying notes to financial statements.
PAGE 7
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997
SALOMON BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT(a) DESCRIPTION RATE DATE (NOTE 1a)
- ---------- ---------------------------------------------------------------- -------- -------- ----------
<C> <S> <C> <C> <C>
SOVEREIGN BONDS -- 79.9%
ARGENTINA -- 15.9%
$ 250,000 Republic of Argentina, Global Bond(f)........................... 11.750% 02/12/07 $ 263,688
245,000 Republic of Argentina, FRN*..................................... 6.625 03/31/05 222,031
750,000 Republic of Argentina, Par Bond, Series L*...................... 5.250 03/31/23 499,688
----------
985,407
----------
BRAZIL -- 15.4%
1,211,507 Federal Republic of Brazil, Capitalization Bond(b)(f)........... 8.000 04/15/14 959,362
----------
BULGARIA -- 2.4%
250,000 Republic of Bulgaria, IAB*...................................... 6.563 07/28/11 150,781
----------
CROATIA -- 3.9%
250,000 Republic of Croatia, FRN Series A*(f)........................... 6.500 07/30/10 245,156
----------
ECUADOR -- 6.5%
591,968 Republic of Ecuador, PDI Bond*(b)............................... 6.438 02/27/15 367,390
53,815 Republic of Ecuador, Registered PDI Bond*(b).................... 6.438 02/27/15 33,399
----------
400,789
----------
MEXICO -- 5.6%
200,000 United Mexico States, Par Bonds, Series A,
including 200,000 attached rights, expiring 06/30/03.......... 6.250 12/31/19 153,250
250,000 United Mexico States, Par Bonds, Series B,
including 250,000 attached rights, expiring 06/30/03.......... 6.250 12/31/19 191,563
----------
344,813
----------
PANAMA -- 4.7%
100,000 Republic of Panama, IRB*........................................ 3.500 07/17/14 74,250
253,515 Republic of Panama, PDI Bond*(b)................................ 6.563 07/17/16 215,488
----------
289,738
----------
PERU -- 4.0%
400,000 Government of Peru, PDI Bond(c)(e).............................. -- 12/29/49 251,250
----------
PHILIPPINES -- 2.0%
125,000 Republic of the Philippines..................................... 8.750 10/07/16 127,031
----------
PLZ POLAND -- 4.2%
1,000,000 Republic of Poland.............................................. 12.000 06/12/02 260,433
----------
RUSSIA -- 11.6%
1,000,000 Russian Government, IAN(c)(e)................................... -- 12/29/49 718,750
----------
VENEZUELA -- 3.7%
300,000 Republic of Venezuela, Par Bond,
including 1,500 attached warrants, expiring 03/31/20.......... 6.750 03/31/20 228,750
----------
TOTAL SOVEREIGN BONDS
(cost $4,734,888).................................................................... 4,962,260
----------
</TABLE>
See accompanying notes to financial statements.
PAGE 8
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997
SALOMON BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT(a) DESCRIPTION RATE DATE (NOTE 1a)
- ---------- ---------------------------------------------------------------- -------- -------- ----------
<C> <S> <C> <C> <C>
LOAN PARTICIPATIONS(d) -- 8.3%
ALGERIA -- 3.0%
$ 225,000 The Peoples Democratic Republic of Algeria, Tranche A*
(Chase Manhattan Bank)........................................ 6.910% 09/04/06 $ 183,094
MOROCCO -- 5.3%
375,000 Kingdom of Morocco, Tranche A*
(Morgan Guaranty Trust Company)............................... 6.375 01/01/09 330,703
----------
TOTAL LOAN PARTICIPATIONS
(cost $486,021)...................................................................... 513,797
----------
TOTAL INVESTMENTS -- 88.2%
(cost $5,220,909).................................................................... 5,476,057
Other assets in excess of liabilities -- 11.8%......................................... 734,566
----------
NET ASSETS -- 100.0%................................................................... $6,210,623
----------
----------
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACT
<TABLE>
<CAPTION>
MATURITY CONTRACT TO IN EXCHANGE CONTRACT AT UNREALIZED
DATE DELIVER FOR VALUE DEPRECIATION
-------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sale 03/21/97 DEM 162,500 $96,070 $96,425 $ (355)
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
(a) Principal denominated in U.S. dollars unless otherwise indicated.
(b) Payment-in-kind security for which all or part of the interest earned is
paid by the issuance of additional bonds.
(c) When and if issued. Security issued pursuant to the corresponding
government's Brady Plan debt restructuring. The investment advisor believes
that the Brady Plan will be finalized and the related bonds issued.
Accordingly, the Fund has marked-to-market its investment in this security
at year end.
(d) Participation interests were acquired through the financial institutions
indicated parenthetically.
(e) Non-income producing security.
(f) Held in segregated account for when and if issued securities.
Abbreviations used in this statement:
DEM -- German Deutschemark
FRN -- Floating Rate Notes
IAB -- Interest Arrears Bonds
IAN -- Interest Arrears Notes
IRB -- Interest Reduction Bonds
PDI -- Past Due Interest
PLZ -- Polish Zloty
See accompanying notes to financial statements.
PAGE 9
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997
SALOMON BROTHERS INSTITUTIONAL ASIA GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1a)
- --------- --------------------------------------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS -- 94.8%
HONG KONG -- 33.8%
30,000 Asia Satellite Telecommunications Holdings*............................................ $ 79,032
72,000 ASM Pacific Technology................................................................. 59,971
9,360 Bank of East Asia Hong Kong............................................................ 34,146
12,000 Cheung Kong............................................................................ 114,674
33,000 Cheung Kong Infrastructure*............................................................ 93,327
85,000 China Resources Beijing Land*.......................................................... 48,297
59,000 China Resources Enterprises............................................................ 132,572
42,000 Cosco Pacific.......................................................................... 58,577
11,000 Dickson Concepts International......................................................... 40,200
68,000 First Pacific.......................................................................... 95,277
38,000 Giordano Holdings...................................................................... 26,990
86,000 Guang Nan Holdings..................................................................... 121,053
4,400 HSBC Holdings.......................................................................... 107,391
18,000 Hutchison Whampoa...................................................................... 137,144
11,000 Hysan Development...................................................................... 37,928
44,000 Kerry Properties*...................................................................... 113,641
52,000 Lai Sun Development.................................................................... 77,896
11,000 New World Development.................................................................. 68,184
100,000 Qingling Motors........................................................................ 60,695
22,000 Shanghai Industrial Holdings*.......................................................... 94,322
106,000 Shanghai Petrochemical................................................................. 30,115
104,000 USI Holdings........................................................................... 40,291
----------
1,671,723
----------
INDIA -- 12.0%
6,500 Arvind Mills -- GDR.................................................................... 32,500
9,700 Gujarat Ambuja Cements -- GDR.......................................................... 85,118
3,000 Hindalco Industries -- GDR............................................................. 79,950
7,200 Industrial Credit & Investment -- GDR.................................................. 71,100
8,400 Mahindra & Mahindra -- GDR............................................................. 103,740
3,000 Reliance Industries -- GDR............................................................. 51,150
5,150 State Bank of India -- GDR............................................................. 103,000
5,500 Tata Engineering & Locomotive -- GDR................................................... 68,750
----------
595,308
----------
INDONESIA -- 4.0%
20,000 Lippo Karawachi*(a).................................................................... 29,614
24,500 PT Indostat(a)......................................................................... 69,234
14,500 PT Inti Indorayon Utama(a)............................................................. 10,130
68,000 PT Lippo Life Insurance(a)............................................................. 86,507
----------
195,485
----------
</TABLE>
See accompanying notes to financial statements.
PAGE 10
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997
SALOMON BROTHERS INSTITUTIONAL ASIA GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1a)
- --------- --------------------------------------------------------------------------------------- ----------
<C> <S> <C>
KOREA -- 6.1%
9,000 Commercial Bank of Korea............................................................... $ 47,708
1,007 Deasung Industrial..................................................................... 53,380
2,450 Dong Ah Construction................................................................... 53,027
2,266 Korea Mobile Telecommunications -- ADR................................................. 28,325
2,400 LG Electronics......................................................................... 30,833
1,020 LG Information & Communication......................................................... 85,590
----------
298,863
----------
MALAYSIA -- 12.8%
6,000 Ekran.................................................................................. 21,506
18,000 IJM, Class A........................................................................... 48,208
41,000 IOI.................................................................................... 73,975
12,000 Kian Joo Can Factory................................................................... 56,545
20,000 Leader Universal Holdings.............................................................. 42,690
9,000 Malakoff............................................................................... 41,683
26,000 MBM Resources.......................................................................... 80,105
44,000 Pernas International Holdings.......................................................... 54,225
10,000 Rashid Hussein......................................................................... 80,950
42,000 Renong................................................................................. 76,456
6,000 United Engineers....................................................................... 55,336
----------
631,679
----------
PAKISTAN -- 1.0%
2,860 Pakistan State Oil..................................................................... 22,228
400 Pakistan Telecommunications -- GDR..................................................... 29,000
----------
51,228
----------
PHILIPPINES -- 3.4%
88,000 Ayala Land, Series B................................................................... 105,274
110,000 Belle*................................................................................. 35,091
45,000 Pilipino Telephone..................................................................... 29,053
----------
169,418
----------
SINGAPORE -- 10.5%
4,000 Cycle & Carriage....................................................................... 42,090
10,000 Elec & Eltek International............................................................. 49,400
6,500 Hong Leong Finance(a).................................................................. 25,079
60,000 Noble Group(b)......................................................................... 52,800
13,000 Sembawang.............................................................................. 71,133
1,500 Singapore Press Holdings(a)............................................................ 29,253
11,500 United Overseas Bank(a)................................................................ 130,691
36,000 Wing Tai Holdings...................................................................... 118,190
----------
518,636
----------
</TABLE>
See accompanying notes to financial statements.
PAGE 11
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997
SALOMON BROTHERS INSTITUTIONAL ASIA GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1a)
- --------- --------------------------------------------------------------------------------------- ----------
<C> <S> <C>
SRI LANKA -- 0.4%
99,000 Asia Capital*.......................................................................... $ 13,343
15,500 United Motors Lanka.................................................................... 7,817
----------
21,160
----------
TAIWAN -- 7.1%
18,000 Accton Technology*..................................................................... 77,834
7,000 Cathay Life Insurance.................................................................. 45,531
19,000 Formosa Plastics....................................................................... 51,090
74,000 Pacific Construction*.................................................................. 72,602
10,000 Umax Data Systems...................................................................... 59,593
32,800 Yang Ming Marine Transport............................................................. 44,695
----------
351,345
----------
THAILAND -- 3.8%
8,750 Bangkok Bank........................................................................... 59,471
7,400 Dhana Siam Finance(a).................................................................. 13,503
9,000 Property Perfect(a).................................................................... 9,558
7,000 Singer Thailand........................................................................ 27,573
11,000 Thai Farmers Bank...................................................................... 47,152
24,300 Thai Telephone & Telecommunications*(a)................................................ 23,929
----------
181,186
----------
TOTAL COMMON STOCKS
(cost $4,441,776).................................................................... 4,686,031
----------
WARRANTS AND RIGHTS -- 2.2%*
100,000 China Resources Enterprises Warrants (expiring 08/28/97)............................... 14,722
1,030,000 China H Shares, Call Warrants (expiring 04/02/98)...................................... 11,971
600,000 Guangdong Investment Warrants (expiring 11/27/97)...................................... 17,743
11,142 Guangnan Warrants (expiring 08/31/98).................................................. 7,266
900,000 Hong Kong Telecom Warrants (expiring 01/09/98)......................................... 13,366
210,000 Hutchison Call Warrants (expiring 12/30/97)............................................ 16,271
270,000 Lai Sun Development Call Warrants (expiring 11/13/97).................................. 7,357
4,995 PT Indah Kiat Pulp & Paper Warrants (expiring 04/13/01)................................ 1,833
70,000 Shanghai & Shenzen Warrants (expiring 11/20/97)........................................ 13,650
12,150 Thai Telephone & Telecommunications Rights (expiring 12/31/99)(b)...................... 7,273
----------
TOTAL WARRANTS AND RIGHTS
(cost $77,623)....................................................................... 111,452
----------
</TABLE>
See accompanying notes to financial statements.
PAGE 12
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997
SALOMON BROTHERS INSTITUTIONAL ASIA GROWTH FUND (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
CONTRACTS DESCRIPTION (NOTE 1a)
- --------- --------------------------------------------------------------------------------------- ----------
<C> <S> <C>
PURCHASED OPTION -- 0.3%*
HONG KONG -- 0.3%
237 Hang Seng Index OTC Put (expiring 4/2/97, exercise price 13,500 HKD) (cost $16,552).... $ 13,313
----------
TOTAL INVESTMENTS -- 97.3%
(cost $4,535,951).................................................................... 4,810,796
Other assets in excess of liabilities -- 2.7%.......................................... 131,298
----------
NET ASSETS -- 100.0%................................................................... $4,942,094
----------
----------
</TABLE>
* Non-income producing security.
(a) Foreign Shares
(b) Securities fair valued under procedures adopted by the Board of Directors.
At February 28, 1997, total securities fair valued in this manner amounted
to $60,073 (1.2% of Net Assets).
Abbreviations used in this statement:
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
HKD -- Hong Kong Dollar
OTC -- Over The Counter
THB -- Thai Baht
See accompanying notes to financial statements.
PAGE 13
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING
HIGH YIELD MARKETS ASIA GROWTH
BOND FUND DEBT FUND FUND
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS:
Investments, at value (Note A).................................... $6,254,163 $5,476,057 $4,810,796
Cash and foreign currency......................................... 220,017 1,646,457 14,421
Receivable for securities sold.................................... 110,600 272,500 --
Interest and dividends receivable................................. 143,021 92,699 3,724
Receivable from investment advisor................................ 147,817 133,188 205,537
Deferred organization expense..................................... 53,648 59,062 65,950
---------- ---------- -----------
Total assets................................................. 6,929,266 7,679,963 5,100,428
---------- ---------- -----------
LIABILITIES:
Payable for:
Securities purchased.............................................. 299,350 1,410,938 82,528
Unrealized depreciation of forward foreign currency contracts..... -- 355 33
Accrued expenses.................................................. 55,131 58,047 75,773
---------- ---------- -----------
Total liabilities............................................ 354,481 1,469,340 158,334
---------- ---------- -----------
NET ASSETS............................................................. $6,574,785 $6,210,623 $4,942,094
---------- ---------- -----------
---------- ---------- -----------
NET ASSETS CONSIST OF:
Paid-in capital................................................... $6,044,848 $5,662,826 $4,511,315
Undistributed net investment income............................... 126,298 85,215 15,493
Accumulated net realized gain on investments, options and foreign
currency transactions........................................... 170,305 210,879 140,381
Net unrealized appreciation on investments, foreign currency
transactions and other assets................................... 233,334 251,703 274,905
---------- ---------- -----------
NET ASSETS............................................................. $6,574,785 $6,210,623 $4,942,094
---------- ---------- -----------
---------- ---------- -----------
SHARES OUTSTANDING..................................................... 590,907 569,293 454,720
---------- ---------- -----------
---------- ---------- -----------
NET ASSET VALUE PER SHARE.............................................. $ 11.13 $ 10.91 $ 10.87
---------- ---------- -----------
---------- ---------- -----------
Note A: Cost of investments............................................ $6,020,829 $5,220,909 $4,535,951
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
PAGE 14
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED FEBRUARY 28, 1997(a)(b)(c)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH EMERGING
YIELD MARKETS ASIA GROWTH
BOND FUND DEBT FUND FUND
--------- --------- -----------
<S> <C> <C> <C>
INCOME:
Interest............................................................ $425,126 $212,032 $ 6,311
Dividends (Note A).................................................. -- -- 38,940
--------- --------- -----------
425,126 212,032 45,251
EXPENSES:
Management fee...................................................... 21,438 15,317 21,437
Custody, administration and shareholder servicing fees.............. 125,875 99,585 180,163
Audit and tax return preparation fees............................... 20,001 15,000 19,999
Printing............................................................ 18,000 1,000 25,000
Amortization of organization expenses............................... 10,130 4,716 12,914
Legal............................................................... 9,999 13,001 10,000
Registration and filing fees........................................ 9,559 10,300 9,500
Directors' fees and expenses........................................ 5,209 3,332 5,209
Other............................................................... 3,501 3,500 1,998
--------- --------- -----------
223,712 165,751 286,220
Management fee waived and expenses absorbed by investment advisor... (169,255) (148,505) (226,974)
Credits earned on cash balances and fees waived by custodian........ (30,875) (885) (30,663)
--------- --------- -----------
Net expenses........................................................ 23,582 16,361 28,583
--------- --------- -----------
NET INVESTMENT INCOME.................................................... 401,544 195,671 16,668
--------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (Note B)................................................ 179,876 221,919 177,989
Options written..................................................... -- -- 172
Foreign currency transactions....................................... -- -- (5,809)
--------- --------- -----------
179,876 221,919 172,352
--------- --------- -----------
Net change in unrealized appreciation (depreciation) on:
Investments......................................................... 233,334 255,148 274,845
Foreign currency transactions and other assets...................... -- (3,445) 60
--------- --------- -----------
233,334 251,703 274,905
--------- --------- -----------
NET REALIZED AND UNREALIZED GAIN......................................... 413,210 473,622 447,257
--------- --------- -----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............................... $814,754 $669,293 $ 463,925
--------- --------- -----------
--------- --------- -----------
Note A: Net of foreign withholding tax of................................ $ -- $ -- $ 3,902
--------- --------- -----------
--------- --------- -----------
Note B: Net of tax on capital gains of................................... $ -- $ -- $ 1,492
--------- --------- -----------
--------- --------- -----------
</TABLE>
- ------------
(a) The High Yield Bond Fund's commencement of investment operations was May 15,
1996.
(b) The Emerging Markets Debt Fund's commencement of investment operations was
October 17, 1996.
(c) The Asia Growth Fund's commencement of investment operations was May 6,
1996.
See accompanying notes to financial statements.
PAGE 15
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED FEBRUARY 28, 1997(a)(b)(c)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING
HIGH YIELD MARKETS ASIA GROWTH
BOND FUND DEBT FUND FUND
----------- ----------- -----------
<S> <C> <C> <C>
OPERATIONS:
Net investment income........................................... $ 401,544 $ 195,671 $ 16,668
Net realized gain on investments, options, and foreign currency
transactions.................................................. 179,876 221,919 172,352
Net change in unrealized appreciation on investments, foreign
currency transactions and other assets........................ 233,334 251,703 274,905
----------- ----------- -----------
Net increase in net assets from operations...................... 814,754 669,293 463,925
----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income............................ (275,246) (110,456) (16,532)
Distributions from net realized gains........................... (9,571) (11,040) (16,614)
----------- ----------- -----------
(284,817) (121,496) (33,146)
----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares................................... 10,905,307 8,800,000 6,600,000
Net asset value of shares issued in reinvestment of dividends... 284,817 121,496 33,146
Payment for redemption of shares................................ (5,178,606) (3,292,000) (2,155,171)
----------- ----------- -----------
Change in net assets resulting from capital share
transactions.................................................. 6,011,518 5,629,496 4,477,975
----------- ----------- -----------
NET INCREASE IN NET ASSETS........................................... 6,541,455 6,177,293 4,908,754
----------- ----------- -----------
NET ASSETS:
Beginning of period............................................. 33,330 33,330 33,340
----------- ----------- -----------
End of period*.................................................. $ 6,574,785 $ 6,210,623 $ 4,942,094
----------- ----------- -----------
----------- ----------- -----------
* Including undistributed net investment income of.............. $ 126,298 $ 85,215 $ 15,493
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------
(a) The High Yield Bond Fund's commencement of investment operations was May 15,
1996.
(b) The Emerging Markets Debt Fund's commencement of investment operations was
October 17, 1996.
(c) The Asia Growth Fund's commencement of investment operations was May 6,
1996.
See accompanying notes to financial statements.
PAGE 16
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Salomon Brothers Institutional High Yield Bond Fund (the 'High Yield Bond
Fund'), Salomon Brothers Institutional Asia Growth Fund (the 'Asia Growth Fund')
and Salomon Brothers Institutional Emerging Markets Debt Fund (the 'Emerging
Markets Debt Fund') are portfolios of the Salomon Brothers Institutional Series
Funds Inc (the 'Institutional Series'). The Institutional Series is an open-end
investment company incorporated in Maryland on January 19, 1996. Each Fund has a
specific investment objective: the High Yield Bond Fund's objective is to
maximize total return 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's objective is to maximize total return
by investing primarily in debt securities of government, government related and
corporate issuers located in emerging market countries; the Asia Growth Fund's
objective is to seek long-term capital appreciation.
Salomon Brothers Asset Management Inc ('SBAM'), the Fund's investment manager,
purchased 3,333 shares of the High Yield Bond Fund and Emerging Markets Debt
Fund and 3,334 shares of the Asia Growth Fund on March 21, 1996. The Asia Growth
Fund and High Yield Bond Fund began offering shares to investors on May 6, 1996
and May 15, 1996, respectively, and the Emerging Markets Debt Fund began
accepting shareholder subscriptions on October 17, 1996.
The following is a summary of significant accounting policies followed by the
Institutional Series 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) INVESTMENT VALUATION. Portfolio securities listed or traded on national
securities exchanges, or reported on the NASDAQ national market system, are
valued at the last sale price, or if there have been no sales on that day,
at the mean of the current bid and asked price which represents the current
value of the security. Over-the-counter securities are valued at the mean
of the current bid and asked price. Debt securities are valued by using
either market quotations or 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.
Publicly traded sovereign bonds are typically traded internationally on the
over-the-counter market and are valued at the mean of the last current bid
and asked price as of the close of business of that market. Short-term
securities with less than 60 days remaining to maturity when acquired by a
Fund are valued at amortized cost which approximates market value. If a
Fund acquires such securities with more than 60 days remaining to maturity,
they will be valued at current market value (using the bid price), until
the 60th day prior to maturity, and will then be valued on an amortized
cost basis.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging market countries, and the extent of
foreign investment in domestic companies may be subject to limitation in
other emerging market countries. Foreign ownership limitations also may be
imposed by the charters of individual companies in emerging market
countries to prevent, among other concerns, violation of foreign investment
limitations. As a result, an additional class of shares (identified as
'Foreign Shares' in the Portfolio of Investments) may be created and
offered for investment. The 'local' and 'foreign' shares' market values may
differ.
Foreign securities quoted in a foreign currency are translated into U.S.
dollars using exchange rates at 2:30 p.m. Eastern time (12:30 p.m. for the
Asia Growth Fund), or at such other rates as SBAM may determine to be
appropriate in computing net asset value.
Securities for which reliable quotations or prices from pricing services
are not readily available (as may be the case for securities of limited
marketability) and all other assets are valued at their
PAGE 17
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
respective fair value as determined in good faith by, or under procedures
established by, the Board of Directors.
(B) OPTION CONTRACTS. When a Fund writes or purchases a call or a put
option, an amount equal to the premium received or paid by the Fund is
recorded as a liability or asset, the value of which is marked-to-market
daily to reflect the current market value of the option. When the option
expires, the Fund realizes a gain or loss equal to the amount of the
premium received or paid. When the Fund exercises an option or enters into
a closing transaction by purchasing or selling an offsetting option, it
realizes a gain or loss without regard to any unrealized gain or loss on
the underlying security. When a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received.
When a written put option is exercised, the amount of the premium received
reduces the cost of the security that the Fund purchased upon exercise of
the option.
(C) REPURCHASE AGREEMENTS. When entering into repurchase agreements, it is
each Fund's policy that the Fund take possession, through its custodian, of
the underlying collateral and monitor the collateral's value at the time
the agreement is entered into and on a daily basis during the term of the
repurchase agreement to ensure that it equals or exceeds the repurchase
price. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
(D) FOREIGN CURRENCY TRANSLATION. The accounting records of each Fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities of the Funds denominated in a foreign currency are translated
into U.S. dollars at the prevailing rates of exchange each day. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions. Net realized gains and losses on
foreign currency transactions represent net gains and losses from sales and
maturities of forward currency contracts, disposition of foreign
currencies, currency gains and losses realized between the trade and
settlement dates on securities transactions and the difference between the
amount of net investment income accrued and the U.S. dollar amount actually
received. The effect of changes in foreign currency exchange rates on
investments in securities are not segregated in the Statements of
Operations from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or
loss on investments.
(E) FORWARD FOREIGN CURRENCY CONTRACTS. Each Fund may enter into forward
foreign currency contracts in connection with planned purchases or sales of
securities or to hedge the value of portfolio securities. A forward foreign
currency contract is an agreement between two parties to buy and sell a
currency at a set price on a future date. The contract is marked-to-market
daily and the change in value is recorded by the Fund as an unrealized gain
or loss. When a forward foreign currency contract is extinguished, through
either delivery or offset by entering into another forward foreign currency
contract, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value
of the contract at the time it was extinguished or offset.
(F) FEDERAL INCOME TAXES. Each Fund intends to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
by distributing all of its income, including any net realized gains, to
shareholders. Therefore, no Federal income tax or excise tax provision is
required.
The Asia Growth Fund may be subject to taxes imposed by countries in which
it invests. Such taxes are generally based on income and/or capital gains
earned or repatriated. Taxes are accrued and applied to net investment
income, net realized gains and net unrealized appreciation as such income
and/or gains are earned.
PAGE 18
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(G) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Each Fund declares
dividends from net investment income annually. Distributions of net
realized gains to shareholders of each Fund, if any, are declared at least
annually. Dividends and distributions to shareholders of each Fund are
recorded on the ex-dividend date and are determined in accordance with
income tax regulations which may differ from GAAP primarily due to
differences in the treatment of foreign currency gains/losses, treatment of
gain from passive foreign investment companies ('PFICs'), deferral of wash
sales, and post-October losses incurred by each Fund. Permanent book/tax
differences are reclassified within the capital accounts based on their
federal income tax basis treatment; temporary differences do not require
reclassifications. Dividends and distributions which exceed net investment
income and net realized gains for financial reporting purposes but not for
tax purposes are reported as dividends in excess of net investment income
and distributions in excess of net realized capital gains.
(H) EXPENSES. Direct expenses are charged to the Fund that incurred them,
and general expenses of the Institutional Series are allocated to the Funds
based on each Fund's relative net assets.
(I) ORGANIZATIONAL COSTS. Certain costs incurred in connection with each
Fund's organization have been deferred and are being amortized by the Funds
over a 60 month period from the date each Fund commenced investment
operations. In the event that any of the initial shares purchased by SBAM
are redeemed, proceeds of such redemption will be reduced by the
proportionate amount of the unamortized deferred organization costs which
the number of shares redeemed bears to the total number of initial shares
purchased.
(J) OTHER. Investment transactions are recorded as of the trade date.
Dividend income is recorded on the ex-dividend date or on a when-known
basis for the Asia Growth Fund. Interest income, including the accretion of
discounts or amortization of premiums, is recognized when earned. Gains or
losses on sales of securities are calculated for financial accounting and
Federal income tax purposes on the identified cost basis.
2. MANAGEMENT FEE AND OTHER AGREEMENTS
Each Fund retains 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 Institutional Series. Among other things, SBAM furnishes the
Funds with office space and certain services and facilities required for
conducting the business of the Funds, and pays the compensation of its officers.
The management fee for these services for each Fund is payable monthly and is
based on the following annual percentages of each Funds' 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. SBAM has retained Salomon Brothers Asset
Management Asia Pacific Limited ('SBAM AP'), an affiliate of SBAM, to act as
sub-advisor to the Asia Growth Fund. SBAM AP is compensated by SBAM at no
additional expense to the Asia Growth Fund. Salomon Brothers Asset Management
Limited ('SBAM Limited'), an affiliate of SBAM, provides certain administrative
services to the Asia Growth Fund. For such administrative services, SBAM Limited
is compensated by SBAM at no additional expense to the Asia Growth Fund.
For the period ended February 28, 1997, SBAM waived management fees of $21,438,
$15,317 and $21,437 for the High Yield Bond Fund, Emerging Markets Debt Fund and
Asia Growth Fund, respectively, and voluntarily absorbed expenses of $147,817,
$133,188 and $205,537 for the High Yield Bond Fund, Emerging Markets Debt Fund
and Asia Growth Fund, respectively.
Investors Bank & Trust Company ('IBT') serves as custodian, administrator and
shareholder servicing agent for each Fund, which includes performing custodial
and certain administrative services in connection with the operation of each
Fund. IBT agreed to waive a portion of its custody fees through October 31,
1996. In addition, a credit is earned on outstanding cash balances held by the
custodian during each billing period. During the period ended February 28, 1997,
fees of $30,000 were waived by IBT
PAGE 19
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
for the High Yield Bond Fund and Asia Growth Fund and credits of $875, $885 and
$663 were earned on outstanding cash balances of the High Yield Bond Fund,
Emerging Markets Debt Fund and Asia Growth Fund, respectively.
3. CAPITAL STOCK
At February 28, 1997, the Institutional Series had 10,000,000,000 shares of
authorized capital stock, par value $.001 per share. Transactions in Fund shares
for the period ended February 28, 1997 were as follows:
<TABLE>
<CAPTION>
HIGH EMERGING
YIELD MARKETS ASIA
BOND FUND DEBT FUND GROWTH FUND
--------- --------- -----------
<S> <C> <C> <C>
Shares sold................................................... 1,041,101 868,547 651,672
Shares issued as reinvestment................................. 26,445 11,716 3,224
Shares redeemed............................................... 479,972 314,303 203,510
--------- --------- -----------
Net increase.................................................. 587,574 565,960 451,386
--------- --------- -----------
--------- --------- -----------
</TABLE>
At February 28, 1997, SBAM owned approximately 40% and 46% of total shares
outstanding of the Emerging Markets Debt Fund and Asia Growth Fund,
respectively.
4. PORTFOLIO ACTIVITY
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, for the period ended February 28, 1997, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----
<S> <C> <C>
High Yield Bond Fund............................................. $13,197,162 $7,403,049
----------- ----------
----------- ----------
Emerging Markets Debt Fund....................................... $12,554,713 $7,578,906
----------- ----------
----------- ----------
Asia Growth Fund................................................. $ 8,953,035 $4,590,308
----------- ----------
----------- ----------
</TABLE>
At February 28, 1997, undistributed net investment income and accumulated net
realized gain on investments have been adjusted for current period permanent
book/tax differences which arose principally from differing book/tax treatments
of foreign currency transactions and gains of securities of certain corporations
designated as PFICs. The Asia Growth Fund reclassified $15,357 from accumulated
net realized gain on investments to undistributed net investment income. Net
investment income, net realized gain (loss) on investments and net assets were
not affected by this reclassification.
During the year ended February 28, 1997, the Asia Growth Fund and Emerging
Markets Debt Fund have elected to defer to March 1, 1997, Post-October net
foreign currency losses of $1,115 and $355, respectively. Cost for Federal
income tax purposes and gross unrealized appreciation and depreciation in value
of investments held in each Fund were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AGGREGATE UNREALIZED UNREALIZED NET UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
---------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
High Yield Bond Fund....................... $6,020,829 $252,688 $ 19,354 $233,334
Emerging Markets Debt Fund................. $5,228,956 $294,010 $ 46,909 $247,101
Asia Growth Fund........................... $4,556,627 $536,558 $282,389 $254,169
</TABLE>
PAGE 20
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<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Transactions in options written for the Asia Growth Fund during the period ended
February 28, 1997 were as follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
<S> <C> <C>
Options written...................................................... 14,000 $ 2,344
Options terminated in closing purchase transactions.................. (14,000) (2,344)
--------- --------
Options outstanding at February 28, 1997............................. -- --
--------- --------
--------- --------
</TABLE>
5. PORTFOLIO INVESTMENT RISKS
CREDIT AND MARKET RISK. Funds that invest in emerging markets and high yield
debt instruments are subject to certain credit and market risks. The yields of
debt obligations reflect, among other things, perceived credit risk. Securities
rated below investment grade typically involve risks not associated with higher
rated securities including, among others, greater risk of timely and ultimate
payment of interest and principal, greater market price volatility and less
liquid secondary market trading. The consequences of political, social, economic
or diplomatic changes in emerging markets countries may have disruptive effects
on the market prices of investments held by the Funds.
The Funds' investment in non-dollar denominated securities may also result in
foreign currency losses caused by devaluations and exchange rate fluctuations.
Foreign securities and currency transactions involve certain considerations and
risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and regulation of foreign securities markets
and the possibility of political or economic instability.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK. Each Fund may enter into
forward foreign currency contracts ('forward contracts') to facilitate
settlement of foreign currency denominated portfolio transactions or to manage
foreign currency exposure associated with foreign currency denominated
securities. Forward contracts involve elements of market risk in excess of the
amounts reflected in the Statements of Assets and Liabilities. The Funds bear
the risk of an unfavorable change in the foreign exchange rate underlying the
forward contract. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
The High Yield Bond Fund and Emerging Markets Debt Fund may invest in
instruments whose values and interest rates may be linked to foreign currencies,
interest rates, indices or some other financial indicator. The value at maturity
or interest rates for these instruments will increase or decrease according to
the change in the indicator to which it is indexed. These securities are
generally more volatile in nature and the risk of loss of principal is greater.
A risk in writing a covered call option is that the Fund may forego the
opportunity of profit if the market price of the underlying security increases
and the option is exercised. A risk in writing a put option is that the Fund may
incur a loss if the market price of the underlying security decreases and the
option is exercised. In addition, there is the risk that the Fund may not be
able to enter into a closing transaction because of an illiquid secondary
market.
PAGE 21
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
FINANCIAL HIGHLIGHTS
FOR THE PERIOD ENDED FEBRUARY 28, 1997(a)(b)(c)
SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH EMERGING
YIELD MARKET ASIA GROWTH
BOND FUND DEBT FUND FUND
--------- --------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period............................ $ 10.00 $ 10.00 $ 10.00
--------- --------- -----------
Net investment income...................................... 0.57 0.35 0.04
Net gain on investments (both realized and unrealized)..... 0.93 0.78 0.91
--------- --------- -----------
Total from investment operations...................... 1.50 1.13 0.95
--------- --------- -----------
Dividends from net investment income....................... (0.36) (0.20) (0.04)
Distributions from net realized gain on investments........ (0.01) (0.02) (0.04)
--------- --------- -----------
Total dividends and distributions..................... (0.37) (0.22) (0.08)
--------- --------- -----------
Net asset value, end of period.................................. $ 11.13 $ 10.91 $ 10.87
--------- --------- -----------
--------- --------- -----------
Net assets, end of period (thousands)........................... $ 6,575 $ 6,211 $ 4,942
Total return*................................................... +15.1% +11.4% +9.6%
Ratios to average net assets:
Expenses................................................... 0.55%** 0.75%** 1.00%**
Net investment income...................................... 9.36%** 8.94%** 0.58%**
Portfolio turnover rate......................................... 151% 136% 133%
Average Broker Commission Rate.................................. N/A N/A $0.0052
Before waiver of management fee, expenses absorbed by SBAM and
credits earned from and fees waived by the custodian, net
investment income (loss) per share and expense ratios would
have been:
Net investment income (loss) per share..................... $0.29 $0.08 ($0.59)
Expense ratio.............................................. 5.22%** 7.57%** 10.03%**
</TABLE>
- ------------
(a) The High Yield Bond Fund's commencement of investment operations was May
15, 1996.
(b) The Emerging Markets Debt Fund's commencement of investment operations was
October 17, 1996.
(c) The Asia Growth Fund's commencement of investment operations was May 6,
1996.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period reported. Total return calculated for a period of less than one
year is not annualized.
** Annualized.
PAGE 22
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
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 the 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
February 28, 1997, and the results of each of their operations, the changes in
each of their net assets, 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 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 evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at February
28, 1997 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
April 11, 1997
PAGE 23
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<PAGE>
<PAGE>
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
(800) 347-6028
LEGAL COUNSEL
SIMPSON THACHER & BARTLETT
NEW YORK, NEW YORK 10017
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
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</TABLE>
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