<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
ANNUAL REPORT
FEBRUARY 28, 1998
HIGH YIELD BOND FUND
EMERGING MARKETS DEBT FUND
- --------------------------------------
SALOMON BROTHERS ASSET MANAGEMENT
---------------------------------------------
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
- --------------------------------------------------------------------------------
April 20, 1998
To Our Shareholders:
We are pleased to provide you with the annual report for the Salomon Brothers
Institutional High Yield Bond Fund and the Salomon Brothers Institutional
Emerging Markets Debt Fund for the period ended February 28, 1998. Please note
that the Salomon Brothers Institutional Asia Growth Fund was closed and
liquidated on February 27, 1998.
HIGH YIELD BOND FUND
The Salomon Brothers Institutional High Yield Bond Fund seeks to maximize total
return by investing primarily in a portfolio of non-investment grade, high yield
fixed income securities. For the one-year period ended February 28, 1998, the
Fund generated a return of 11.12% versus a return of 13.73% for the Salomon
Brothers High-Yield Market Index. From May 15, 1996 (commencement of operations)
to February 28, 1998, the High Yield Bond Fund outpaced the benchmark with an
annualized return of 14.72% versus a 14.63% annualized return for the Index.
The combination of solid economic growth with virtually no inflation benefited
the U.S. high yield market in 1997; buoyed by these near perfect economic
conditions, high yield securities posted strong performance for the year. Solid
economic growth, low inflation and a highly liquid equity market contributed to
improving credit quality for a broad spectrum of issuers and in near record lows
in default rates.
U.S. high yield market spreads continued to remain stable through the beginning
of 1998, supported in part by continuing strong inflows into mutual funds.
During the month of February, benchmark spreads tightened again to roughly 320
to 330 basis points over Treasuries. We continue to reduce our exposure to
cyclical factors through prudent industry allocation and to focus on higher
quality credits as opportunities emerge. As a result, we have trimmed portfolio
allocations in the chemical, steel and retail sectors and increased positions in
the oil service and media sectors.
EMERGING MARKETS DEBT FUND
The Salomon Brothers Institutional Emerging Markets Debt Fund seeks to maximize
total return through primarily investing in the fixed income securities of
emerging market countries, particularly in Latin America, Eastern Europe, the
former Soviet Union, Asia and Africa. For the one-year period ended February 28,
1998 the Fund produced a return of 14.61%, outperforming the J.P. Morgan
Emerging Markets Bond Index Plus which returned 10.96% for the period. Since
October 17, 1996 (commencement of investment operations) to February 28, 1998,
the Fund has produced an annualized return of 19.50%, as compared to a 16.99%
annualized return for the Index.
Emerging markets debt continued to experience higher-than-normal volatility
during the period, due to the recognition of the possible implications of the
Asian currency upheaval for investors. Seeking to reduce short-term volatility,
the Fund's duration remains close to that of the Index. We have increased
portfolio weightings in Russia to an overweight versus the benchmark, and in
Venezuela, following an oil price-induced sell-off. In addition, we have
increased our exposure in Brazil, while remaining underweighted in that market.
Throughout most of 1997, emerging debt markets benefited from favorable market
conditions, attractive yields and positive economic and political trends in many
key countries. During the last months of the year, however, emerging markets
were affected negatively by a dramatic global market sell-off, sparked by the
turmoil in Asia. The instability of financial markets around the
world -- notably the U.S. and Hong Kong -- contributed to a significant increase
in emerging market volatility.
PAGE 1
<PAGE>
<PAGE>
Brady Bond yield spreads versus Treasuries narrowed from 600 basis points to
roughly 500 basis points over the past month, and we expect spreads to remain
within this range for the near term. Despite the continuing volatility in these
markets, we believe emerging debt markets continue to represent attractive
opportunities for investors over the long term.
We appreciate your interest in the Funds and encourage you to read the financial
statements that follow for details about each Fund's investments.
Cordially,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman & President
PAGE 2
<PAGE>
<PAGE>
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 Salomon Brothers 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
<TABLE>
<CAPTION>
Period Fund Index
- ------ ---- -----
<S> <C> <C>
$10,000.00 $10,000.00
5/15-5/31/96 $10,090.00
Jun 1996 $10,140.00 $10,077.00
Jul 1996 $10,230.25 $10,142.50
Aug 1996 $10,370.40 $10,247.98
Sep 1996 $10,630.70 $10,487.79
Oct 1996 $10,660.46 $10,608.39
Nov 1996 $10,930.17 $10,812.08
Dec 1996 $11,138.94 $10,897.49
Jan 1997 $11,252.56 $10,979.22
Feb 1997 $11,511.37 $11,165.87
Mar 1997 $11,314.62 $11,050.86
Apr 1997 $11,469.53 $11,130.16
May 1997 $11,768.88 $11,354.99
Jun 1997 $11,940.71 $11,546.89
Jul 1997 $12,233.26 $11,811.31
Aug 1997 $12,276.07 $11,840.84
Sep 1997 $12,503.18 $12,048.06
Oct 1997 $12,449.42 $12,144.44
Nov 1997 $12,525.36 $12,206.38
Dec 1997 $12,631.82 $12,334.55
Jan 1998 $12,697.51 $12,613.31
Feb 1998 $12,790.20 $12,699.08
</TABLE>
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN
% RETURN
--------
<S> <C>
Twelve months ended 2/28/98....................................................... 11.12%
Commencement of investment operations (5/15/96) through 2/28/98................... 14.72%
</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, 1998, the Index returns are
for the period June 1, 1996 through February 28, 1998.
NOTE
The average annual total returns reflect reinvestment of dividends and/or
capital gains distributions in additional shares.
During its fiscal year ended February 28, 1998, the Fund's investment adviser
waived management fees and reimbursed certain expenses of the Fund, as shown in
the following audited financial statements. Absent such waiver and
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
<PAGE>
<PAGE>
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 Salomon Brothers 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
<TABLE>
<CAPTION>
<S> <C> <C>
Period Fund Index
- ------ ---- -----
$10,000.00 $10,000.00
10/17-10/31/96 $ 9,900.00 $ 9,951.90
Nov 1996 $10,460.34 $10,448.50
Dec 1996 $10,587.96 $10,573.88
Jan 1997 $10,975.48 $10,866.78
Feb 1997 $11,139.01 $11,055.86
Mar 1997 $10,648.89 $10,656.74
Apr 1997 $11,107.86 $10,972.11
May 1997 $11,618.82 $11,398.27
Jun 1997 $11,912.78 $11,660.46
Jul 1997 $12,414.31 $12,144.22
Aug 1997 $12,383.27 $12,095.09
Sep 1997 $12,769.63 $12,464.67
Oct 1997 $11,317.72 $11,028.74
Nov 1997 $11,902.85 $11,552.39
Dec 1997 $12,412.29 $11,950.55
Jan 1998 $12,377.54 $11,926.33
Feb 1998 $12,766.19 $12,267.69
</TABLE>
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN
% RETURN
--------
<S> <C>
Twelve months ended 2/28/98....................................................... 14.61%
Commencement of investment operations (10/17/96) through 2/28/98.................. 19.50%
</TABLE>
NOTE
The average annual total returns reflect reinvestment of dividends and/or
capital gains distributions in additional shares.
During its fiscal year ended February 28, 1998, the Fund's investment adviser
waived management fees and reimbursed certain expenses of the Fund, as shown in
the following audited financial statements. Absent such waiver and
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
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
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 -- 74.7%
BASIC INDUSTRIES -- 8.3%
$ 100,000 Berry Plastics................................................. 12.250% 04/15/04 $ 110,500
250,000 Huntsman Packaging............................................. 9.125 10/01/07 257,500
500,000 Murrin Murrin Holdings......................................... 9.375 08/31/07 488,125
500,000 Stone Container................................................ 10.750 10/01/02 526,250
500,000 Tekni-Plex..................................................... 9.250 03/01/08 506,875
-----------
1,889,250
-----------
CONSUMER CYCLICALS -- 2.6%
100,000 Hills Stores................................................... 12.500 07/01/03 85,250
500,000 Maxim Group.................................................... 9.250 10/15/07 505,000
-----------
590,250
-----------
CONSUMER NON-CYCLICALS -- 17.0%
500,000 Ameriserv Food................................................. 8.875 10/15/06 517,500
350,000 Delta Beverage Group........................................... 9.750 12/15/03 366,625
250,000 French Fragrances.............................................. 10.375 05/15/07 267,500
100,000 Graham Field Health Products................................... 9.750 08/15/07 106,000
500,000 Grand Casinos.................................................. 9.000 10/15/04 517,500
250,000 Herff Jones.................................................... 11.000 08/15/05 276,250
100,000 Imperial Holly................................................. 9.750 12/15/07 103,000
100,000 Integrated Health Services..................................... 9.250 01/15/08 104,250
100,000 North Altlantic Trading........................................ 11.000 06/15/04 105,000
250,000 Packaged Ice................................................... 9.750 02/01/05 257,500
65,000 Rayovac........................................................ 10.250 11/01/06 71,825
400,000 Revlon Worldwide(a)............................................ 9.964 03/15/01 295,000
100,000 SC International Services...................................... 9.250 09/01/07 106,000
100,000 ShopVac........................................................ 10.625 09/01/03 109,500
200,000 Stroh Brewery.................................................. 11.100 07/01/06 151,000
500,000 Universal Hospital Services.................................... 10.250 03/01/08 505,000
-----------
3,859,450
-----------
DATA TECHNOLOGY/INFORMATION SERVICES -- 1.3%
100,000 DecisionOne Holdings
(Zero Coupon until 08/01/02, 11.50% thereafter)(a)........... 10.092 08/01/08 61,500
250,000 Unisys......................................................... 7.875 04/01/08 247,500
-----------
309,000
-----------
</TABLE>
See accompanying notes to financial statements.
PAGE 5
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ---------- --------------------------------------------------------------- -------- -------- -----------
<C> <S> <C> <C> <C>
ENERGY -- 8.9%
$ 250,000 Costilla Energy................................................ 10.250% 10/01/06 $ 257,500
250,000 Dailey International........................................... 9.500 02/15/08 250,000
100,000 Dawson Product Services........................................ 9.375 02/01/07 104,500
500,000 Hvide Marine................................................... 8.375 02/15/08 492,500
100,000 National Energy Group.......................................... 10.750 11/01/06 102,500
200,000 Offshore Logistics............................................. 7.875 01/15/08 203,000
100,000 Parker Drilling................................................ 9.750 11/15/06 108,000
250,000 Transamerican Energy........................................... 11.500 06/15/02 253,437
250,000 Wainoco Oil.................................................... 9.125 02/15/06 248,750
-----------
2,020,187
-----------
FINANCIAL/LEASING -- 4.5%
250,000 ATC Group Services............................................. 12.000 01/15/08 251,250
500,000 MS Aircraft Finance............................................ 8.700 03/15/23 506,250
250,000 Nationwide Credit.............................................. 10.250 01/15/08 259,375
-----------
1,016,875
-----------
MANUFACTURING -- 11.7%
50,000 Alvey Systems.................................................. 11.375 01/31/03 53,625
100,000 Amphenol....................................................... 9.875 05/15/07 106,500
100,000 High Voltage Engineering....................................... 10.500 08/15/04 105,500
250,000 Insilco........................................................ 10.250 08/15/07 265,000
250,000 International Utility Structures............................... 10.750 02/01/08 259,375
500,000 Navistar International......................................... 8.000 02/01/08 505,000
500,000 Polymer Group.................................................. 8.750 03/01/08 501,900
500,000 Stellex Industries............................................. 9.500 11/01/07 510,000
250,000 Stena AB....................................................... 10.500 12/15/05 275,625
100,000 TFM
(Zero Coupon until 06/15/02, 11.75% thereafter)(a)........... 11.398 06/15/09 64,250
-----------
2,646,775
-----------
</TABLE>
See accompanying notes to financial statements.
PAGE 6
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
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>
MEDIA -- 15.1%
$ 500,000 Century Communications(a)............................... 8.878% 01/15/08 $ 212,500
500,000 DTI Holdings
(Zero Coupon until 03/01/03, 12.50%
thereafter)(a)........................................ 12.500 03/01/08 271,250
250,000 Facilicom International................................. 10.500 01/15/08 255,625
250,000 Global Telesystems Group................................ 9.875 02/15/05 257,500
100,000 Hollinger International Publishing...................... 9.250 02/01/06 106,250
250,000 ICG Holdings
(Zero Coupon until 9/15/00, 13.50%
thereafter)(a)........................................ 11.459 09/15/05 207,500
500,000 Intermedia Commission of Florida
(Zero Coupon until 05/15/01, 12.50%
thereafter)(a)........................................ 9.794 05/15/06 403,750
150,000 International CableTel
(Zero Coupon until 02/01/01, 11.50%
thereafter)(a)........................................ 11.804 02/01/06 120,000
250,000 KMC Telecom Holdings
(Zero Coupon until 02/15/03, 12.50%
thereafter)(a)........................................ 12.499 02/15/08 140,625
500,000 LIN Television.......................................... 8.375 03/01/08 501,250
150,000 Marcus Cable
(Zero Coupon until 06/15/00, 14.25%
thereafter)(a)........................................ 13.316 12/15/05 133,875
250,000 Mastec.................................................. 7.750 02/01/08 251,250
500,000 Nextel Communications
(Zero Coupon until 02/15/03, 9.95%
thereafter)(a)........................................ 9.950 02/15/08 305,000
250,000 Production Resource..................................... 11.500 01/15/08 251,250
-----------
3,417,625
-----------
SERVICES/OTHER -- 3.2%
400,000 Allied Waste
(Zero Coupon until 06/01/02, 11.30%
thereafter)(a)........................................ 9.400- 11.300 06/01/07 292,000
250,000 Kindercare Learning Centers............................. 9.500 02/15/09 256,875
50,000 Loomis Fargo............................................ 10.000 01/15/04 51,000
100,000 Norcal Waste Systems*................................... 13.500 11/15/05 116,500
-----------
716,375
-----------
UTILITIES -- 2.1%
450,000 AES..................................................... 8.500 11/01/07 465,750
-----------
TOTAL INVESTMENTS -- 74.7%
(cost $16,823,435).................................... 16,931,537
-----------
REPURCHASE AGREEMENT -- 11.8%
2,678,000 Repurchase Agreement dated 02/27/98, with
Merrill, Lynch, Pierce, Fenner & Smith,
collateralized by $2,545,000 U.S. Treasury Notes,
8.75%, due 05/15/00 valued at $2,732,694; proceeds:
$2,679,250 (cost $2,678,000).......................... 5.600 03/02/98 2,678,000
-----------
Other assets in excess of liabilities -- 13.5%.......... 3,054,223
-----------
NET ASSETS -- 100.0%.................................... $22,663,760
-----------
-----------
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rates
or step coupon rates.
(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, 1998
SALOMON BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ---------- --------------------------------------------------------------- -------- -------- -----------
<C> <S> <C> <C> <C>
SOVEREIGN BONDS -- 78.5%
ARGENTINA -- 20.6%
$ 150,000 Republic of Argentina, Bonos Del Tesoro*....................... 8.750% 05/09/02 $ 146,550
1,395,465 Republic of Argentina, Bocon*.................................. 2.976 04/01/07 1,023,381
1,100,000 Republic of Argentina, Global Bond(d).......................... 11.000 10/09/06 1,237,225
250,000 Republic of Argentina, Global Bond............................. 11.750 02/12/07 265,000
250,000 Republic of Argentina, Global Bond............................. 8.750 07/10/02 230,000
100,000 Republic of Argentina, Global Bond............................. 9.750 09/19/27 99,700
-----------
3,001,856
-----------
BRAZIL -- 4.4%
798,182 Federal Republic of Brazil, Capitalization Bond(a)............. 8.000 04/15/14 647,525
-----------
BULGARIA -- 3.7%
250,000 Republic of Bulgaria, Discount Bond, Tranche A*................ 6.563 07/28/24 201,094
450,000 Republic of Bulgaria, IAB*..................................... 6.563 07/28/11 345,656
-----------
546,750
-----------
CROATIA -- 3.0%
500,000 Republic of Croatia, FRN Series A*............................. 6.500 07/31/10 443,125
-----------
ECUADOR -- 3.7%
250,000 Republic of Ecuador, Discount Bond*............................ 6.625 02/28/25 185,783
500,697 Republic of Ecuador, PDI Bond*(a).............................. 6.625 02/27/15 321,229
55,634 Republic of Ecuador, Registered PDI Bond*(a)................... 6.625 02/27/15 35,693
-----------
542,705
-----------
IVORY COAST -- 0.8%
325,000 Republic of Ivory Coast, FLIRB(b).............................. -- 03/29/18 112,227
-----------
MEXICO -- 4.2%
500,000 United Mexico States, Global Bond.............................. 11.500 05/15/26 612,750
-----------
PANAMA -- 4.4%
500,000 Republic of Panama, IRB*....................................... 3.750 07/17/14 391,250
312,440 Republic of Panama, PDI Bond*(a)............................... 6.563 07/17/16 258,153
-----------
649,403
-----------
PERU -- 4.7%
750,000 Republic of Peru, FLIRB*....................................... 3.250 03/07/17 456,563
300,000 Republic of Peru, Registered PDI Bond*......................... 4.000 03/07/17 199,875
50,000 Republic of Peru, PDI Bond*.................................... 4.000 03/07/17 33,313
-----------
689,751
-----------
PHILIPPINES -- 0.7%
100,000 Republic of the Philippines Treasury Bill(f)................... 5.750 08/14/98 101,000
-----------
RUSSIA -- 16.6%
2,600,000 Russian Government, Global Bond................................ 10.000 06/26/07 2,416,372
-----------
</TABLE>
See accompanying notes to financial statements.
PAGE 8
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
SALOMON BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ---------- --------------------------------------------------------------- -------- -------- -----------
<C> <S> <C> <C> <C>
VENEZUELA -- 11.7%
$1,904,760 Republic of Venezuela, DCB, Series DL*......................... 6.813% 12/18/07 $ 1,703,570
-----------
TOTAL SOVEREIGN BONDS
(cost $11,039,565).................................................................. 11,467,034
-----------
LOAN PARTICIPATIONS -- 3.9%
ALGERIA -- 0.6%
100,000 The People's Democratic Republic of Algeria,
Tranche A*(c) (Chase Manhattan Bank)......................... 7.000 09/04/06 83,188
-----------
MOROCCO -- 3.3%
550,000 Kingdom of Morocco, Tranche A*(c) (Chase Manhattan Bank and
Morgan Guaranty Trust Company)............................... 6.656 01/01/09 483,313
-----------
TOTAL LOAN PARTICIPATIONS
(cost $534,298)................................................................... 566,501
-----------
PURCHASED OPTIONS(E) -- 0.4%
BRAZIL -- 0.4%
CONTRACTS
20,000 Federal Republic of Brazil OTC Call
(expiring 05/12/98, exercise price $80.6875) (cost $64,612)......................... 58,626
-----------
TOTAL INVESTMENTS -- 82.8%
(cost $11,638,475)................................................................ 12,092,161
Other assets in excess of liabilities -- 17.2%........................................ 2,504,174
-----------
NET ASSETS -- 100.0%.................................................................. $14,596,335
-----------
-----------
</TABLE>
- ------------------------
* Interest rate shown reflects current rate on instrument with variable rates
or step coupon rates.
(a) Payment-in-kind security for which all or part of the interest earned is
paid by the issuance of additional bonds.
(b) When and if issued. Security issued pursuant to the Republic of the Ivory
Coast'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.
(c) Participation interest was acquired through the financial institutions
indicated parenthetically.
(d) All or part of the security is segregated as collateral for when and if
issued securities.
(e) Non-income producing security.
(f) Interest rate shown reflects yield to maturity on date of purchase.
Abbreviations used in this statement:
DCB -- Debt Conversion Bond.
FLIRB -- Front-Loaded Interest Reduction Bond.
FRN -- Foating Rate Note.
IAB -- Interest Arrears Bond.
IRB -- Interest Reduction Bond.
OTC -- Over the Counter.
PDI -- Past Due Interest.
See accompanying notes to financial statements.
PAGE 9
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING
HIGH YIELD MARKETS
BOND FUND DEBT FUND
----------- -----------
<S> <C> <C>
ASSETS:
Investments, at value (Note A)................................................ $16,931,537 $12,092,161
Repurchase agreement, at value and cost....................................... 2,678,000 --
Cash.......................................................................... 408 2,432,020
Receivable for securities sold................................................ 242,587 162,139
Receivable for Fund shares sold............................................... 5,564,234 --
Interest receivable........................................................... 253,294 249,397
Receivable from investment manager............................................ 27,725 36,009
Deferred organization expense................................................. 40,899 46,313
----------- -----------
Total assets............................................................. 25,738,684 15,018,039
----------- -----------
LIABILITIES:
Payable for securities purchased.............................................. 3,007,575 303,717
Accrued expenses and other liabilities........................................ 67,349 117,987
----------- -----------
Total liabilities........................................................ 3,074,924 421,704
----------- -----------
NET ASSETS......................................................................... $22,663,760 $14,596,335
----------- -----------
----------- -----------
NET ASSETS CONSIST OF:
Paid-in capital............................................................... $22,309,592 $14,552,565
Undistributed net investment income........................................... 134,910 63,023
Accumulated net realized gain (loss) on investments and foreign currency
transactions................................................................. 111,156 (471,443)
Net unrealized appreciation (depreciation) on investments, foreign currency
translation and other assets................................................. 108,102 452,190
----------- -----------
NET ASSETS......................................................................... $22,663,760 $14,596,335
----------- -----------
----------- -----------
SHARES OUTSTANDING (Note B)........................................................ 2,343,699 2,023,065
----------- -----------
----------- -----------
NET ASSET VALUE PER SHARE.......................................................... $ 9.67 $ 7.21
----------- -----------
----------- -----------
Note A: Cost of investments........................................................ $16,823,435 $11,638,475
----------- -----------
----------- -----------
Note B: Par value.................................................................. $ 0.001 $ 0.001
----------- -----------
----------- -----------
</TABLE>
Authorized shares of 10,000,000,000 for the Institutional Series Funds.
See accompanying notes to financial statements.
PAGE 10
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH EMERGING
YIELD MARKETS
BOND FUND DEBT FUND
--------- ----------
<S> <C> <C>
INCOME:
Interest.......................................................................... $623,048 $1,009,041
--------- ----------
EXPENSES:
Management fee.................................................................... 32,193 75,783
Custody and administration fees................................................... 165,100 177,600
Audit and tax return preparation fees............................................. 20,000 52,001
Registration and filing fees...................................................... 14,300 17,719
Amortization of organization expenses............................................. 12,749 12,749
Printing.......................................................................... 7,000 15,001
Directors' fees and expenses...................................................... 5,999 5,000
Shareholder services.............................................................. 1,000 999
Legal............................................................................. 1,000 5,000
Other............................................................................. 1,000 999
--------- ----------
260,341 362,851
Management fee waived and expenses absorbed by investment manager................. (224,929) (281,655)
--------- ----------
Net expenses...................................................................... 35,412 81,196
--------- ----------
NET INVESTMENT INCOME.................................................................. 587,636 927,845
--------- ----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments....................................................................... 314,821 909,672
Foreign currency transaction...................................................... -- 10,739
--------- ----------
314,821 920,411
--------- ----------
Net change in unrealized appreciation (depreciation) on:
Investments....................................................................... (125,232) 200,132
Foreign currency translation and other assets..................................... -- 355
--------- ----------
(125,232) 200,487
--------- ----------
NET REALIZED AND UNREALIZED GAIN....................................................... 189,589 1,120,898
--------- ----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............................................. $777,225 $2,048,743
--------- ----------
--------- ----------
</TABLE>
See accompanying notes to financial statements.
PAGE 11
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF CHANGES IN NET ASSETS
HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income........................................................ $ 587,636 $ 401,544
Net realized gain on investments and foreign currency transactions........... 314,821 179,876
Net change in unrealized appreciation (depreciation) on investments, foreign
currency translation and other assets....................................... (125,232) 233,334
------------ --------------
Net increase in net assets from operations................................... 777,225 814,754
------------ --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income......................................... (572,322) (275,246)
Distributions from net realized gains........................................ (380,672) (9,571)
------------ --------------
(952,994) (284,817)
------------ --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares................................................ 21,239,234 10,905,307
Net asset value of shares issued in reinvestment of dividends................ 945,321 284,817
Payment for redemption of shares............................................. (5,919,811) (5,178,606)
------------ --------------
Change in net assets from capital share transactions......................... 16,264,744 6,011,518
------------ --------------
NET INCREASE IN NET ASSETS........................................................ 16,088,975 6,541,455
------------ --------------
NET ASSETS:
Beginning of year............................................................ 6,574,785 33,330
------------ --------------
End of year*................................................................. $ 22,663,760 $ 6,574,785
------------ --------------
------------ --------------
*Including undistributed net investment income of............................ $ 134,910 $ 126,298
------------ --------------
------------ --------------
</TABLE>
- ------------
(a) The High Yield Bond Fund's commencement of investment operations was May 15,
1996.
See accompanying notes to financial statements.
PAGE 12
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF CHANGES IN NET ASSETS
EMERGING MARKETS DEBT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
--------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income....................................................... $ 927,845 $ 195,671
Net realized gain on investments, options, and foreign currency
transactions.............................................................. 920,411 221,919
Net change in unrealized appreciation on investments, foreign currency
translation and other assets.............................................. 200,487 251,703
--------------- --------------
Net increase in net assets from operations.................................. 2,048,743 669,293
--------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income........................................ (869,966) (110,456)
Distributions from net realized gains....................................... (1,682,804) (11,040)
--------------- --------------
(2,552,770) (121,496)
--------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares............................................... 18,263,159 8,800,000
Net asset value of shares issued in reinvestment of dividends............... 2,493,021 121,496
Payment for redemption of shares............................................ (11,866,441) (3,292,000)
--------------- --------------
Change in net assets from capital share transactions........................ 8,889,739 5,629,496
--------------- --------------
NET INCREASE IN NET ASSETS....................................................... 8,385,712 6,177,293
--------------- --------------
NET ASSETS:
Beginning of year........................................................... 6,210,623 33,330
--------------- --------------
End of year*................................................................ $ 14,596,335 $ 6,210,623
--------------- --------------
--------------- --------------
*Including undistributed net investment income of........................... $ 63,023 $ 85,215
--------------- --------------
--------------- --------------
</TABLE>
- ------------
(a) The Emerging Markets Debt Fund's commencement of investment operations was
October 17, 1996.
See accompanying notes to financial statements.
PAGE 13
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Salomon Brothers Institutional High Yield Bond Fund (the 'High Yield Bond Fund')
and Salomon Brothers Institutional Emerging Markets Debt Fund (the 'Emerging
Markets Debt Fund') are portfolios constituting 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 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 results 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 until the 60th day prior to
maturity, and will then be valued on an amortized cost basis.
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 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.
PAGE 14
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(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 foreign 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) LOAN PARTICIPATIONS. Each Fund may invest in fixed and floating rate
loans arranged through private negotiations between a foreign sovereign
entity and one or more financial institutions ('lender'). The market value
of the Emerging Markets Debt Fund's loan participations at February 28,
1998 was $566,501.
(G) 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.
(H) 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
federal income tax regulations which may differ from GAAP. These
differences are due primarily to differences in the treatment of foreign
currency gains/losses, 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.
(I) 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.
(J) 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.
PAGE 15
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(K) OTHER. Investment transactions are recorded as of the trade date.
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 Travelers Group
Inc. ('Travelers'), to act as investment manager of each Fund, subject to the
supervision by the Board of Directors of the Institutional Series. The
management agreement with SBAM was most recently approved by shareholders at a
special meeting held on January 14, 1998. Approval of the agreement was
necessary due to the merger of Salomon Inc, which had been the ultimate parent
company of the investment manager, with and into Smith Barney Holdings Inc., a
subsidiary of Travelers, which occurred on November 28, 1997. Travelers is now
the ultimate parent company of the investment manager. 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 Fund's average
daily net assets: .50% for the High Yield Bond Fund and .70% for the Emerging
Markets Debt Fund.
For the year ended February 28, 1998, SBAM waived management fees of $32,193 and
$75,783 for the High Yield Bond Fund and Emerging Markets Debt Fund,
respectively, and voluntarily absorbed expenses of $192,736 and $205,872 for the
High Yield Bond Fund and Emerging Markets Debt Fund, respectively.
Investors Bank & Trust Company ('IBT') serves as custodian and administrator for
each Fund, which includes performing certain administrative services in
connection with the operation of each Fund.
3. CAPITAL STOCK
At February 28, 1998, the Institutional Series had 10,000,000,000 shares of
authorized capital stock, par value $.001 per share. Transactions in Fund shares
for the periods indicated were as follows:
For the Year Ended February 28, 1998.
<TABLE>
<CAPTION>
HIGH EMERGING
YIELD MARKETS
BOND FUND DEBT FUND
--------- ---------
<S> <C> <C>
Shares sold........................................................ 2,215,772 2,206,977
Shares issued as reinvestment...................................... 95,040 341,053
Shares redeemed.................................................... 558,020 1,094,258
--------- ---------
Net increase....................................................... 1,752,792 1,453,772
--------- ---------
--------- ---------
</TABLE>
For the Period Ended February 28, 1997.
<TABLE>
<CAPTION>
HIGH EMERGING
YIELD MARKETS
BOND FUND DEBT FUND
--------- ---------
<S> <C> <C>
Shares sold........................................................ 1,041,101 868,547
Shares issued as reinvestment...................................... 26,445 11,716
Shares redeemed.................................................... 479,972 314,303
--------- ---------
Net increase....................................................... 587,574 565,960
--------- ---------
--------- ---------
</TABLE>
PAGE 16
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. PORTFOLIO ACTIVITY
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, for the year ended February 28, 1998, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
High Yield Bond Fund........................................... $22,220,771 $11,757,325
----------- -----------
----------- -----------
Emerging Markets Debt Fund..................................... $60,702,312 $55,422,291
----------- -----------
----------- -----------
</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 market 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.
In connection with purchasing participations, the Fund generally will have no
right to enforce compliance by 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, the 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 the participation, the 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.
PAGE 17
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
6. TAX INFORMATION
At February 28, 1998, the 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 NET
AGGREGATE UNREALIZED UNREALIZED UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
High Yield Bond Fund........................ $16,823,435 $230,090 $121,988 $108,102
Emerging Markets Debt Fund.................. 11,698,632 436,801 43,272 393,529
</TABLE>
During the year ended February 28, 1998, as permitted under Federal income tax
regulations, the Emerging Markets Debt Fund had elected to defer $71,325 of
Post-October net foreign currency losses and $411,687 of Post-October net
capital losses to the next taxable year.
At February 28, 1998, undistributed net investment income and accumulated net
realized gain (loss) on investments have been adjusted for current period
book/tax differences which arose principally from differing book/tax treatments
of foreign currency transactions. The Emerging Markets Debt Fund and High Yield
Bond Fund reclassified $80,071 and $6,702, respectively, from undistributed net
investment income to accumulated net realized gain (loss) on investments. Net
investment income, net realized gain on investments and net assets were not
affected by these reclassifications.
PAGE 18
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
FINANCIAL HIGHLIGHTS
SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING MARKETS
HIGH YIELD BOND FUND DEBT FUND
---------------------------- ----------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28
1998 1997(a) 1998 1997(b)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 11.13 $ 10.00 $ 10.91 $ 10.00
------------ ------------ ------------ ------------
Net investment income........................... 1.51 0.57 1.69 0.35
Net gain (loss) on investments (both realized
and unrealized)............................... (0.34) 0.93 (0.27) 0.78
------------ ------------ ------------ ------------
Total from investment operations........... 1.17 1.50 1.42 1.13
------------ ------------ ------------ ------------
Dividends from net investment income............ (1.66) (0.36) (1.77) (0.20)
Distributions from net realized gain on
investments................................... (0.97) (0.01) (3.35) (0.02)
------------ ------------ ------------ ------------
Total dividends and distributions.......... (2.63) (0.37) (5.12) (0.22)
------------ ------------ ------------ ------------
Net asset value, end of period....................... $ 9.67 $ 11.13 $ 7.21 $ 10.91
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net assets, end of period (thousands)................ $ 22,664 $ 6,575 $ 14,596 $ 6,211
Total return*........................................ +11.1% +15.1% +14.6% +11.4%
Ratios to average net assets:
Expenses........................................ 0.55% 0.55%** 0.75% 0.75%**
Net investment income........................... 9.10% 9.36%** 8.53% 8.94%**
Portfolio turnover rate.............................. 189% 151% 549% 136%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned from and fees
waived by the custodian, net investment income per
share and expense ratios would have been:
Net investment income per share................. $ 0.93 $ 0.29 $ 1.18 $ 0.08
Expense ratio................................... 4.03% 5.22%** 3.34% 7.57%**
</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.
* 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.
See accompanying notes to financial statements.
PAGE 19
<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 and Salomon Brothers Institutional Emerging Markets Debt
Fund (constituting Salomon Brothers Institutional Series Funds Inc, hereafter
referred to as the 'Fund') at February 28, 1998, 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 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 February 28, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
April 20, 1998
PAGE 20
<PAGE>
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SHAREHOLDER VOTING RESULTS AND FEDERAL TAX NOTICE
(UNAUDITED)
- --------------------------------------------------------------------------------
The Funds held a Special Meeting of Stockholders on January 14, 1998. The
following table provides information concerning the matter voted on at the
meeting:
Approval of new management contract between SBAM and the Funds.
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAINED
---------- -------------- ----------------
<S> <C> <C> <C>
Institutional High Yield Bond Fund................................. 382,206 0 0
Institutional Emerging Markets Debt Fund........................... 439,594 0 0
</TABLE>
Federal Tax Notice
For the year ended February 28, 1998, the High Yield Bond Fund distributed
long-term capital gains totaling $4,121, all of which are 20% long-term capital
gains.
See accompanying notes to financial statements.
PAGE 21
<PAGE>
<PAGE>
TELEPHONE
1-888-777-0102, TOLL FREE
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
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
DIVIDEND DISBURSING AND TRANSFER AGENT
FIRST DATA INVESTOR SERVICES GROUP, INC.
53 STATE STREET
BOSTON, MASSACHUSETTS 02109-2873
LEGAL COUNSEL
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
- ----------------------------------------------------------
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
--------------------------------------------------------------------
