<PAGE>
Salomon Brothers
Institutional
Series Funds Inc
Semi-Annual Report
AUGUST 31, 1999
High Yield Bond Fund
Emerging Markets Debt Fund
- ------------------------------------------
Salomon Brothers Asset Management
-----------------------------------------
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
- --------------------------------------------------------------------------------
September 23, 1999
To Our Shareholders:
We are pleased to provide you with the semi-annual report for the Salomon
Brothers Institutional High Yield Bond Fund and the Salomon Brothers
Institutional Emerging Markets Debt Fund for the period ended August 31, 1999.
HIGH YIELD BOND FUND
The Salomon Brothers Institutional High Yield Bond Fund seeks to maximize total
return by investing primarily in a portfolio of high-yield fixed income
securities. For the six month period ended August 31, 1999, the Fund generated a
negative 1.63% return versus a positive 0.13% return for the Salomon Smith
Barney High-Yield Market Index. From the Fund's inception (May 15, 1996) to
date, the High Yield Bond Fund has performed below the benchmark with a
cumulative rate of return of 25.89% versus a 28.79% cumulative rate of return
for the Index.
The U.S. high yield market returned 0.13% for the six months ended August 31,
1999, as reported by the Salomon Smith Barney High-Yield Market Index. While
benefiting from a strong economy, the high yield market suffered from the
following:
1. a back-up in U.S. Treasuries due to concern about rising inflation;
2. slowing mutual fund inflows;
3. a heavy new issue calendar;
4. a reduction in broker/dealer liquidity and
5. a rise in default rates, especially among marginal commodity
producers.
The period began with concerns that a weak recovery in Asia and recession in
Latin America would trigger a slowdown in the U.S. economy. However, stronger
than expected economic growth in the U.S. economy drove robust performance in
the high yield market in the first few months of the period. In the latter part
of the period, the continued growth of the U.S. economy led to concerns about
rising inflation, which caused interest rates to trend higher and put pressure
on the high yield market. Additionally, continuing issues with liquidity and a
poor technical environment further constrained the high yield market in the
latter part of the period, forcing the high yield market to retrace much of its
earlier gains.
For the six months ended August 31, 1999, the high yield market's top performers
included: energy, metals/mining and paper & forest products, all of which were
driven by a sustained recovery in commodities prices; the less cyclical gaming
and consumer products/tobacco sectors; and telecommunications, airlines and
banking. The worst performers included: healthcare, due to the industry's
troubles with the recently imposed Medicare reimbursement system; housing &
related and lodging/leisure, which were adversely impacted by interest rate and
cyclical concerns; textile/apparel, which continued to suffer from cheaper
imports; transportation (non-airlines), which suffered from industry
overcapacity; and automotive, chemicals and cable & media. In terms of credit
quality, the B credit tier, which returned a negative 0.29%, was outperformed by
BB and CCC issues with returns of negative 0.14% and 4.40%, respectively, as
investors benefited from a rally in depressed CCC securities early in the period
and moved into larger, higher quality, more liquid BB issues later in the
period.
The High Yield Bond Fund underperformed the Salomon Smith Barney High-Yield
Market Index primarily as a result of underweightings in energy, metals/mining,
paper & forest products and telecommunications. The High Yield Bond Fund was
also hurt by an overweighting in chemicals and
PAGE 1
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B-rated bonds and the underperformance of selected credits. However, the High
Yield Bond Fund benefited from underweightings in healthcare, textile/apparel
and lodging/leisure and overweightings in gaming and consumer products/tobacco.
On August 31, 1999, the high yield market was yielding 11.13% up from 10.33% at
February 28, 1999. The excess yield over Treasuries was 5.21%, 12 basis points
wider to 5.09% at the beginning of the period.
EMERGING MARKETS DEBT FUND
The Salomon Brothers Institutional Emerging Markets Debt Fund seeks to maximize
total return through primarily investing in debt of government related and
corporate issuers located in emerging market countries. For the six month period
ending August 31, 1999, the Fund produced a return of 13.33%, outperforming the
JP Morgan Emerging Markets Bond Index Plus ('EMBI+') which returned 10.70% for
the period.
The Federal Reserve Board ('Fed') raised interest rates by 50 basis points
during the first half of the Fund's fiscal year in response to the ongoing
strength of the U.S. economy. The process of anticipating these two 25 basis
point rate increases has influenced bond market investors worldwide and has
impacted emerging markets debt. The Fed has emphasized its commitment to price
stability and its governors have made a number of public speeches outlining
their concerns. This high profile approach on the part of the Fed has increased
the bond market's focus on the U.S. economy and the outlook for increases in
rates.
Emerging markets debt has performed well in this environment, returning 10.70%
for the six months ended August 31, 1999 as measured by the EMBI+. Volatility
has declined as overall trading volumes have contracted. The performance of the
Index has been skewed with Russia, Brazil and Venezuela dominating returns for
the first six months of the Fund's fiscal year.
The following is a brief description of developments in these key countries over
the past six months:
Russia. The country continues to work with the International Monetary Fund
('IMF') on an expanded financing package. An IMF spokesman indicated the IMF's
pleasant surprise regarding the status of Russia's macroeconomic reforms. On the
political front, Kremlin intrigue continues as the Duma elections in December
and the presidential election in June 2000 approach. Prime Minister Stepashin
was fired by President Yeltsin and replaced by Vladimir Putin, the fifth Russian
Prime Minister in 17 months. Allegations of money laundering in the private
sector have raised questions concerning misuse of IMF aid money by the public
sector. These political issues will likely keep volatility in Russia high over
the next few months.
Brazil. Brazil's recovery from the effects of its January currency devaluation
continues to be impressive. Brazil has exceeded the fiscal targets outlined in
its IMF agreement for the first six months of 1999. In addition, unemployment
and inflation levels have exceeded projections and underscore the progress
Brazil is making in reforming its economy. The most compelling evidence of
Brazil's progress in 1999 is the change in the overnight borrowing rate set by
the Central Bank. In an effort to stabilize the currency and prevent an
inflationary spike, the Central Bank set the overnight rate at 45% after the
devaluation in January. That rate has been gradually reduced over the ensuing
months. The current overnight borrowing rate is 19.5%. Brazil continues to have
an ambitious structural reform agenda which includes changes to the taxation and
social security schemes. Despite recent political noise, the working
relationship between the administration and congress remains intact and we
expect further positive developments on these important initiatives in the
fourth quarter.
Venezuela. The presidential race in November resulted in a landslide victory for
Hugo Chavez, who won 56% of the vote. This was the largest victory in 15 years,
a clear mandate for change. Although a controversial figure prior to the
election, Chavez seems to be softening his views with regard to a major shift in
economic policy, indicating that he is a proponent of continuing a dialogue with
the IMF and the current 'shadow program.' The Constituent Assembly, a key
element of President Chavez's plan to reform the Venezuelan political system,
was elected in July. In a stunning development, 91% of
PAGE 2
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the seats were won by allies of President Chavez. The agenda for the Assembly
revolves around the drafting of a new Constitution for Venezuela. The initial
draft of the Constitution is expected to be available in late October 1999. This
document will have important implications for the future of external capital
investment in Venezuela. We believe the political agenda will take precedence
over any economic issues during the balance of 1999 as the new Constitution is
reviewed and ratified. Oil prices at current levels are giving Venezuela the
economic flexibility to address the Constitutional changes.
Ecuador. In a development with potentially negative implications for all
emerging markets, Ecuador announced that it would delay a $96 million coupon
payment on its Brady bonds due on August 31, 1999. In addition, Ecuador also
announced plans to restructure its $6 billion of Brady debt outstanding. Any
restructuring is expected to take considerable time and involve a number of
important parties including the Ecuadorian government and congress, the IMF and
international investors. It is too early to make a definite determination of
value in Ecuador until a firm restructuring proposal is presented.
Our outlook for emerging markets debt is positive based upon the current spread
level of 1,100 basis points over Treasuries. The economic rebound in Asia and
the apparent bottoming of the recession in many Latin American countries points
to an improving macroeconomic environment for emerging countries. We expect the
market to remain volatile but believe that we are being well compensated for
this price risk at current spread levels.
We thank you for your participation in the Salomon Brothers Institutional Series
Funds Inc and look forward to helping you pursue your financial goals in the
years to come.
Cordially,
<TABLE>
<S> <C>
HEATH B. MCLENDON PETER J. WILBY
HEATH B. MCLENDON PETER J. WILBY
Chairman & President Executive Vice President
JAMES E. CRAIGE BETH A. SEMMEL
JAMES E. CRAIGE BETH A. SEMMEL
Executive Vice President Executive Vice President
</TABLE>
PAGE 3
<PAGE>
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND
The following graph depicts the performance of the Institutional High Yield Bond
Fund ('Fund') versus the Salomon Smith Barney High-Yield Market Index
('Index').* It is important to note that the 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.
COMPARISON OF A $10,000 INVESTMENT IN THE
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND TO THE
SALOMON SMITH BARNEY HIGH-YIELD MARKET INDEX
(UNAUDITED)
<TABLE>
<CAPTION>
SB SALOMON SMITH BARNEY
INSTITUTIONAL HIGH YIELD
HIGH YIELD MARKET
BOND FUND INDEX
------------ --------------------
<S> <C> <C>
5/16/96 $10,000 $10,000
8/96 10,370 10,170
2/97 11,511 11,081
8/97 12,278 11,751
2/98 12,791 12,602
8/98 12,395 12,105
2/99 12,798 12,764
8/31/99 12,590 12,781
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
% RETURN
--------
<S> <C>
Six months ended 8/31/99'D'................................. (1.63)%
Year ended 8/31/99.......................................... 1.57
Commencement of operations (5/15/96) through 8/31/99........ 7.24
CUMULATIVE TOTAL RETURN
Commencement of operations (5/15/96) through 8/31/99........ 25.89%
</TABLE>
* The Salomon Smith Barney 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 August 31, 1999, the Index
returns are for the period June 1, 1996 through August 31, 1999.
Past performance is not predictive of future performance.
- ------------------------
The average annual total returns reflect reinvestment of dividends and/or
capital gains distributions in additional shares.
During the six months ended August 31, 1999, the Fund's investment adviser
waived a portion of its management fees, as shown in the following unaudited
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.
'D' Total return is not annualized, as it may not be representative of the total
return for the year.
PAGE 4
<PAGE>
SALOMON BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND
The following graph depicts the performance of the Salomon Brothers
Institutional Emerging Markets Debt Fund ('Fund') versus the J.P. Morgan
Emerging Markets Bond Index Plus ('Index')*. It is important to note that the
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.
COMPARISON OF A $10,000 INVESTMENT IN THE
SALOMON BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND TO THE
J.P. MORGAN EMERGING MARKETS BOND INDEX PLUS
(UNAUDITED)
<TABLE>
<CAPTION>
SB JP MORGAN
INSTITUTIONAL EMERGING
EMERGING MARKETS MARKETS
DEBT BOND INDEX
FUND PLUS
----------------- ----------
<S> <C> <C>
10/17/96 $10,000 $10,000
2/97 11,139 11,055
8/97 12,384 12,094
2/98 12,766 12,267
8/98 7,444 8,483
2/99 9,808 9,998
8/31/99 11,116 11,067
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
% RETURN
--------
<S> <C>
Six months ended 8/31/99'D'................................. 13.33%
Year ended 8/31/99.......................................... 49.33
Commencement of operations (10/17/96) through 8/31/99....... 3.75
CUMULATIVE TOTAL RETURN
Commencement of operations (10/17/96) through 8/31/99....... 11.16%
</TABLE>
* The J.P. Morgan Emerging Markets Bond Index is a total return index that
tracks the traded market for U.S. dollar dominated Brady and other similar
sovereign restructured bonds traded in emerging markets.
Past performance is not predictive of future performance.
- ------------------------
The average annual total returns reflect reinvestment of dividends and/or
capital gains distributions in additional shares.
During the six months ended August 31, 1999, the Fund's investment adviser
waived a portion of its management fees, as shown in the following unaudited
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.
'D' Total return is not annualized, as it may not be representative of the total
return for the year.
PAGE 5
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS (UNAUDITED)
AUGUST 31, 1999
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
------ -------- -----
<S> <C> <C>
CORPORATE BONDS -- 95.3%
BASIC INDUSTRIES -- 11.1%
$150,000 AEI Resource Holdings Inc., 10.500% due 12/15/05(a)......... $ 135,000
100,000 Berry Plastics Corp., 12.250% due 4/15/04................... 105,000
500,000 Blount Inc., 13.000% due 8/1/09............................. 512,500
250,000 EnviroSource Inc., 9.750% due 6/15/03....................... 160,000
500,000 Equistar Chemicals LP, 8.750% due 2/15/09................... 497,500
250,000 Huntsman Packaging Corp., 9.125% due 10/1/07................ 239,375
250,000 Indesco International Inc., 9.750% due 4/15/08.............. 167,188
500,000 Lyondell Chemical Co., 9.875% due 5/1/07.................... 503,750
250,000 Mattress Discounters Co., 12.625% due 7/15/07(a)............ 241,250
250,000 Millar Western Forest Products, 9.875% due 5/15/08.......... 238,750
250,000 Murrin Murrin Holdings Property, 9.375% due 8/31/07......... 225,625
250,000 P&L Coal Holdings Corp., 9.625% due 5/15/08................. 245,625
250,000 PCI Chemicals Canada Inc., 9.250% due 10/15/07.............. 180,000
250,000 Premier International Foods PLC, 12.000% due 9/1/09(a)...... 252,500
250,000 United Industries Corp., 9.875% due 4/1/09(a)............... 220,000
500,000 Winsloew Furniture, Inc., 12.750% due 8/15/07(a)............ 492,500
-----------
4,416,563
-----------
CONSUMER CYCLICALS -- 7.7%
250,000 Archibald Candy Corp., 10.250% due 7/1/04................... 248,750
Cole National Group, Inc.:
250,000 9.875% due 12/31/06....................................... 215,000
250,000 8.625% due 8/15/07........................................ 200,000
475,000 Finlay Fine Jewelry Corp., 8.375% due 5/1/08................ 458,969
424,000 Guitar Center Management, 11.000% due 7/1/06................ 440,430
250,000 HMH Properties, 7.875% due 8/1/08........................... 225,625
500,000 Maxim Group Inc., Series B, 9.250% due 10/15/07............. 425,000
Musicland Group Inc.:
250,000 9.000% due 6/15/03........................................ 245,000
250,000 9.875% due 3/15/08........................................ 242,500
250,000 Prime Hospitality Corp., 9.750% due 4/1/07.................. 242,500
125,000 Simmons Co., 10.250% due 3/15/09(a)......................... 123,750
-----------
3,067,524
-----------
CONSUMER NON-CYCLICALS -- 20.6%
500,000 AmeriServ Foods Co., 8.875% due 10/15/06.................... 430,000
200,000 Anchor Advanced Products, Inc., Series B, 11.750% due
4/1/04.................................................... 198,000
200,000 Derby Cycle Corp., 10.000% due 5/15/08...................... 161,500
500,000 French Fragrances Inc., Series B, 10.375% due 5/15/07....... 505,000
100,000 Graham-Field Health Products, Inc., 9.750% due 8/15/07...... 62,500
250,000 Harrah's Operating Co. Inc., 7.875% due 12/15/05............ 237,500
125,000 Hines Horticulture Inc., 11.750% due 10/15/05............... 133,281
500,000 Hollywood Park Inc., 9.250% due 2/15/07..................... 490,000
500,000 Home Interiors & Gifts, Inc., 10.125% due 6/1/08............ 482,500
250,000 Imperial Holly Corp., 9.750% due 12/15/07................... 235,000
500,000 Isles of Capri Casinos, 8.750% due 4/15/09(a)............... 465,000
500,000 Jafra Cosmetics International Inc., 11.750% due 5/1/08...... 442,500
250,000 Lear Corp., 8.110% due 5/15/09(a)........................... 244,688
250,000 Maxxim Medical, Inc., 10.500% due 8/1/06.................... 263,750
250,000 North Atlantic Trading Co., 11.000% due 6/15/04............. 248,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 6
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
AUGUST 31, 1999
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
------ -------- -----
<S> <C> <C>
CONSUMER NON-CYCLICALS -- 20.6% (CONTINUED)
$500,000 Park Place Entertainment, 7.875% due 12/15/05............... $ 471,250
250,000 Pennzoil Co., 10.250% due 11/1/05........................... 256,875
Pueblo Xtra International Inc.:
250,000 9.500% due 8/1/03......................................... 220,000
250,000 Series C, 9.500% due 8/1/03............................... 218,750
500,000 Republic Technologies International, 13.750% due
7/15/09(a)................................................ 492,500
375,000 Revlon Consumer Products Corp., 8.625% due 2/1/08........... 313,125
150,000 Revlon Worldwide Corp., zero coupon due 3/15/01............. 89,250
500,000 Sequa Corp., 9.000% due 8/01/09............................. 493,125
500,000 Sun International Hotels Ltd., 9.000% due 3/15/07........... 490,000
375,000 Universal Hospital Services, Inc., 10.250% due 3/1/08....... 288,750
250,000 Windmere-Durable Holdings, Inc., 10.000% due 7/31/08........ 245,000
-----------
8,178,594
-----------
DATA TECHNOLOGY/INFORMATION SERVICES -- 1.1%
100,000 DecisionOne Holdings Corp., zero coupon until 8/1/02,
11.500% thereafter due 8/1/08(b)(c)(d).................... 750
500,000 Jordan Telecom Corp., zero coupon until 8/1/00,
11.750% thereafter due 4/1/09(a).......................... 424,375
-----------
425,125
-----------
ENERGY -- 2.1%
250,000 Costilla Energy Inc., 10.250% due 10/1/06(b)(d)............. 76,250
250,000 Frontier Oil Corp., 9.125% due 2/15/06...................... 238,750
250,000 TransAmerican Energy Corp., 11.500% due 6/15/02(b)(d)....... 30,625
500,000 Western Gas Resources, Inc., 10.000% due 6/15/09(a)......... 510,000
-----------
855,625
-----------
FINANCIAL/LEASING -- 4.4%
500,000 Airplanes Pass-Through Trust, 10.875% due 3/15/19........... 477,435
250,000 Avis Rent A Car, Inc., 11.000% due 5/1/09(a)................ 257,500
250,000 Capline Corp., 7.875% due 4/1/08............................ 237,813
ContiFinancial Corp.:
250,000 7.500% due 3/15/02........................................ 90,000
625,000 8.375% due 8/15/03........................................ 225,000
125,000 8.125% due 4/1/08......................................... 45,000
250,000 DVI Inc., 9.875% due 2/1/04................................. 241,250
250,000 Nationwide Credit Inc., 10.250% due 1/15/08................. 158,750
-----------
1,732,748
-----------
HOUSING RELATED -- 1.3%
500,000 Panolam Industries International, 11.500% due 2/15/09....... 515,000
-----------
MANUFACTURING -- 11.8%
349,000 Alvey Systems Inc., 11.375% due 1/31/03..................... 354,235
250,000 American Axle & Manufacturing Inc., 9.750% due 3/1/09....... 252,500
500,000 Axiohm Transaction Solutions, Inc., 9.750% due 10/1/07...... 250,000
250,000 BE Aerospace, Inc., 9.500% due 11/1/08...................... 254,375
375,000 Breed Technologies Inc., 9.250% due 4/15/08(b)(d)........... 18,750
500,000 Cabot Safety-Kleen Corp., 12.500% due 7/15/05............... 540,625
250,000 Federal-Mogal Corp., 7.500% due 1/15/09(a).................. 230,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 7
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
AUGUST 31, 1999
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
------ -------- -----
<S> <C> <C>
MANUFACTURING -- 11.8% (CONTINUED)
$500,000 Foamex LP, 9.875% due 6/15/07............................... $ 440,000
500,000 Hexcel Corp., 9.750% due 1/15/09............................ 470,000
250,000 High Voltage Engineering Corp., 10.500% due 8/15/04......... 233,750
125,000 International Utility Structures Inc., 10.750% due 2/1/08... 117,500
375,000 Jackson Products Inc., 9.500% due 4/15/05................... 345,000
500,000 JH Heafner Co., 10.000% due 5/15/08......................... 485,000
500,000 Motors & Gears Inc., 10.750% due 11/15/06................... 493,750
250,000 Stellex Industries Inc., 9.500% due 11/1/07................. 192,500
-----------
4,677,985
-----------
MEDIA -- 21.5%
Adelphia Communications Corp.:
200,000 10.500% due 7/15/04....................................... 210,000
250,000 9.875% due 3/1/07......................................... 255,000
250,000 Big Flower Press Holdings, 8.625% due 12/1/08............... 233,750
725,000 Charter Communications Holdings Inc., zero coupon until
4/1/04, 9.920% thereafter due 4/1/11(a)................... 435,000
500,000 Classic Cable Inc., 9.375% due 8/1/09(a).................... 487,500
500,000 CSC Holdings Inc., 9.875% due 2/15/13....................... 512,500
500,000 Energis PLC, 9.750% due 6/15/09............................. 510,000
500,000 Falcon Holding Group LP, Series B, zero coupon until
4/15/03, 9.285% thereafter due 4/15/10(a)................. 347,500
250,000 Frontiervision Operating Partners, 11.000% due 10/15/06..... 268,125
375,000 Granite Broadcasting Corp., 8.875% due 5/15/08.............. 360,000
250,000 GST Telecommunications, Inc., zero coupon until 5/1/03,
10.500% thereafter due 5/1/08(a).......................... 142,500
Hollinger International Publishing:
100,000 9.250% due 2/1/06......................................... 100,250
337,000 9.250% due 3/15/07........................................ 338,685
250,000 ICG Holdings Inc., zero coupon until 9/15/00,
13.500% thereafter due 9/15/05............................ 220,000
250,000 Intermedia Communications Inc., 8.600% due 6/1/08........... 223,750
250,000 LIN Television Corp., 8.375% due 3/1/08..................... 236,875
250,000 Mastec Inc., 7.750% due 2/1/08.............................. 236,250
250,000 Metronet Communications, zero coupon until 6/15/03,
9.950% thereafter due 5/15/08............................. 191,250
375,000 Mediacom LLC, 8.500% due 4/15/08............................ 349,688
Nextel Communications, Inc.:
250,000 9.750% due 8/15/04........................................ 250,000
250,000 Zero coupon until 10/31/02, 9.750% thereafter due
10/31/07................................................ 176,250
500,000 NTL Inc., zero coupon until 2/1/01, 11.500% thereafter due
2/1/06.................................................... 432,500
500,000 Orange PLC, 8.750% due 6/1/06(a)............................ 496,250
250,000 Rogers Communications, Inc., 8.875% due 7/15/07............. 254,375
400,000 Telewest Communications PLC, zero coupon until 10/1/00,
11.000% thereafter due 10/1/07............................ 353,000
750,000 United International Holdings, zero coupon until 2/15/03,
10.750% thereafter due 2/15/08............................ 435,000
750,000 Viatel Inc., zero coupon until 4/15/03, 12.500% thereafter
due 4/15/08............................................... 465,000
-----------
8,520,998
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 8
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
AUGUST 31, 1999
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
------ -------- -----
<S> <C> <C>
SERVICES - OTHER -- 9.5%
$250,000 Allied Waste Industries, Inc., 10.000% due 8/1/09(a)........ $ 242,500
250,000 American Business Information, 9.500% due 6/15/08........... 214,375
250,000 DynCorp, 9.500% due 3/1/07.................................. 249,063
250,000 Integrated Electrical Services, Inc., 9.375% due 2/1/09..... 247,500
250,000 Iron Mountain Inc., 10.125% due 10/1/06..................... 260,313
500,000 Kindercare Learning Centers, Inc., 9.500% due 2/15/09....... 480,000
250,000 Loomis Fargo & Co., 10.000% due 1/15/04..................... 250,625
250,000 Pierce Leahy Corp., 11.125% due 7/15/06..................... 271,250
750,000 Primark Corp., 9.250% due 12/15/08.......................... 735,000
500,000 Protection One Alarm, 8.125% due 1/15/09(a)................. 360,000
250,000 Safety-Kleen Services, 9.250% due 6/1/08.................... 248,125
250,000 Sitel Corp., 9.000% due 3/15/06............................. 214,689
-----------
3,773,440
-----------
TRANSPORTATION -- 4.2%
250,000 Atlantic Express Transportation, 10.750% due 2/1/04......... 245,000
250,000 Coach USA Inc., 9.375% due 7/1/07........................... 261,875
375,000 Continental Airlines, Inc., 8.000% due 12/15/05............. 349,688
250,000 Enterprises Shipholding Corp., 8.875% due 5/1/08............ 170,000
500,000 Holt Group, 9.750% due 1/15/06.............................. 337,500
250,000 Stena AB, 10.500% due 12/15/05.............................. 250,620
100,000 TFM S.A., zero coupon until 6/15/02, 11.750% thereafter due
6/15/09................................................... 54,250
-----------
1,668,933
-----------
TOTAL CORPORATE BONDS
(Cost-- $41,480,849)........................................ 37,832,535
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C>
PREFERRED STOCK -- 0.0%
ENERGY -- 0.0%
TCR Holding(b):
439 Class B..................................................... 26
241 Class C..................................................... 14
636 Class D..................................................... 34
1,316 Class E..................................................... 83
-----------
TOTAL PREFERRED STOCK
(Cost-- $157)............................................... 157
-----------
CONVERTIBLE PREFERRED STOCK -- 0.3%
MEDIA -- 0.3%
3,068 Viatel Inc.(e)
(Cost-- $27,599)............................................ 118,693
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 9
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
AUGUST 31, 1999
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
------ -------- -----
<S> <C> <C>
REPURCHASE AGREEMENT -- 4.4%
$1,738,000 State Street Bank, 5.408% due 9/1/99; Proceeds at
maturity-- $1,738,261; (Fully collateralized by U.S.
Treasury Bonds, 7.250% due 5/15/16;
Market value-- $1,775,025) (Cost-- $1,738,000).............. $ 1,738,000
-----------
TOTAL INVESTMENTS -- 100%
(Cost-- $43,246,605*)....................................... $39,689,385
-----------
-----------
</TABLE>
- ------------------------
(a) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(b) Non-income producing security.
(c) Security issued with attached warrants.
(d) Currently in default.
(e) Payment-in-kind security for which all of the dividend earned is paid by
the issuance of additional stock.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 10
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
AUGUST 31, 1999
SALOMON BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT(a) SECURITY VALUE
- --------- -------- -----
<S> <C> <C>
SOVEREIGN BONDS -- 82.5%
ARGENTINA -- 17.2%
Republic of Argentina:
529,597ARS BOCON Pro 1, 2.769% due 4/1/07(b)......................... $ 333,218
1,100,000 Discount FRN, Series L-GL, 6.000% due 3/31/23(b).......... 748,687
162,750 FRB, 5.937% due 3/31/05(b)................................ 138,947
1,100,000 FRN, 11.447% due 4/10/05(b)............................... 946,000
Global Bonds:
600,000 11.000% due 12/4/05.................................... 549,000
2,000,000ARS 11.750% due 2/12/07.................................... 1,607,500
1,725,000 11.750% due 4/7/09..................................... 1,591,312
1,000,000 12.125% due 2/25/19.................................... 932,500
-----------
6,847,164
-----------
BRAZIL -- 16.6%
Federal Republic of Brazil:
5,198,817 C Bond, 8.000% due 4/15/14(c)............................. 3,124,166
525,000 Discount Bond, Series ZL, 5.875% due 4/15/14(b)........... 314,344
4,400,000 DCB Series L, 5.938% due 4/15/12(b)....................... 2,508,000
1,000,000 NMB Series L, 5.938% due 4/15/09(b)....................... 657,500
-----------
6,604,010
-----------
BULGARIA -- 4.2%
Republic of Bulgaria:
875,000 Discount Bond, Series A, 6.500% due 7/28/24(b)............ 590,625
1,800,000 FLIRB, Series A, 2.750% due 7/28/12(b).................... 1,093,500
-----------
1,684,125
-----------
COLOMBIA -- 5.6%
Republic of Colombia:
400,000 FRN, 7.270% due 6/15/03(b)................................ 339,400
400,000 FRN, 12.471% due 8/13/05(b)............................... 350,000
400,000 FRN, 9.750% due 4/23/09(b)................................ 323,500
Global Bonds:
100,000 7.250% due 2/15/03..................................... 87,000
1,000,000 10.875% due 3/9/04..................................... 955,000
250,000 8.375% due 2/15/27..................................... 162,500
-----------
2,217,400
-----------
COSTA RICA -- 0.8%
400,000 Banco Central Costa Rica, Series B, 6.250% due 5/21/15...... 336,000
-----------
CROATIA -- 3.3%
Republic of Croatia, FRN:
1,300,000 Series A, 6.456% due 7/31/10(b)........................... 1,020,500
346,177 Series B, 6.456% due 7/31/06(b)........................... 282,134
-----------
1,302,634
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 11
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
AUGUST 31, 1999
SALOMON BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT(a) SECURITY VALUE
- --------- -------- -----
<S> <C> <C>
ECUADOR -- 2.7%
3,400,000 Republic of Ecuador, Par Bond, 4.000% due 2/28/25(b)........ $ 1,079,500
-----------
IVORY COAST -- 1.4%
Republic of Ivory Coast:
1,125,000 FLIRB, 2.000% due 3/29/18(b).............................. 272,813
981,250 PDI Bond, 2.000% due 3/29/18(b)........................... 299,281
-----------
572,094
-----------
MEXICO -- 4.0%
United Mexican States:
400,000 Discount Series A, 5.875% due 12/31/19 (including 615,000
rights)................................................... 332,860
1,250,000 Global Bond, 10.375% due 2/17/09.......................... 1,263,125
-----------
1,595,985
-----------
PANAMA -- 1.8%
1,000,000 Republic of Panama, IRB, 4.000% due 7/17/14(b).............. 715,625
-----------
PERU -- 4.3%
Government of Peru:
2,300,000 FLIRB, 3.750% due 3/7/17(b)............................... 1,167,250
900,000 PDI Bond, 4.500% due 3/7/17(b)............................ 523,688
-----------
1,690,938
-----------
PHILIPPINES -- 2.9%
1,225,000 Republic of the Philippines, Global Bond, 9.875% due
1/15/19................................................... 1,159,156
-----------
POLAND -- 3.3%
650,000 Republic of Poland, Par Bond, 3.000% due 10/27/24(b)........ 381,875
725,000 RSTA Bond, 4.000% due 10/27/24(b)........................... 464,000
500,000 TPSA Finance, 7.750% due 12/10/08........................... 478,125
-----------
1,324,000
-----------
RUSSIA -- 3.8%
2,800,000 Russian Ministry of Finance, Global Bond, 12.750% due
6/24/28................................................... 1,515,500
-----------
SOUTH KOREA -- 0.3%
45,000 Export-Import Bank of Korea, Global Bond, 6.500% due
2/10/02................................................... 43,331
75,000 Korea Development Bank, Global Bond, 7.900% due 2/1/02...... 75,274
-----------
118,605
-----------
VENEZUELA -- 10.3%
Republic of Venezuela:
Global Bond:
2,025,000 13.625% due 8/15/18.................................... 1,701,000
2,450,000 9.250% due 9/15/27..................................... 1,482,250
1,500,000 Par Bond, Series A, 6.750% due 3/31/20 (including 7,500
rights)................................................... 915,000
-----------
4,098,250
-----------
TOTAL SOVEREIGN BONDS
(Cost -- $33,178,234)....................................... 32,860,986
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 12
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
AUGUST 31, 1999
SALOMON BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT(a) SECURITY VALUE
- --------- -------- -----
<S> <C> <C>
LOAN PARTICIPATIONS(d) -- 14.1%
ALGERIA -- 4.1%
The People's Democratic Republic of Algeria:
679,544 Tranche 1, 6.000% due 9/4/06, (Chase Manhattan Bank)(b)... $ 455,295
450,000 Tranche 3, 6.000% due 9/4/06, (Chase Manhattan Bank)(b)... 288,000
918,180 Tranche A, 6.750% due 3/4/00, (Chase Manhattan Bank)(b)... 886,045
-----------
1,629,340
-----------
MOROCCO -- 3.0%
1,478,153 Kingdom of Morocco, Tranche A, 5.781% due 1/1/09
(BankBoston, Chase Manhattan Bank, J.P. Morgan, ING
Securities)(b)............................................ 1,193,610
-----------
RUSSIA -- 7.0%
20,900,000 Russian Government, Principal Loan, 5.969% due 12/15/20
(Bank of America, Chase Manhattan Bank, Goldman Sachs, ING
Securities, J.P. Morgan)(e)............................... 2,801,250
-----------
TOTAL LOAN PARTICIPATIONS
(Cost -- $4,709,142)........................................ 5,624,200
-----------
<CAPTION>
SHARES
------
<S> <C> <C>
WARRANTS(f) -- 1.4%
ARGENTINA -- 0.0%
1,500 Republic of Argentina, Warrants (Exercise Price of 93.30%
plus accrued interest per 1,000 bonds, expiring on
12/3/99).................................................. 6,375
-----------
MEXICO -- 1.4%
7,144 United Mexican States, Warrants (Exchangeable into Mexican
Global Bonds, expiring on 2/18/00)........................ 528,656
-----------
TOTAL WARRANTS
(Cost -- $338,188).......................................... 535,031
-----------
<CAPTION>
CONTRACTS
---------
<S> <C> <C>
PURCHASED OPTIONS(f) -- 0.3%
13,500 Hong Kong Dollar Put, expires on 1/20/00, exercise at
$7.8025................................................... 81,850
9,000 Hong Kong Dollar Put, expires on 1/26/00, exercise at
$7.8165................................................... 39,780
-----------
TOTAL PURCHASED OPTIONS (Cost -- $186,585).................. 121,630
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 13
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
AUGUST 31, 1999
SALOMON BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
-------- -------------- -----
<S> <C> <C>
REPURCHASE AGREEMENT -- 1.7%
$ 678,000 State Street Bank, 5.260% due 9/1/99; Proceeds at maturity --
$678,098; (Fully Collateralized by U.S. Treasury Bonds, 7.250%
due 5/15/16; Market value -- $747,495)(Cost -- $678,000)....... $ 678,000
-----------
TOTAL INVESTMENTS -- 100%
(Cost -- $39,090,149*)...................................... $39,819,847
-----------
-----------
</TABLE>
- ------------------------
(a) Principal denominated in U.S. dollars unless otherwise indicated.
(b) Interest rate shown reflects current rate on instruments with variable rate
or step coupon rate.
(c) Payment-in-kind security for which all or part of the interest earned is
paid by the issuance of additional bonds.
(d) Participation interest was acquired through the financial institutions
indicated parenthetically.
(e) Currently in default.
(f) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in this statement:
ARS -- Argentinian Peso.
BOCON -- Bonos De Consolidacion.
DCB -- Debt Conversion Bonds.
FLIRB -- Front-Loaded Interest Reduction Bonds.
FRB -- Floating Rate Bonds.
FRN -- Floating Rate Notes.
IRB -- Interest Reduction Bond.
NMB -- New Money Bond.
PDI -- Past Due Interest.
RSTA -- Revolving Short-Term Agreement.
TPSA -- Telkomunkacja Polska SA.
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 14
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
AUGUST 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING
HIGH YIELD MARKETS
BOND FUND DEBT FUND
--------- ---------
<S> <C> <C>
ASSETS:
Investments, at value (Cost -- $43,246,605 and
$39,090,149, respectively)........................... $39,689,385 $39,819,847
Cash................................................... 315 822
Interest receivable.................................... 798,082 1,379,122
Receivable for securities sold......................... -- 6,794,354
Deferred organization costs............................ 21,722 27,136
Prepaid expenses....................................... 2,542 2,530
----------- -----------
TOTAL ASSETS........................................... 40,512,046 48,023,811
----------- -----------
LIABILITIES:
Management fees payable................................ 8,166 18,879
Accrued expenses....................................... 5,066 19,680
----------- -----------
TOTAL LIABILITIES...................................... 13,232 38,559
----------- -----------
TOTAL NET ASSETS............................................ $40,498,814 $47,985,252
----------- -----------
----------- -----------
NET ASSETS:
Par value of capital shares............................ $ 4,789 $ 8,552
Capital paid in excess of par value.................... 42,994,674 53,230,430
Undistributed net investment income.................... 2,212,374 2,926,886
Accumulated net realized loss on investments........... (1,155,803) (8,910,314)
Net unrealized appreciation (depreciation) on
investments.......................................... (3,557,220) 729,698
----------- -----------
TOTAL NET ASSETS............................................ $40,498,814 $47,985,252
----------- -----------
----------- -----------
SHARES OUTSTANDING.......................................... 4,789,243 8,552,246
----------- -----------
----------- -----------
NET ASSET VALUE, PER SHARE.................................. $8.46 $5.61
----------- -----------
----------- -----------
</TABLE>
Authorized shares of 10,000,000,000 for the Institutional Series Funds, with a
par value of $0.001.
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 15
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED AUGUST 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING
HIGH YIELD MARKETS
BOND FUND DEBT FUND
--------- ---------
<S> <C> <C>
INCOME:
Interest............................................... $ 1,922,405 $ 2,502,885
----------- -----------
EXPENSES:
Management fees (Note 2)............................... 97,869 140,360
Audit fees............................................. 13,336 8,316
Registration fees...................................... 12,503 8,392
Administration fees (Note 2)........................... 9,787 11,356
Amortization of deferred organization costs............ 6,497 6,497
Shareholder communications............................. 6,078 3,678
Directors' fees........................................ 3,906 3,906
Custody................................................ 3,870 8,820
Legal.................................................. 3,288 2,604
Other.................................................. 6,920 4,534
----------- -----------
TOTAL EXPENSES......................................... 164,054 198,463
Less: Management fee waiver (Note 2)................... (56,301) (48,065)
----------- -----------
NET EXPENSES........................................... 107,753 150,398
----------- -----------
NET INVESTMENT INCOME....................................... 1,814,652 2,352,487
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3):
Realized Gain (Loss) From Security Transactions
(excluding short-term securities):
Proceeds from sales.................................... 7,493,581 40,046,453
Cost of securities sold................................ (7,918,152) (38,938,029)
----------- -----------
NET REALIZED GAIN (LOSS).................................. (424,571) 1,108,424
----------- -----------
Change in Net Unrealized Appreciation (Depreciation)
of Investments:
Beginning of period.................................... (1,501,513) (178,749)
End of period.......................................... (3,557,220) 729,698
----------- -----------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION)...... (2,055,707) 908,447
----------- -----------
NET GAIN (LOSS) ON INVESTMENTS.............................. (2,480,278) 2,016,871
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS........... $ (665,626) $ 4,369,358
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 16
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 28, 1999
HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUGUST 31 FEBRUARY 28
--------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income.................................. $ 1,814,652 $ 2,225,924
Net realized loss...................................... (424,571) (745,282)
Increase in net unrealized depreciation................ (2,055,707) (1,609,615)
------------ ------------
DECREASE IN NET ASSETS FROM OPERATIONS................. (665,626) (128,973)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. -- (1,949,062)
Net realized gains..................................... -- (111,156)
------------ ------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS......................................... -- (2,060,218)
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares....................... 3,797,847 36,988,414
Net asset value of shares issued for reinvestment of
dividends............................................ -- 2,056,414
Cost of shares reaquired............................... -- (22,152,804)
------------ ------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS.... 3,797,847 16,892,024
------------ ------------
INCREASE IN NET ASSETS...................................... 3,132,221 14,702,833
NET ASSETS:
Beginning of period.................................... 37,366,593 22,663,760
------------ ------------
END OF PERIOD*......................................... $ 40,498,814 $ 37,366,593
------------ ------------
------------ ------------
*Includes undistributed net investment income of............ $2,212,374 $397,722
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 17
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 28, 1999
EMERGING MARKETS DEBT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUGUST 31 FEBRUARY 28
--------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income.................................. $ 2,352,487 $ 3,107,909
Net realized gain (loss)............................... 1,108,424 (9,546,894)
Increase (decrease) in net unrealized appreciation..... 908,447 (630,939)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS...... 4,369,358 (7,069,924)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. -- (2,596,533)
Net realized gains..................................... -- (401)
------------ ------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS......................................... -- (2,596,934)
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 5):
Proceeds from sale of shares........................... 14,156,109 31,958,146
Net asset value of shares issued for reinvestment of
dividends............................................ -- 2,594,879
Cost of shares reacquired.............................. (1,063,573) (8,959,144)
------------ ------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS.... 13,092,536 25,593,881
------------ ------------
INCREASE IN NET ASSETS...................................... 17,461,894 15,927,023
NET ASSETS:
Beginning of period.................................... 30,523,358 14,596,335
------------ ------------
END OF PERIOD*......................................... $ 47,985,252 $ 30,523,358
------------ ------------
------------ ------------
*Includes undistributed net investment income of............ $2,926,886 $574,399
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 18
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Salomon Brothers Institutional High Yield Bond Fund ('High Yield Bond Fund') and
Salomon Brothers Institutional Emerging Markets Debt Fund ('Emerging Markets
Debt Fund') are portfolios constituting the Salomon Brothers Institutional
Series Funds Inc ('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 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
the Fund are valued at amortized cost which approximates market value. If
the 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 the 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 takes 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 19
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 August 31, 1999
was $5,624,200.
(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) DEFERRED ORGANIZATION 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
Salomon Brothers Asset Management Inc ('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 20
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
(k) YEAR END TAX RECLASSIFICATIONS. The character of income and gains to be
distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. At February 28,
1999, reclassifications were made to the capital accounts of the High Yield
Bond Fund to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Net investment
income, net realized gains and net assets were not affected by this change.
(l) 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, a wholly-owned subsidiary of Salomon Smith Barney
Holdings Inc. ('SSBH'), 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 based on the following annual percentages of each Fund's average daily
net assets: 0.50% for the High Yield Bond Fund and 0.70% for the Emerging
Markets Debt Fund. SBAM also acts as the administrator of each Fund for which it
receives a fee calculated at an annual rate of 0.05% of each Fund's average
daily net assets. These fees are calculated daily and paid monthly.
For the six months ended August 31, 1999, SBAM waived management fees of $56,301
and $48,065 for the High Yield Bond Fund and Emerging Markets Debt Fund,
respectively.
3. PORTFOLIO ACTIVITY
For the six months ended August 31, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
EMERGING
HIGH YIELD MARKETS
BOND FUND DEBT FUND
--------- ---------
<S> <C> <C>
Purchases.......................................... $12,629,805 $49,572,885
----------- -----------
----------- -----------
Sales.............................................. $ 7,493,581 $40,046,453
----------- -----------
----------- -----------
</TABLE>
At August 31, 1999, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
<CAPTION>
EMERGING
HIGH YIELD MARKETS
BOND FUND DEBT FUND
--------- ---------
<S> <C> <C>
Gross unrealized appreciation....................... $ 373,826 $ 3,322,628
Gross unrealized depreciation....................... (3,931,046) (2,592,930)
----------- -----------
Net unrealized appreciation (depreciation).......... $(3,557,220) $ 729,698
----------- -----------
----------- -----------
</TABLE>
PAGE 21
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
4. 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 22
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
5. CAPITAL STOCK
At August 31, 1999, the Institutional Series had 10,000,000,000 shares of
authorized capital stock, par value $0.001 per share. Transactions in Fund
shares for the periods indicated were as follows:
For the Six Months Ended August 31, 1999:
<TABLE>
<CAPTION>
EMERGING
HIGH YIELD MARKETS
BOND FUND DEBT FUND
--------- ---------
<S> <C> <C>
Shares sold........................................... 442,807 2,581,133
Shares issued as reinvestment......................... -- --
Shares reacquired..................................... -- (191,826)
--------- ----------
Net increase.......................................... 442,807 2,389,307
--------- ----------
--------- ----------
</TABLE>
For the Year Ended February 28, 1999:
<TABLE>
<CAPTION>
EMERGING
HIGH YIELD MARKETS
BOND FUND DEBT FUND
--------- ---------
<S> <C> <C>
Shares sold........................................... 4,118,675 5,392,844
Shares issued as reinvestment......................... 243,651 530,921
Shares reacquired..................................... (2,359,589) (1,783,891)
---------- ----------
Net increase.......................................... 2,002,737 4,139,874
---------- ----------
---------- ----------
</TABLE>
6. CAPITAL LOSS CARRYFORWARDS
At February 28, 1999, the High Yield Bond Fund and the Emerging Markets Debt
Fund had, for Federal income tax purposes, approximately $112,000 and
$6,129,000, respectively, of capital loss carryforwards available to offset
future capital gains expiring on February 28, 2007. To the extent that these
carryforward losses are used to offset realized capital gains, it is probable
that the gains so offset will not be distributed.
PAGE 23
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
FINANCIAL HIGHLIGHTS
SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
FEBRUARY 28, EXCEPT WHERE NOTED:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD BOND FUND
-----------------------------------------
1999(a) 1999 1998 1997(b)
------- ---- ---- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................................ $ 8.60 $ 9.67 $ 11.13 $ 10.00
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.............................. 0.41 1.04 1.51 0.57
Net realized and unrealized gain (loss)............ (0.55) (1.05) (0.34) 0.93
------- ------- ------- -------
Total Income (Loss) From Operations.................. (0.14) (0.01) 1.17 1.50
------- ------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. -- (1.00) (1.66) (0.36)
Net realized gains................................. -- (0.06) (0.97) (0.01)
------- ------- ------- -------
Total Distributions.................................. -- (1.06) (2.63) (0.37)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD....................... $ 8.46 $ 8.60 $ 9.67 $ 11.13
------- ------- ------- -------
------- ------- ------- -------
NET ASSETS, END OF PERIOD (000S)..................... $40,499 $37,367 $22,664 $ 6,575
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN......................................... (1.6)%'DD' 0.1% 11.1% 15.1%'DD'
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... 0.55%'D' 0.55% 0.55% 0.55%'D'
Net investment income.............................. 9.38%'D' 8.80% 9.10% 9.36%'D'
PORTFOLIO TURNOVER RATE.............................. 21% 102% 189% 151%
Before waiver of management fee, expenses reimbursed
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................. $0.40 $0.94 $0.93 $0.29
Expense ratio................................... 0.85%'D' 1.39% 4.03% 5.22%'D'
</TABLE>
- ------------------------
(a) For the six months ended August 31, 1999 (unaudited).
(b) For the period from May 15, 1996 (inception date) to February 28, 1997.
'DD' Total return is not annualized, as it may not be representative of the
total return for the year.
'D' Annualized.
PAGE 24
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
FINANCIAL HIGHLIGHTS
SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
FEBRUARY 28, EXCEPT WHERE NOTED:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING MARKETS DEBT FUND
-----------------------------------------
1999(a) 1999 1998 1997(b)
------- ---- ---- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................................ $ 4.95 $ 7.21 $ 10.91 $ 10.00
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.............................. 0.33 0.62 1.69 0.35
Net realized and unrealized gain (loss)............ 0.33 (2.29) (0.27) 0.78
------- ------- ------- -------
Total Income (Loss) From Operations.................. 0.66 (1.67) 1.42 1.13
------- ------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. -- (0.59) (1.77) (0.20)
Net realized gains................................. -- (0.00)* (3.35) (0.02)
------- ------- ------- -------
Total Distributions.................................. -- (0.59) (5.12) (0.22)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD....................... $ 5.61 $ 4.95 $ 7.21 $ 10.91
------- ------- ------- -------
------- ------- ------- -------
NET ASSETS, END OF PERIOD (000S)..................... $47,985 $30,523 $14,596 $ 6,211
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN......................................... 13.3%'DD' (23.1)% 14.6% 11.4%'DD'
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... 0.75%'D' 0.75% 0.75% 0.75%'D'
Net investment income.............................. 11.85%'D' 13.61% 8.53% 8.94%'D'
PORTFOLIO TURNOVER RATE.............................. 109% 295% 549% 136%
Before waiver of management fee, expenses reimbursed
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................. $0.32 $0.59 $1.18 $0.08
Expense ratio................................... 1.00%'D' 1.50% 3.34% 7.57%'D'
</TABLE>
- ------------------------
(a) For the six months ended August 31, 1999 (unaudited).
(b) For the period from October 17, 1996 (inception date) to February 28, 1997.
* Amount represents less than $0.01 per share.
'DD' Total return is not annualized, as it may not be representative of the
total return for the year.
'D' Annualized.
PAGE 25
<PAGE>
SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
OTHER INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
Year 2000. The investment management services provided to the Fund by Salomon
Brothers Asset Management Inc. ('SBAM') depend in large part on the smooth
functioning of its computer systems. Many computer software systems in use today
cannot recognize the year 2000, but revert to 1900 or some other date, due to
the manner in which the dates were encoded or calculated. The capability of
these systems to recognize the year 2000 could have a negative impact on the
SBAM's provision of investment advisory services, including handling of
securities trades, pricing and account services. SBAM has advised the Fund that
it has been reviewing all of their computer systems and actively working on
necessary changes to its systems to prepare for the year 2000 and expects that
given the extensive testing which it is undertaking, its systems will be year
2000 compliant before such date. In addition, SBAM has been advised by certain
of the Fund's service providers that they are also in the process of modifying
their systems with the same goal. There can, however, be no assurance that SBAM
or any other service provider will be successful in achieving year 2000
compliance, or that interaction with other non-complying computer systems will
not impair services to the Fund at that time.
PAGE 26
<PAGE>
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<PAGE>
This Page Intentionally Left Blank
<PAGE>
TELEPHONE
1-888-777-0102, TOLL FREE
DISTRIBUTOR
CFBDS, Inc.
21 Milk Street
Boston, Massachusetts 02109-5408
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
Seven World Trade Center
New York, New York 10048
CUSTODIAN
PNC Bank, N.A.
200 Stevens Drive
Suit 440
Lester, Pennsylvania 19113
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
DIRECTORS
CHARLES F. BARBER
Consultant; formerly Chairman;
ASARCO Inc.
CAROL L. COLMAN
President, Colman Consulting Co., Inc.
DANIEL P. CRONIN
Vice President-General Counsel,
Pfizer International Inc.
HEATH B. MCLENDON
Chairman and President, Managing Director,
Salomon Smith Barney Inc.; President and Director,
SSB Citi Fund Management LLC and Travelers
Investment Adviser, Inc.; Chairman of Smith Barney
Strategy Advisers Inc.
OFFICERS
HEATH B. MCLENDON
Chairman and President
LEWIS E. DAIDONE
Executive Vice President
and Treasurer
JAMES E. CRAIGE
Executive Vice President
THOMAS K. FLANAGAN
Executive Vice President
MAUREEN O'CALLAGHAN
Executive Vice President
BETH A. SEMMEL
Executive Vice President
PETER J. WILBY
Executive Vice President
ANTHONY PACE
Controller
CHRISTINA T. SYDOR
Secretary
- ----------------------------------------------------------------------
Salomon Brothers Institutional Series Funds Inc
--------------------------------------------------------------------
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as................................... 'D'
The double dagger symbol shall be expressed as............................ 'DD'
