SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC, N-30D, 1999-04-29

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
N-30D, 1999-04-29

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<PAGE>

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
- --------------------------------------------------------------------------------

April 5, 1999

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 year ended February 28, 1999.

HIGH YIELD BOND FUND

During the first half of the fiscal year ended February 28, 1999, the high-yield
market was characterized by relative calm in both underlying credit quality and
market conditions. Market default statistics were consistent with 1997 and were
at historically low levels, characterizing reasonable credit quality for broad
sectors of the market. A large financing calendar - 691 new issues for the
year for a record totaling $138.9 billion - was comfortably absorbed by the
mutual fund inflows and asset allocations to high-yield by institutional
investors and structured finance investments. Credit spreads, or the yield
premium above U.S. Treasury bonds which the high-yield market pays, averaged
3.37% at February 1, 1998, and gradually widened to 3.74% at July 1, 1998, as
Treasury markets rallied. The average yield in the market widened from 8.95% to
9.23% during this period.

In August, extreme volatility hit the world's financial markets, including the
U.S. high-yield bond market. Precipitated by the inability of Russia to
refinance its local Treasury bills, a global 'flight to quality' ensued, with
investors exiting riskier asset classes and buying U.S. Treasury bonds. U.S.
equity markets, U.S. high-yield bonds, U.S. investment grade corporate bonds,
mortgage bonds, and most notably, emerging markets bonds, declined materially in
price.

At the same time, the high-yield market started to experience a significant
weakening in operating results and credit quality from the companies most
vulnerable to the global economic slowdown emanating from the Asian economic
crisis. Driven by global overcapacity and slackened demand, commodity prices
worldwide tumbled, severely affecting companies in the energy and oil services
sectors, paper and forest products, steel and other metals and chemicals.

The Federal Reserve Board ('Fed') finally intervened, slashing the Federal Funds
rate in September by 25 basis points and than twice more in October, for an
additional 50 basis points. Volatility subsided a great deal, restoring
liquidity and investor confidence in the financial markets. After two very slow,
almost dormant months for financing, better quality companies were able to
re-enter the market for financing, although commodity based cyclical companies
still faced difficulty.

Toward the end of the fiscal year ended February 28, 1999, the high-yield market
was performing relatively quite well, outperforming both U.S. Treasuries and the
emerging markets debt. The average yield and credit spread for the high-yield
market was 10.33% and 509 basis points at the end of the period, which was a
significant improvement from October bottoms, but still wider than a year ago.

The Salomon Brothers Institutional High Yield Bond Fund continued to upgrade
credit quality during fiscal year 1998 and maintained a low exposure to basic
industries, such as chemicals, paper and steel. While this benefited
performance, the Fund was hurt by its overweighting in energy and underweighting
in utilities.

Going forward, our focus in high-yield bond market will continue to be on
stronger credit quality companies and selected opportunities that are compelling
on a risk/reward basis.

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 fiscal year ended February 28, 1999, the Fund
posted a 0.05% net of fees return versus a 1.28% return for the

PAGE 1

Salomon Smith Barney High-Yield Market Index. From May 15, 1996 (commencement of
operations), to February 28, 1999, the Salomon Brothers Institutional High Yield
Bond Fund posted a 9.24% annualized return, versus a 9.58% annualized return for
the Salomon Smith Barney High-Yield Market Index.

EMERGING MARKETS DEBT FUND

During the year ended February 28, 1999, the emerging debt market experienced an
initial period of strength, extreme volatility mid-period, and a partial
recovery at the period's end. Much of the market's turmoil occurred in August,
when Russia's government defaulted on its domestic debt and devalued the ruble.
These developments caused a global flight to quality as investors reduced their
risk exposure worldwide. To illustrate August's volatility, the JP Morgan
Emerging Markets Bond Index Plus ('EMBI+') declined by 28.74%, the largest
monthly decline since the Index's inception. Moreover, spreads over U.S.
Treasuries widened to 1,563 basis points on August 27, ending the month at
1,524.

Over the remaining period for the fiscal year 1999, the market staged a partial
recovery due, in part, to monetary easing by the Fed and U.S. Congressional
approval of funding for the International Monetary Fund ('IMF'). The agreement,
as well as a reduction of forced selling by non-dedicated investors, caused the
market to rise from September through the end of the year. In January of 1999,
the market traded down due to concerns over Brazil's devaluation of its local
currency. Once again, this led investors to demand a higher risk premium from
emerging markets debt.

The sell-off in the emerging debt markets in 1998 was triggered by a variety of
events; some related to declines in fundamental creditworthiness and others
related to technical factors. Fundamentally, sovereign credit quality was
adversely affected by declining commodity prices throughout the year. This
resulted in lower fiscal revenues for many emerging market economies. In
addition, subsequent to the debt restructuring problems experienced by Asia in
1997, a significant decline in financing available to emerging market economies
developed, hindering many countries' abilities to finance short-term
obligations. This problem peaked in the aftermath of the Russian domestic debt
default. Additional selling pressure developed as leveraged investors were
forced to liquidate holdings in the face of margin calls.

By the end of the period, despite the market's turmoil in August and worries
stemming from Brazil's devaluation of its currency, global contagion was not as
severe as might have been expected. This relative calm was due to a number of
positive world events, including the Fed's monetary easing, Congressional
funding for the IMF and a reduction in leverage dedicated to credit risk
investments.

For the year ended February 28, 1999, out-performers in the emerging markets
included Poland, Panama, Morocco, Bulgaria, Argentina, Mexico and Peru.
Under-performers included Russia, Ecuador, Brazil and Venezuela.

The following is a brief description of each region's highlights over the past
year.

LATIN AMERICA

Argentina: Argentina's record of sound economic management served it well during
the turbulent markets of 1998. During this period, a credit facility from the
World Bank and Inter-American Development Bank ('IADB') was secured, totaling
U.S. $5.7 billion. Additionally, in October 1998, the government reopened its
global bond maturing in 2017, the first successful placement of emerging market
debt in the international capital market since July 1998. The Argentine economy
is vulnerable to the downturn in the Brazilian economy. Our concern over the
extent of the impact of the Brazilian slowdown has led us to underweight
Argentina.

Brazil: Brazil experienced a turbulent year culminating in the devaluation of
its currency in January 1999. The country is in the process of stabilizing its
currency while addressing its fiscal balance. Improvement in the fiscal balance
combined with lowering of domestic interest rates are needed to reduce the high
level of domestic debt. The Brazilian economy has been in a recession for the
past few months. We expect that a reduction in domestic interest rates will help
the economy recover in

PAGE 2

1999. We remained underweight in Brazil during fiscal year 1998. Currently, we
are monitoring the Brazilian economy for signs of recovery in 1999.

Colombia: Colombia's presidential election in June resulted in a victory for
Andres Pastrana. The new president is committed to fiscal reform and improved
relations with the U.S. Colombia's low level of external debt and the commitment
by Pastrana's administration to fiscal reform has led us to an overweight
position.

Ecuador: In May, Jamil Mahuad won Ecuador's presidential election on the first
ballot. Mahuad's ability to work with Congress to improve the fiscal deficit in
the aftermath of low oil prices and El Nino damage are the keys to improving
Ecuador's credit quality.

Mexico: Mexico remains a core position in our portfolio based upon its limited
need for new capital in 1999 as well as the country's reasonably comfortable
reserve levels (approximately U.S. $30 billion). The country has successfully
tapped international capital markets in early 1999 and remains one of the
strongest credits in emerging markets.

Peru: In March, Moody's Investors Service, Inc. ('Moody's') raised Peru's
sovereign debt ceiling to 'Ba3' from 'B2'. The move was based on the country's
fiscal progress, which included macroeconomic stabilization and high-average
rates of growth over the past several years. Its commitment to a sound fiscal
policy should allow Peru to successfully sustain a period of low international
commodity prices. For this reason, we maintained our overweight position during
the period.

Venezuela: Venezuela's presidential race in November resulted in a decisive
victory for Hugo Chavez. Although elected as a populist, Chavez has made some
early appointments to his economic team which seem pro-market. In addition, he
has indicated his willingness to continue the dialogue with the IMF and the
current 'shadow program'. We are somewhat discouraged by Moody's downgrading
Venezuela during the period (from 'Ba2' to 'B1') and continued troubles with the
privatization program. However, we remain overweight in Venezuela for several
reasons: Venezuela's capital needs in 1999 are relatively limited; Venezuela
retired some of their external debt with the proceeds of the 1997 oil boom; and
Venezuelan spreads are at historically wide levels versus other similarly rated
countries.

MIDDLE EAST/AFRICA

Ivory Coast: The Ivory Coast signed the long-awaited debt restructuring with the
London Club in March, which marked the completion of the Brady Bond program for
the country. Because of this positive development, we remain overweight in the
Ivory Coast.

Morocco: In March, both Moody's and Standard & Poor's Ratings Service
('Standard & Poor's') assigned Morocco first-time sovereign credit ratings:
Moody's rated Morocco 'Ba1', while Standard & Poor's assigned a rating of 'BB'.
According to the agencies, the ratings can be attributed to several factors,
including Morocco's ability to control its current account deficit, as well as
to attract foreign investors. Morocco's economic stability remains protected by
stable inflation, healthy external accounts and improved growth. Because of
this, we are overweight in Morocco.

EASTERN EUROPE

Bulgaria: In December, Moody's upgraded Bulgaria's foreign currency rating to
'B2' from 'B3', citing improved credit quality due to the election of a
reform-oriented government and establishment of a currency board. Separately,
the IMF approved the fourth tranche of a U.S. $510 million standby loan during
the period. We remain slightly overweight in Bulgaria, due to the country's
limited debt service requirements and its success in meeting all IMF fiscal
targets in 1998.

Russia: Russia began the period as EMBI+'s top monthly performer for March and
April of 1998. Returns began to decline later in the period as the market became
concerned about the sustainability of the ruble. In August, an inability to
roll-over maturing domestic debt forced the government to restructure all
domestic debt and devalue the ruble. These developments triggered a major
sell-off in Russian dollar denominated bond prices during the month, with prices
declining as much as 80%.

PAGE 3

Additionally, the IMF placed Russia's agreed U.S. $11.2 billion Extended Fund
Facility ('EFF') program on hold. The government is currently discussing a new
program with the IMF. Progress in the medium term looks likely; however, until
there are real signs that an effective economic program is being implemented, we
will remain cautious in Russia.

We continue to be optimistic with the prospects for continued strength in the
emerging debt market. It looks as if economic growth will turn positive this
year for Asia. This should help the global demand for emerging market exports.
We are also encouraged by Brazil's ability to capture the positive effects of
the devaluation -- mainly export competitiveness and lower interest
rates -- without capturing too many of the negatives. In addition, commodity
price gains appear to be sticking which should significantly improve government
revenues for most of the countries, as they are net commodity exporters. This
combination of events should help drive yields meaningfully below their current
level of more than 14%.

The Salomon Brothers Institutional Emerging Markets Debt Fund seeks to maximize
total return through primarily investing in fixed income securities of emerging
market countries. The Fund has focused its investments in Latin America, Eastern
Europe, the former Soviet Union, Asia and Africa. During the year ended
February 28, 1999, the net asset value of the Fund decreased from $7.21 per
share to $4.95 per share on February 28, 1999. In addition, income dividends
totalling $0.59 were paid during this period. Assuming these dividends were
reinvested through the purchase of additional shares of the Fund, the total rate
of return based on net asset value for the year ended February 28, 1999 was
negative 23.07%. During the same period, the EMBI+, a standard measure of return
for the emerging markets debt market returned negative 18.51%, while the Lipper
universe of emerging markets debt funds returned negative 23.97%.

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
Chairman & President Executive Vice President
</TABLE>

PAGE 4

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
(UNAUDITED)

[GRAPH]

* 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, 1999, the Index returns are
for the period June 1, 1996 through February 28, 1999.

Past performance is not predictive of future performance.

<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
% RETURN
--------
<S> <C>
Year ended 2/28/99................................................................ 0.05%
Commencement of operations (5/15/96) through 2/28/99.............................. 9.24
</TABLE>

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

The average annual total returns reflect reinvestment of dividends and/or
capital gains distributions in additional shares.

During its fiscal year ended February 28, 1999, 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 5

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
(UNAUDITED)

[GRAPH]

<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
% RETURN
--------

<S> <C>
Year ended 2/28/99................................................................ (23.07) %
Commencement of operations (10/17/96) through 2/28/99............................. (0.81)
</TABLE>

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.

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 6

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS
FEBRUARY 28, 1999
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------- ------------------------------------------------------------------------------------ -----------
<C> <S> <C>
CORPORATE BONDS -- 98.3%
BASIC INDUSTRIES -- 7.7%
$150,000 AEI Resources Holdings, 10.500% due 12/15/05........................................ $ 147,000
100,000 Berry Plastics, 12.250% due 4/15/04................................................. 106,500
435,000 EnviroSource, 9.750% due 6/15/03.................................................... 377,363
500,000 Equistar Chemical, 8.750% due 2/15/09............................................... 507,500
250,000 Huntsman Packaging, 9.125% due 10/1/07.............................................. 251,250
250,000 Indesco International, 9.750% due 4/15/08........................................... 224,375
500,000 ISP Holdings, 9.000% due 10/15/03................................................... 523,125
250,000 Millar Western Forest, 9.875% due 5/15/08........................................... 205,312
250,000 Murrin Murrin Holdings, 9.375% due 8/31/07.......................................... 223,750
250,000 PCI Chemicals Canada, 9.250% due 10/15/07........................................... 178,125
-----------
2,744,300
-----------
CONSUMER CYCLICALS -- 8.9%
250,000 Archibald Candy, 10.250% due 7/1/04................................................. 255,000
Cole National Group:
250,000 9.875% due 12/31/06............................................................... 257,500
250,000 8.625% due 8/15/07................................................................ 245,000
475,000 Finlay Fine Jewelry, 8.375% due 5/1/08.............................................. 447,094
424,000 Guitar Center Management, 11.000% due 7/1/06........................................ 450,500
250,000 HMH Properties, 7.875% due 8/1/08................................................... 240,000
500,000 Maxim Group, Series B, 9.250% due 10/15/07.......................................... 492,500
Musicland Group:
250,000 9.000% due 6/15/03................................................................ 251,250
250,000 9.875% due 3/15/08................................................................ 258,750
250,000 Prime Hospitality, 9.750% due 4/1/07................................................ 257,500
-----------
3,155,094
-----------
CONSUMER NON-CYCLICALS -- 21.2%
500,000 Ameriserv Food, 8.875% due 10/15/06................................................. 466,250
250,000 Anchor Advanced Products, Series B, 11.750% due 4/1/04.............................. 257,187
250,000 Derby Cycle, 10.000% due 5/15/08.................................................... 230,000
250,000 French Fragrances, Series B, 10.375% due 5/15/07.................................... 247,500
100,000 Graham-Field Health Products, 9.750% due 8/15/07.................................... 58,500
250,000 Harrahs Operating, 7.875% due 12/15/05.............................................. 250,000
125,000 Hines Horticulture, 11.750% due 10/15/05............................................ 136,875
500,000 Hollywood Park, 9.250% due 2/15/07.................................................. 499,375
500,000 Home Interiors & Gifts, 10.125% due 6/1/08.......................................... 506,250
250,000 Imperial Holly, 9.750% due 12/15/07................................................. 253,750
500,000 Jafra Cosmetics International, 11.750% due 5/1/08................................... 448,750
500,000 Jitney-Jungle Stores of America, 12.000% due 3/1/06................................. 555,000
250,000 Kinetic Concepts, Series B, 9.625% due 11/1/07...................................... 238,125
250,000 North Atlantic Trading, 11.000% due 6/15/04......................................... 255,000
70,000 Packaged Ice, 9.750% due 2/1/05..................................................... 71,662
500,000 Park Place Entertainment, 7.875% due 12/15/05....................................... 491,250
250,000 Prime Medical Services, 8.750% due 4/1/08........................................... 244,063
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 7

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 1999
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------- ------------------------------------------------------------------------------------ -----------
<C> <S> <C>
CONSUMER NON-CYCLICALS -- 21.2% (CONTINUED)
Pueblo Xtra International:
$250,000 9.500% due 8/1/03................................................................. $ 239,063
250,000 Series C, 9.500% due 8/1/03....................................................... 238,750
375,000 Revlon Consumer Products, 8.625% due 2/1/08......................................... 333,750
150,000 Revlon Worldwide, zero coupon due 3/15/01........................................... 81,750
250,000 SC International Services, 9.250% due 9/1/07........................................ 256,250
100,000 Shop-Vac, 10.625% due 9/1/03........................................................ 109,875
200,000 Stroh Brewery, 11.100% due 7/1/06................................................... 169,750
250,000 Sun International Hotels, 9.000% due 3/15/07........................................ 261,250
500,000 Universal Hospital Services, 10.250% due 3/1/08..................................... 447,500
250,000 Windmere-Durable Holdings, 10.000% due 7/31/08...................................... 227,188
-----------
7,574,663
-----------
DATA TECHNOLOGY/INFORMATION SERVICES -- 1.9%
250,000 Amphenol, 9.875% due 5/15/07........................................................ 260,000
100,000 DecisionOne Holdings, zero coupon until 8/1/02,
11.500% thereafter due 8/1/08(a)(b)............................................... 3,500
500,000 Jordan Telecommunication Products, zero coupon until 8/1/00,
11.750% thereafter due 8/1/07..................................................... 405,000
-----------
668,500
-----------
ENERGY -- 1.6%
250,000 Costilla Energy, 10.250% due 10/1/06................................................ 151,250
250,000 Dailey International, 9.500% due 2/15/08............................................ 126,250
250,000 Frontier Oil, 9.125% due 2/15/06.................................................... 234,688
250,000 TransAmerican Energy, 11.500% due 6/15/02........................................... 75,000
-----------
587,188
-----------
FINANCIAL/LEASING -- 3.3%
250,000 Airplanes Pass-Through Trust, 10.875% due 3/15/19................................... 250,000
250,000 Calpine, 7.875% due 4/1/08.......................................................... 253,750
ContiFinancial:
250,000 7.500% due 3/15/02................................................................ 157,264
125,000 8.125% due 4/1/08................................................................. 80,000
250,000 DVI, 9.875% due 2/1/04.............................................................. 244,687
250,000 Nationwide Credit, 10.250% due 1/15/08.............................................. 199,688
-----------
1,185,389
-----------
HOUSING RELATED -- 1.4%
500,000 Panolam Industries International, 11.500% due 2/15/09............................... 506,250
-----------
MANUFACTURING -- 15.9%
349,000 Alvey Systems, 11.375% due 1/31/03.................................................. 354,671
500,000 Axiohm Transaction Solutions, 9.750% due 10/1/07.................................... 467,500
250,000 BE Aerospace, 9.500% due 11/1/08.................................................... 265,625
375,000 Breed Technologies, 9.250% due 4/15/08.............................................. 191,250
500,000 Cabot Safety, 12.500% due 7/15/05................................................... 543,125
250,000 Federal-Mogul, 7.500% due 1/15/09................................................... 242,812
500,000 Foamex LP, 9.875% due 6/15/07....................................................... 500,625
500,000 Hexcel, 9.750% due 1/15/09.......................................................... 504,375
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 8

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 1999
SALOMON BROTHERS INSTITUTIONAL HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------- ------------------------------------------------------------------------------------ -----------
<C> <S> <C>
MANUFACTURING -- 15.9% (CONTINUED)
$250,000 High Voltage Engineering, 10.500% due 8/15/04....................................... $ 238,750
250,000 International Utility Structures, 10.750% due 2/1/08................................ 246,250
375,000 Jackson Products, 9.500% due 4/15/05................................................ 374,063
500,000 JH Heafner, 10.000% due 5/15/08..................................................... 510,625
500,000 Motors & Gears, 10.750% due 11/15/06................................................ 513,125
500,000 Polymer Group, 8.750% due 3/1/08.................................................... 502,500
250,000 Stellex Industries, 9.500% due 11/1/07.............................................. 217,812
-----------
5,673,108
-----------
MEDIA -- 24.1%
Adelphia Communications:
200,000 Series B, 10.500% due 7/15/04..................................................... 223,000
250,000 Series B, 9.875% due 3/1/07....................................................... 278,125
250,000 Avalon Cable of Michigan, 9.375% due 12/1/08........................................ 264,375
500,000 Carmike Cinemas, 9.375% due 2/1/09.................................................. 507,500
500,000 Emmis Communications, 8.125% due 3/15/09............................................ 501,250
500,000 Falcon Holding Group, Series B, zero coupon until 4/15/03,
9.285% thereafter due 4/15/10..................................................... 350,000
250,000 Frontiervision Operating Partners, 11.000% due 10/15/06............................. 281,875
375,000 Garden State Newspapers, Series B, 8.750% due 10/1/09............................... 383,437
375,000 Granite Broadcasting, 8.875% due 5/15/08............................................ 371,250
250,000 GST Telecom, zero coupon until 5/1/03, 10.500% thereafter due 5/1/08................ 118,750
Hollinger International Publishing:
100,000 9.250% due 2/1/06................................................................. 106,000
337,000 9.250% due 3/15/07................................................................ 357,220
250,000 ICG Holdings, zero coupon until 9/15/00, 13.500% thereafter due 9/15/05............. 216,875
250,000 Intermedia Communications, 8.600% due 6/1/08........................................ 235,625
250,000 LIN Television, 8.375% due 3/1/08................................................... 261,875
150,000 Marcus Cable, zero coupon until 6/15/00, 14.250% thereafter due 12/15/05............ 147,750
250,000 Mastec, 7.750% due 2/1/08........................................................... 243,750
375,000 Mediacom, 8.500% due 4/15/08........................................................ 388,125
250,000 Metronet Communications, zero coupon until 6/15/03,
9.950% thereafter due 6/15/08..................................................... 172,500
Nextel Communications:
250,000 9.750% due 8/15/04................................................................ 252,500
250,000 Zero coupon until 10/31/02, 9.750% thereafter due 10/31/07........................ 163,125
500,000 NTL, zero coupon until 2/1/01, 11.500% thereafter due 2/1/06........................ 431,250
250,000 Perry-Judd, 10.625% due 12/15/07.................................................... 261,250
500,000 Phoenix Color, 10.375% due 2/1/09................................................... 506,250
250,000 Rogers Communications, 8.875% due 7/15/07........................................... 262,500
400,000 Telewest Communications, zero coupon until 10/1/00,
11.000% thereafter due 10/1/07.................................................... 349,000
750,000 United International Holdings, zero coupon until 2/15/03,
10.750% thereafter due 2/15/08.................................................... 495,000
750,000 Viatel, zero coupon until 4/15/03, 12.500% thereafter due 4/15/08................... 453,750
-----------
8,583,907
-----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 9

<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------- ------------------------------------------------------------------------------------ -----------
<C> <S> <C>
SERVICES/OTHER -- 9.8%
$250,000 American Business Information, 9.500% due 6/15/08................................... $ 218,750
250,000 Dyncorp, 9.500% due 3/1/07.......................................................... 250,313
250,000 Integrated Electrical Services, 9.375% due 2/1/09................................... 254,375
500,000 Kindercare Learning, 9.500% due 2/15/09............................................. 503,750
250,000 Loomis Fargo, 10.000% due 1/15/04................................................... 247,500
250,000 Pierce Leahy, 11.125% due 7/15/06................................................... 276,875
750,000 Primark, 9.250% due 12/15/08........................................................ 760,313
500,000 Protection One Alarm, 8.125% due 1/15/09............................................ 507,500
250,000 Safety-Kleen Services, 9.250% due 6/1/08............................................ 261,250
250,000 Sitel, 9.250% due 3/15/06........................................................... 205,625
-----------
3,486,251
-----------
TRANSPORTATION -- 2.5%
250,000 Atlantic Express Transportation, 10.750% due 2/1/04................................. 257,500
250,000 Enterprises Shipholding, 8.875% due 5/1/08.......................................... 198,750
150,000 Holt Group, 9.750% due 1/15/06...................................................... 102,750
250,000 Stena AB, 10.500% due 12/15/05...................................................... 260,000
100,000 TFM, zero coupon until 6/15/02, 11.750% thereafter due 6/15/09...................... 52,750
-----------
871,750
-----------
TOTAL CORPORATE BONDS
(Cost -- $36,553,552)............................................................... 35,036,400
-----------
</TABLE>

<TABLE>
<CAPTION>
SHARES
- --------
<C> <S> <C>
PREFERRED STOCK -- 0.0%
ENERGY -- 0.0%
TCR Holding(c):
439 Class B........................................................................... 26
241 Class C........................................................................... 13
636 Class D........................................................................... 40
1,316 Class E........................................................................... 83
-----------
TOTAL PREFERRED STOCK
(Cost -- $157)...................................................................... 162
-----------
CONVERTIBLE PREFERRED STOCK -- 0.1%
MEDIA -- 0.1%
377 Viatel(c)(d)
(Cost -- $23,951)................................................................... 39,585
-----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 10

<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------- ---------------------------------------------------------------------------------- -----------
<C> <S> <C>
REPURCHASE AGREEMENT -- 1.6%
$578,000 State Street Bank, 4.730% due 3/1/99; Proceeds at maturity -- $578,226;
(Fully collateralized by U.S. Treasury Notes, 8.750% due 5/15/17;
Market value -- $592,350) (Cost -- $578,000).................................... $ 578,000
-----------
TOTAL INVESTMENTS -- 100%
(Cost -- $37,155,660*)............................................................ $35,654,147
-----------
-----------
</TABLE>

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

(a) Security issued with attached warrants.
(b) Income accrual discontinued subsequent to year end.
(c) Non-income producing security.
(d) 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 11

<TABLE>
<CAPTION>
FACE
AMOUNT(a) SECURITY VALUE
- --------- --------------------------------------------------------------------------------- -----------

<C> <S> <C>
SOVEREIGN BONDS -- 91.8%
ARGENTINA -- 16.9%
Republic of Argentina:
1,016,104ARS BOCON Pro l, 2.982% due 4/1/07(b).............................................. $ 628,085
600,000 FRN, 12.143% due 4/10/05(b).................................................... 534,000
Global Bonds:
2,250,000 11.000% due 12/4/05......................................................... 2,030,625
900,000ARS 11.750% due 2/12/07......................................................... 739,126
750,000 11.375% due 1/30/17......................................................... 681,563
-----------
4,613,399
-----------
BRAZIL -- 5.0%
Federal Republic of Brazil:
960,000 Bearer EI Bond, Series L, 6.125% due 4/15/06(b)................................ 601,248
1,400,000 Discount Bond, Series ZL, 6.125% due 4/15/24(b)................................ 777,000
-----------
1,378,248
-----------
BULGARIA -- 3.1%
Republic of Bulgaria:
875,000 Discount Bond, Series A, 5.875% due 7/28/24(b)................................. 615,213
400,000 FLIRB, Series A, 2.500% due 7/28/12(b)......................................... 241,000
-----------
856,213
-----------
COLOMBIA -- 5.2%
Republic of Colombia:
1,275,000 FRN, 10.986% due 8/13/05(b).................................................... 1,147,500
Global Bonds:
100,000 7.250% due 2/15/03.......................................................... 88,000
250,000 8.375% due 2/15/27.......................................................... 185,000
-----------
1,420,500
-----------
COSTA RICA -- 1.2%
400,000 Banco Central Costa Rica, Series B, 6.250% due 5/21/15........................... 325,000
-----------
CROATIA -- 3.4%
Republic of Croatia, FRN:
750,000 Series A, 5.813% due 7/31/10(b)................................................ 629,063
354,044 Series B, 5.813% due 7/31/06(b)................................................ 307,133
-----------
936,196
-----------
ECUADOR -- 3.5%
2,400,000 Republic of Ecuador, Par Bond, 3.500% due 2/28/25(b)............................. 959,400
-----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 12

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
SCHEDULES OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 1999
SALOMON BROTHERS INSTITUTIONAL EMERGING MARKETS DEBT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT(a) SECURITY VALUE
- --------- --------------------------------------------------------------------------------- -----------
<C> <S> <C>
IVORY COAST -- 1.2%
Republic of Ivory Coast:
325,000 FLIRB, 2.000% due 3/29/18(b)................................................... $ 87,750
740,625 PDI Bond, 2.000% due 3/30/18(b)................................................ 248,109
-----------
335,859
-----------
MEXICO -- 16.7%
United Mexican States:
1,600,000 Global Bond, 10.375% due 2/17/09............................................... 1,562,000
Par Bonds:
750,000 Series A, 6.250% due 12/31/19............................................... 562,013
3,250,000 Series B, 6.250% due 12/31/19............................................... 2,435,380
-----------
4,559,393
-----------
PANAMA -- 4.3%
1,550,000 Republic of Panama, IRB, 4.000% due 7/17/14(b)................................... 1,164,438
-----------
PERU -- 4.5%
Republic of Peru:
2,000,000 FLIRB, 3.250% due 3/7/17(b).................................................... 1,061,250
300,000 PDI Bond, 4.000% due 3/7/17(b)................................................. 176,400
-----------
1,237,650
-----------
PHILIPPINES -- 3.5%
Republic of the Philippines, Global Bonds:
250,000 8.750% due 10/7/16............................................................. 232,500
725,000 9.875% due 1/15/19............................................................. 720,469
-----------
952,969
-----------
POLAND -- 2.7%
375,000 RSTA Bond, 4.000% due 10/27/24(b)................................................ 260,625
500,000 TPSA Finance, 7.750% due 12/10/08................................................ 474,375
-----------
735,000
-----------
RUSSIA -- 5.0%
Russian Government:
IAN:
321,129 5.969% due 12/15/15......................................................... 34,923
Ministry of Finance, Global Bonds:
3,550,000 11.000% due 7/24/18......................................................... 847,563
1,725,000 12.750% due 6/24/28......................................................... 469,631
-----------
1,352,117
-----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 13

LOAN PARTICIPATIONS(c) -- 7.5%
ALGERIA -- 3.2%
The People's Democratic Republic of Algeria:
54,545 Tranche 1, 6.375% due 9/4/06, (Chase Manhattan Bank)(b)........................ 23,728
450,000 Tranche 3, 6.375% due 3/4/10, (Chase Manhattan Bank)(b)........................ 189,000
777,273 Tranche A, 7.188% due 3/4/00, (Chase Manhattan Bank)(b)........................ 652,910
-----------
865,638
-----------
MOROCCO -- 4.0%
1,405,952 Kingdom of Morocco, Tranche A, 6.063% due 1/1/09 (BankBoston,
Chase Manhattan Bank, J.P. Morgan, ING Securities)(b).......................... 1,104,551
-----------
RUSSIA -- 0.3%
1,275,000 Russian Government, Principal Loan, 5.969% due 12/15/20 (Bank of
America, Chase Manhattan Bank, Goldman Sachs, ING Securities,
J.P. Morgan)(d)................................................................ 90,844
-----------
TOTAL LOAN PARTICIPATIONS
(Cost -- $2,057,948)............................................................. 2,061,033
-----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 14

WARRANTS(e) -- 0.7%
<C> <S> <C>
ARGENTINA -- 0.2%
1,500 Republic of Argentina, Warrants (Exercise Price of 93.30% plus accrued
interest per 1,000 bonds, expiring on 12/3/99)................................. $ 43,500
-----------
MEXICO -- 0.5%
4,100 United Mexican States, Warrants (Exchangeable into Mexican Global Bonds, expiring
on 2/18/00).................................................................... 128,125
-----------
TOTAL WARRANTS
(Cost -- $167,211)............................................................... 171,625
-----------
TOTAL INVESTMENTS -- 100%
(Cost -- $27,520,516*)........................................................... $27,341,767
-----------
-----------
</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) Participation interest was acquired through the financial institutions
indicated parenthetically.
(d) Currently in default.
(e) Non-income producing securities.
* Aggregate cost for Federal income tax purposes is substantially the same.

Abbreviations used in this statement:

ARS -- Argentine Peso.
BOCON -- Bonos De Consolidacion.
DCB -- Debt Conversion Bonds.
FLIRB -- Front-Loaded Interest Reduction Bonds.
FRN -- Floating Rate Notes.
EI -- Eligible Interest.
IAN -- Interest Arrears Notes.
IRB -- Interest Reduction Bonds.
PDI -- Past Due Interest.
RSTA -- Revolving Short-Term Agreement
TPSA -- Telkomunikacja Polska SA

SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 15

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EMERGING
HIGH YIELD MARKETS
BOND FUND DEBT FUND
----------- ------------

<S> <C> <C>
ASSETS:
Investments, at value (Cost -- $37,155,660 and $27,520,516).............. $35,654,147 $ 27,341,767
Cash....................................................................... 847 30,984
Receivable for securities sold............................................. -- 2,323,149
Receivable for Fund shares sold............................................ 872,429 1,180,345
Interest receivable........................................................ 754,065 604,388
Receivable from investment manager......................................... 84,986 10,381
Deferred organization costs................................................ 28,219 33,633
Other...................................................................... -- 20,663
----------- ------------
TOTAL ASSETS............................................................... 37,394,693 31,545,310
----------- ------------

LIABILITIES:
Payable for securities purchased........................................... -- 898,486
Payable for Fund shares purchased.......................................... -- 77,364
Accrued expenses........................................................... 28,100 46,102
----------- ------------
TOTAL LIABILITIES.......................................................... 28,100 1,021,952
----------- ------------
TOTAL NET ASSETS................................................................ $37,366,593 $ 30,523,358
----------- ------------
----------- ------------

NET ASSETS:
Par value of capital shares................................................ $ 4,346 $ 6,163
Capital paid in excess of par value........................................ 39,197,270 40,140,283
Undistributed net investment income........................................ 397,722 574,399
Accumulated net realized loss on investments............................... (731,232) (10,018,738)
Net unrealized depreciation on investments................................. (1,501,513) (178,749)
----------- ------------
TOTAL NET ASSETS................................................................ $37,366,593 $ 30,523,358
----------- ------------
----------- ------------
SHARES OUTSTANDING.............................................................. 4,346,436 6,162,939
----------- ------------
----------- ------------
NET ASSET VALUE, PER SHARE...................................................... $8.60 $4.95
----------- ------------
----------- ------------
</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 16

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EMERGING
HIGH YIELD MARKETS
BOND FUND DEBT FUND
----------- ------------

<S> <C> <C>
INCOME:
Interest................................................................... $ 2,365,083 $ 3,279,137
----------- ------------

EXPENSES:
Custody and administration fees (Note 2)................................... 130,310 119,048
Management fees (Note 2)................................................... 126,508 159,813
Audit fees................................................................. 38,478 23,993
Printing................................................................... 13,794 6,534
Amortization of deferred organization costs................................ 12,680 12,680
Registration fees.......................................................... 9,282 3,383
Legal...................................................................... 8,349 5,082
Directors' fees............................................................ 7,623 7,623
Other...................................................................... 3,629 3,267
----------- ------------
TOTAL EXPENSES............................................................. 350,653 341,423
Less: Management fee waiver and expense reimbursement (Note 2)............. (211,494) (170,195)
----------- ------------
NET EXPENSES............................................................... 139,159 171,228
----------- ------------
NET INVESTMENT INCOME........................................................... 2,225,924 3,107,909
----------- ------------

REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales........................................................ 24,306,586 66,736,777
Cost of securities sold.................................................... (25,051,868) (76,283,671)
----------- ------------
NET REALIZED LOSS............................................................. (745,282) (9,546,894)
----------- ------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments:
Beginning of year.......................................................... 108,102 452,190
End of year................................................................ (1,501,513) (178,749)
----------- ------------
INCREASE IN NET UNREALIZED DEPRECIATION....................................... (1,609,615) (630,939)
----------- ------------
NET LOSS ON INVESTMENTS......................................................... (2,354,897) (10,177,833)
----------- ------------
DECREASE IN NET ASSETS FROM OPERATIONS.......................................... $ (128,973) $ (7,069,924)
----------- ------------
----------- ------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 17

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF CHANGES IN NET ASSETS
HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY
28,
1999 1998
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................... $ 2,225,924 $ 587,636
Net realized gain (loss)................................................. (745,282) 314,821
Increase in net unrealized depreciation.................................. (1,609,615) (125,232)
------------ -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS........................ (128,973) 777,225
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................................... (1,949,062) (572,322)
Net realized gains....................................................... (111,156) (380,672)
------------ -----------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS................ (2,060,218) (952,994)
------------ -----------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares......................................... 36,988,414 21,239,234
Net asset value of shares issued for reinvestment of dividends........... 2,056,414 945,321
Cost of shares reaquired................................................. (22,152,804) (5,919,811)
------------ -----------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS...................... 16,892,024 16,264,744
------------ -----------
INCREASE IN NET ASSETS........................................................ 14,702,833 16,088,975
NET ASSETS:
Beginning of year........................................................ 22,663,760 6,574,785
------------ -----------
END OF YEAR*............................................................. $ 37,366,593 $22,663,760
------------ -----------
------------ -----------
*Includes undistributed net investment income of.............................. $397,722 $134,910
------------ -----------
------------ -----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 18

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
EMERGING MARKETS DEBT FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY
28,
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................... $ 3,107,909 $ 927,845
Net realized gain (loss)................................................. (9,546,894) 920,411
(Increase) decrease in net unrealized depreciation....................... (630,939) 200,487
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS........................ (7,069,924) 2,048,743
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................................... (2,596,533) (869,966)
Net realized gains....................................................... (401) (1,682,804)
------------ ------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS................ (2,596,934) (2,552,770)
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 5):
Proceeds from sale of shares............................................. 31,958,146 18,263,159
Net asset value of shares issued for reinvestment of dividends........... 2,594,879 2,493,021
Cost of shares reacquired................................................ (8,959,144) (11,866,441)
------------ ------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS...................... 25,593,881 8,889,739
------------ ------------
INCREASE IN NET ASSETS........................................................ 15,927,023 8,385,712
NET ASSETS:
Beginning of year........................................................ 14,596,335 6,210,623
------------ ------------
END OF YEAR*............................................................. $ 30,523,358 $ 14,596,335
------------ ------------
------------ ------------
*Includes undistributed net investment income of.............................. $574,399 $63,023
------------ ------------
------------ ------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 19

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

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 20

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,
1999 was $2,061,033.

(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 21

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (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 payable monthly and 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.

For the year ended February 28, 1999, SBAM waived management fees of $126,508
and $159,813 for the High Yield Bond Fund and Emerging Markets Debt Fund,
respectively, and voluntarily reimbursed expenses of $84,986 and $10,382 for the
High Yield Bond Fund and Emerging Markets Debt Fund, respectively.

3. PORTFOLIO ACTIVITY

Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, for the year ended February 28, 1999 were as follows:

<TABLE>
<CAPTION>
EMERGING
HIGH YIELD MARKETS
BOND FUND DEBT FUND
----------- -----------

<S> <C> <C>
Purchases...................................................... $44,512,380 $91,727,029
----------- -----------
----------- -----------
Sales.......................................................... $24,306,586 $66,736,777
----------- -----------
----------- -----------
</TABLE>

At February 28, 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................................... $ 315,846 $ 935,489
Gross unrealized depreciation................................... (1,817,359) (1,114,238)
----------- -----------
Net unrealized depreciation..................................... $(1,501,513) $ (178,749)
----------- -----------
----------- -----------
</TABLE>

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.

PAGE 22

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

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.

5. CAPITAL STOCK

At February 28, 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 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>

PAGE 23

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

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 reacquired.................................................. (558,020) (1,094,258)
--------- ----------
Net increase....................................................... 1,752,792 1,453,772
--------- ----------
--------- ----------
</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 24

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
FINANCIAL HIGHLIGHTS
SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
FEBRUARY 28:
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
HIGH YIELD BOND FUND EMERGING MARKETS DEBT FUND
------------------------------- -------------------------------
1999 1998 1997(a) 1999 1998 1997(b)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR..................... $ 9.67 $ 11.13 $ 10.00 $ 7.21 $ 10.91 $ 10.00
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income................. 1.04 1.51 0.57 0.62 1.69 0.35
Net realized and unrealized gain
(loss)............................. (1.05) (0.34) 0.93 (2.29) (0.27) 0.78
------- ------- ------- ------- ------- -------
Total Income (Loss) From Operations..... (0.01) 1.17 1.50 (1.67) 1.42 1.13
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income................. (1.00) (1.66) (0.36) (0.59) (1.77) (0.20)
Net realized gains.................... (0.06) (0.97) (0.01) (0.00)* (3.35) (0.02)
------- ------- ------- ------- ------- -------
Total Distributions..................... (1.06) (2.63) (0.37) (0.59) (5.12) (0.22)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR............ $ 8.60 $ 9.67 $ 11.13 $ 4.95 $ 7.21 $ 10.91
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
NET ASSETS, END OF YEAR (000S).......... $37,367 $22,664 $ 6,575 $30,523 $14,596 $ 6,211
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
TOTAL RETURN............................ 0.1% 11.1% 15.1%'DD' (23.1)% 14.6% 11.4%'DD'
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................. 0.55% 0.55% 0.55%'D' 0.75% 0.75% 0.75%'D'
Net investment income................. 8.80% 9.10% 9.36%'D' 13.61% 8.53% 8.94%'D'
PORTFOLIO TURNOVER RATE................. 102% 189% 151% 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........................ $0.94 $0.93 $0.29 $0.59 $1.18 $0.08
Expense ratio...................... 1.39% 4.03% 5.22%'D' 1.50% 3.34% 7.57%'D'
</TABLE>

- ------------------------
(a) For the period from May 15, 1996 (inception date) to February 28, 1997.

(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

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 schedules 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, 1999, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as 'financial statements') are the responsibility of the 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, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP
New York, New York
April 20, 1999

PAGE 26

SALOMON BROTHERS INSTITUTIONAL SERIES FUNDS INC
TAX NOTICE (UNAUDITED)
- --------------------------------------------------------------------------------
For Federal tax purposes the Funds hereby designate for the fiscal year ended
February 28, 1999:

Total long-term capital gain distributions paid:

<TABLE>
<S> <C>
High Yield Bond Fund $111,156
Emerging Markets Debt Fund 401
</TABLE>

PAGE 27

This Page Intentionally Left Blank

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 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,
SSBC Fund Management Inc. 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
Assistant Controller

CHRISTINA T. SYDOR
Secretary

[LOGO]

Salomon Brothers
Institutional
Series Funds Inc

Annual Report

FEBRUARY 28, 1999

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

HIGH YIELD BOND FUND

EMERGING MARKETS DEBT FUND

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

[LOGO]

STATEMENT OF DIFFERENCES

The dagger symbol shall be expressed as .................................... 'D'
The double dagger symbol shall be expressed as ............................ 'DD'