UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 S FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-10407 INSTITUTIONAL PORTFOLIO - PRIME CASH RESERVES PORTFOLIO (formerly Institutional Reserves Portfolio) INSTITUTIONAL ENHANCED PORTFOLIO (Exact name of registrant as specified in charter) 125 Broad Street, New York, NY 10004 (Address of principal executive offices) (Zip code) Robert I. Frenkel, Esq. Smith Barney Fund Management LLC 300 First Stamford Place Stamford, CT 06902 (Name and address of agent for service) Registrant's telephone number, including area code: (800) 451-2010 Date of fiscal year end: AUGUST 31 Date of reporting period: FEBRUARY 29, 2004 ITEM 1. REPORT TO STOCKHOLDERS. The SEMI-ANNUAL Report to Stockholders is filed herewith.
Prime Cash Reserves Portfolio | |
S C H E D U L E O F I N V E S T M E N T S | February 29, 2004 |
(Unaudited) |
Principal | |||||
Amount | |||||
Issuer | (000’s omitted) | Value | |||
Certificates of Deposit (Yankee) — 7.3% | |||||
Bank America | |||||
1.10% due 3/15/04 | $ | 75,000 | $ | 75,000,000 | |
Toronto-Dominion | |||||
1.09% due 3/05/04 | 35,000 | 35,000,096 | |||
Wells Fargo Bank | |||||
1.05% due 3/01/04 | 75,000 | 75,000,000 | |||
WestDeutsche | |||||
Landesbank | |||||
1.11% due 3/02/04 | 75,000 | 75,000,000 | |||
260,000,096 | |||||
Commercial Paper — 76.1% | |||||
Amstel Funding Corp. | |||||
1.11% due 3/01/04 | 60,000 | 60,000,000 | |||
1.10% due 8/11/04 | 25,000 | 24,875,486 | |||
Aquinas Funding | |||||
1.11% due 6/03/04 | 49,700 | 49,555,953 | |||
Atlantis One | |||||
Funding Corp. | |||||
1.09% due 7/20/04 | 25,000 | 24,893,271 | |||
Atomium Funding Corp. | |||||
1.06% due 4/14/04 | 37,414 | 37,365,528 | |||
1.07% due 5/06/04 | 50,000 | 49,901,917 | |||
1.10% due 8/23/04 | 25,145 | 25,010,544 | |||
Blue Heron Funding V Ltd.* | |||||
1.12% due 2/23/05 | 75,000 | 75,000,000 | |||
Brahms Funding Corp | |||||
1.08% due 3/19/04 | 60,000 | 59,967,600 | |||
Bryant Park Funding LLC | |||||
1.05% due 3/30/04 | 57,202 | 57,153,616 | |||
CIT Group Inc.* | |||||
1.25% due 12/04/04 | 50,000 | 50,000,000 | |||
Credit Lyonnais | |||||
1.08% due 6/30/04 | 30,000 | 29,891,100 | |||
Crown Point Capital Co. | |||||
1.09% due 7/12/04 | 34,187 | 34,049,331 | |||
Depfa Bank Europe | |||||
1.09% due 8/23/04 | 50,000 | 49,735,069 | |||
Edison Asset Security | |||||
1.10% due 3/01/04 | 60,000 | 60,000,000 | |||
Eiffel Funding | |||||
1.06% due 5/28/04 | 25,000 | 24,935,222 | |||
Fenway Funding LLC | |||||
1.09% due 3/12/04 | 41,351 | 41,337,228 | |||
Galaxy Funding Inc. | |||||
1.13% due 5/05/04 | 50,000 | 49,897,986 | |||
Goldman Sachs Group* | |||||
1.21% due 9/20/04 | 75,000 | 75,000,000 | |||
Grampian Funding Ltd. | |||||
1.11% due 6/08/04 | 50,000 | 49,847,375 | |||
Grampian Funding LLC | |||||
1.10% due 8/03/04 | 50,000 | 49,763,194 |
HBOS Treasury | ||||
Services PLC | ||||
1.11% due 4/14/04 | 54,000 | 53,926,740 | ||
Hanover Funding Co. | ||||
1.05% due 4/22/04 | 50,000 | 49,924,167 | ||
Harwood Street | ||||
Funding LLC | ||||
1.08% due 3/18/04 | 39,125 | 39,105,046 | ||
1.11% due 3/18/04 | 37,559 | 37,539,313 | ||
Jupiter Sect | ||||
1.05% due 6/30/04 | 29,000 | 28,897,654 | ||
KFW International | ||||
Financing Inc. | ||||
1.01% due 4/30/04 | 50,000 | 49,915,833 | ||
K2 USA LLC* | ||||
1.06% due 2/28/05 | 75,000 | 74,992,561 | ||
Macquarie Bank Ltd. | ||||
1.09% due 5/28/04 | 23,750 | 23,687,010 | ||
1.10% due 6/17/04 | 12,117 | 12,077,196 | ||
1.10% due 7/07/04 | 24,000 | 23,906,560 | ||
Main Street | ||||
Warehouse LLC | ||||
1.10% due 3/05/04 | 60,000 | 59,992,667 | ||
1.09% due 3/30/04 | 60,000 | 59,947,316 | ||
Mica Funding LLC | ||||
1.07% due 5/24/04 | 50,000 | 49,875,167 | ||
Moat Funding LLC | ||||
1.09% due 7/14/04 | 50,000 | 49,795,625 | ||
Mortgage Interest | ||||
Network | ||||
1.10% due 3/26/04 | 70,000 | 69,946,528 | ||
Nieuw Amsterdam | ||||
Receivables | ||||
1.10% due 7/01/04 | 60,000 | 59,776,333 | ||
Nyala Funding LLC | ||||
1.15% due 4/15/04 | 50,000 | 49,928,125 | ||
Nyala Funding LLC, | ||||
1.08% due 4/15/04 | 60,000 | 59,755,200 | ||
Park Granada LLC | ||||
1.12% due 3/15/04 | 35,000 | 34,984,756 | ||
Perry Global Funding | ||||
1.12% due 3/04/04 | 61,177 | 61,171,290 | ||
1.07% due 6/01/04 | 41,830 | 41,715,618 | ||
Premier Asset* | ||||
1.05% due 12/15/04 | 45,000 | 44,989,200 | ||
1.07% due 2/15/05 | 50,000 | 49,995,154 | ||
Regency Markets LLC | ||||
1.05% due 5/20/04 | 50,000 | 49,883,333 | ||
Republic of Italy | ||||
1.09% due 7/27/04 | 8,800 | 8,760,566 | ||
Scaldis Cap Ltd. | ||||
1.13% due 6/21/04 | 27,293 | 27,197,050 | ||
1.13% due 6/23/04 | 34,333 | 34,210,145 | ||
1.12% due 8/10/04 | 30,162 | 30,009,984 |
14
Prime Cash Reserves Portfolio | ||||
S C H E D U L E O F I N V E S T M E N T S (Continued) | February 29, 2004 | |||
(Unaudited) |
Principal | |||||
Amount | |||||
Issuer | (000’s omitted) | Value | |||
Commercial Paper — (cont’d) | |||||
Sharp Electronics | |||||
1.03% due 3/30/04 | $ | 20,000 | $ | 19,983,406 | |
ST Germain Holdings | |||||
1.07% due 3/23/04 | 60,000 | 59,960,767 | |||
Sigma Finance Inc. | |||||
1.07% due 5/06/04 | 50,000 | 49,998,648 | |||
Stanfield Victoria | |||||
Finance Ltd. | |||||
1.09% due 3/10/04* | 40,000 | 40,000,000 | |||
1.09% due 7/29/04 | 21,600 | 21,501,900 | |||
Tango Finance Corp. | |||||
1.09% due 7/27/04 | 18,300 | 18,217,996 | |||
Tango Finance Corp Ltd. | |||||
1.12% due 8/06/04 | 20,000 | 19,901,689 | |||
Victory Receivables | |||||
Corp. | |||||
1.06% due 3/24/04 | 48,461 | 48,428,181 | |||
Westpac Capital Corp. | |||||
1.12% due 5/27/04 | 60,000 | 59,838,325 | |||
1.12% due 6/01/04 | 25,000 | 24,928,444 | |||
Whistlejacket Capital Ltd. | |||||
1.20% due 4/15/04 | 54,450 | 54,368,325 | |||
1.06% due 5/20/04* | 25,000 | 24,998,352 | |||
White Pine | |||||
Finance LLC* | |||||
1.07% due 6/07/04 | 50,158 | 50,011,901 | |||
2,706,224,491 | |||||
Master Notes — 3.2% | |||||
Merrill Lynch & Co. Inc.* | |||||
1.21% due 3/01/04 | 65,000 | 65,000,000 | |||
Morgan Stanley Dean | |||||
Witter & Co.* | |||||
1.26% due 3/01/04 | 50,000 | 50,000,000 | |||
115,000,000 | |||||
Time Deposits — 9.3% | |||||
Danske Corp | |||||
1.05% due 3/31/04 | 60,000 | 59,947,500 | |||
National City Bank | |||||
1.03% due 3/01/04 | 130,000 | 130,000,000 | |||
US Bank CIN | |||||
Grand Cayman | |||||
1.03% due 3/01/04 | 139,263 | 139,263,000 | |||
329,210,500 | |||||
US Gov’t Agency Discount Notes — 4.1% | |||||
Federal Home Loan Banks | |||||
1.16% due 6/04/04 | 43,000 | 42,871,776 | |||
1.01% due 6/08/04 | 52,000 | 51,855,570 | |||
Federal National | |||||
Mortgage Association | |||||
1.10% due 3/22/04 | 50,000 | 49,968,063 | |||
144,695,409 | |||||
Total Investments, at | |||||
Amortized Cost | 100.0 | % | 3,555,130,496 | ||
Other Assets, | |||||
Less Liabilities | 0.0 | 558,956 | |||
Net Assets | 100.0 | % | $ | 3,555,689,452 | |
See notes to financial statements | |||||
* Variable interest rate—subject to periodic change. |
15
Prime Cash Reserves Portfolio | ||
S T A T E M E NT O F A S S E T S A N D L I A B I L I T I E S | ||
February 29, 2004 (Unaudited) | ||
Assets: | ||
Investments, at amortized cost (Note 1A) | $ | 3,555,130,496 |
Cash | 311 | |
Interest receivable | 1,081,920 | |
Total assets | 3,556,212,727 | |
Liabilities: | ||
Management fees payable (Note 2) | 209,643 | |
Accrued expenses and other liabilities | 313,632 | |
Total liabilities | 523,275 | |
Net Assets | $ | 3,555,689,452 |
Represented by: | ||
Paid-in capital for beneficial interests | $ | 3,555,689,452 |
See Notes to financial statements |
16
Prime Cash Reserves Portfolio | ||||||
S T A T E M E N T O F O P E R A T I O N S | ||||||
For the Six Months Ended February 29, 2004 (Unaudited) | ||||||
Investment Income (Note 1B) | $ | 18,433,426 | ||||
Expenses: | ||||||
Management fees (Note 2) | $ | 1,655,834 | ||||
Custody and fund accounting fees | 320,689 | |||||
Trustees’ fees | 47,875 | |||||
Legal fees | 27,205 | |||||
Audit fees | 10,667 | |||||
Miscellaneous | 3,515 | |||||
Total expenses | 2,065,785 | |||||
Less: aggregate amounts waived by the Manager (Note 2) | (410,699 | ) | ||||
Less: fees paid indirectly (note 1F) | (195 | ) | ||||
Net expenses | 1,654,891 | |||||
Net investment income | $ | 16,778,535 | ||||
See notes to financial statements |
17
Prime Cash Reserves Portfolio | |||||||
S T A T E M E N T O F C H A N G E I N N E T A S S E T S | |||||||
Six Months Ended | |||||||
February 29, 2004 | Year Ended | ||||||
(Unaudited) | August 31, 2003 | ||||||
Increase in Net Assets From Operations: | |||||||
Net investment income | $ | 16,778,535 | $ | 23,827,187 | |||
Capital Transactions: | |||||||
Proceeds from contributions (Note 1) | 7,696,332,942 | 10,135,347,564 | |||||
Value of withdrawals | (6,843,481,659 | ) | (8,699,330,681 | ) | |||
Net increase in net assets from capital transactions | 852,851,283 | 1,436,016,883 | |||||
Net Increase in Net Assets | 869,629,818 | 1,459,844,070 | |||||
Net Assets: | |||||||
Beginning of period | 2,686,059,634 | 1,226,215,564 | |||||
End of period | $ | 3,555,689,452 | $ | 2,686,059,634 | |||
See notes to financial statements |
18
Prime Cash Reserves Portfolio
N OT E S TO F I N A N C I A L S T A T E M E N T S (Unaudited)
1. Significant Accounting Policies Institutional Reserves Portfolio, which changed its name to Prime Cash Reserves Portfolio (the “Portfolio”) on February 27, 2004, is a separate series of Institutional Portfolio (the “Trust”). The Trust is registered under the U.S. Investment Company Act of 1940, as amended (the “1940 Act”) as a no-load, diversified, open-end management investment company which was organized as a trust under the laws of the State of New York. The Declaration of Trust permits the Trustees to issue beneficial interests in the Portfolio. Citi Fund Management Inc. (the “Manager”) acts as the Investment Manager. On June 3, 2002 (commencement of operations) Citi Institutional Cash Reserves transferred all of its investable assets ($1,383,780,908) to the Portfolio in exchange for an interest in the Portfolio.
The preparation of financial statements in accordance with United States of America generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio are as follows:
A. Valuation of Investments Money market instruments are valued at amortized cost, in accordance with the 1940 Act. This method involves valuing a portfolio security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. The Portfolio’s use of amortized cost is subject to its compliance with certain conditions as specified under the 1940 Act.
B. Interest Income and Expenses Interest income consists of interest accrued and discount earned (including both original issue and market discount) on the investments of the Portfolio, accrued ratably to the date of maturity, plus or minus net realized gain or loss, if any, on investments. Expenses of the Portfolio are accrued daily. The Portfolio bears all costs of its operations other than expenses specifically assumed by the Manager.
C. U.S. Federal Income Taxes The Portfolio is considered a partnership under the U.S. Internal Revenue Code. Accordingly, no provision for federal income taxes is necessary.
D. Repurchase Agreements It is the policy of the Portfolio to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian bank’s vault, all securities held as collateral in support of repurchase agreement investments. Additionally, procedures have been established by the Portfolio to monitor, on a daily basis, the market value of the repurchase agreements’ underlying investments to ensure the existence of a proper level of collateral.
E. Other Purchases, maturities and sales of money market instruments are accounted for on the date of the transaction.
F. Fees Paid Indirectly The Portfolio’s custodian calculates its fees based on the Portfolio’s average daily net assets. The fee is reduced according to a fee arrange-
19
Prime Cash Reserves Portfolio
N O T E S TO F I N A N C I A L S T A T E M E N T S (Unaudited) (Continued)
ment, which provides for custody fees to be reduced based on a formula developed to measure the value of cash deposited with the custodian by the Portfolio. This amount is shown as a reduction of expenses on the Statement of Operations.
2. Management Fees The Manager is responsible for overall management of the Portfolio’s, business affairs, and has a Management Agreement with the Portfolio. The Manager or an affiliate also provides certain administrative services to the Portfolio. These administrative services include providing general office facilities and supervising the overall administration of the Portfolio.
The management fees paid to the Manager are accrued daily and payable monthly. The management fees are computed at an annual rate of 0.10% of the Portfolio’s average daily net assets. The management fees amounted to $1,655,834 of which $410,699 was voluntarily waived for the six months ended February 29, 2004. The Portfolio pays no compensation directly to any Trustee or any officer who is affiliated with the Manager, all of whom receive remuneration for their services to the Fund from the Manager or its affiliates. Certain of the officers and a Trustee of the Portfolio are officers and a director of the Manager or its affiliates.
3. Investment Transactions Purchases and maturities and sales of money market instruments aggregated $67,661,078,765 and $66,803,964,220, respectively, for the six months ended February 29, 2004.
4. Trustee Retirement Plan The Trustees of the Fund have adopted a Retirement Plan for all Trustees who are not “interested persons” of the Fund, within the meaning of the 1940 Act. Under the Plan, all Trustees are required to retire from the Board as of the last day of the calendar year in which the applicable Trustee attains age 75 (certain Trustees who had already attained age 75 when the Plan was adopted were required to retire effective December 31, 2003). Trustees may retire under the Plan before attaining the mandatory retirement age. Trustees who have served as Trustee of the Trust or any of the investment companies associated with Citigroup for at least ten years when they retire are eligible to receive the maximum retirement benefit under the Plan. The maximum retirement benefit is an amount equal to five times the amount of retainer and regular meeting fees payable to a Trustee during the calendar year ending on or immediately prior to the applicable Trustee’s retirement. Amounts under the Plan may be paid in installments or in a lump sum (discounted to present value). The Portfolio’s allocable share of the expenses of the Plan for the six months ended February 29, 2004 and the related liability at ended February 29, 2004 was not material.
5. Additional Information The Portfolio has received the following information from Citigroup Asset Management (“CAM”), the Citigroup business unit which includes the Portfolio’s Investment Manager and other investment advisory companies, all of which are indirect, wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an affiliate, into the transfer agent business in the
20
Prime Cash Reserves Portfolio
N OT E S TO F I N A N C I A L S T A T E M E N T S (Unaudited) (Continued)
period 1997-1999. As CAM currently understands the facts, at the time CAM decided to enter the transfer agent business, CAM sub-contracted for a period of five years certain of the transfer agency services to a third party and also concluded a revenue guarantee agreement with this sub-contractor providing that the sub-contractor would guarantee certain benefits to CAM or its affiliates (the “Revenue Guarantee Agreement”). In connection with the subsequent purchase of the subcontractor’s business by an affiliate of the current sub-transfer agent (PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee Agreement was amended eliminating those benefits in exchange for arrangements that included a one-time payment from the sub-contractor.
The boards of CAM-managed funds (the “Boards”) were not informed of the Revenue Guarantee Agreement with the subcontractor at the time the Boards considered and approved the transfer agent agreements. Nor were the Boards informed of the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable funds approximately $17 million (plus interest) that CAM and its affiliates received from the Revenue Guarantee Agreement and its amendment. CAM also plans an independent review to verify that the transfer agency fees charged by CAM were fairly priced as compared to competitive alternatives. CAM is instituting new procedures and making changes designed to ensure no similar arrangements are entered into the future.
CAM has briefed the SEC, the New York State Attorney General and other regulators with respect to this matter, as well as the U.S. Attorney who is investigating the matter. CAM is cooperating with governmental authorities on this matter, the ultimate outcome of which is not yet determinable.
21
Prime Cash Reserves Portfolio | |||||||||||
F I N A N C I A L H I G H L I G H T S | |||||||||||
For the Period | |||||||||||
June 3, 2002* | |||||||||||
Six Months Ended | (Commencement of | ||||||||||
February 29, 2004 | Year Ended | Operations) to | |||||||||
(Unaudited) | August 31, 2003 | August 31, 2002 | |||||||||
Ratios/Supplemental Data: | |||||||||||
Net Assets, end of period | |||||||||||
(000’s omitted) | $ | 3,555,689 | $ | 2,686,060 | $ | 1,226,216 | |||||
Ratio of expenses to average | |||||||||||
net assets | 0.10 | %* | 0.11 | % | 0.15 | %* | |||||
Ratio of net investment | |||||||||||
income to average net assets | 1.01 | %* | 1.27 | % | 1.77 | %* | |||||
Note: If agents of the Portfolio had not voluntarily waived a portion of their fees for the periods indi- | |||||||||||
cated, the ratios would have been as follows: | |||||||||||
Ratios: | |||||||||||
Expenses to average net assets | 0.12 | %* | 0.19 | % | 0.20 | %* | |||||
Net investment income to | |||||||||||
average net assets | 0.99 | %* | 1.19 | % | 1.72 | %* | |||||
* Annualized | |||||||||||
See notes to financial statements |
22
Institutional Enhanced Portfolio | ||||
S C H E D U L E O F I N V E S T M E N T S | February 29, 2004 | |||
(Unaudited) | ||||
Principal | ||||||
Amount | ||||||
Issuer | (000’s omitted) | Value | ||||
Asset Backed — 21.5% | ||||||
Restructured Asset | ||||||
Securitization* | ||||||
0.95% due 4/15/04 | 500 | $ | 499,863 | |||
Structured Product | ||||||
Asset Return* | ||||||
1.60% due 7/15/04 | 500 | 500,699 | ||||
1,000,562 | ||||||
Corporate Notes — 13.7% | ||||||
Foxboro Funding Ltd. | ||||||
1.11% due 3/19/04 | 250 | 249,861 | ||||
Nationwide Anglia | ||||||
Building Society | ||||||
1.08% due 8/31/04 | 150 | 149,177 | ||||
Park Granada LLC | ||||||
1.06% due 3/02/04 | 200 | 199,994 | ||||
State Street | ||||||
Cayman Islands | ||||||
1.04% due 3/01/04 | 41 | 41,000 | ||||
640,032 | ||||||
Floating Rate Notes — 57.6% | ||||||
Ameriquest Mortgage | ||||||
Securitization Inc. | ||||||
1.18% due 7/25/33 | 352 | 351,918 | ||||
Centex Home Equity | ||||||
Loan Trust | ||||||
1.53% due 12/25/32 | 177 | 177,586 | ||||
CIT Equipment Coll | ||||||
1.28% due 10/20/09 | 269 | 268,967 | ||||
EQCC Home Equity | ||||||
Loan Trust | ||||||
1.32% due 11/15/28 | 263 | 263,429 | ||||
Household Home Equity | ||||||
Loan Trust | ||||||
1.38% due 5/20/31 | 233 | 232,968 | ||||
Monumental Global | ||||||
Funding | ||||||
1.37% due 2/15/05 | 400 | 400,932 | ||||
Option One Mortgage | ||||||
Loan Trust | ||||||
1.35% due 7/25/32 | 133 | 132,594 | ||||
Residential Asset | ||||||
Mortgage Products | ||||||
1.47% due 1/25/33 | 242 | 242,218 | ||||
Saxon Asset | ||||||
Securitization Trust | ||||||
1.34% due 3/25/32 | 214 | 214,456 | ||||
Wells Fargo Bank | ||||||
1.20% due 9/29/05 | 400 | 400,000 | ||||
2,685,068 | ||||||
US Gov’t Agency Discount Notes — 7.5% | ||||||
Federal Home Loan Bank | ||||||
4.88% due 5/14/04 | 50 | $ | 50,375 | |||
Federal Home Loan | ||||||
Mortgage | ||||||
1.15% due 9/09/05 | 100 | 100,051 | ||||
Federal National Mortgage | ||||||
Association | ||||||
1.06% due 7/20/04 | 200 | 199,963 | ||||
350,389 | ||||||
Total Investments, | ||||||
at Value | ||||||
(Identified Cost | ||||||
$4,674,906) | 100.3 | % | 4,676,051 | |||
Other Assets | ||||||
Less Liabilities | (0.3 | ) | (12,680 | ) | ||
Net Assets | 100.0 | % | $ | 4,663,371 | ||
* Variable interest rate—subject to periodic change | ||||||
See notes to financial statements |
1
Institutional Enhanced Portfolio | ||
S T A T E M E N T O F A SS E T S A N D L I A B I L I T I E S | ||
February 29, 2004 (Unaudited) | ||
Assets: | ||
Investments at value (Identified Cost, $4,674,906) | $ | 4,676,051 |
Cash | 7 | |
Interest receivable | 3,374 | |
Receivable from Manager | 40,145 | |
Total assets | 4,719,577 | |
Liabilities: | ||
Accrued expenses and other liabilities | 56,206 | |
Total liabilities | 56,206 | |
Net Assets | $ | 4,663,371 |
Represented by: | ||
Paid-in capital for beneficial interest | $ | 4,663,371 |
See notes to financial statements |
2
Institutional Enhanced Portfolio | |||||
S T A T E M E N T O F O P E R A T I O N S | |||||
For the Six Months Ended February 29, 2004 (Unaudited) | |||||
Interest Income (Note 1B): | $ | 53,295 | |||
Expenses: | |||||
Custody and fund accounting fees | $ | 25,956 | |||
Management fees | 6,414 | ||||
Audit fees | 4,000 | ||||
Legal fees | 3,110 | ||||
Trustees’ fees | 925 | ||||
Miscellaneous | 10,401 | ||||
Total expenses | 50,806 | ||||
Less: expenses assumed by the Manager (Note 5) | (40,145 | ) | |||
Less: aggregate amounts waived by the Manager (Note 2) | (6,414 | ) | |||
Less: fees paid indirectly (Note 1E) | (2 | ) | |||
Net expenses | 4,245 | ||||
Net investment income | 49,050 | ||||
Net realized and unrealized gain on investments: | |||||
Net realized gain on investments | 4,481 | ||||
Net unrealized appreciation on investments | 7 | ||||
Net Realized and Unrealized Gain(Loss) on Investment | 4,488 | ||||
Net Increase in Net Assets Resulting from Operations | $ | 53,538 | |||
See notes to financial statements |
3
Institutional Enhanced Portfolio | ||||||
S T A T E M E N T O F C H A N G E S I N N E T A S S E T S | ||||||
March 11, 2003 | ||||||
Six Months Ended | (Commencement | |||||
February 29, 2004 | of Operations) | |||||
(Unaudited) | to August 31, 2003 | |||||
Increase in Net Assets from Operations: | ||||||
Net investment income | $ | 49,050 | $ | 84,303 | ||
Net realized gain on investments | 4,481 | 6,801 | ||||
Increase in unrealized appreciation on investments | 7 | 1,138 | ||||
Net increase in net assets resulting from operations | 53,538 | 92,242 | ||||
Capital Transactions: | ||||||
Proceeds from contributions (Note ) | 3,902,810 | 25,286,110 | ||||
Value of withdrawals | (12,220,812 | ) | (12,450,517 | ) | ||
Net increase (decrease) in net assets | ||||||
from capital transactions | (8,318,002 | ) | 12,835,593 | |||
Net increase (decrease) in net assets resulting from | ||||||
transactions in shares of beneficial interest | (8,318,002 | ) | 12,835,593 | |||
Net Increase (decrease) in Net Assets | (8,264,464 | ) | 12,927,835 | |||
Net Assets: | ||||||
Beginning of year | 12,927,835 | — | ||||
End of year | $ | 4,663,371 | $ | 12,927,835 | ||
See notes to financial statements |
4
Institutional Enhanced Portfolio
N OT E S TO F I N A N C I A L S T A T E M E N T S (Unaudited)
1. Significant Accounting Policies Institutional Enhanced Portfolio (the “Portfolio”) is a separate series of Institutional Portfolio (the “Trust”). The Trust is registered under the U.S. Investment Company Act of 1940, as amended (the “1940 Act”) as a no load, diversified, open-end management company which was organized as a trust under the law of the State of New York. The Declaration of Trust permits the Trustees to issue beneficial interests in the Portfolio. Citi Fund Management Inc. (the “Manager”) acts as the Investment Manager. The Portfolio commenced operations on March 11, 2003.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio are as follows:
A.Valuation of Investments Short-term obligation instruments with less than 60 days remaining to maturity when acquired by the Portfolio are valued at amortized cost, which the Trustees have determined in good faith constitutes fair value. Debt securities are valued on the basis of valuations furnished by a pricing service which utilizes both dealer-supplied valuations and electronic data processing techniques.
B. Investment Income and Expenses Investment income consists of interest accrued and discount earned (including both original issue and market discount), adjusted for accretion of discount and amortization of premium, on the investments of the Portfolio, accrued ratably to the date of maturity, plus or minus net realized gain or loss, if any, on investments. Expenses of the Portfolio are accrued daily.
C. Federal Income Taxes The Portfolio’s policy is to comply with the applicable provisions of the Internal Revenue Code. Accordingly, no provision for federal income taxes is necessary.
D. Fees Paid Indirectly The Portfolio’s custodian calculates its fees based on the Portfolio’s average daily net assets. The fee is reduced according to a fee arrangement, which provides for custody fees to be reduced based on a formula developed to measure the value of cash deposited with the custodian by the Portfolio. This amount is shown as a reduction of expenses on the Statement of Operations.
2. Management Fees The Manager is responsible for overall management of the Portfolio’s business affairs, and has a Management Agreement with the Portfolio. The Manager or an affiliate also provides certain administrative services to the Portfolio. These administrative services include providing general office facilities and supervising the overall administration of the Portfolio.
5
Institutional Enhanced Portfolio
N OT E S TO F I N A N C I A L S T A T E M E N T S (Unaudited) (Continued)
The management fees paid to the Manager are accrued daily and payable monthly. The management fee is computed at the annual rate of 0.15% of the Fund’s average daily net assets. The management fee amounted to $6,414 of which all was voluntarily waived for the six months ended February 29, 2004. The Portfolio pays no compensation directly to any Trustee or any officer who is affiliated with the Manager, all of whom receive remuneration for their services to the Fund from the Manager or its affiliates. Certain of the officers and a Trustee of the Portfolio are officers and a director of the Manager or its affiliates.
3. Investment Transactions Purchases and sales of investments other than short-term obligations aggregated $1,304,934 and $3,168,230 respectively, for the six months ended February 29, 2004.
At February 29, 2004 the aggregate gross unrealized appreciation (depreciation) for Federal income tax purposes was:
Gross unrealized appreciation | $ | 1,145 |
Gross unrealized depreciation | 0 | |
Net unrealized appreciation | $ | 1,145 |
4. Trustee Retirement Plan The Trustees of the Portfolio have adopted a Retirement Plan for all Trustees who are not “interested persons” of the Portfolio, within the meaning of the 1940 Act. Under the Plan, all Trustees are required to retire from the Board as of the last day of the calendar year in which the applicable Trustee attains age 75 (certain Trustees who had already attained age 75 when the Plan was adopted are required to retire effective December 31, 2003). Trustees may retire under the Plan before attaining the mandatory retirement age. Trustees who have served as Trustee of the Trust or any of the investment companies associated with Citigroup for at least ten years when they retire are eligible to receive the maximum retirement benefit under the Plan. The maximum retirement benefit is an amount equal to five times the amount of retainer and regular meeting fees payable to a Trustee during the calendar year ending on or immediately prior to the applicable Trustee’s retirement. Amounts under the Plan may be paid in installments or in a lump sum (discounted to present value). The Portfolio’s allocable share of the expenses of the Plan for the six months ended February 29, 2004 and the related liability at February 29, 2004 was not material.
5. Assumption of Expenses The Manager has voluntarily agreed to pay a portion of the unwaived expenses of the Portfolio for the six months ended February 29, 2004 which amounted to $40,145 to maintain a voluntary expense limitation of average daily net assets of 0.10%. This voluntary expense limitation may be discontinued at any time.
6
Institutional Enhanced Portfolio
N OT E S TO F I N A N C I A L S T A T E M E N T S (Unaudited) (Continued)
6. Additional Information The Fund has received the following information from Citigroup Asset Management (“CAM”), the Citigroup business unit which includes the Fund’s Investment Manager and other investment advisory companies, all of which are indirect, wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an affiliate, into the transfer agent business in the period 1997-1999. As CAM currently understands the facts, at the time CAM decided to enter the transfer agent business, CAM sub-contracted for a period of five years certain of the transfer agency services to a third party and also concluded a revenue guarantee agreement with this sub-contractor providing that the sub-contractor would guarantee certain benefits to CAM or its affiliates (the “Revenue Guarantee Agreement”). In connection with the subsequent purchase of the sub-contractor’s business by an affiliate of the current sub-transfer agent (PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee Agreement was amended eliminating those benefits in exchange for arrangements that included a one-time payment from the sub-contractor.
The Boards of CAM-managed funds (the “Boards”) were not informed of the Revenue Guarantee Agreement with the sub-contractor at the time the Boards considered and approved the transfer agent agreements. Nor were the Boards informed of the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable funds approximately $17 million (plus interest) that CAM and its affiliates received from the Revenue Guarantee Agreement and its amendment. CAM also plans an independent review to verify that the transfer agency fees charged by CAM were fairly priced as compared to competitive alternatives. CAM is instituting new procedures and making changes designed to ensure no similar arrangements are entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other regulators with respect to this matter, as well as the U.S. Attorney who is investigating the matter. CAM is cooperating with governmental authorities on this matter, the ultimate outcome of which is not yet determinable.
7
Institutional Enhanced Portfolio | |||||
F I N A N C I A L H I G H L I G H T S | |||||
March 11, 2003 | |||||
Six Months Ended | (Commencement | ||||
February 29, 2004 | of Operations) | ||||
(Unaudited) | to August 31, 2003 | ||||
Ratios/Supplemental Data: | |||||
Net assets, end of period (000’s omitted) | $4,663 | $12,928 | |||
Ratio of expenses to average net assets | 0.10 | %* | 0.10 | %* | |
Ratio of net investment income to average net assets | 1.15 | %* | 1.28 | %* | |
Total return | 1.29 | %** | 0.69 | %** | |
Portfolio turnover | 28 | % | 228 | % | |
Note: If agents of the Portfolio had not voluntarily agreed to waive all or a portion of their fees for the | |||||
period indicated and the expenses were not reduced for fees paid indirectly, the net investment income | |||||
per share and ratios would have been as follows: | |||||
Ratios: | |||||
Expenses to average net assets | 1.19 | %* | 1.03 | %* | |
Net investment income to average net assets | 0.06 | %* | 0.35 | %* | |
* Annualized. | |||||
** Not Annualized. | |||||
See notes to financial statements |
8
ITEM 2. CODE OF ETHICS. Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. Item 4. Principal Accountant Fees and Services Not applicable ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No changes. ITEM 10. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934 (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant's internal control over financial reporting. ITEM 11. EXHIBITS. (a)(2) Attached hereto. Exhibit 99.CERT Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (b) Furnished. Exhibit 99.906CERT Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized. INSTITUTIONAL PORTFOLIO - INSTITUTIONAL ENHANCED PORTFOLIO By: /s/ R. Jay Gerken -------------------------- R. Jay Gerken Chief Executive Officer of INSTITUTIONAL PORTFOLIO - INSTITUTIONAL ENHANCED PORTFOLIO Date: May 5, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ R. Jay Gerken -------------------------- (R. Jay Gerken) Chief Executive Officer of INSTITUTIONAL PORTFOLIO - INSTITUTIONAL ENHANCED PORTFOLIO Date: May 5, 2004 By: /s/ Andrew B. Shoup -------------------------- Chief Administrative Officer of INSTITUTIONAL PORTFOLIO - INSTITUTIONAL ENHANCED PORTFOLIO Date: May 5, 2004 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized. INSTITUTIONAL PORTFOLIO - PRIME CASH RESERVES PORTFOLIO (FORMERLY INSTITUTIONAL RESERVES PORTFOLIO) By: /s/ R. Jay Gerken -------------------------- R. Jay Gerken Chief Executive Officer of INSTITUTIONAL PORTFOLIO - PRIME CASH RESERVES PORTFOLIO (FORMERLY INSTITUTIONAL RESERVES PORTFOLIO) Date: May 5, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ R. Jay Gerken -------------------------- (R. Jay Gerken) Chief Executive Officer of INSTITUTIONAL PORTFOLIO - PRIME CASH RESERVES PORTFOLIO (FORMERLY INSTITUTIONAL RESERVES PORTFOLIO) Date: May 5, 2004 By: /s/ ANDREW B. SHOUP -------------------------- Chief Administrative Officer of INSTITUTIONAL PORTFOLIO - PRIME CASH RESERVES PORTFOLIO (FORMERLY INSTITUTIONAL RESERVES PORTFOLIO) Date: May 5, 2004