UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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| þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (THE ACT) |
For the Fiscal Year Ended December 31, 2009
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| o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ACT |
For the transition period from __ to __
Commission file number 000-49775
Belport Capital Fund LLC (the Fund)
(Exact Name of Registrant as Specified in Its Charter)
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| Delaware | | 04-3551830 |
| (State of Organization) | | (I.R.S. Employer Identification No.) |
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| Two International Place | | |
| Boston, Massachusetts 02110 | | 617-482-8260 |
| (Address and Zip Code of Principal Executive Offices) | | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Liability Company Interests in the Fund (Shares)
Indicate by check mark if Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.þ Yeso No
Indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.o Yesþ No
Indicate by check whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo
Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.þ Yeso No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þ
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Act. (Check one):
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| Large accelerated filerþ | | Accelerated filero | | Non-accelerated filero | | Smaller reporting companyo |
| | | | | (Do not check if a smaller reporting company) | | |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).Yeso Noþ
Aggregate market value of the Shares held by non-affiliates of Registrant, based on the closing net asset value on June 30, 2009 was $597,810,459. Calculation of holdings by non-affiliates is based upon the assumption, for these purposes only, that the Registrant’s manager, its executive officers and directors and persons holding 10% or more of the Registrant’s Shares are affiliates.
Incorporations by Reference: None.
The Exhibit Index is located on page 85.
Belport Capital Fund LLC
Index to Form 10-K
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PART III | | | | |
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PART IV | | | | |
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| FINANCIAL STATEMENTS | | | 41 | |
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PART I
Fund Overview.Belport Capital Fund LLC (the Fund) is a private investment company organized by Eaton Vance Management (Eaton Vance) to provide diversification and tax-sensitive investment management to investors holding large and concentrated positions in equity securities of selected public companies. The Fund’s investment objective is to achieve long-term, after-tax returns for persons who have invested in the Fund (Shareholders). The Fund, a Delaware limited liability company, commenced its investment operations on March 14, 2001. Limited liability company interests of the Fund (Shares) were issued to Shareholders at five closings during 2001. At each Fund closing, the Fund accepted contributions of stock from investors in exchange for Shares of the Fund. The Fund discontinued offering Shares on December 18, 2001 and, while the Fund is not prohibited from doing so, no future offering is anticipated. As of December 31, 2009, the Fund had net assets of approximately $614.9 million.
Structure of the Fund.The Fund is structured to provide tax-free diversification and tax-sensitive investment management to Shareholders. To meet the objective of tax-free diversification, the Fund must satisfy specific requirements of the Internal Revenue Code of 1986, as amended (the Code). In order for the contributions of appreciated stock to the Fund by Shareholders to be nontaxable, not more than 80% of the Fund’s assets (calculated in the manner prescribed) may consist of “stocks and securities” as defined in the Code. To meet this requirement, the Fund normally invests at least 20% of its assets as so determined in certain real estate investments (see “The Fund’s Real Estate Investments” below). The Fund invests up to 80% of its assets in a diversified portfolio of common stocks (see “The Fund’s Investment in Belvedere Capital Fund Company LLC and Tax-Managed Growth Portfolio” below). The Fund may also invest cash on a temporary basis in short-term instruments including in an investment company or a pooled investment advised by an affiliate of Eaton Vance (the EV money market funds). The Fund acquires its real estate investments with borrowed funds, as described below under “Fund Borrowings”. See Appendix A for a chart detailing the investment structure of the Fund.
In its investment program, the Fund balances investment considerations and tax considerations, and takes into account the taxes payable by Shareholders on allocated investment income and realized capital gains. See “The Fund’s Investment in Belvedere Capital Fund Company LLC and Tax-Managed Growth Portfolio” below.
There is no trading market for the Fund’s Shares. As described further under “Redemption of Fund Shares” in Item 5(a), Fund Shares generally may be redeemed on any business day. The Fund satisfies redemption requests principally by distributing securities, but may also distribute cash. The value of securities and cash distributed to satisfy a redemption will equal the net asset value of the number of Shares redeemed. Under most circumstances, a redemption from the Fund that is met by distributing securities as described herein will not result in the recognition of capital gains by the Fund or by the redeeming Shareholder. The redeeming Shareholder would generally recognize capital gains upon the sale of the securities received upon the redemption.
The Fund intends to distribute at the end of each year, or shortly thereafter, an amount approximately equal to the taxes payable on its net investment income allocated to Shareholders. Prior to December 31, 2009, the Fund had distributed all of its net investment income to Shareholders. The Fund also intends to make annual capital gain distributions to such Shareholders equal to approximately 18% of the amount of its net realized capital gains, if any, other than certain precontribution gains. The Fund’s distributions generally are based on determinations of net investment income and net realized capital gains for federal income tax purposes. Such amounts may differ from net investment income or loss and net realized gain or loss as set forth in the Fund’s consolidated financial statements due to differences in the treatment of various income, gain, loss, expense and other items for federal income tax purposes and under generally accepted accounting principles (GAAP). See Note 2 to the Fund’s consolidated financial statements. The Fund intends to pay any distributions on the last business day of each fiscal year of the Fund (which concludes on December 31) or shortly thereafter. See “Distributions” in Item 5(c).
Fund Management.The manager of the Fund is Eaton Vance, a Massachusetts business trust registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the Advisers Act). Eaton Vance and its subsidiary, Boston Management and Research (Boston Management), provide management and advisory services to the Fund, its real estate subsidiary and the investment portfolio in which the Fund invests. Boston Management is also registered as an investment adviser under the Advisers Act. Eaton Vance and Boston Management provide advisory, administration and/or management services to over 150 investment companies, as well as separate accounts managed for individual and institutional investors. As of December 31, 2009, Eaton Vance and its affiliates managed over $160 billion on behalf of clients. The fees payable to the Eaton Vance organization, as well as other fees payable by the Fund, are described in Item
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12. The Eaton Vance organization is subject to certain conflicts of interest in providing services to the Fund, its subsidiaries and the investment portfolio in which the Fund invests. See “The Eaton Vance Organization – Conflicts of Interest” below.
The Fund’s Offering.Shares of the Fund were privately offered and sold only to “accredited investors” as defined in Rule 501(a) under the Securities Act of 1933, as amended (the Securities Act), who were “qualified purchasers” (as defined in Section 2(a)(51)(A) of the Investment Company Act of 1940, as amended (the 1940 Act)). The offering was conducted by Eaton Vance Distributors, Inc. (EV Distributors), an affiliate of Eaton Vance, as placement agent and by certain subagents appointed by EV Distributors. The Shares were offered and sold in reliance upon an exemption from registration provided by Rule 506 under the Securities Act. The Fund issued Shares to Shareholders at closings taking place on March 14, 2001, May 23, 2001, July 26, 2001, October 4, 2001 and December 18, 2001. At the five closings, an aggregate of 17,842,860 Shares were issued in exchange for Shareholder contributions totaling approximately $1.8 billion.
The Fund is registered under the Act and files periodic reports (such as reports on Form 10-Q and Form 10-K) thereunder. Copies of the reports filed by the Fund are available: at the public reference room of the Securities and Exchange Commission (SEC) in Washington, DC (call 1-202-551-8690 for information on the operation of the public reference room); on the EDGAR Database on the SEC’s Internet site (http://www.sec.gov); or, upon payment of copying fees, by writing to the SEC’s public reference section, 100 F Street, NE, Washington, DC 20549-0102, or by electronic mail at publicinfo@sec.gov. The Fund does not have a website. The Fund intends to provide Shareholders with an annual and semiannual report containing the Fund’s consolidated financial statements, audited by the Fund’s independent registered public accounting firm in the case of the annual report.
The Fund’s Investment in Belvedere Capital Fund Company LLC and Tax-Managed Growth Portfolio.At each Fund closing, all of the securities accepted for contribution to the Fund were contributed by the Fund to Belvedere Capital Fund Company LLC (Belvedere Company), a Massachusetts limited liability company, in exchange for shares of Belvedere Company. Belvedere Company, in turn, immediately thereafter contributed the securities received from the Fund to Tax-Managed Growth Portfolio (the Portfolio) in exchange for an interest in the Portfolio. The Portfolio is a diversified, open-end management investment company registered under the 1940 Act with net assets of approximately $9.5 billion as of December 31, 2009. As of December 31, 2009, the Fund’s investment in the Portfolio through Belvedere Company had a value of approximately $638.0 million (equal to approximately 79.2% of the Fund’s total assets on a consolidated basis).
Belvedere Company.Belvedere Company was organized in 1997 by Eaton Vance to offer tax-free diversification and tax-sensitive investment management to certain qualified investors who contributed diversified portfolios of equity securities. As of December 31, 2009, the investment assets of Belvedere Company consisted exclusively of an interest in the Portfolio with a value of approximately $6.7 billion. As of such date, the Fund owned approximately 9.5% of Belvedere Company’s outstanding shares. As of December 31, 2009, the other investors in Belvedere Company included eleven other investment funds sponsored by the Eaton Vance organization (investment fund investors), as well as qualified individual investors who acquired shares of Belvedere Company in exchange for portfolios of acceptable securities (non-investment fund investors).
Belvedere Company considers for acceptance equity securities that (i) are listed on the New York Stock Exchange (NYSE), the NYSE Amex, the NASDAQ Global or Global Select Market (NASDAQ) or a major foreign exchange, (ii) had a trading price during the last twelve months of at least $10.00 per share and (iii) are issued by issuers having an equity market capitalization of at least $500 million. Because Belvedere Company only accepts contributions of diversified baskets of securities (as described below), it is not subject to the requirement that not more than 80% of its assets consist of “stocks and securities” as defined in the Code. For investors that own a diversified basket of securities, investing in Belvedere Company (rather than in the Fund) avoids the costs and risks of investing in real estate and the associated financial leverage to which the Fund is subject. See “Risks of Real Estate Investments” and “Risks of Leverage” in Item 7A(b).
Belvedere Company provides a vehicle through which investment fund and non-investment fund investors contributing a “diversified basket of securities” can acquire an indirect interest in the Portfolio. A “diversified basket of securities” means a group of securities that is diversified such that not more than 25% of the value of the securities are investments in the securities of any one issuer and not more than 50% of the value of the securities are investments in the securities of five or fewer issuers. The securities contributed to Belvedere Company at each Fund closing constituted a diversified basket of securities. Because the Fund is required to hold a percentage of its investments in non-Portfolio assets in order to meet certain tax requirements (see “Structure of the Fund” above and “The Fund’s Real Estate Investments” below), it does not satisfy the conditions of the 1940 Act for investing directly in the Portfolio.
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The Portfolio.The Portfolio was organized in 1995 by Eaton Vance as the successor to the investment operations of Eaton Vance Tax-Managed Growth Fund 1.0 (Tax-Managed Growth 1.0), a mutual fund established in 1966 by Eaton Vance and managed from inception for long-term, after-tax returns. As of December 31, 2009, investors in the Portfolio included six investors in addition to Belvedere Company and Tax-Managed Growth 1.0, each of which acquired or is acquiring on a continuous basis interests in the Portfolio with cash. All investors in the Portfolio are sponsored by or affiliated with Eaton Vance. As of December 31, 2009, Belvedere Company owned approximately 70.7% of the Portfolio’s net assets.
The Fund invests in the Portfolio (on an indirect basis through Belvedere Company) because it is a well-established investment portfolio that has an investment objective and policies that are compatible to those of the Fund. Investing in the Portfolio enables the Fund to participate in a substantially larger and more diversified investment portfolio than it could achieve by managing the contributed securities directly. The audited financial statements of the Portfolio for the year ending December 31, 2009 are included beginning on page 68 of this Annual Report on Form 10-K. The Portfolio’s audited financial statements include information about the assets and liabilities of the Portfolio, including Portfolio income and expenses. For a discussion of the Portfolio’s performance for the year ending December 31, 2009, see “Performance of the Portfolio” in Item 7(a). For a description of the investment advisory fee payable by the Portfolio, see “The Portfolio’s Investment Advisory Fee” in Item 13.
The Portfolio’s Investment Objective and Policies.The investment objective of the Portfolio is to achieve long-term, after-tax returns for its investors by investing in a diversified portfolio of equity securities. The Portfolio invests primarily in common stocks of domestic and foreign growth companies that are considered by its investment adviser to be high in quality and attractive in their long-term investment prospects. The Portfolio seeks to invest in a broadly diversified portfolio of stocks and to invest primarily in established companies with characteristics of above-average growth, predictability and stability that are acquired with the expectation of being held for a period of years. Under normal market conditions, the Portfolio invests primarily in common stocks. The Portfolio has acquired securities through contributions from Belvedere Company, Tax-Managed Growth 1.0 and Eaton Vance Tax-Managed Growth Fund 1.1, and through purchases of securities with cash invested in the Portfolio by certain of these and other investors.
Although the Portfolio may, in addition to investing in common stocks, invest in investment-grade preferred stocks and debt securities, purchases of such securities are normally limited to securities convertible into common stocks and temporary investments in short-term notes and government obligations. During periods in which the investment adviser to the Portfolio believes that returns on common stock investments may be unfavorable, the Portfolio may invest a significant portion of its assets in U.S. government obligations and high quality short-term notes, including such investments held through EV money market funds. The Portfolio’s holdings represent a number of different industries. Not more than 25% of the Portfolio’s assets may be invested in the securities of issuers having their principal business activity in the same industry, determined as of the time of acquisition of any such securities.
The Portfolio’s Tax-Sensitive Management Strategies.In its operations, the Portfolio seeks to achieve long-term, after-tax returns in part by minimizing the taxes incurred by investors in the Portfolio in connection with the Portfolio’s investment income and realized capital gains. Taxes on investment income are minimized by investing primarily in lower-yielding securities and stocks that pay dividends that qualify for favorable federal tax treatment. Taxes on realized capital gains are minimized by minimizing the sale of securities’ holdings with large accumulated capital gains. The Portfolio generally seeks to avoid net realized short-term capital gains.
When the Portfolio decides to sell a particular appreciated security, the Portfolio will select for sale the share lots resulting in the most favorable tax treatment, generally those with holding periods sufficient to qualify for long-term capital gain treatment that have the highest cost basis. The Portfolio may, when deemed prudent by its investment adviser, sell securities to realize capital losses that can be used to offset realized gains. While the Portfolio generally retains the securities contributed to the Portfolio by Belvedere Company, the Portfolio has the flexibility to sell contributed securities. Securities acquired by the Portfolio with cash may be sold in accordance with its management strategies. In lieu of selling a security, the Portfolio may hedge its exposure to that security by using the techniques described below. The Portfolio also disposes of appreciated securities through its practice of settling redemptions by investors in the Portfolio that contributed securities primarily by distributing securities as described in Item 5(a) under “Redemption of Fund Shares.” The Portfolio may also settle redemptions by investors with distributions of securities upon request. As described in Item 5(a), settling redemptions with appreciated securities can result in certain tax benefits to the Portfolio, Belvedere Company, the Fund and the redeeming Shareholder.
To reduce its exposure to adverse price movements in individual securities or groups of securities holdings with large accumulated gains, the Portfolio may use various investment techniques, including, but not limited to, the purchase or sale
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of futures contracts on stocks and stock indexes and options thereon, the purchase of put options and the sale of call options on securities held, covered short sales (on individual securities held or an index or basket securities whose constituents are held in whole or in part), equity collars, equity swap agreements, forward sales of stocks and the purchase and sale of forward currency exchange contracts and currency futures. By using these techniques rather than selling such securities, the Portfolio can, within certain limits, reduce its exposure to price declines in the securities without realizing substantial capital gains under current tax law.
The Portfolio’s ability to utilize covered short sales, certain equity swaps, forward sales, futures contracts and certain equity collar strategies as a tax-efficient management technique with respect to holdings of appreciated securities is limited to circumstances in which the hedging transaction is closed out within 30 days after the end of the Portfolio’s taxable year in which the hedging transaction was initiated and the underlying appreciated securities position is held unhedged for at least the next 60 days after such hedging transaction is closed. In addition, dividends received on stock for which the Portfolio is obligated to make related payments (pursuant to a short sale or otherwise) with respect to positions in substantially similar or related property are subject to federal income tax at ordinary rates and do not qualify for favorable tax treatment. Also, the holding periods required to receive tax-advantaged treatment of qualified dividends on a stock are suspended whenever the Portfolio has an option (other than a qualified covered call option not in the money when written) or contractual obligation to sell or an open short sale of substantially identical stock, is the grantor of an option (other than a qualified covered call option not in the money when written) to buy substantially identical stock or has diminished risk of loss in such stock by holding positions with respect to substantially similar or related property. The use of these investment techniques may require the Portfolio to commit or make available cash and, therefore, may not be available at such times as the Portfolio has limited holdings of cash. The Portfolio did not employ any of the techniques described above on securities holdings during the year ending December 31, 2009. See “Risks of Certain Investment Techniques” in Item 7A(b).
The Fund’s Real Estate Investments.Separate from its investment in the Portfolio through Belvedere Company, the Fund invests in certain real estate investments through Belport Realty Corporation (Belport Realty). The ownership structure of Belport Realty is described below under “Organization of Belport Realty.” As referred to above under “Fund Overview – Structure of the Fund”, the Fund invests in real estate investments to satisfy certain requirements of the Code for contributions of appreciated stocks to the Fund by Shareholders to be nontaxable. As of December 31, 2009, the real estate investments of Belport Realty totaled approximately $161.3 million and represented 20.0% of the Fund’s total assets. The Fund acquires its real estate investments with borrowed funds, as described below under “Fund Borrowings”. The Fund seeks a return on its real estate investments over the long term that exceeds the cost of the borrowings incurred to acquire such investments. For a description of material real estate investment transactions during the year ending December 31, 2009, see “Performance of Real Estate Investments” in Item 7(a).
At December 31, 2009, Belport Realty held investments in: two real estate joint ventures (Real Estate Joint Ventures), Bel Multifamily Property Trust (Bel Multifamily) and Monadnock Property Trust LLC (Monadnock), in which Belport Realty owns a majority economic interest; a tenancy-in-common interest in real property (Co-owned Property), Bel Stamford III LLC (Bel Stamford III); and a portfolio of preferred equity interests in real estate operating partnerships (Partnership Preference Units) affiliated with publicly traded real estate investment trusts (REITs). Certain of the Partnership Preference Units are held indirectly through Bel Holdings LLC (Bel Holdings). Bel Holdings is a Delaware limited liability company formed in 2003 and treated as a partnership for tax purposes. At December 31, 2009, Bel Holding’s sole investment was Partnership Preference Units issued by Vornado Realty L.P. At December 31, 2009, Belport Realty owned 19% of Bel Holding’s outstanding units. Information included herein about Belport Realty’s Partnership Preference Units includes the Partnership Preference Units held directly through Belport Realty and indirectly through Bel Holdings. As of December 31, 2009, approximately 71.3% of the real estate investments of the Fund consisted of its investments in the Real Estate Joint Ventures, approximately 2.5% was the investment in Co-owned Property and approximately 26.2% was investments in Partnership Preference Units.
In the future, Belport Realty may invest in other types of real estate investments, including one or more wholly owned real properties (Wholly Owned Property) and other real property investments held directly or indirectly through affiliates. Real Estate Joint Ventures, Co-owned Property and Wholly Owned Property are sometimes referred to herein as Subsidiary Real Estate Investments. Belport Realty may purchase real estate investments from, and sell them to, real estate investment affiliates of other investment funds advised by Boston Management. See “Certain Real Estate Investment Transactions” in Item 13.
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Boston Management serves as manager of Belport Realty. In that capacity, Boston Management manages the investment and reinvestment of Belport Realty’s assets and administers its affairs. See “Belport Realty’s Management Fee” in Item 13 for a description of the management fee payable by Belport Realty to Boston Management.
Real Estate Joint Venture Investments.At December 31, 2009, Belport Realty owned a majority economic interest in the Real Estate Joint Ventures, Bel Multifamily and Monadnock.
A board of trustees or managers controls the business of each Real Estate Joint Venture. Each of Belport Realty and the unaffiliated minority investor of the Real Estate Joint Venture (the Operating Partner) has representation on the board and the unanimous consent of the board is required for all major decisions (which include such actions as: (i) capital transactions (i.e., acquisitions, dispositions or financings); (ii) organizational events (i.e., mergers or liquidation); and (iii) operating plans (i.e., annual budgets)). The board of each Real Estate Joint Venture has delegated the day-to-day administration of the Real Estate Joint Venture and the day-to-day management of its real properties to the Operating Partner. Through its control of the day-to-day operations of the Real Estate Joint Venture and its properties, as well as its required consent to all major decisions affecting the Real Estate Joint Venture, each Operating Partner has significant participating rights and responsibilities with respect to the Real Estate Joint Venture. Each Operating Partner receives management-related fees from the Real Estate Joint Ventures and, in addition, is reimbursed for certain payroll and other direct expenses incurred.
At December 31, 2009, the assets of Bel Multifamily and Monadnock consisted of eleven multifamily properties located in seven states (Arizona, Florida, Georgia, Missouri, North Carolina, Texas and Washington) and ten multifamily properties located in five states (Arizona, California, Florida, Georgia and Texas), respectively. At December 31, 2009, the average occupancy rate of the properties owned by Bel Multifamily and Monadnock was approximately 94% for each. The properties held by each Real Estate Joint Venture were acquired from or in conjunction with the Operating Partner thereof. Distributable cash flows from operations of each Real Estate Joint Venture are allocated per each Real Estate Joint Venture agreement in a manner that provides Belport Realty: 1) a priority with respect to a fixed annual preferred return; and 2) participation on a pro rata or reduced basis in distributable cash flows in excess of the annual preferred return of Belport Realty and the subordinated preferred return of each Operating Partner. Distributable cash flows from dispositions of real properties or liquidation of each Real Estate Joint Venture are allocated on a pro rated basis up until the return of Belport Realty and each Operating Partner’s contributed capital with any excess allocated in a manner similar to that of cash flows from operations.
Financing for the Real Estate Joint Ventures consists primarily of fixed-rate mortgage notes secured by the real properties held by each Real Estate Joint Venture that are without recourse to Fund Shareholders and generally without recourse to Belport Realty and the Fund, as described under “Risks of Real Estate Investments” in Item 7A(b). Bel Multifamily’s mortgage notes mature in March 2011 and Monadnock’s mortgage notes mature in April 2011. Both Belport Realty and each Operating Partner invested equity in the Real Estate Joint Ventures. Belport Realty’s equity in the Real Estate Joint Ventures was acquired using the proceeds of Fund borrowings.
Each Operating Partner of the Real Estate Joint Ventures also serves as an operating partner of other Real Estate Joint Ventures in which real estate investment affiliates of other investment funds advised by Boston Management hold a majority economic interest. The persons serving as trustees or managers of the Real Estate Joint Ventures on behalf of Belport Realty are employees or affiliates of Boston Management. See “Directors, Executive Officers and Corporate Governance” in Item 10. No director of Belport Realty or trustee or manager of the Real Estate Joint Ventures is a Shareholder of the Fund. No company in the Eaton Vance organization has a material financial interest in the Real Estate Joint Ventures.
The Operating Partner of Bel Multifamily is ERP Operating Limited Partnership (ERP), an affiliate of Equity Residential. Equity Residential is a publicly owned, self-administered and self-managed REIT. Equity Residential’s common shares are traded on the NYSE under the symbol “EQR”. Pursuant to an agreement with ERP, Bel Multifamily may be liquidated at any time upon unanimous consent of the board or, after February 22, 2010, either Belport Realty or ERP may give notice to buy the other’s equity interest in the Real Estate Joint Venture or to sell its own equity interest in the Real Estate Joint Venture.
The Operating Partner of Monadnock is an indirect subsidiary of three privately held partnerships sponsored by Lehman Brothers, Bank of America and Barclays (Archstone). Pursuant to an agreement with Archstone, Monadnock may be liquidated at any time upon unanimous consent of the board or, after September 13, 2010, either Belport Realty or
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Archstone may give notice to buy the other’s equity interest in the Real Estate Joint Venture or to sell its own equity interest in the Real Estate Joint Venture.
The sale to Belport Realty by an Operating Partner of its interest in a Real Estate Joint Venture would not affect the REIT qualification of the Real Estate Joint Venture. If Belport Realty were to dispose of its interest in a Real Estate Joint Venture pursuant to a liquidation agreement or otherwise, it may acquire an interest in a different real estate investment to replace the investment sold.
Co-owned Property.At December 31, 2009, Belport Realty owned Co-owned Property through its subsidiary, Bel Stamford III. Bel Stamford III owns a 17.5% tenancy-in-common interest in an office property located in Connecticut. The other investors in the Co-owned Property are real estate investment affiliates of other investment funds advised by Boston Management. The Co-owned Property is financed through a fixed-rate mortgage note secured by the real property held by Bel Stamford III that is without recourse to Fund Shareholders and generally without recourse to Belport Realty and the Fund as described under “Risks of Real Estate Investments” in Item 7A(b). Belport Realty’s equity in the Co-owned Property was acquired using the proceeds of Fund borrowings.
The Bel Stamford III property is leased on a net basis through December 2017 (with the option to extend the lease for eight option periods of five years each) to a single tenant that is obligated to make specified rental payments and to bear all costs and expenses associated with the operation and maintenance of the property, including real estate taxes, repairs and insurance.
Partnership Preference Units.At December 31, 2009, Belport Realty held investments in Partnership Preference Units. The assets of the partnerships that issued the Partnership Preference Units owned by Belport Realty consisted primarily of direct or indirect ownership interests in real properties, including multifamily properties, office and industrial properties, shopping centers, manufactured home communities and self-storage facilities. The Partnership Preference Units owned by Belport Realty as of December 31, 2009 are listed in Item 7A(a) and in the consolidated portfolio of investments included in the Fund’s consolidated financial statements, which begin on page 41 of this Annual Report on Form 10-K. Eaton Vance is not involved in the management or operation of the real estate operating partnerships that issued the Partnership Preference Units owned by Belport Realty.
The Partnership Preference Units held by Belport Realty were issued by partnerships that are not publicly traded partnerships within the meaning of Code Section 7704(b). The Partnership Preference Units are perpetual life instruments (subject to call provisions) and are not, by their terms, readily convertible or exchangeable into cash or securities of an affiliated public company. The Partnership Preference Units are not rated by a nationally recognized rating agency, and such interests may not be as high in quality as issues that are rated investment grade.
Each issue of Partnership Preference Units held by Belport Realty normally pays regular quarterly distributions at fixed rates from the net profits or gross income of the issuing partnership, with preferential rights over common and other subordinated units. None of the Partnership Preference Units is or will be registered under the Securities Act and each issue is thus subject to restrictions on transfer.
Organization of Belport Realty.Belport Realty operates in such a manner as to qualify for taxation as a REIT under the Code. As a REIT, Belport Realty generally is not subject to federal income tax on that portion of its ordinary income or taxable gain that is distributed to stockholders each year. The Fund owns 100% of the common stock issued by Belport Realty, and intends to hold all of the common stock at all times.
Belport Realty also has issued preferred shares to satisfy certain provisions of the Code, which require that a REIT be beneficially owned in the aggregate by 100 or more persons. The preferred shares of Belport Realty are owned by not less than 100 charitable organizations that received the preferred shares as gifts. Each charitable organization that received a preferred share was an “accredited investor” (as defined in the Securities Act) with total assets in excess of $5 million at the time the organization received the preferred shares. Eaton Vance selected the charitable organizations from the charities for which it has matched employee contributions and/or based on suggestions from its employees. As of December 31, 2009, the total value of the preferred shares outstanding of Belport Realty was $211,500. Dividends on preferred shares are cumulative and payable annually at a dividend rate of 8%. The dividends paid on preferred shares have priority over payments on common shares. For the year ending December 31, 2009, Belport Realty paid distributions to preferred shareholders in the amount of $16,920.
10
Fund Borrowings.The Fund has entered into credit arrangements with Dresdner Kleinwort Holdings I, Inc. (the DKH Credit Facility) and Merrill Lynch Mortgage Capital, Inc. (the Merrill Lynch Credit Facility) (collectively, the Credit Facility) to finance its real estate investments and to pay selling commissions and the Fund’s organizational expenses, as well as to provide for any ongoing liquidity needs of the Fund. The Credit Facility is secured by a pledge of the Fund’s assets, excluding the Fund’s investment in and the assets of the Subsidiary Real Estate Investments. At December 31, 2009, the total principal amount outstanding under the Credit Facility was $185.5 million.
The DKH Credit Facility is a term credit arrangement. Borrowings under the DKH Credit Facility accrue interest at a rate of the one-month London Interbank Offered Rate (LIBOR) plus 0.20% per annum. As of December 31, 2009, outstanding borrowings under the DKH Credit Facility totaled $185.5 million.
The Merrill Lynch Credit Facility is a revolving credit arrangement. The Fund may borrow up to $24.0 million under the Merrill Lynch Credit Facility. Borrowings under the Merrill Lynch Credit Facility accrue interest at a rate of the one-month LIBOR plus 0.38% per annum. As of December 31, 2009, there were no outstanding borrowings under the Merrill Lynch Credit Facility other than a letter of credit in the amount of $1.7 million as of December 31, 2009. The unused loan commitment amount totaled $22.3 million as of December 31, 2009. A commitment fee of 0.10% per annum is paid on the unused commitment amount.
Any increase in the size of the Credit Facility will be subject to lender consent and may result in a change to the terms of the DKH Credit Facility and/or the Merrill Lynch Credit Facility including to the interest rates and fees paid thereunder.
On December 21, 2009, the Fund entered into a credit arrangement with Bank of America (the New Credit Facility) to refinance the existing Credit Facility on or before April 1, 2010 (the Refinancing Date). On the Refinancing Date, the Fund will borrow under the New Credit Facility to repay and terminate the Credit Facility. Under the New Credit Facility, the Fund may borrow to finance its real estate investments, pay ordinary course Fund expenses and provide for ongoing liquidity needs of the Fund. All Fund borrowings under the New Credit Facility will be secured by a pledge of the Fund’s assets, excluding the Fund’s real estate investments.
Obligations under the Credit Facility and the New Credit Facility are without recourse to Fund Shareholders. As described above, financing for the Subsidiary Real Estate Investments consists primarily of fixed-rate mortgage notes secured by the real properties held by the Subsidiary Real Estate Investments that are without recourse to Fund Shareholders and generally without recourse to Belport Realty and the Fund. See “Risks of Real Estate Investments” in Item 7A(b).
Interest Rate Swap Agreements.The Fund has entered into interest rate swap agreements with Merrill Lynch Capital Services, Inc. (MLCS) to fix the cost of a portion of its borrowings under the Credit Facility. Pursuant to the agreements, the Fund makes periodic payments to the counterparty at predetermined fixed rates in exchange for floating rate payments that fluctuate with the one-month LIBOR. The interest rate swap agreements currently in effect extend until June 25, 2010, subject to the Fund’s earlier termination rights in the case of certain swaps, and provide for the Fund to make payments to MLCS at fixed rates averaging 3.97%. The variable floating rate payments from MLCS were 0.43% on December 31, 2009. See Note 10 to the Fund’s consolidated financial statements beginning on page 41 of this Annual Report on
Form 10-K.
The Eaton Vance Organization.The Eaton Vance organization sponsors the Fund. Eaton Vance serves as the Fund’s manager. Boston Management serves as the Fund’s investment adviser and as manager of Belport Realty. EV Distributors served as the Fund’s placement agent. The Fund’s business affairs are conducted by Eaton Vance (as its manager) and its investment operations are conducted by Boston Management (as its investment adviser). The Fund’s officers are employees of Eaton Vance. Eaton Vance, Boston Management and EV Distributors are wholly owned subsidiaries of Eaton Vance Corp., a publicly traded holding company that, through its affiliates and subsidiaries, engages primarily in investment management, administration and marketing activities.
As described above, the Fund pursues its objective primarily by investing in Belvedere Company. Belvedere Company invests exclusively in the Portfolio. Boston Management acts as investment adviser of the Portfolio and manager of Belvedere Company. EV Distributors acts as placement agent for Belvedere Company and the Portfolio. As of December 31, 2009, the assets of the Fund represented approximately 0.49% of assets under management by Eaton Vance and its affiliates. The offices of the Fund, Eaton Vance, Boston Management and EV Distributors are located at Two International Place, Boston, Massachusetts 02110.
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Conflicts of Interest.Boston Management and other Eaton Vance affiliates are subject to certain conflicts of interest in their dealings with the Fund, Belport Realty, Belvedere Company and the Portfolio, as well as with other investment companies advised by Boston Management that invest in the Portfolio. Eaton Vance and Boston Management have determined and will determine which of their sponsored investment companies invest in the Portfolio, the securities each of them contributes to the Portfolio when making an investment therein and, subject to the rights of redeeming investors in the Portfolio, the securities and/or cash received in redemptions from the Portfolio. Such determinations are inherently subject to potential conflicts of interest. In addition, Portfolio management activities with respect to securities contributed to the Portfolio may have different tax consequences for the contributing investor in the Portfolio than for other investors in the Portfolio. Gains and losses on sales of other securities may also be allocated disproportionately. Boston Management manages the Portfolio in pursuit of long-term, after-tax returns for all investors in the Portfolio and, with respect to contributed securities, takes into account the tax position of the contributing investor in the Portfolio. Whenever conflicts of interest arise, Eaton Vance, Boston Management and other Eaton Vance affiliates will endeavor to exercise their discretion in a manner that they believe is equitable to all interested persons.
Belport Realty may purchase real estate investments from real estate investment affiliates of other investment funds advised by Boston Management. Belport Realty may also co-invest with such entities in real estate investments and sell real estate investments to such entities. In any such transaction, the assets purchased and sold will be valued in good faith by Boston Management, after consideration of factors, data and information that Boston Management considers relevant. Transaction prices generally will include an allocation of the original costs incurred in creating and acquiring the transferred real estate investments. Real estate investments are often difficult to value and others could in good faith arrive at valuations different from those of Boston Management. See “Critical Accounting Estimates” in Item 7(e).
Item 1A. Risk Factors.
The Fund invests primarily in a diversified portfolio of common stocks and is thereby subject to general stock market risk. There can be no assurance that the performance of the Fund will match that of the U.S. stock market or that of other equity funds. In managing the Portfolio for long-term, after-tax returns, Boston Management generally seeks to avoid or minimize sales of securities with large accumulated capital gains, including contributed securities. Such securities constitute a substantial portion of the assets of the Portfolio. Although the Portfolio may utilize certain management strategies in lieu of selling appreciated securities, the Portfolio’s, and hence the Fund’s, exposure to losses during stock market declines may nonetheless be higher than funds that do not follow a general policy of avoiding sales of highly appreciated securities. The Fund is also subject to risks associated with real estate investments and certain other risks, which are described under “Qualitative Information About Market Risk” in Item 7A(b).
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The Fund does not own any physical properties, other than indirectly through Belport Realty’s investments as described in “The Fund’s Real Estate Investments” in Item 1 above.
Item 3. Legal Proceedings.
Although in the ordinary course of business the Fund and its subsidiaries may become involved in legal proceedings, the Fund is not aware of any material pending legal proceedings to which they are subject.
Item 4. Reserved.
PART II
Item 5. Determining Net Asset Value, Market for Fund Shares, Related Shareholder Matters and Issuer Purchases of Equity Securities.
This Item and other Items in this report contain summaries of certain provisions contained in the Limited Liability Company Agreement of the Fund as amended from time to time (the LLC Agreement). The LLC Agreement and all amendments thereto have been filed as exhibits to the Fund’s registration statement on Form 10 and/or periodic reports on
12
Forms 10-Q and 10-K. All such summaries are qualified in their entirety by the actual provisions of the LLC Agreement, which are incorporated by reference herein.
(a) Market Information, Restrictions on Transfers and Redemption of Shares.
Transfers of Fund Shares.There is no established public trading market for the Shares of the Fund. Other than transfers to the Fund in a redemption, transfers of Shares are expressly prohibited by the LLC Agreement without the consent of Eaton Vance. Eaton Vance’s consent to a transfer may be withheld in its sole discretion for any reason or for no reason.
The Shares have not been and will not be registered under the Securities Act, and may not be resold unless an exemption from such registration is available. Shareholders have no right to require registration of the Shares and the Fund does not intend to register the Shares under the Securities Act or take any action to cause an exemption (whether pursuant to Rule 144 of the Securities Act or otherwise) to be available.
The Fund is not and will not be registered under the 1940 Act, and no transfer of Shares may be made if, as determined by Eaton Vance or counsel to the Fund, such transfer would result in the Fund being required to be registered under the 1940 Act. In addition, no transfer of Shares may be made unless, in the opinion of counsel to the Fund, such transfer would not result in termination of the Fund for purposes of Section 708 of the Code or result in the classification of the Fund as an association or a publicly traded partnership taxable as a corporation under the Code.
In no event shall all or any part of a Shareholder’s Shares be assigned to a minor or an incompetent, unless in trust for the benefit of such person. Shares may be sold, transferred, assigned or otherwise disposed of by a Shareholder only if it is determined by Eaton Vance or counsel to the Fund that such transfer, assignment or disposition would not violate federal securities or state securities or “blue sky” laws (including investor qualification standards).
There are no outstanding options or warrants to purchase, or securities convertible into, Shares of the Fund. Shares of the Fund cannot be sold pursuant to Rule 144 under the Securities Act, and the Fund does not propose to publicly offer any of its Shares at any time.
Redemption of Fund Shares.Shares of the Fund may generally be redeemed on any business day. The redemption price will be based on the net asset value next computed after receipt by the Fund of a written redemption request from a Shareholder, including a proper form of signature guarantee and such other documentation the Fund and the transfer agent may then require. The Fund may, at its discretion, accept redemption requests submitted by facsimile transmission, although an original letter of instruction and supporting documents must be delivered before proceeds are delivered. Once accepted, a redemption request may not be revoked without the consent of the Fund. Settlement of redemptions will ordinarily occur within five business days of receipt by the Fund’s transfer agent of the original redemption request in good order, and (if applicable) promptly following registration and processing of stock certificates by the transfer agent of the issuer of the distributed securities. The right to redeem is available to all Shareholders and all outstanding Fund Shares generally are eligible for redemption (except for Shares subject to an estate freeze election). During each month in the quarter ending December 31, 2009, the total number of Shares redeemed and the average price paid per Share were as follows:
| | | | | | | | | |
| | | Total No. of Shares | | Average Price Paid |
| Month Ending | | Redeemed(1) | | Per Share |
| October | | | 303,053.798 | | | $ | 81.45 | |
| November | | | 388,896.848 | | | $ | 83.30 | |
| December | | | 122,546.298 | | | $ | 84.27 | |
| Total | | | 814,496.944 | | | $ | 82.98 | |
| | |
| (1) | | All Shares redeemed during the periods were redeemed at the option of Shareholders pursuant to the Fund’s redemption policy. The Fund has not announced any plans or programs to repurchase Shares other than at the option of Shareholders. |
The Fund satisfies redemption requests principally by distributing securities drawn from the Portfolio, but may also distribute cash. If requested by a redeeming Shareholder, the Fund will satisfy a redemption request by distributing securities that were contributed by the redeeming Shareholder, provided that such securities are held in the Portfolio at the time of redemption.
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Under most circumstances, a redemption from the Fund that is settled with securities as described herein will not result in the recognition of capital gains by the Fund or by the redeeming Shareholder. The redeeming Shareholder will generally recognize capital gains upon the sale of the securities received through redemption. If a redeeming Shareholder receives cash in addition to securities to settle a redemption, the amount of cash received will be taxable to the Shareholder to the extent it exceeds such Shareholder’s tax basis in Fund Shares. Shareholders should consult their tax advisors about the tax consequences of redeeming Fund Shares.
Securities contributed by a Shareholder may be distributed to other Shareholders in the Fund (or to other investors in Belvedere Company or the Portfolio) after a holding period of at least seven years and, if so distributed, would not be available to meet subsequent redemption requests made by the contributing Shareholder.
If requested by a redeeming Shareholder making a redemption of at least $1 million, the Fund will generally distribute to the redeeming Shareholder a diversified basket of securities representing a range of industry groups that is drawn from the Portfolio. The selection of individual securities will be made by Boston Management in its sole discretion. No interests in Subsidiary Real Estate Investments, Partnership Preference Units or other real property investments will be distributed to meet a redemption request, and “restricted securities” will be distributed only to the Shareholder who contributed such securities or such Shareholder’s successor in interest. The Fund will not provide a redeeming Shareholder with a diversified basket of securities if such a distribution is expected to cause, directly or indirectly, any other Shareholder, any investor in Belvedere Company or any investor in the Portfolio to realize taxable gain.
Other than as set forth above, the allocation of each redemption between securities and cash and the selection of securities to be distributed will be at the sole discretion of Boston Management. Distributed securities may include securities contributed by Shareholders as well as other readily marketable securities held in the Portfolio. One or more foreign securities may be distributed to settle a redemption. The value of securities and cash distributed to meet a redemption will equal the net asset value of the number of Shares being redeemed. The Fund’s Credit Facility prohibits the Fund from honoring redemption requests while there is an event of default outstanding under the Credit Facility.
The Fund may compulsorily redeem all or a portion of the Shares of a Shareholder if the Fund has determined that such redemption is necessary or appropriate to avoid registration of the Fund or Belvedere Company under the 1940 Act, or to avoid adverse tax or other consequences to the Portfolio, Belvedere Company, the Fund or Shareholders including those redemptions arising as the result of applicable anti-money laundering requirements.
The right of a Shareholder to redeem can be suspended and the payment of the redemption price may be deferred while there is an outstanding event of default under the Credit Facility (see Item 7A(b)), when the NYSE is closed, during periods when trading on the NYSE is restricted or during any emergency as determined by the SEC, at any time when it is impracticable for the Portfolio or the Fund to dispose of or value its assets, or during any other period permitted by order of the SEC for the protection of investors.
A capital account for each Shareholder is maintained on the books of the Fund. The account reflects the value of such Shareholder’s interest in the Fund, which is adjusted for profits, liabilities and distributions allocable to such account in accordance with Article 6 of the Fund’s LLC Agreement.
Subject to the consent of the manager of the Fund, a Shareholder may make an estate freeze election pursuant to which all or a portion of such Shareholder’s Shares will be divided into Preferred Shares and Common Shares (Estate Freeze Shares). Such division will be made in accordance with the terms of the LLC Agreement. Estate Freeze Shares are not transferable without the consent of the Fund’s manager and have no redemption rights or voting or consent rights.
Determining Net Asset Value.Boston Management, as investment adviser, is responsible for determining the value of the Fund’s assets. The Fund’s custodian, State Street Bank and Trust Company, calculates the value of the assets of the Fund, Belvedere Company, the Portfolio and the EV money markets funds each day that the NYSE is open for trading, as of the close of regular trading on the NYSE. The Fund’s net asset value per Share is calculated by dividing the value of the Fund’s total assets, less its liabilities, by the number of Shares outstanding.
The Fund’s net assets are valued in accordance with the Fund’s valuation procedures and reflect the value of its directly held assets, including its interests in EV money market funds, if any, and liabilities, as well as the net asset value of the Fund’s investment in the Portfolio held through Belvedere Company and in real estate investments held through Belport Realty. The trustees of the Portfolio have established procedures for the valuation of the Portfolio’s assets under normal market conditions. Pursuant to these procedures, marketable securities listed on U.S. securities exchanges generally are
14
valued at the last sale price on the day of the valuation or, if there were no sales, at the mean between the closing bid and asked prices therefor on the exchange where such securities are principally traded. Marketable securities listed on the NASDAQ generally are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing sale prices are not available are valued at the mean between the last available bid and asked prices or by a third party pricing service. Exchange-traded options are valued at the last sale price for the day of valuation as quoted on the principal exchange or board of trade on which the options are traded, or in the absence of a sale on such day, at the mean between the latest bid and asked prices therefor. Futures positions on securities or currencies are generally valued at closing settlement prices. Short-term debt securities with a remaining maturity of 60 days or less are valued at amortized cost. Other fixed income and debt securities, including listed securities and securities for which price quotations are available, will normally be valued on the basis of valuations furnished by a pricing service. The EV money market funds generally value their investment securities utilizing the amortized cost valuation technique permitted by Rule 2a-7 under the 1940 Act, pursuant to which each fund must comply with certain conditions. This technique involves initially valuing a portfolio security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. If amortized cost is determined not to approximate fair value, the EV money market funds may value their investment securities based on available market quotations provided by a third party pricing service.
Foreign securities and currencies held by the Portfolio are valued in U.S. dollars, as calculated by the Portfolio’s custodian based on foreign currency exchange rate quotations supplied by a third party pricing service. Valuation of foreign securities may be adjusted from prices in effect at the close of trading on foreign exchanges to more accurately reflect their fair value as of the close of regular trading on the NYSE. In adjusting the value of foreign equity securities the Portfolio may rely on a third party pricing service. Investments for which valuations or market quotations are not readily available are valued at fair value as determined in good faith by or at the direction of the Portfolio’s trustees, considering relevant factors, data and information including, in the case of restricted securities, the market value of freely tradable securities of the same class in the principal market on which such securities are normally traded.
The Fund’s real estate investments are valued each day as determined in good faith by Boston Management after consideration of relevant factors, data and information. The procedures for valuing real estate investments are described under “Critical Accounting Estimates” in Item 7(e). The Fund’s interest rate swap agreements are normally valued by a third party pricing service. Fixed liabilities of the Fund generally are stated at principal value.
Historic Net Asset Values.Set forth below are the high and low net asset values per Share (NAVs) of the Fund for each quarter during the two years ending December 31, 2009 and 2008, the closing NAV on the last business day of each quarter, and the percentage change in NAV during each such quarter.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | NAV at | | Quarterly % |
| | | Quarter Ending | | High NAV | | Low NAV | | Quarter End | | Change in NAV(1) |
| | | | 12/31/09 | | | $ | 84.88 | | | $ | 78.06 | | | $ | 84.07 | | | | 4.90 | % |
| | | | 9/30/09 | | | $ | 82.03 | | | $ | 67.10 | | | $ | 80.14 | | | | 14.85 | % |
| | | | 6/30/09 | | | $ | 73.45 | | | $ | 64.00 | | | $ | 69.78 | | | | 10.71 | % |
| | | | 3/31/09 | | | $ | 79.26 | | | $ | 53.48 | | | $ | 63.03 | | | | -17.53 | % |
| | | | 12/31/08 | | | $ | 102.64 | | | $ | 68.09 | | | $ | 76.43 | | | | -25.73 | % |
| | | | 9/30/08 | | | $ | 116.20 | | | $ | 100.35 | | | $ | 102.91 | | | | -8.14 | % |
| | | | 6/30/08 | | | $ | 124.30 | | | $ | 112.03 | | | $ | 112.03 | | | | -4.16 | % |
| | | | 3/31/08 | | | $ | 128.26 | | | $ | 112.77 | | | $ | 116.89 | | | | -10.16 | % |
| | |
| (1) | | Shares, when redeemed, may be worth more or less than their original cost. Changes in NAV are historical. Data is for the stated time period only. For information about the performance of the Fund, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)” in Item 7(a). |
(b) Record Holders of Shares of the Fund.
As of February 17, 2010, there were 327 record holders of Shares of the Fund.
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(c) Distributions.
Income and Capital Gain Distributions.The Fund intends to distribute each year, or shortly thereafter, an amount approximately equal to the taxes payable on its net investment income allocated to Shareholders. Prior to December 31, 2009, the Fund had distributed all of its net investment income to Shareholders. The Fund also intends to make annual capital gain distributions to such Shareholders equal to approximately 18% of the amount of its net realized capital gains, if any, other than certain precontribution gains allocated to a Shareholder in connection with a taxable tender offer or other taxable corporate event for a security contributed to the Fund by that Shareholder or that Shareholder’s predecessor in interest. The Fund’s net investment income and net realized gains include the Fund’s allocated share of the net investment income and net realized gains of Belvedere Company and, indirectly, the Portfolio, as well as income and capital gains, if any, distributed by Belport Realty. The Fund’s distributions generally are based on determinations of net investment income and net realized capital gains for federal income tax purposes. Such amounts may differ from net investment income or loss and net realized gain or loss as set forth in the Fund’s consolidated financial statements due to differences in the treatment of various income, gain, loss, expense and other items for federal income tax purposes and under GAAP. The amount of the Fund’s distribution may be adjusted in the future to redirect changes in effective tax rates. The Fund intends to pay distributions, if any, on the last business day of each fiscal year of the Fund (which concludes on December 31) or shortly thereafter. The Fund’s distribution rates with respect to realized gains may be adjusted in the future to reflect changes in the effective maximum marginal individual federal tax rate applicable to long-term capital gains.
Shareholder distributions with respect to net investment income, realized post-contribution gains and certain other realized gains are made pro rata in proportion to the number of Shares held as of the record date of the distribution. All income and capital gain distributions are paid by the Fund in cash or, at the election of the Shareholder, are reinvested in Fund Shares at the net asset value as of the date of reinvestment. Distributions are generally not taxable to the recipient Shareholder unless the distributions exceed the recipient Shareholder’s tax basis in Fund Shares. The Fund’s Credit Facility prohibits the Fund from making any distribution to Shareholders while there is an event of default outstanding under the Credit Facility (see Item 7A(b)).
On January 27, 2010, the Fund made a distribution of $0.22 per Share to Shareholders of record on January 26, 2010. On January 22, 2009, the Fund made a distribution of $1.27 per Share to Shareholders of record on January 20, 2009. On January 30, 2008, the Fund made a distribution of $1.66 per Share to Shareholders of record on January 29, 2008.
Special Distributions.In addition to the pro rata income and capital gain distributions described above, the Fund also makes distributions to Shareholders of allocated precontribution gain (other than certain precontribution gains allocated to a Shareholder in connection with a taxable tender offer or other taxable corporate event involving a security contributed by such Shareholder or such Shareholder’s predecessor in interest) (a Special Distribution). Special Distributions generally equal approximately 18% of the amount of realized precontribution gains plus approximately 4% of the allocated precontribution gain or such other percentage as deemed appropriate to compensate Shareholders receiving such distributions for taxes that may be due on income specially allocated in connection with the precontribution gain and Special Distributions. Special Distributions are paid by the Fund in cash and are made solely to the Shareholders to whom the precontribution gain is allocated. The Fund does not intend to make Special Distributions to a Shareholder in respect of realized precontribution gain allocated to a Shareholder or such Shareholder’s predecessor in interest in connection with a taxable tender offer or other taxable corporate event involving a security contributed by such Shareholder or such Shareholder’s predecessor in interest. There were no Special Distributions accrued during the year ending December 31, 2009. Special Distributions of $1,151,791 were accrued during the year ending December 31, 2008 and subsequently paid during the year ending December 31, 2009.
Item 6. Selected Financial Data.
Table of Selected Financial Data.The consolidated data referred to below reflects the Fund’s historical results for the years ending December 31, 2009, 2008, 2007, 2006 and 2005. The following information should be read in conjunction with all of the consolidated financial statements and related notes beginning on page 41 of this Annual Report on Form 10-K. The other consolidated data referred to below is as of each year end.
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| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ending | | Year Ending | | Year Ending | | Year Ending | | Year Ending |
| | | December 31, 2009 | | December 31, 2008 | | December 31, 2007 | | December 31, 2006 | | December 31, 2005 |
| Total investment income | | $ | 24,972,759 | | | $ | 34,410,321 | | | $ | 39,063,397 | | | $ | 36,078,056 | | | $ | 31,659,066 | |
| Interest expense | | $ | 1,257,241 | | | $ | 9,653,613 | | | $ | 15,522,993 | | | $ | 13,828,826 | | | $ | 8,393,262 | |
| Net expenses (including interest expense) | | $ | 6,572,623 | | | $ | 17,496,595 | | | $ | 24,697,372 | | | $ | 22,731,946 | | | $ | 16,692,224 | |
| Net investment income | | $ | 18,400,136 | | | $ | 16,913,726 | | | $ | 14,366,025 | | | $ | 13,346,110 | | | $ | 14,966,842 | |
| Net realized gain (loss) | | $ | (68,518,485 | ) | | $ | (24,134,008 | ) | | $ | 87,655,683 | | | $ | 52,105,860 | | | $ | 11,090,268 | |
| Net change in unrealized appreciation (depreciation) | | $ | 107,511,452 | | | $ | (607,664,020 | ) | | $ | (35,700,865 | ) | | $ | 180,220,450 | | | $ | 112,338,373 | |
| Net increase (decrease) in net assets from operations | | $ | 57,393,103 | | | $ | (614,884,302 | ) | | $ | 66,320,843 | | | $ | 245,672,420 | | | $ | 138,395,483 | |
| Total assets | | $ | 805,383,638 | | | $ | 1,061,323,605 | | | $ | 2,026,719,012 | | | $ | 2,081,430,199 | | | $ | 1,926,445,501 | |
| Loan payable — Credit Facility | | $ | 185,500,000 | | | $ | 296,500,000 | | | $ | 306,000,000 | | | $ | 264,000,000 | | | $ | 230,900,000 | |
| Net assets | | $ | 614,892,917 | | | $ | 756,309,318 | | | $ | 1,718,956,677 | | | $ | 1,815,544,974 | | | $ | 1,687,020,721 | |
| Shares outstanding | | | 7,314,277 | | | | 9,895,385 | | | | 13,211,065 | | | | 14,288,807 | | | | 15,114,379 | |
| Net asset value and redemption price per Share | | $ | 84.07 | | | $ | 76.43 | | | $ | 130.11 | | | $ | 127.06 | | | $ | 111.62 | |
| Net increase (decrease) in net assets | | | | | | | | | | | | | | | | | | | | |
| from operations per Share | | $ | 8.91 | | | $ | (51.93 | ) | | $ | 4.58 | | | $ | 16.86 | | | $ | 8.91 | |
Distribution paid per Share(1)(2) | | $ | 1.27 | | | $ | 1.66 | | | $ | 1.53 | | | $ | 1.42 | | | $ | 1.24 | |
| | |
| (1) | | The Fund makes Special Distributions which are not made on a pro rata basis. See Item 5(c). Special Distributions accrued during the year ending December 31, 2008 amounted to $0.095 per Share. There were no Special Distributions made during the years ending December 31, 2009, 2007, 2006 and 2005. |
| |
| (2) | | Distributions of net investment income and net realized capital gains are normally paid at the end of each year, or shortly thereafter, to Shareholders of record as of the record date. See “Distributions” in Item 5(c). |
| | |
| Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). |
The information in this report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Act. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “might,” “expect,” “anticipate,” “estimate,” and similar words, although some forward-looking statements are expressed differently. The actual results of the Fund could differ materially from those contained in the forward-looking statements due to a number of factors. The Fund undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Factors that could affect the Fund’s performance include a decline in the U.S. stock markets or in general economic conditions, adverse developments affecting the real estate industry, or fluctuations in interest rates.
The following discussion should be read in conjunction with the Fund’s consolidated financial statements and related notes which are included on pages 41 of this Annual Report on Form 10-K.
(a) Results of Operations.
Increases and decreases in the Fund’s net asset value per share are based on net investment income or loss and realized and unrealized gains and losses on investments. The Fund’s net investment income or loss is determined by subtracting the Fund’s total expenses from its investment income. The Fund’s investment income generally includes the net investment income allocated to the Fund from Belvedere Company, net investment income allocated to the Fund from the Real Estate Joint Ventures and Co-owned Property, distribution income from the Partnership Preference Units and interest earned on the Fund’s short-term investments, including investments in an EV money market fund. The net investment income of Belvedere Company allocated to the Fund includes dividends, interest and expenses allocated to Belvedere Company by the Portfolio less the expenses of Belvedere Company allocated to the Fund. The Fund’s total expenses generally include the Fund’s investment advisory and administrative fees, distribution and servicing fees, interest expense on the Fund’s Credit Facility and other miscellaneous expenses. The Fund’s realized and unrealized gains and losses are the result of transactions in, or changes in value of, security investments held through the Fund’s indirect interest (through Belvedere Company) in the Portfolio, real estate investments held through Belport Realty, the Fund’s interest rate swap agreements
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and any other direct investments of the Fund, as well as periodic payments made by the Fund pursuant to interest rate swap agreements.
Realized and unrealized gains and losses on investments have the most significant impact on the Fund’s net asset value per share and result primarily from sales of such investments and changes in their underlying value. The investments of the Portfolio consist primarily of common stocks of domestic and foreign growth companies that are considered by its investment adviser to be high in quality and attractive in their long-term investment prospects. Because the securities holdings of the Portfolio are broadly diversified, the performance of the Portfolio cannot be attributed to one particular stock or one particular industry or market sector. The performance of the Portfolio and the Fund are substantially influenced by the overall performance of the U.S. stock market, as well as by the relative performance versus the overall market of specific stocks and classes of stocks in which the Portfolio maintains large positions.
MD&A for the Year Ending December 31, 2009 Compared to the Year Ending December 31, 2008.(1)
Performance of the Fund.The Fund’s investment objective is to achieve long-term, after-tax returns for Shareholders. Eaton Vance, as the Fund’s manager, measures the Fund’s success in achieving its objective based on the investment returns of the Fund, using the S&P 500 Index (the Index) as the Fund’s primary performance benchmark. The Index is a broad-based, unmanaged index of common stocks commonly used as a measure of U.S. stock market performance. Eaton Vance’s primary focus in pursuing total return is on the Fund’s common stock portfolio, which consists of its indirect interest in the Portfolio. The Fund invests in the Portfolio through its interest in Belvedere Company. The Fund’s performance will differ from that of the Portfolio primarily due to its investments outside the Portfolio. In measuring the performance of the Fund’s real estate investments, Eaton Vance considers whether, through current returns and changes in valuation, the real estate investments achieve returns that over the long-term exceed the cost of the borrowings incurred to acquire such investments and thereby add to Fund returns. The Fund has entered into interest rate swap agreements to fix the cost of a portion of its borrowings under the Credit Facility.
The Fund’s total return for the year ending December 31, 2009 was 12.05%. This return reflects an increase in the Fund’s net asset value per Share from $76.43 to $84.07 and a distribution of $1.27 per Share during the period. For comparison, the Index had a total return of 26.47% over the same period. The combined impact on performance of the Fund’s investment activities outside of the Portfolio was negative for the year ending December 31, 2009.
The Fund had a total return of -40.44% for the year ending December 31, 2008. This return reflected a decrease in the Fund’s net asset value per Share from $130.11 to $76.43 and a distribution of $1.66 per Share during the period. For comparison, the Index had a total return of -36.99% over the same period.
Performance of the Portfolio.For the year ending December 31, 2009 the Portfolio had a total return of 23.32%. The Portfolio underperformed the Index, which had a total return of 26.47% over the same period, due in part to differences in sector allocation and stock selection versus the Index.
Each of the 10 economic sectors represented in the Index registered positive results for the year. The information technology (IT) sector gained more than 60%, followed by materials and consumer discretionary, each of which advanced more than 40%. In contrast, telecommunication services was the only sector with single-digit returns, while utilities, energy, and consumer staples had returns ranging between 11% and 15%, reflecting the dominance of cyclical stocks over defensive stocks during the period.
Best-performing industries for the Index included real estate management and development, automobiles, internet and catalog retailers, paper and forest products, auto components, energy equipment and services, wireless telecommunication services and multiline retailers. Conversely, construction materials, diversified consumer services, construction and engineering, biotechnology, thrifts and mortgage companies and commercial banks each posted losses for the year.
During the year ending December 31, 2009, the Portfolio remained overweighted in the health care, industrials, consumer staples and consumer discretionary sectors, while continuing to underweight IT, financials, materials, energy, telecommunications and utilities. While management selectively increased the Portfolio’s overall exposure to specific areas
| 1 | | Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that Shares, when redeemed, may be worth more or less than their original cost. Total returns are historical and are calculated by determining the percentage change in net asset value with all distributions reinvested except for special distributions. Performance is for the stated time period only; due to market volatility, current performance of the Fund and of the Portfolio may be lower or higher than the quoted return. The performance of the Fund and the Portfolio is compared to that of their benchmark, the S&P 500 Index. It is not possible to invest directly in an index. |
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within the IT sector, stock selection in this space proved to have the largest negative impact on relative performance for the year. Underweighting stronger performing industries, such as computers and peripherals and software, hurt returns, as did stock selection in the communication equipment industry. An overweight allocation and stock selection in health care also detracted, as did stock selection in financials, where a number of lower-priced, lower-quality companies represented in the Index saw their stock prices ascend further than the higher-quality names held by the Portfolio.
In contrast, the Portfolio benefited from its investments in the energy, utilities, industrials and telecommunication services sectors. Stock selection in the energy sector lifted returns, as management’s emphasis on the more specialized exploration and production companies over the mega-cap and more-defensive integrated oil names keyed relative gains. The Portfolio’s de-emphasis of the lagging telecommunication services and utilities sectors also helped relative performance, as did security selection among industrial conglomerates and machinery stocks.
Performance of Real Estate Investments.The Fund’s real estate investments are held through Belport Realty. As of December 31, 2009, real estate investments included: two real estate joint ventures (Bel Multifamily and Monadnock); a Co-owned Property (Bel Stamford III); and a portfolio of Partnership Preference Units. Bel Multifamily and Monadnock own multifamily properties. Bel Stamford III owns an interest in an office property leased to a single tenant.
During the year ending December 31, 2009, Monadnock sold one property for approximately $33.0 million. Belport Realty recognized a net loss of approximately $7.9 million on the sale transaction.
The Fund’s real estate investments produced negative returns for the year ending December 31, 2009, with decreases in the fair value of real property investments more than offsetting net investment income and increases in the fair value of Partnership Preference Units. Valuations of the real property investments decreased during the period due to further widening of capitalization rates and discount rates as well as weakening in other market metrics. The increases in capitalization rates and discount rates reflect the re-pricing of risk by commercial real estate investors and the reduced availability and increased cost of debt financing. These factors, along with general economic conditions, have kept transactional activity at levels significantly below that of recent years and caused continued downward pressure on the valuations of real property investments. The fair value of Partnership Preference Units increased from December 31, 2008 due to the tightening of credit spreads, as the general market for preferreds and other fixed income securities improved during the period.
During the year ending December 31, 2009, the Fund’s net investment income from real estate investments was approximately $13.9 million compared to approximately $11.9 million for the year ending December 31, 2008, an increase of $2.0 million or 17%. The increase was due principally to an increase in the net investment income from Monadnock attributable to non-recurring costs for hurricane-related damages to certain properties in 2008 and an increase in the net investment income from Co-owned Property related to the acquisition of Bel Stamford III in June 2008.
The fair value of the Fund’s real estate investments was approximately $161.3 million at December 31, 2009 compared to approximately $214.3 million at December 31, 2008, a net decrease of $53.0 million or 25%. This net decrease was due to decreases in the fair value of Belport Realty’s investments in the Real Estate Joint Ventures, the sale of a property by Monadnock and a decrease in the fair value of Bel Stamford III, partially offset by an increase in the fair value of Partnership Preference Units held at period end.
Performance of Interest Rate Swap Agreements.For the year ending December 31, 2009, net realized and unrealized losses on the Fund’s interest rate swap agreements totaled approximately $2.3 million, compared to approximately $8.2 million of net realized and unrealized losses for the year ending December 31, 2008. Net realized and unrealized losses on swap agreements for the year ending December 31, 2009 consisted of $5.4 million of periodic net payments made pursuant to outstanding swap agreements (and classified as net realized losses on interest rate swap agreements in the Fund’s consolidated financial statements), partially offset by $3.1 million of net unrealized gains due to changes in swap agreement valuations. The positive contribution to Fund performance from changes in swap agreement valuations for the year ending December 31, 2009 was attributable to an increase in swap rates during the period and a decrease in the remaining term of the agreements.
MD&A for the Year Ending December 31, 2008 Compared to the Year Ending December 31, 2007.
Performance of the Fund.The Fund had a total return of -40.44% for the year ending December 31, 2008. This return reflected a decrease in the Fund’s net asset value per Share from $130.11 to $76.43 and a distribution of $1.66 per Share during the period. For comparison, the Index had a total return of -36.99% over the same period.
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The Fund had a total return of 3.64% for the year ending December 31, 2007. This return reflected an increase in the Fund’s net asset value per Share from $127.06 to $130.11 and a distribution of $1.53 per Share during the period. For comparison, the Index had a total return of 5.49% over the same period.
Performance of the Portfolio.Global equity markets suffered profound losses during 2008, a year that will likely go down as one of the worst in modern financial market history. The U.S. economy held up relatively well during the first half of the year, but the simultaneous bursting of the housing, credit and commodity bubbles created a global financial crisis of unforeseen levels. Equity markets collapsed during the second half of the year, as a series of catastrophic events on Wall Street induced panic and fear among market participants. Additionally, commodity prices collapsed during the second half of 2008. After peaking at more than $145 per barrel in July, oil prices traded down to approximately $44 per barrel at year end. The U.S. economy was officially declared in recession during the fourth quarter as unemployment continued to rise. The Federal Reserve responded to the crises with a dramatic cut in interest rates.
Equity markets posted double-digit declines for the year ending December 31, 2008. The Index suffered its worst loss since 1937, while the Dow Jones Industrials Average experienced the third-worst loss in its history. On average, small-capitalization stocks slightly outperformed large-capitalization stocks and value-style investments fared better than growth-style investments.
For the year ending December 31, 2008, all ten sectors in the Index registered declines. Consumer staples, health care and utilities were relatively stronger during the year, while the financials, materials and information technology sectors produced the weakest results. Market-leading industries of 2008 included food and staples retailing, biotechnology, and household products. In contrast, the thrifts and mortgage finance, independent power producers, wireless telecommunication services, and capital markets industries realized the most significant losses.
The Portfolio’s performance for the year ending December 31, 2008 was -32.76%, which outperformed the return of the Index by 4.23%. The Portfolio outperformed its benchmark due in part to differences in sector allocation and relatively stronger stock selection versus the Index. For comparison, the total return of the Portfolio for the year ending December 31, 2007 was 4.72%, which trailed the Index by 0.77%.
During the year ending December 31, 2008, the Portfolio remained overweight in the industrials, consumer staples and consumer discretionary sectors, while continuing to underweight the technology, materials, telecommunications and utilities sectors. The Portfolio benefited from its relatively stronger investments in eight of the ten economic sectors. Its commitment to consumer staples and health care, including investment selections in beverages, food products and pharmaceutical stocks, added to results. The Portfolio’s underweight exposure to the information technology sector, specifically computers and peripherals, software and semiconductors, also proved beneficial. Stock selection within the energy equipment and services and chemicals industries additionally boosted the Portfolio’s results. An underweight position in the materials sector – one of the worst performing sectors in the Index – added value relative to the benchmark. A shift during the year to reduce the Portfolio’s overweight exposure to financials, combined with selectiveness within the sector, added to the Portfolio’s relative performance.
During the year ending December 31, 2008, the Portfolio’s underweight positions in the relatively strong-performing electric utilities and telecommunications sectors hurt its performance versus its benchmark.
Performance of Real Estate Investments.As of December 31, 2008, real estate investments included: two real estate joint ventures (Bel Multifamily and Monadnock); a Co-owned Property (Bel Stamford III); and a portfolio of Partnership Preference Units. Bel Multifamily and Monadnock own multifamily properties. Bel Stamford III owns an interest in an office property leased to a single tenant.
In June 2008, Belport Realty acquired Bel Stamford III for approximately $12.7 million from the real estate investment affiliate of another investment fund advised by Boston Management. The acquisition was financed with proceeds from the Fund’s Credit Facility and through the assumption of a mortgage note secured by the real property. The other investors in the Co-owned Property are real estate investment affiliates of other investment funds advised by Boston Management.
During the year ending December 31, 2008, Belport Realty acquired certain Partnership Preference Units for approximately $6.1 million (representing purchases from real estate investment affiliates of other investment funds advised by Boston Management).
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The Fund’s real estate investments produced negative returns for the year ending December 31, 2008, with decreases in investment values and other factors more than offsetting the net investment income generated during the period. Valuations of the Subsidiary Real Estate Investments decreased throughout the year, at a rate which accelerated in the fourth quarter due to further widening in capitalization rates and discount rates. The increases in capitalization rates and discount rates reflected the re-pricing of risk by commercial real estate investors and the reduced availability and increased cost of debt financing. These factors, along with general economic uncertainty, caused a significant decrease in transactional activity during the year, driving down the valuations of real property investments. Similarly, the fair values of Partnership Preference Units decreased from December 31, 2007 due to a continued widening of credit spreads as the general market for preferred and other fixed income securities weakened substantially as a result of the ongoing global financial crisis.
During the year ending December 31, 2008, the Fund’s net investment income from real estate investments was approximately $11.9 million compared to approximately $14.6 million for the year ending December 31, 2007, a decrease of $2.7 million or 18%. The decrease was due principally to a decrease in the net investment income from the properties held by Monadnock attributable to costs for hurricane-related damages to certain properties, partially offset by higher distributions from investments in Partnership Preference Units due to more Partnership Preference Units held on average during the period and the acquisition of Bel Stamford III in June 2008.
The fair value of the Fund’s real estate investments was approximately $214.3 million at December 31, 2008 compared to approximately $310.9 million at December 31, 2007, a net decrease of $96.6 million or 31%. This net decrease was due to a decrease in the fair value of Belport Realty’s investment in the Real Estate Joint Ventures and a net decline in the fair values of Partnership Preference Units held, partially offset by the acquisition of Bel Stamford III and more Partnership Preference Units held by Belport Realty.
Performance of Interest Rate Swap Agreements.For the year ending December 31, 2008, net realized and unrealized losses on the Fund’s interest rate swap agreements totaled approximately $8.2 million, compared to approximately $4.0 million of net realized and unrealized losses for the year ending December 31, 2007. Net realized and unrealized losses on swap agreements for the year ending December 31, 2008 consisted of $5.5 million of net unrealized losses due to changes in swap agreement valuations and $2.7 million of periodic net payments made pursuant to outstanding swap agreements (and classified as net realized losses on interest rate swap agreements in the Fund’s consolidated financial statements). The negative contribution to Fund performance from changes in swap agreement valuations in 2008 was attributable to a decrease in swap rates during the year.
(b) Liquidity and Capital Resources.
Outstanding Borrowings.The Fund has entered into the Credit Facility primarily to finance the Fund’s real estate investments and to satisfy the liquidity needs of the Fund. On December 21, 2009, the Fund entered into the New Credit Facility with Bank of America to refinance the existing Credit Facility on or before April 1, 2010. The Fund intends to use the New Credit Facility for the same purposes.
As of December 31, 2009, the Fund had outstanding borrowings of $185.5 million and unused loan commitments of $22.3 million under the Credit Facility.
Obligations under the Credit Facility are without recourse to Shareholders. The Fund is required under the Credit Facility to maintain at all times a specified asset coverage ratio. To comply with the terms of the Credit Facility, the Fund may be required to dispose of assets on unfavorable terms if market fluctuations or other factors reduce the required asset coverage to less than the prescribed amount. The rights of the lenders under the Credit Facility to receive payments of interest on and repayments of principal of borrowings will be senior to the rights of the Shareholders. Under the terms of the Credit Facility, the Fund is not permitted to make distributions of cash or securities while there is outstanding an event of default under the Credit Facility. During such periods, the Fund would not be able to honor redemption requests or make cash distributions. The Credit Facility is secured by a pledge of the Fund’s assets, excluding the Fund’s investment in and the assets of the Subsidiary Real Estate Investments. Following an event of default under the Credit Facility, the lender could elect to sell pledged assets of the Fund without regard to the tax or other consequences of such action for the Shareholders. The New Credit Facility contains similar provisions restricting redemptions and cash distributions in the case of an event of default by the Fund under the New Credit Facility. In addition, the lender would have similar rights to Fund assets in the event of a default under the New Credit Facility.
Liquidity.The Fund may redeem shares of Belvedere Company at any time. During the year ending December 31, 2009, Fund redemptions from Belvedere Company included redemptions of shares of Belvedere Company for cash in the amount
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of $117.7 million. Such proceeds were used to pay down outstanding debt under the Credit Facility. Both Belvedere Company and the Portfolio normally follow the practice of satisfying redemptions primarily by distributing securities drawn from the Portfolio. Belvedere Company and the Portfolio may also satisfy redemptions by distributing cash. As of December 31, 2009, the Portfolio had cash and short-term investments in the amount of $109.9 million. The Portfolio participates in a $450.0 million multi-fund unsecured line of credit agreement with a group of banks. The Portfolio may temporarily borrow from the line of credit to satisfy redemption requests in cash or to settle investment transactions. The Portfolio had no outstanding borrowings at December 31, 2009. To ensure liquidity for investors in the Portfolio, the Portfolio may not invest more than 15% of its net assets in illiquid assets. As of December 31, 2009, the Portfolio held no illiquid assets.
The liquidity of Belport Realty’s investments in Real Estate Joint Ventures is extremely limited and relies principally upon buy/sell agreements with the Operating Partners that are described in “Real Estate Joint Venture Investments” under “The Fund’s Real Estate Investments” in Item 1. Transfers of Belport Realty’s interest in the Real Estate Joint Ventures to parties other than the Operating Partners are restricted by the terms of the operative agreements of the Real Estate Joint Ventures and lender consent requirements. Belport Realty’s interest in Co-owned Property is generally illiquid. The Partnership Preference Units held by Belport Realty are not registered under the Securities Act and are subject to substantial restrictions on transfer. As such, they are considered illiquid.
(c) Off-Balance Sheet Arrangements.
The Fund does not have any relationships with unconsolidated entities that have been established solely for the purpose of facilitating off-balance sheet arrangements.
(d) The Fund’s Contractual Obligations.
The following table sets forth the amounts of payments due under the specified contractual obligations outstanding as of December 31, 2009:
| | | | | | | | | | | | | | | | | | | | | |
| | | Payments due: |
| | | | | | | Less than | | | | | | | | | | More than |
| Type of Obligation | | Total | | 1 Year | | 1-3 Years | | 3-5 Years | | 5 Years |
| |
| Long-Term Debt: | | | | | | | | | | | | | | | | | | | | |
Borrowings under Credit Facility(1) | | $ | 185,500,000 | | | $ | 185,500,000 | | | $ | — | | | $ | — | | | $ | — | |
Service Agreements(2) | | | | | | | | | | | | | | | | | | | | |
| Other Long-Term Liabilities: | | | | | | | | | | | | | | | | | | | | |
Interest Rate Swap Agreements(3) | | $ | 2,989,420 | | | $ | 2,989,420 | | | $ | — | | | $ | — | | | $ | — | |
| |
| Total | | $ | 188,489,420 | | | $ | 188,489,420 | | | $ | — | | | $ | — | | | $ | — | |
| |
| | |
| (1) | | The Fund has entered into a Credit Facility and a New Credit Facility, each as described in “Liquidity and Capital Resources” above. The Credit Facility is secured by a pledge of the Fund’s assets, excluding the Fund’s investments in and the assets of the Subsidiary Real Estate Investments and expires on June 25, 2010. The Fund expects to terminate the Credit Facility and borrow under its New Credit Facility on or before April 1, 2010. All Fund borrowings under the New Credit Facility will be secured by a pledge of the Fund’s assets, excluding the Fund’s real estate investments. The Credit Facility is primarily used to finance the Fund’s equity in its real estate investments and to satisfy the liquidity needs of the Fund. Amount does not reflect interest. |
| |
| (2) | | The Fund and Belport Realty have entered into agreements with certain service providers pursuant to which the Fund and Belport Realty pay fees as a percentage of assets. These fees include fees paid to Eaton Vance and its affiliates (which are described in Item 13). These agreements generally continue indefinitely unless terminated by the Fund or Belport Realty (as applicable) or the service provider. For the year ending December 31, 2009, fees paid to Eaton Vance and its affiliates equaled approximately 1.37% of the Fund’s average net assets. Because these fees are based on the Fund’s assets (which will fluctuate over time) it is not possible to specify the dollar amounts payable in the future. |
| |
| (3) | | The Fund has entered into interest rate swap agreements to fix the cost of a portion of its borrowings under the Credit Facility. Pursuant to the agreements, the Fund makes payments to the counterparty, MLCS, at predetermined fixed rates in exchange for floating rate payments that fluctuate with the one-month LIBOR. The amounts disclosed in the table represent the fixed interest amounts payable by the Fund. The periodic |
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| | |
| | | floating rate payments that the Fund expects to receive pursuant to the agreements reduce the fixed interest cost to the Fund. The swap agreements expire on June 25, 2010, subject to the Fund’s right to terminate earlier in the case of some swaps. |
(e) Critical Accounting Estimates.
The Fund’s consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires the Fund to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimate are reasonably likely to occur from period to period, and where such different or changed estimates would materially impact the Fund’s financial condition, changes in financial condition or results of operations. The Fund’s significant accounting policies are discussed in Note 2 of the notes to the consolidated financial statements; critical estimates inherent in these accounting policies are discussed in the following paragraphs.
The Fund has determined that the valuation of the Fund’s real estate investments involve critical estimates. The Fund’s investments in real estate are an important component of its total investment program. Market prices for these investments are not readily available and therefore the investments are stated in the Fund’s consolidated financial statements at fair value. The fair value of an investment represents the amount at which Boston Management believes the investment could be sold in a current transaction between market participants in an orderly disposition, that is, other than in a forced liquidation or distressed sale. Boston Management makes valuation determinations in accordance with the Fund’s valuation procedures. The Fund reports the fair value of its real estate investments on its consolidated statements of assets and liabilities, with any changes to fair value recorded as unrealized appreciation or depreciation in the Fund’s consolidated statements of operations.
The need to fair value the Fund’s real estate investments introduces uncertainty into the Fund’s reported financial condition and performance because:
| | • | | such assets are, by their nature, difficult to value and fair values may not accurately reflect what the Fund could realize in a current sale between willing parties; |
| |
| | • | | property appraisals and other factors used to determine the fair value of the Fund’s real estate investments depend on estimates of future operating results and supply and demand assumptions that may not reflect actual current market conditions and full consideration of all factors relevant to valuations; |
| |
| | • | | property appraisals and other factors used to determine the fair value of the Fund’s real estate investments are not continuously updated and therefore may not be current as of specific dates; and |
| |
| | • | | if the Fund were forced to sell illiquid assets on a distressed basis, the proceeds may be substantially less than stated values. |
As of December 31, 2009, the fair value of the Fund’s real estate investments represented 20.0% of the Fund’s total assets. Valuations of the Fund’s Partnership Preference Units and Subsidiary Real Estate Investments are inherently uncertain because they involve the use of assumptions and estimates. If the assumptions and estimates used in the valuations were to change, it could materially impact the fair value of the Fund’s holdings of Partnership Preference Units and Subsidiary Real Estate Investments.
The fair value of property held by the Fund’s Subsidiary Real Estate Investments is based on appraisals provided by independent, licensed appraisers (Appraisers) and valuations, if applicable, prepared by Boston Management. Appraisers may perform other valuation services for the Fund.
The appraisals of properties are conducted by Appraisers on at least an annual basis. Appraisals of properties may be conducted more frequently than once a year if Boston Management determines that significant changes in economic circumstances, that may materially impact fair values, have occurred since the most recent appraisal. Each appraisal is conducted in accordance with the Uniform Standards of Professional Appraisal Practices (as well as other relevant standards). Boston Management reviews the appraisal of each property and generally relies on the assumptions and estimates made by the Appraiser when determining fair value.
In deriving the fair value of a property, an Appraiser considers numerous factors, including the expected future cash flows from the property, recent sale prices for similar properties and, if applicable, the replacement cost of the property, in order to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the property. More specifically, the Appraiser considers the revenues and expenses of the property and the estimated future growth or decline
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thereof, which may be based on tenant credit quality, property condition, change in market or submarket conditions, market trends, interest rates, inflation rates or other factors deemed relevant by the Appraiser. The Appraiser estimates operating cash flows from the property and the sale proceeds of a hypothetical transaction at the end of a hypothetical holding period. The cash flows are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. This value indication is compared to the value indication that results from applying a market-derived capitalization rate to a single year’s stabilized net operating income for the property. The assumed capitalization rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. The Appraiser considers the value indications derived by these two methods, as well as the value indicated by recent market transactions involving similar properties, in order to produce a final value estimate for the property. Property appraisals are inherently uncertain because they apply assumed discount rates, capitalization rates, growth rates and inflation rates to the Appraiser’s estimated stabilized cash flows, and due to the unique characteristics of a property. If the assumptions and estimates used by the Appraisers to determine the value of the properties owned by the Subsidiary Real Estate Investments were to change, it could materially impact the fair value of the Subsidiary Real Estate Investments.
For those properties not appraised by Appraisers in a given quarter,Boston Management will review the fair values of such properties and, if Boston Management believes it is warranted based on the appraisals of appraised properties or for other reasons, Boston Management may prepare a valuation of such properties considering results of operations, market conditions, significant changes in economic circumstances, recent independent appraisals of similar properties and/or other relevant facts or circumstances. In determining valuations, Boston Management follows a process consistent with industry practice and the practice of Appraisers, as described above. Valuations may occur more frequently than quarterly if it is determined by Boston Management that the current property valuation has changed materially since the most recent appraisal or valuation.
Boston Management determines the fair value of the Fund’s equity interest in a Real Estate Joint Venture based on an estimate of the allocation of equity interests between Belport Realty and the Operating Partner. This allocation is generally calculated by a third party specialist, using current valuations of the properties owned by the Real Estate Joint Venture. The specialist uses a financial model that considers (i) the terms of the joint venture agreement relating to allocation of distributable cash flow, (ii) the expected duration of the joint venture, and (iii) the projected property values and cash flows from the properties based on estimates used in the property valuations. The estimated allocation of equity interests between Belport Realty and the Operating Partner of a Real Estate Joint Venture is prepared quarterly and reviewed by Boston Management. Interim allocations of equity interests may be conducted more frequently than quarterly if Boston Management determines that significant changes in economic circumstances that may materially impact the allocation of equity interests have occurred since the most recent allocation.
Boston Management determines the fair value of the Fund’s interest in Co-owned Property by applying the Fund’s ownership interest to the fair value of the property, net of any associated mortgage debt, if any.
Mortgage notes payable, which are generally without recourse to the Fund and Belport Realty, are generally stated at the amounts payable. A mortgage note payable may be adjusted to the fair value of the real property securing the mortgage note if the fair value of the real property is less than the outstanding principal balance.
The fair value of the Partnership Preference Units is based on analysis and calculations performed on at least a monthly basis by a third party service provider. The service provider calculates an estimated price and yield (before accrued distributions) for each issue of Partnership Preference Units based on descriptions of such issue provided by Boston Management and certain publicly available information including, but not limited to, the trading prices of publicly issued debt and/or preferred stock instruments of the same or similar issuers, which may be adjusted to reflect the illiquidity and other structural characteristics of the Partnership Preference Units (such as call provisions). Daily valuations of Partnership Preference Units are determined by adjusting prices from the service provider to account for accrued distributions under the terms of the Partnership Preference Units. If changes in relevant markets, events that materially affect an issuer or other events that have a significant effect on the price or yield of Partnership Preference Units occur, relevant prices or yields may be adjusted to take such occurrences into account. Boston Management reviews the analysis and calculations performed by the third party service provider. Boston Management generally relies on the assumptions and estimates made by the service provider when determining the fair value of the Partnership Preference Units.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
(a) Quantitative Information About Market Risk.
Interest Rate Risk.The Fund’s primary exposure to interest rate risk arises from its real estate investments that are financed by the Fund with floating rate borrowings under the Credit Facility and by fixed-rate mortgage notes secured by the real property of the Subsidiary Real Estate Investments. Partnership Preference Units are fixed rate instruments whose values will generally decrease when interest rates rise and increase when interest rates fall. The interest rates on borrowings under the Credit Facility are reset at regular intervals based on the one-month LIBOR. The Fund has entered into interest rate swap agreements to fix the cost of a portion of its borrowings under the Credit Facility. Pursuant to the agreements, the Fund makes periodic payments to the counterparty at predetermined fixed rates in exchange for floating rate payments that fluctuate with the one-month LIBOR. The Fund’s interest rate swap agreements will generally increase in value when interest rates rise and decrease in value when interest rates fall. In the future, the Fund may use other interest rate hedging arrangements (such as caps, floors and collars) to fix or limit borrowing costs. The use of interest rate hedging arrangements is a specialized activity that can expose the Fund to significant loss.
The following table summarizes the contractual maturities and weighted-average interest rates associated with the Fund’s significant non-trading financial instruments. The Fund has no market risk sensitive instruments held for trading purposes. This information should be read in conjunction with Notes 10 and 11 to the Fund’s consolidated financial statements beginning on page 41 of this Annual Report on Form 10-K.
Interest Rate Sensitivity
Cost, Principal (Notional) Amount
by Contractual Maturity and Callable Date
for the Twelve Months Ending December 31,*
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | as of |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, |
| | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | Thereafter | | Total | | 2009 |
| |
| Rate sensitive liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Variable-rate Credit Facility | | $ | 185,500,000 | | | | | | | | | | | | | | | | | | | | | | | $ | 185,500,000 | | | $ | 185,500,000 | |
| Average interest rate | | | 0.43 | % | | | | | | | | | | | | | | | | | | | | | | | 0.43 | % | | | | |
| |
| Rate sensitive derivative financial instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pay fixed/receive variable interest rate swap agreements | | $ | 155,982,000 | | | | | | | | | | | | | | | | | | | | | | | $ | 155,982,000 | | | $ | (2,044,732 | ) |
| Average pay rate | | | 3.97 | % | | | | | | | | | | | | | | | | | | | | | | | 3.97 | % | | | | |
| Average receive rate | | | 0.43 | % | | | | | | | | | | | | | | | | | | | | | | | 0.43 | % | | | | |
| |
| Rate sensitive investments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed-rate Partnership Preference Units: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Colonial Realty Limited Partnership, 7.25% Series B Cumulative Redeemable Perpetual Preferred Units, Callable 8/24/09, Current Yield: 10.70% | | $ | 9,637,020 | | | | | | | | | | | | | | | | | | | | | | | $ | 9,637,020 | | | $ | 6,776,000 | |
25
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | as of |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, |
| | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | Thereafter | | Total | | 2009 |
| |
| Liberty Property Limited Partnership, 7.40% Series H Cumulative Redeemable Preferred Units, Callable 8/21/12, Current Yield: 9.60% | | | | | | | | | | $ | 10,000,000 | | | | | | | | | | | | | | | $ | 10,000,000 | | | $ | 7,708,000 | |
| MHC Operating Limited Partnership, 8.0625% Series D Cumulative Redeemable Perpetual Preference Units, Callable 3/24/10, Current Yield: 10.40% | | $ | 10,000,000 | | | | | | | | | | | | | | | | | | | | | | | $ | 10,000,000 | | | $ | 7,752,000 | |
| PSA Institutional Partners, L.P., 7.25% Series J Cumulative Redeemable Perpetual Preferred Units, Callable 5/9/11, Current Yield: 8.70% | | | | | | $ | 10,000,000 | | | | | | | | | | | | | | | | | | | $ | 10,000,000 | | | $ | 8,332,000 | |
Vornado Realty L.P., 7.0% Series D-10 Cumulative Redeemable Preferred Units, Callable 11/17/08, Current Yield: 9.07%(1) | | $ | 9,721,571 | | | | | | | | | | | | | | | | | | | $ | 9,721,571 | | | $ | 11,733,657 | | | | | |
| | |
| * | | The amounts listed reflect the Fund’s positions as of December 31, 2009. The Fund’s current positions may differ. |
| |
| (1) | | Belport Realty’s interest in these Partnership Preference Units is held through Bel Holdings. |
(b) Qualitative Information About Market Risk.
Risks Associated with Equity Investing.The Fund invests primarily in a diversified portfolio of common stocks and is thereby subject to general stock market risk. There can be no assurance that the performance of the Fund will match that of the U.S. stock market or that of other equity funds. In managing the Portfolio for long-term, after-tax returns, Boston Management generally seeks to avoid or minimize sales of securities with large accumulated capital gains, including contributed securities. Such securities constitute a substantial portion of the assets of the Portfolio. Although the Portfolio may utilize certain management strategies in lieu of selling appreciated securities, the Portfolio’s, and hence the Fund’s, exposure to losses during stock market declines may nonetheless be higher than funds that do not follow a general policy of avoiding sales of highly appreciated securities.
Risks of Investing in Foreign Securities.The Portfolio invests in securities issued by foreign companies and the Fund may acquire foreign investments. Foreign investments involve considerations and possible risks not typically associated with investing in the United States. The value of foreign investments to U.S. investors may be adversely affected by changes in currency rates. Foreign brokerage commissions, custody fees and other costs of investing are generally higher than in the United States, and foreign investments may be less liquid, more volatile and subject to more government regulation than in the United States. Foreign investments could be adversely affected by other factors not present in the United States, including expropriation, confiscatory taxation, lack of uniform accounting and auditing standards, armed conflict, and potential difficulty in enforcing contractual obligations. These risks can be more significant for investments in emerging markets.
Risks of Certain Investment Techniques.In managing the Portfolio, Boston Management may purchase or sell derivative instruments (which derive their value by reference to other securities, indexes, instruments or currencies) to hedge against securities price declines and currency movements, to add investment exposure to individual securities and groups of securities and to enhance returns. Such transactions may include, without limitation, the purchase and sale of futures contracts on stocks and stock indexes and options thereon, the purchase of put options and the sale of call options on
26
securities held, equity collars, equity swaps, forward sales of stocks and the purchase and sale of forward currency exchange contracts and currency futures. The Portfolio may engage in short sales of individual securities held and short sales of index or basket securities whose constituents are held in whole or in part. The Portfolio may enter into private contracts for the forward sale of stock held and may also lend portfolio securities.
The use of these investment techniques is a specialized activity that may be considered speculative and which can expose the Fund and the Portfolio to significant risk of loss. Successful use of these investment techniques is subject to the ability and performance of the investment adviser. The Fund’s and the Portfolio’s ability to achieve their investment objectives may be adversely affected by the use of these techniques. The writer of an option or a party to an equity swap may incur losses that substantially exceed the payments, if any, received from a counterparty. Forward sales, swaps, caps, floors, collars and over-the-counter options are private contracts in which there is also a risk of loss in the event of a default on an obligation to pay by the counterparty. Such instruments may be difficult to value, may be illiquid and may be subject to wide swings in valuation caused by changes in the price of the underlying security, index, instrument or currency. In addition, if the Fund or the Portfolio has insufficient cash to meet margin, collateral or settlement requirements, it may have to sell assets to meet such requirements. Alternatively, should the Fund or the Portfolio fail to meet these requirements, the counterparty or broker may liquidate positions of the Fund or the Portfolio. The Portfolio may also have to sell or deliver securities holdings in the event that it is not able to purchase securities on the open market to cover its short positions or to close out or satisfy an exercise notice with respect to options positions it has sold. In any of these cases, such sales may be made at prices or in circumstances that Boston Management considers unfavorable.
The Portfolio’s ability to utilize covered short sales, certain equity swaps, forward sales, futures and certain equity collar strategies (combining the purchase of a put option and the sale of a call option) as a tax-efficient management technique with respect to holdings of appreciated securities is limited to circumstances in which the hedging transaction is closed out within 30 days of the end of the Portfolio’s taxable year in which the hedging transaction was initiated and the underlying appreciated securities position is held unhedged for at least the next 60 days after such hedging transaction is closed. In addition, dividends received on stock for which the Portfolio is obligated to make related payments (pursuant to a short sale or otherwise) with respect to positions in substantially similar or related property are subject to federal income taxation at ordinary rates and do not qualify for favorable tax treatment. Also, holding periods required to receive tax-advantaged treatment of qualified dividends on a stock are suspended whenever the Portfolio has an option (other than a qualified covered call option not in the money when written) or contractual obligation to sell or an open short sale of substantially identical stock, is the grantor of an option (other than a qualified covered call option not in the money when written) to buy substantially identical stock or has diminished risk of loss in such stock by holding positions with respect to substantially similar or related property. There can be no assurance that counterparties will at all times be willing to enter into covered short sales, forward sales of stocks, interest rate hedges, equity swaps and other derivative instrument transactions on terms satisfactory to the Fund or the Portfolio. The Fund’s and the Portfolio’s ability to enter into such transactions may also be limited by covenants under the Fund’s Credit Facility, the federal margin regulations and other laws and regulations. The Portfolio’s use of certain investment techniques may be constrained because the Portfolio is a diversified, open-end management investment company registered under the 1940 Act and because other investors in the Portfolio are regulated investment companies under Subchapter M of the Code. Moreover, the Fund and the Portfolio are subject to restrictions under the federal securities laws on their ability to enter into transactions in respect of securities that are subject to restrictions on transfer pursuant to the Securities Act.
Risks of Real Estate Investments.The success of the Fund’s real estate investments depends in part on many factors related to the real estate market. These factors include, without limitation, general economic conditions, the supply and demand for different types of real properties, the financial health of tenants, changing transportation and logistics patterns (in the case of industrial distribution properties), the timing of lease expirations and terminations, fluctuations in rental rates and operating costs, exposure to adverse environmental conditions and losses from casualty or condemnation, fluctuations in interest rates, availability and cost of financing, managerial performance, government rules and regulations, and acts of God (whether or not insured against). There can be no assurance that Belport Realty’s ownership of real estate investments will be an economic success.
Interests in Real Estate Joint Ventures, Co-owned Property and Partnership Preference Units are not registered under the federal securities laws and are subject to restrictions on transfer. Due to their illiquidity, they may be difficult to value and the ongoing value of the investments is uncertain. See “Critical Accounting Estimates” in Item 7(e).
The performance of Real Estate Joint Ventures is substantially influenced by the property management capabilities of the Operating Partner and conditions in the specific real estate submarkets in which the properties owned by the Real Estate
27
Joint Venture are located. The Operating Partner is subject to substantial conflicts of interest in structuring, operating and winding up the Real Estate Joint Venture. The Operating Partner has an economic incentive to maximize the prices at which it sells properties to the Real Estate Joint Venture and has a similar incentive to minimize the prices at which it may acquire properties from the Real Estate Joint Venture. The Operating Partner may devote greater attention or more resources to managing other properties in which it holds an interest than to managing properties held by the Real Estate Joint Venture. Future investment opportunities identified by the Operating Partner will more likely be pursued independently, rather than through the Real Estate Joint Venture. Financial difficulties encountered by the Operating Partner in its other businesses may interfere with the operations of the Real Estate Joint Venture.
Belport Realty’s investment in the Real Estate Joint Ventures may be significantly concentrated in terms of geographic regions, property types and operators, increasing the Fund’s exposure to regional, property type and operator-specific risks. Given a lack of stand-alone operating history, limited diversification and relatively high financial leverage, the Real Estate Joint Ventures are not equivalent in quality to real estate companies whose preferred equity or senior debt securities are rated investment grade. Distributable cash flows from a Real Estate Joint Venture may not be sufficient for Belport Realty to receive its fixed annual preferred return, or any returns in excess thereof.
The debt of each Real Estate Joint Venture is fixed-rate, secured by its underlying properties and without recourse to Fund Shareholders and generally without recourse to Belport Realty and the Fund. Belport Realty and the Fund may be directly or indirectly responsible for certain liabilities constituting exceptions to the generally non-recourse nature of the mortgage indebtedness, including liabilities associated with fraud, misrepresentation, misappropriation of funds, breach of material covenants or liabilities arising from environmental conditions involving or affecting Real Estate Joint Venture properties. To the extent practicable, the Fund and Belport Realty will seek indemnification from the Operating Partners for certain of such potential liabilities. The availability of financing and other financial conditions can have a material impact on property values and therefore on the value of Real Estate Joint Venture assets. Mortgage debt of the Real Estate Joint Ventures normally cannot be refinanced prior to maturity without substantial penalties.
The ongoing value of Belport Realty’s investments in the Real Estate Joint Ventures is substantially uncertain. The real property held through the Real Estate Joint Ventures is stated at the fair value as described in Item 7(e). The policies for estimating the fair value of real estate investments involve significant judgments that are based upon a number of factors, which may include, without limitation, general economic conditions, the supply and demand for different types of real properties, the financial health of tenants, the timing of lease expirations and terminations, fluctuations in rental rates and operating costs, exposure to adverse environmental conditions and losses from casualty or condemnation, interest rates, availability of financing, managerial performance and government rules and regulations. Given that such valuations include many assumptions, fair values may differ from amounts ultimately realized.
Belport Realty’s investments in Wholly Owned Property will be subject to general real estate market risks similar to those of an investment in a Real Estate Joint Venture. In addition, investments in Wholly Owned Property will be subject to risks specific to these types of investments, including a concentration of risk exposure to specific real estate submarkets and individual properties and tenants. Principal among the risks of investing in the Wholly Owned Property is the risk that a major tenant fails to satisfy its lease obligations due to financial distress or other reasons. A major tenant’s failure to meet its lease obligations would expose Belport Realty to substantial loss of income without a commensurate reduction in debt service costs and other expenses, and may transfer to Belport Realty all the costs, expenses and liabilities of property ownership and management borne by the tenant under the terms of the lease. Re-leasing a property could involve considerable time and expense. Re-leasing opportunities may be limited by the nature and location of the property, which may not be well suited to the needs of other possible tenants. Even if a property is re-leased, the property may not generate sufficient rental income to cover debt service and other expenses.
Wholly Owned Property is generally illiquid, and the ongoing value of Belport Realty’s investments in Wholly Owned Property will be substantially uncertain. Wholly Owned Property held generally will be stated at fair value as described in Item 7(e). Because the value of Wholly Owned Property will reflect in part the creditworthiness of its tenant(s), any change in the financial status of a major tenant could affect the appraised value of a property and the value realized upon the disposition of such property. Tenants may hold rights to renew or extend expiring leases, and exercise of such rights would extend Belport Realty’s risk exposure to a particular tenant beyond the initial lease term. Tenants may also hold options to purchase properties, including options to purchase at below market levels. A default by a major tenant could materially reduce the value of a Wholly Owned Property. The value received upon the disposition of Wholly Owned Property will depend on real estate market conditions, lease and mortgage terms, tenant credit quality, tenant purchase options, lender approvals and other factors affecting valuation as may then apply. Since valuations of Wholly Owned
28
Property assume an orderly disposition of assets, amounts realized in a distressed sale may differ substantially from stated values.
The leveraged nature of most anticipated Wholly Owned Property investments means that a relatively small decline in the value of a property could result in the loss by Belport Realty of all or a substantial portion of its equity in such property. Because the mortgage debt obligations of Wholly Owned Property will be without recourse to Shareholders and generally without recourse to Belport Realty and the Fund (except certain liabilities associated with fraud, misrepresentation, misappropriation of funds, or breach of material covenants or liabilities arising from environmental conditions involving or affecting the property), the potential loss from Wholly Owned Property is normally limited to the amount of equity invested in such property by Belport Realty. Mortgage debt associated with Wholly Owned Property generally cannot be refinanced prior to maturity without substantial penalties. The terms of the outstanding lease and mortgage debt obligations and restrictions on refinancing such debt may limit Belport Realty’s ability to dispose of Wholly Owned Property.
Substantially all of the rental payments on certain Wholly Owned Property that is leased on a net basis may be dedicated to servicing the associated mortgage debt, in which case significant amounts of cash would not be available to offset operating expenses and the cost of Fund borrowings used to finance Belport Realty’s equity in the properties. Such costs and expenses generally must be provided from other sources of cash flow for Belport Realty and the Fund, which may include additional Fund borrowings under the Credit Facility. Realized returns on investments in net leased property may be deferred until the property is re-leased following the initial lease term or sold.
The risks of investing in Co-owned Property are substantially the same as investing in Wholly Owned Property, as well as certain additional risks relating to the ownership of real properties as tenants-in-common. Included in these risks are the inability to make independent decisions regarding the property and the risk that other owners may not properly perform their obligations relating to the property.
The Co-owned Property is financed through mortgage notes. The mortgage notes are secured by the real property and are generally without recourse to Belport Realty and the Fund, except that there may be recourse for certain liabilities arising from actions such as fraud, misrepresentation, misappropriation of funds or breach of material covenants and liabilities arising from environmental conditions.
The success of investments in Partnership Preference Units depends upon factors relating to the issuing partnerships that may affect such partnerships’ profitability and their ability to make distributions to holders of Partnership Preference Units. Investments in Partnership Preference Units are valued primarily by referencing market trading prices for comparable preferred equity securities or other fixed-rate instruments having similar investment characteristics. The valuations of Partnership Preference Units fluctuate over time to reflect, among other factors, changes in interest rates, changes in the perceived riskiness of such units (including call risk), changes in the perceived riskiness of comparable or similar securities trading in the public market and the relationship between supply and demand for comparable or similar securities trading in the public market. The valuation of Partnership Preference Units will be adversely affected by increases in interest rates and increases in the perceived riskiness of such units or comparable or similar securities. Because the Partnership Preference Units are not rated by a nationally recognized rating agency, they may be subject to more credit risk than securities that are rated investment grade.
Changes in the fair value of real estate investments and other factors will cause the performance of the Fund to deviate from the performance of the Portfolio. Over time, the performance of the Fund can be expected to be more volatile than the performance of the Portfolio.
Risks of Interest Rate Swap Agreements.Interest rate swap agreements are subject to changes in valuation caused principally by movements in interest rates. Interest rate swap agreements are private contracts in which there is a risk of loss in the event of a default on an obligation to pay by the counterparty. Interest rate swap agreements may be difficult to value and may be illiquid. Fluctuations in the value of Partnership Preference Units derived from changes in general interest rates can be expected to be offset in part (but not entirely) by changes in the value of interest rate swap agreements applying to those Partnership Preference Units for which they were purchased, or other interest rate hedges that may be entered into by the Fund with respect to its borrowings.
Risks of Leverage.Although intended to add to returns, the borrowing of funds to purchase real estate investments exposes the Fund to the risk that the returns achieved on the real estate investments will be lower than the cost of borrowing to purchase such assets and that the leveraging of the Fund to buy such assets will therefore diminish the returns achieved by the Fund as a whole. In addition, there is a risk that the availability of financing will be interrupted at some future time,
29
requiring the Fund to sell assets to repay outstanding borrowings or a portion thereof. It may be necessary to make such sales at unfavorable prices. The Fund’s obligations under the Credit Facility are secured by a pledge of its assets, excluding the Fund’s investment in Subsidiary Real Estate Investments. In the event of default, the lender could elect to sell assets of the Fund without regard to consequences of such action for Shareholders. The rights of the lender to receive payments of interest on and repayments of principal of borrowings under the Credit Facility are senior to the rights of the Shareholders. The lender under the New Credit Facility would have similar rights to Fund assets in the event of a default under the New Credit Facility. Under the terms of the Credit Facility, the Fund is not permitted to make distributions of cash or securities while there is a default or event of default outstanding under the Credit Facility. During such periods, the Fund would not be able to honor redemption requests or make cash distributions. The New Credit Facility contains similar provisions restricting redemptions and cash distributions in the case of an event of default by the Fund under the New Credit Facility.
In addition, the rights of lenders under the mortgage notes used to finance Subsidiary Real Estate Investments are senior to Belport Realty’s right to receive cash distributions from the Subsidiary Real Estate Investments.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements required by Item 8 begin on page 41 of this Annual Report on Form 10-K. The following is a summary of unaudited quarterly results of operations of the Fund for the years ending December 31, 2009 and 2008.
| | | | | | | | | | | | | | | | | |
| | | 2009 |
| | | First | | Second | | Third | | Fourth |
| | | Quarter | | Quarter | | Quarter | | Quarter |
| | | |
| Investment income | | $ | 8,558,610 | | | $ | 7,137,825 | | | $ | 5,944,006 | | | $ | 3,332,318 | |
| Net investment income | | $ | 6,774,079 | | | $ | 5,525,707 | | | $ | 4,348,844 | | | $ | 1,751,506 | |
| Net increase (decrease) in net assets from operations | | $ | (120,689,852 | ) | | $ | 59,464,638 | | | $ | 87,483,786 | | | $ | 31,134,531 | |
| | | | | | | | | | | | | | | | | |
Per share data:(1) | | | | | | | | | | | | | | | | |
| Investment income | | $ | 0.90 | | | $ | 0.82 | | | $ | 0.71 | | | $ | 0.43 | |
| Net investment income | | $ | 0.71 | | | $ | 0.63 | | | $ | 0.52 | | | $ | 0.23 | |
| Net increase (decrease) in net assets from operations | | $ | (12.74 | ) | | $ | 6.82 | | | $ | 10.41 | | | $ | 4.05 | |
| | | | | | | | | | | | | | | | | |
| | | 2008 |
| | | First | | Second | | Third | | Fourth |
| | | Quarter | | Quarter | | Quarter | | Quarter |
| | | |
| Investment income | | $ | 8,982,106 | | | $ | 9,457,682 | | | $ | 7,444,203 | | | $ | 8,526,330 | |
| Net investment income | | $ | 3,824,902 | | | $ | 5,079,304 | | | $ | 3,213,127 | | | $ | 4,796,393 | |
| Net decrease in net assets from operations | | $ | (151,596,803 | ) | | $ | (57,366,910 | ) | | $ | (105,669,492 | ) | | $ | (300,251,097 | ) |
| | | | | | | | | | | | | | | | | |
Per share data:(1) | | | | | | | | | | | | | | | | |
| Investment income | | $ | 0.68 | | | $ | 0.75 | | | $ | 0.62 | | | $ | 0.79 | |
| Net investment income | | $ | 0.29 | | | $ | 0.40 | | | $ | 0.27 | | | $ | 0.44 | |
| Net decrease in net assets from operations | | $ | (11.49 | ) | | $ | (4.52 | ) | | $ | (8.83 | ) | | $ | (27.77 | ) |
| | |
| (1) | | Based on average Shares outstanding. |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There have been no changes in, or disagreements with, accountants on accounting and financial disclosure.
30
Item 9A. Controls and Procedures.
Fund Governance. As the Fund’s manager, the complete and entire management, control and operation of the Fund are vested in Eaton Vance. The Fund’s Chief Executive Officer and Chief Financial Officer intend to report to the Audit Committee of the Board of Directors of Eaton Vance, Inc. (the sole trustee of Eaton Vance) any significant deficiency in the design or operation of internal control over financial reporting which could adversely affect the Fund’s ability to record, process, summarize and report financial data, and any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund’s internal control over financial reporting.
Disclosure Controls and Procedures. Eaton Vance, as the Fund’s manager, evaluated the effectiveness of the Fund’s disclosure controls and procedures (as defined by Rule 13a-15(e) of the Act) as of the end of the period covered by this report, with the participation of the Fund’s Chief Executive Officer and Chief Financial Officer. The Fund’s disclosure controls and procedures are the controls and other procedures that the Fund designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Based on that evaluation, the Fund’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2009, the Fund’s disclosure controls and procedures were effective.
Internal Control Over Financial Reporting. The Fund’s Chief Executive Officer and Chief Financial Officer have established and maintain internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Act.
31
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Eaton Vance Management (Eaton Vance), as manager of Belport Capital Fund LLC (the Fund), with the participation of the Fund’s Chief Executive Officer and Chief Financial Officer, (collectively referred to in this report as management) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act. The Fund’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Fund’s internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on its assessment and those criteria, management believes that the Fund maintained effective internal control over financial reporting as of December 31, 2009.
The Fund’s independent registered public accounting firm has issued an attestation report on the Fund’s internal control over financial reporting. That report appears on the following page.
March 1, 2010
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of Belport Capital Fund LLC and Subsidiaries
We have audited the internal control over financial reporting of Belport Capital Fund LLC and subsidiaries (the “Fund”) as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Fund’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Fund’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Fund maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial highlights as of and for the year ended December 31, 2009 of the Fund and our report dated March 1, 2010 expressed an unqualified opinion on those financial statements and financial highlights.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 1, 2010
33
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
(a) Management.
Pursuant to the Fund’s LLC Agreement, the Fund’s manager, Eaton Vance, has the authority to conduct the Fund’s business. Eaton Vance appointed Thomas E. Faust Jr. to serve indefinitely as the Fund’s Chief Executive Officer on October 16, 2002. Eaton Vance appointed Andrew C. Frenette to serve indefinitely as the Fund’s Chief Financial Officer on January 22, 2007. Information about Mr. Faust appears below. Mr. Frenette, 35, is a Vice President of Eaton Vance and Boston Management. He also serves as Chief Financial Officer of Belcrest Capital Fund LLC and Belrose Capital Fund LLC. Mr. Frenette has been an employee of Eaton Vance since 2006. Prior to joining Eaton Vance, Mr. Frenette was Manager of Finance — Investments and Acquisitions for GE Real Estate, a business unit of GE Commercial Finance. Mr. Frenette serves as a Vice President of Belport Realty, as well as the REIT subsidiary of each of the other above-mentioned funds. As members of the Eaton Vance organization, Messrs. Faust and Frenette receive no compensation from the Fund for serving as Fund officers. There are no other officers of the Fund. The Fund does not have a board of directors or similar governing body.
The Audit Committee of the Board of Directors of Eaton Vance, Inc., the sole trustee of Eaton Vance, oversees the accounting and financial reporting processes of the Fund, audits of the Fund’s financial statements and otherwise serves as the Fund’s audit committee. The Fund has no nominating or compensation committee. The members of the Audit Committee of the Board of Directors of Eaton Vance, Inc. are Frederick S. Marius and Robert J. Whelan. The Fund’s audit committee financial expert (as that term is defined in Item 7(d)(3)(iv) of Schedule 14A under the Act) is Mr. Whelan. Messrs. Marius and Whelan are senior officers of Eaton Vance and, as such, are not independent of Fund management. Information about Messrs. Marius and Whelan appears below.
Boston Management is investment adviser to the Fund and the Portfolio and manager of Belport Realty. The Co-Portfolio Managers of the Fund and of the Portfolio are Duncan W. Richardson, Lewis R. Piantedosi, Yana S. Barton and Michael A. Allison. Mr. Richardson is Executive Vice President and Chief Equity Investment Officer of Eaton Vance, Boston Management and Eaton Vance Corp. and a Director of Eaton Vance Corp. Mr. Richardson has been employed by Eaton Vance since 1987. Messrs. Piantedosi and Allison and Ms. Barton are each a Vice President of Eaton Vance and Boston Management. Mr. Piantedosi became Co-Portfolio Manager of the Fund and of the Portfolio on May 1, 2006, has been employed by the Eaton Vance organization since 1993 and manages other Eaton Vance portfolios. Ms. Barton and Mr. Allison became Co-Portfolio Managers of the Fund and of the Portfolio on March 1, 2008, have been employed by the Eaton Vance organization since 1997 and 2000, respectively, and manage other Eaton Vance portfolios. Boston Management has an experienced team of analysts that provides Messrs. Richardson, Piantedosi, Allison and Ms. Barton with research and recommendations on investments.
The directors of Belport Realty are Mr. Faust and William R. Cross, each of whom is described below. Mr. Cross is the President and portfolio manager of Belport Realty and the head of Boston Management’s real estate investment group, which has primary responsibility for providing research and analysis relating to the Fund’s real estate investments held through Belport Realty. Mr. Cross is a Vice President of Eaton Vance and Boston Management and has been employed by the Eaton Vance organization since 1996. A majority of Mr. Cross’ time is spent managing the real estate investments of Belport Realty and the real estate investment affiliates of other investment funds advised by Boston Management. Mr. Cross serves as Chairman of the Board and President of the Real Estate Joint Ventures. Other officers of Eaton Vance and Boston Management also serve as officers and/or directors of the Real Estate Joint Ventures.
As disclosed under “The Eaton Vance Organization” in Item 1, Eaton Vance and Boston Management are wholly owned subsidiaries of Eaton Vance Corp. The non-voting common stock of Eaton Vance Corp. is listed and traded on the NYSE. All shares of the voting common stock of Eaton Vance Corp. are held in a voting trust, the voting trustees of which are senior officers of the Eaton Vance organization. Eaton Vance, Inc., a wholly owned subsidiary of Eaton Vance Corp., is the sole trustee of Eaton Vance and of Boston Management, each of which is a Massachusetts business trust. The names of the executive officers and the directors of Eaton Vance, Inc. and their ages and principal occupations (in addition to their responsibilities described above) are set forth below.
34
Thomas E. Faust Jr. (51) is Chief Executive Officer and President of Eaton Vance Corp., President and Director of Eaton Vance, Inc., Chief Executive Officer and President of Eaton Vance and Boston Management, and Director of EV Distributors. He is also Chief Executive Officer of Belcrest Capital Fund LLC and Belrose Capital Fund LLC and is an officer of various other investment companies managed by Eaton Vance or Boston Management. Mr. Faust has been employed by Eaton Vance since 1985.
Frederick S. Marius (46) is Vice President, Secretary and Chief Legal Officer of Eaton Vance, Boston Management, Eaton Vance Corp., EV Distributors and Eaton Vance, Inc. and a Director of Eaton Vance, Inc. He is also an officer of various investment companies managed by Eaton Vance or Boston Management and has been employed by Eaton Vance since 2004.
Robert J. Whelan (47) is Vice President and Treasurer of Eaton Vance, Boston Management, Eaton Vance Corp. and Eaton Vance, Inc. and a Director of Eaton Vance, Inc. He is also the Chief Financial Officer of Eaton Vance Corp. and Eaton Vance, Inc. and Vice President and Director of EV Distributors. He has been employed by Eaton Vance since 2007. Prior to joining Eaton Vance, Mr. Whelan was Executive Vice President and Chief Financial Officer for Boston Private Wealth Management Group from December 2004 to April 2007.
(b) Compliance with Section 16(a) of the Act.
Section 16(a) of the Act requires the Fund’s officers and directors and persons who own more than ten percent of the Fund’s Shares to file forms reporting their affiliation with the Fund and reports of ownership and changes in ownership of the Fund’s Shares with the SEC. Eaton Vance, as manager of the Fund, and the Directors and executive officers of Eaton Vance, Inc., the sole trustee of Eaton Vance, also comply with Section 16(a). These persons and entities are required by SEC regulations to furnish the Fund with copies of all Section 16(a) forms they file. To the best of the Fund’s knowledge, during the year ending December 31, 2009 no Section 16(a) filings were required by such persons or entities.
(c) Code of Ethics.
The Fund has adopted a Code of Ethics that applies to the principal executive officer and principal financial officer (who is also the Fund’s principal accounting officer). A copy of the Code of Ethics is available at no cost by request to the Fund’s Chief Financial Officer, Two International Place, Boston, MA 02110 or by calling (800) 225-6265. If the Fund makes any substantive amendments to the Code of Ethics or grants any waiver, including an implicit waiver, from a provision of the Code of Ethics as applicable to the principal executive officer or principal financial officer, the Fund will disclose the nature of such amendment or waiver in a report on Form 8-K.
Item 11. Executive Compensation.
As noted in Item 10, the officers of the Fund receive no compensation from the Fund (nor does any other officer of Belport Realty or a Subsidiary Real Estate Investment of the Fund performing policy making functions for the Fund). The Fund’s manager, Eaton Vance, and its affiliates receive certain fees from the Fund for services provided to the Fund, which are described in Item 13 below.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Security Ownership of Certain Beneficial Owners. As of December 31, 2009, the following Shareholder owned the percentage of Fund Shares indicated:
| | | | | |
| Name and Address of | | |
| Beneficial Owner | | Percent of Class |
| Arthur Rock 2000 Trust San Francisco, CA | | | 6.2 | % |
To the knowledge of the Fund, no other person beneficially owned more than 5% of the Shares of the Fund as of December 31, 2009.
Security Ownership of Management. As of February 17, 2010, Eaton Vance, the manager of the Fund, beneficially owned 109 Shares of the Fund. The Shares owned by Eaton Vance represent less than 1% of the outstanding Shares of the
35
Fund as of February 17, 2010. None of the other entities or individuals named in response to Item 10 above beneficially owned Shares of the Fund as of such date.
Changes in Control. Not applicable.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Messrs. Faust and Frenette are currently the only “related persons” of the Fund (as that term is defined in Regulation S-K under the Securities Act and the Act). The Fund has instituted written policies and procedures to determine the existence of a reportable transaction under Item 404(a) of Regulation S-K. In accordance with such policies and procedures, Eaton Vance circulates an Executive Officer Questionnaire to each related person annually to determine the existence of a potential reportable transaction. Any transaction, or proposed transaction, in which the Fund was or is to be a participant and the amount of which exceeds $120,000 (and in which a related person had or will have a direct or indirect material interest) is required to be reviewed by the Audit Committee of the Board of Directors of Eaton Vance, Inc. The Fund did not have any reportable transactions under Item 404(a) of Regulation S-K during the year ending December 31, 2009.
The table below sets forth the fees paid or payable by, or allocable to, the Fund and Belport Realty for the years ending December 31, 2009 and 2008 in connection with services rendered by Eaton Vance and its affiliates. Each fee is described in the following table.
| | | | | | | | | |
| | | Year ending | | Year ending |
| | | December | | December |
| | | 31, 2009 | | 31, 2008 |
| Fund Advisory and Administrative Fees* | | $ | 336,783 | | | $ | 994,171 | |
| Belport Realty Management Fees | | $ | 3,110,029 | | | $ | 3,493,862 | |
| Fund’s Allocable Portion of the Portfolio’s Advisory Fees** | | $ | 2,910,923 | | | $ | 5,772,898 | |
| Fund Servicing Fees | | $ | 592,812 | | | $ | 1,305,345 | |
| Fund’s Allocable Portion of Belvedere Company’s Servicing Fees | | $ | 971,749 | | | $ | 2,010,619 | |
| Fund Distribution Fees | | $ | 625,832 | | | $ | 1,325,693 | |
| Aggregate Compensation Paid by the Fund to Eaton Vance and its Affiliates | | $ | 4,072,644 | | | $ | 5,813,726 | |
| | |
| * | | Boston Management has agreed to waive the portion of the investment advisory and administrative fee payable by the Fund to the extent that such fee, together with the distribution fee payable by the Fund and the Fund’s attributable share of the investment advisory and management fees payable by the Portfolio and Belport Realty, respectively, exceeds 0.60% of the average daily gross assets of the Fund. If the Fund invests in an EV money market fund, the advisory and administrative fee paid to Boston Management by the EV money market fund in respect of the Fund’s investment therein will be credited towards the Fund’s advisory and administrative fee payments, reducing the amount of such fees otherwise payable. The amounts shown are net of reductions and amounts waived by Boston Management. |
| |
| ** | | For the years ending December 31, 2009 and 2008, advisory fees paid or payable by the Portfolio totaled $41,375,335 and $68,300,233, respectively. For the year ending December 31, 2009, Belvedere Company’s allocable portion of that fee was $29,752,815, of which $2,910,923 was allocable to the Fund. For the year ending December 31, 2008, Belvedere Company’s allocable portion of that fee was $50,952,553, of which $5,772,898 was allocable to the Fund. The advisory fee payable by the Portfolio is reduced by the Portfolio’s allocable portion of the advisory fee paid by an EV money market fund. |
The Fund’s Investment Advisory and Administrative Fee. Under the terms of the Fund’s investment advisory and administrative agreement, Boston Management is entitled to receive, subject to the fee waiver described in the next sentence, a monthly advisory and administrative fee at the rate of 1/20 of 1% (equivalent to 0.60% annually) of the average daily gross assets of the Fund. Boston Management has agreed to waive that portion of the monthly investment advisory and administrative fee payable by the Fund to the extent that such fee, together with the distribution fees payable by the Fund (see “Distribution Fees Paid to EV Distributors” below) and the Fund’s attributable share of the monthly advisory and management fees for such month payable by the Portfolio and Belport Realty, respectively, exceeds 1/20 of 1% of the average daily gross assets of the Fund. The term gross assets means the value of all the Fund’s assets, including the Fund’s interest in Belvedere Company and the Fund’s ratable share of the assets of its direct and indirect subsidiaries, real estate joint ventures and co-owned real property investments, without reduction by any liabilities.
36
Belport Realty’s Management Fee. Under the terms of Belport Realty’s management agreement with Boston Management, Boston Management receives a monthly management fee at the rate of 1/20 of 1% (equivalent to 0.60% annually) of the average daily gross assets of Belport Realty. The term gross assets means the value of all assets of Belport Realty, including Belport Realty’s ratable share of the assets of its direct and indirect subsidiaries, real estate joint ventures and co-owned real property investments, without reduction by any liabilities.
The Portfolio’s Investment Advisory Fee. Under the terms of the Portfolio’s investment advisory agreement with Boston Management, Boston Management receives a monthly advisory fee as follows:
| | | | | |
| | | Annual Fee Rate |
| Average Daily Net Assets for the Month | | (for each level) |
| |
| Up to $500 million | | | 0.6250 | % |
| $500 million but less than $1 billion | | | 0.5625 | % |
| $1 billion but less than $1.5 billion | | | 0.5000 | % |
| $1.5 billion but less than $7 billion | | | 0.4375 | % |
| $7 billion but less than $10 billion | | | 0.4250 | % |
| $10 billion but less than $15 billion | | | 0.4125 | % |
| $15 billion but less than $20 billion | | | 0.4000 | % |
| $20 billion but less than $25 billion | | | 0.3900 | % |
| $25 billion and over | | | 0.3800 | % |
In accordance with the terms of the 1940 Act, the Portfolio’s Board of Trustees considers the continuation of the Portfolio’s investment advisory agreement annually.
Servicing Fees Paid by the Fund. Pursuant to a servicing agreement between the Fund and EV Distributors, the Fund pays a servicing fee to EV Distributors for providing certain services and information to the Shareholders of the Fund. The servicing fee is paid on a quarterly basis at an annual rate of 0.25% of the Fund’s average daily net assets. With respect to Shareholders who subscribed through a subagent, EV Distributors has assigned servicing responsibilities and fees to the applicable subagent, beginning twelve months after the issuance of Shares of the Fund to such persons. The Fund’s allocated share of the servicing fee paid by Belvedere Company is credited toward the Fund’s servicing fee payment, thereby reducing the amount of the servicing fee payable by the Fund.
Servicing Fees Paid by Belvedere Company. Pursuant to a servicing agreement between Belvedere Company and EV Distributors, Belvedere Company pays a servicing fee to EV Distributors for providing certain services and information to direct and indirect investors in Belvedere Company. The servicing fee is paid on a quarterly basis, at an annual rate of 0.15% of Belvedere Company’s average daily net assets. With respect to investors in Belvedere Company and Shareholders of the Fund who subscribed through a subagent, EV Distributors has assigned servicing responsibilities and fees to the applicable subagent, beginning twelve months after the issuance of shares of Belvedere Company or Shares of the Fund to such persons. The Fund assumes its allocated share of Belvedere Company’s servicing fee. The servicing fee payable in respect of the Fund’s investment in Belvedere Company is credited toward the Fund’s servicing fee described above.
Distribution Fees Paid to EV Distributors. Under the terms of the Fund’s placement agreement with EV Distributors, EV Distributors receives a distribution fee at an annual rate of 0.10% of the average daily net assets of the Fund as compensation for its services as placement agent. The distribution fee accrues from the Fund’s initial closing and will continue for a period of ten years (subject to the annual approval of Eaton Vance, Inc.).
Certain Real Estate Investment Transactions. During the year ending December 31, 2009, Belport Realty did not enter into any real estate investment transactions with affiliates.
37
Item 14. Principal Accounting Fees and Services.
The following table presents fees for the professional audit services rendered by Deloitte & Touche LLP for the audit of the Fund’s annual financial statements for the years ending December 31, 2009 and 2008 and fees billed for other services rendered by Deloitte & Touche LLP during those periods, including fees charged by Deloitte & Touche LLP to the Fund’s consolidated subsidiaries.
| | | | | | | | | |
| | | Year ending December 31, |
| | | 2009 | | 2008 |
| |
| Audit fees | | $ | 112,056 | | | $ | 112,369 | |
| | | |
Tax fees(1) | | $ | 203,625 | | | $ | 180,244 | |
| | | |
| Total | | $ | 315,681 | | | $ | 292,613 | |
| | | |
| | |
| (1) | | Tax fees consist of the aggregate fees billed for professional services rendered by Deloitte Tax LLP for tax compliance, tax advice and tax planning. |
The Audit Committee of the Board of Directors of Eaton Vance, Inc. reviews all audit, audit-related, tax and other fees at least annually. The Audit Committee of the Board of Directors of Eaton Vance, Inc., pre-approved all audit and tax services for the years ending December 31, 2009 and 2008. The Audit Committee of the Board of Directors of Eaton Vance, Inc. has concluded that the provision of the tax services listed above is compatible with maintaining the independence of Deloitte & Touche LLP.
38
PART IV
Item 15. Exhibits and Financial Statement Schedules.
| (a) | | Please see the Fund’s consolidated financial statements which begin on page 41 of this Annual Report on Form 10-K. Please see the Portfolio’s financial statements which begin on page 68 of this Annual Report on Form 10-K. |
| |
| (b) | | Reports on Form 8-K:
None. |
| |
| (c) | | A list of the exhibits filed as a part of this Form 10-K is included in the Exhibit Index appearing on page 85 hereof. |
39
Appendix A
Belport Capital Fund LLC’s (The Fund) Investment Structure
as of December 31, 2009
| | |
| (A) | | The Fund is a Delaware limited liability company. Eaton Vance Management is the manager of the Fund; Boston Management and Research (Boston Management) is the Fund’s investment adviser. |
| |
| (B) | | Belvedere Capital Fund Company LLC (Belvedere Company) is a Massachusetts limited liability company. Boston Management is the manager of Belvedere Company. |
| |
| (C) | | Tax-Managed Growth Portfolio (the Portfolio) is a Massachusetts trust. Boston Management is the investment adviser to the Portfolio. |
| |
| (D) | | Belport Realty Corporation (Belport Realty) is a Delaware corporation. Boston Management is the manager of Belport Realty. Belport Realty also holds direct investments in partnership preference units. |
| |
| (E) | | Bel Multifamily Property Trust is a Maryland real estate investment trust and Monadnock Property Trust LLC is a Delaware limited liability corporation. Belport Realty owns a majority economic interest in these real estate joint ventures. |
| |
| (F) | | Bel Holdings LLC (Bel Holdings) is a Delaware limited liability company. Belport Realty owns a minority interest in Bel Holdings, which owns partnership preference units issued by Vornado Realty L.P. |
| |
| (G) | | Bel Stamford III LLC (Bel Stamford III) is a Delaware limited liability company. Bel Stamford III is a wholly owned subsidiary of Belport Realty and owns a tenancy-in-common interest in real property. |
40
Consolidated Portfolios of Investments
| | | | | | | | | | | | | | | | | | | |
| Investment in Belvedere Capital Fund Company LLC — 103.7% and 111.7% |
| |
| | | December 31, 2009 | | | December 31, 2008 | | | |
| | | | | | |
| Security | | Shares | | | Value | | | Shares | | | Value | | | |
| |
| |
| Investment in Belvedere Capital Fund Company LLC (Belvedere Company)(1) | | | 3,941,905 | | | $ | 637,979,572 | | | | 6,289,602 | | | $ | 845,480,051 | | | |
| |
| |
| | | | | | | | | | | |
| Total Investment in Belvedere Company | | | | | | | | | | |
| (identified cost, $658,751,779 and $1,010,691,992) | | $ | 637,979,572 | | | | | | | $ | 845,480,051 | | | |
| |
| |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Partnership Preference Units — 6.9% and 4.3% |
| |
| Security | | Units | | | Value | | | Units | | | Value | | | |
| |
| |
| Bel Holdings LLC†(2)(3) | | | 93,720 | | | $ | 11,733,657 | | | | 104,136 | | | $ | 8,831,977 | | | |
| Colonial Realty Limited Partnership (Delaware Limited Partnership affiliate of Colonial Properties Trust), 7.25% Series B Cumulative Redeemable Perpetual Preferred Units, Callable from 8/24/09†(2) | | | 200,000 | | | | 6,776,000 | | | | 200,000 | | | | 4,504,000 | | | |
| Liberty Property Limited Partnership (Pennsylvania Limited Partnership affiliate of Liberty Property Trust), 7.40% Series H Cumulative Redeemable Preferred Units, Callable from 8/21/12†(2) | | | 400,000 | | | | 7,708,000 | | | | 400,000 | | | | 6,064,000 | | | |
| MHC Operating Limited Partnership (Illinois Limited Partnership affiliate of Equity Lifestyle Properties, Inc.), 8.0625% Series D Cumulative Redeemable Perpetual Preference Units, Callable from 3/24/10†(2) | | | 400,000 | | | | 7,752,000 | | | | 400,000 | | | | 5,884,000 | | | |
| PSA Institutional Partners, L.P. (California Limited Partnership affiliate of Public Storage, Inc.), 7.25% Series J Cumulative Redeemable Perpetual Preferred Units, Callable from 5/9/11†(2) | | | 400,000 | | | | 8,332,000 | | | | 400,000 | | | | 7,072,000 | | | |
| |
| |
| | | | | | | | | | | |
| Total Partnership Preference Units | | | | | | | | | | |
| (identified cost, $49,358,592 and $50,539,035) | | $ | 42,301,657 | | | | | | | $ | 32,355,977 | | | |
| |
| |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Real Estate Joint Ventures — 18.7% and 23.0% |
| |
| Description | | | | | Value | | | | | | Value | | | |
| |
| |
| Investment in Bel Multifamily Property Trust (a majority economic interest of 78.6% and 74.4% in Bel Multifamily Property Trust which invests in eleven multifamily properties located in seven states, net of associated mortgage debt)(2) | | | | | | $ | 31,594,978 | | | | | | | $ | 67,929,829 | | | |
| Investment in Monadnock Property Trust, LLC (a majority economic interest of 77.9% and 71.0% in Monadnock Property Trust, LLC which invests in ten multifamily properties located in five states, net of associated mortgage debt)(2)(4) | | | | | | | 83,292,425 | | | | | | | | 106,019,425 | | | |
| |
| |
| | | | | | | | | | | |
| Total Real Estate Joint Ventures | | | | | | | | | | |
| (identified cost, $165,158,390 and $177,939,533) | | $ | 114,887,403 | | | | | | | $ | 173,949,254 | | | |
| |
| |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
See notes to consolidated financial statements
41
Consolidated Portfolios of Investments (continued)
| | | | | | | | | | | | | | | | | | | |
| Co-owned Property — 0.7% and 1.1% |
| |
| | | December 31, 2009 | | | December 31, 2008 | | | |
| | | | | | |
| Description | | | | | Value | | | | | | Value | | | |
| |
| |
| Bel Stamford III LLC (a single member LLC with a 17.5%tenancy-in-common interest in an office property located in Connecticut, net of associated mortgage debt)(2) | | | | | | $ | 4,087,760 | | | | | | | $ | 8,017,684 | | | |
| |
| |
| | | | | | | | | | | |
| Total Co-owned Property | | | | | | | | | | |
| (identified cost, $14,064,742 and $13,094,666) | | $ | 4,087,760 | | | | | | | $ | 8,017,684 | | | |
| |
| |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Short-Term Investment — 0.6% and 0.2% |
| |
| | | Interest
| | | | | | Interest
| | | | | | |
| | | (000’s
| | | | | | (000’s
| | | | | | |
| Description | | omitted) | | | Value | | | omitted) | | | Value | | | |
| |
| |
| Cash Management Portfolio, 0.00% and 0.75%(5) | | | 3,849 | | | $ | 3,849,385 | | | | 1,268 | | | $ | 1,267,642 | | | |
| |
| |
| | | | | | | | | | | |
| Total Short-Term Investment | | | | | | | | | | |
| (identified cost, $3,849,385 and $1,267,642) | | $ | 3,849,385 | | | | | | | $ | 1,267,642 | | | |
| |
| |
| | | | | | | | | | | |
| Total Investments — 130.6% and 140.3% | | | | | | | | | | |
| (identified cost, $891,182,888 and $1,253,532,868) | | $ | 803,105,777 | | | | | | | $ | 1,061,070,608 | | | |
| |
| |
| | | | | | | | | | | | | | | |
| Other Assets, Less Liabilities — (30.6)% and (40.3)% | | $ | (188,212,860 | ) | | | | | | $ | (304,761,290 | ) | | |
| |
| |
| | | | | | | | | | | | | | | |
| Net Assets — 100.0% and 100.0% | | $ | 614,892,917 | | | | | | | $ | 756,309,318 | | | |
| |
| |
The percentage shown for each investment category is based on net assets. The percentages as of December 31, 2008 were previously presented based on total investment as follows:
Investment in Belvedere Capital Fund Company LLC — 79.7%
Partnership Preference Units — 3.0%
Real Estate Joint Ventures — 16.4%
Co-owned Property — 0.8%
Short-Term Investment — 0.1%
| | |
| † | | Security exempt from registration under the Securities Act of 1933. At December 31, 2009 and 2008, the value of these securities totaled $42,301,657 and $32,355,977 or 6.9% and 4.3% of net assets, respectively. |
| |
| (1) | | Shares have been pledged as collateral for the Credit Facility (Note 11A). |
| |
| (2) | | Investment valued at fair value using methods determined in good faith by or at the direction of the manager of Belport Realty Corporation. |
| |
| (3) | | The sole investment of Bel Holdings LLC is as follows: Vornado Realty L.P. (Delaware limited partnership affiliate of Vornado Realty Trust), 7%Series D-10 Cumulative Redeemable Preferred Units, callable from 11/17/08. This security is exempt from the Securities Act of 1933. |
| |
| (4) | | At December 31, 2008, the investment in Monadnock Property Trust, LLC consisted of eleven multifamily properties located in five states, net of associated mortgage debt. |
| |
| (5) | | Affiliated investment company available to Eaton Vance portfolios and funds, which invests in high quality, U.S. dollar denominated money market instruments. The rate shown is the annualizedseven-day yield as of December 31, 2009 and 2008, respectively. |
See notes to consolidated financial statements
42
Consolidated Financial Statements
Consolidated Statements of Assets and Liabilities
| | | | | | | | | | | |
| | | December 31, |
| | | |
| Assets | | 2009 | | | 2008 | | | |
| |
| Investment in Belvedere Company, at value (identified cost, $658,751,779 and $1,010,691,992, respectively) | | $ | 637,979,572 | | | $ | 845,480,051 | | | |
| Unaffiliated investments, at value (identified cost, $228,581,724 and $241,573,234, respectively) | | | 161,276,820 | | | | 214,322,915 | | | |
| Affiliated investment, at value (identified cost, $3,849,385 and $1,267,642, respectively) | | | 3,849,385 | | | | 1,267,642 | | | |
| Cash | | | 1,759,851 | | | | 251,323 | | | |
| Interest receivable from affiliated investment | | | — | | | | 1,674 | | | |
| Other assets | | | 518,010 | | | | — | | | |
| |
| |
Total assets | | $ | 805,383,638 | | | $ | 1,061,323,605 | | | |
| |
| |
| | | | | | | | | | | |
| | | | | | | | | | | |
| |
| Liabilities |
| |
| Loan payable — Credit Facility | | $ | 185,500,000 | | | $ | 296,500,000 | | | |
| Payable for Fund shares redeemed | | | 1,201,092 | | | | 958,814 | | | |
| Special Distributions payable | | | — | | | | 1,151,791 | | | |
| Interest payable for open interest rate swap agreements | | | 46,058 | | | | 42,938 | | | |
| Open interest rate swap agreements, at value | | | 2,044,732 | | | | 5,171,035 | | | |
| Payable to affiliate for investment advisory and administrative fees | | | 281,187 | | | | 315,108 | | | |
| Payable to affiliate for distribution and servicing fees | | | 204,949 | | | | 262,475 | | | |
| Other accrued expenses: | | | | | | | | | | |
| Interest expense | | | 126,070 | | | | 97,550 | | | |
| Other expenses and liabilities | | | 1,086,633 | | | | 514,576 | | | |
| |
| |
Total liabilities | | $ | 190,490,721 | | | $ | 305,014,287 | | | |
| |
| |
Net Assets | | $ | 614,892,917 | | | $ | 756,309,318 | | | |
| |
| |
| | | | | | | | | | | |
| | | | | | | | | | | |
| |
| |
| Shareholders’ Capital | | $ | 614,892,917 | | | $ | 756,309,318 | | | |
| |
| |
| | | | | | | | | | | |
| | | | | | | | | | | |
| |
| |
| Shares Outstanding (unlimited number of shares authorized) | | | 7,314,277 | | | | 9,895,385 | | | |
| |
| |
| | | | | | | | | | | |
| | | | | | | | | | | |
| |
| |
| Net Asset Value and Redemption Price Per Share | | $ | 84.07 | | | $ | 76.43 | | | |
| |
| |
See notes to consolidated financial statements
43
Consolidated Financial Statements (continued)
Consolidated Statements of Operations
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | |
| Investment Income | | 2009 | | | 2008 | | | 2007 | | | |
| |
| Dividends allocated from Belvedere Company (net of foreign taxes, $195,491, $361,773 and $563,988, respectively) | | $ | 15,133,539 | | | $ | 30,085,005 | | | $ | 34,242,164 | | | |
| Interest allocated from Belvedere Company | | | 48,319 | | | | 440,077 | | | | 445,438 | | | |
| Security lending income allocated from Belvedere Company, net | | | — | | | | 69,467 | | | | 127,237 | | | |
| Expenses allocated from Belvedere Company | | | (4,068,097 | ) | | | (8,154,648 | ) | | | (10,575,719 | ) | | |
| |
| |
| Net investment income allocated from Belvedere Company | | $ | 11,113,761 | | | $ | 22,439,901 | | | $ | 24,239,120 | | | |
| Net investment income from Real Estate Joint Ventures | | | 9,889,535 | | | | 8,470,179 | | | | 12,046,827 | | | |
| Distributions from Partnership Preference Units | | | 2,996,250 | | | | 2,996,250 | | | | 2,525,528 | | | |
| Net investment income from Co-owned Property | | | 966,465 | | | | 423,431 | | | | — | | | |
| Interest | | | 4,774 | | | | 1,039 | | | | 8,626 | | | |
| Interest allocated from affiliated investment | | | 13,732 | | | | 94,952 | | | | 268,851 | | | |
| Expenses allocated from affiliated investment | | | (11,758 | ) | | | (15,431 | ) | | | (25,555 | ) | | |
| |
| |
Total investment income | | $ | 24,972,759 | | | $ | 34,410,321 | | | $ | 39,063,397 | | | |
| |
| |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| |
| Expenses |
| |
| Investment advisory and administrative fees | | $ | 4,072,644 | | | $ | 5,813,726 | | | $ | 6,523,286 | | | |
| Distribution and servicing fees | | | 1,218,644 | | | | 2,631,038 | | | | 3,641,993 | | | |
| Interest expense on Credit Facility | | | 1,257,241 | | | | 9,653,613 | | | | 15,522,993 | | | |
| Custodian and transfer agent fee | | | 92,187 | | | | 87,687 | | | | 107,923 | | | |
| Miscellaneous | | | 557,739 | | | | 636,224 | | | | 701,050 | | | |
| |
| |
Total expenses | | $ | 7,198,455 | | | $ | 18,822,288 | | | $ | 26,497,245 | | | |
| |
| |
| Deduct — | | | | | | | | | | | | | | |
| Reduction of investment advisory and administrative fees | | $ | 625,832 | | | $ | 1,325,693 | | | $ | 1,799,873 | | | |
| |
| |
Net expenses | | $ | 6,572,623 | | | $ | 17,496,595 | | | $ | 24,697,372 | | | |
| |
| |
Net investment income | | $ | 18,400,136 | | | $ | 16,913,726 | | | $ | 14,366,025 | | | |
| |
| |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
See notes to consolidated financial statements
44
Consolidated Financial Statements (continued)
Consolidated Statements of Operations (continued)
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | |
| Realized and Unrealized Gain (Loss) | | 2009 | | | 2008 | | | 2007 | | | |
| |
| Net realized gain (loss) — | | | | | | | | | | | | | | |
Investment transactions in Belvedere Company (investments and foreign currency) (identified cost basis)(1) | | $ | (55,069,907 | ) | | $ | (21,282,958 | ) | | $ | 67,455,190 | | | |
| Investment transactions in Partnership Preference Units (identified cost basis) | | | (146,096 | ) | | | (134,159 | ) | | | 93,347 | | | |
| Investment transactions in Real Estate Joint Ventures | | | (7,878,930 | ) | | | 21,253 | | | | 17,499,196 | | | |
| Investment transactions in affiliated investment | | | (468 | ) | | | — | | | | — | | | |
Interest rate swap agreements(2) | | | (5,423,084 | ) | | | (2,738,144 | ) | | | 2,607,950 | | | |
| |
| |
Net realized gain (loss) | | $ | (68,518,485 | ) | | $ | (24,134,008 | ) | | $ | 87,655,683 | | | |
| |
| |
| Change in unrealized appreciation (depreciation) — | | | | | | | | | | | | | | |
| Investment in Belvedere Company (investments and foreign currency) (identified cost basis) | | $ | 144,439,734 | | | $ | (508,797,067 | ) | | $ | (11,637,486 | ) | | |
| Investment in Partnership Preference Units (identified cost basis) | | | 11,126,123 | | | | (15,742,693 | ) | | | (3,938,379 | ) | | |
| Investment in Real Estate Joint Ventures | | | (46,280,708 | ) | | | (72,546,830 | ) | | | (13,496,759 | ) | | |
| Investment in Co-owned Property | | | (4,900,000 | ) | | | (5,076,982 | ) | | | — | | | |
| Interest rate swap agreements | | | 3,126,303 | | | | (5,500,448 | ) | | | (6,628,241 | ) | | |
| |
| |
Net change in unrealized appreciation (depreciation) | | $ | 107,511,452 | | | $ | (607,664,020 | ) | | $ | (35,700,865 | ) | | |
| |
| |
Net realized and unrealized gain (loss) | | $ | 38,992,967 | | | $ | (631,798,028 | ) | | $ | 51,954,818 | | | |
| |
| |
Net increase (decrease) in net assets from operations | | $ | 57,393,103 | | | $ | (614,884,302 | ) | | $ | 66,320,843 | | | |
| |
| |
| | |
| (1) | | Amounts include net realized gain (loss) from redemptions in-kind of $(17,822,729), $27,298,496 and $46,259,480, respectively. |
| |
| (2) | | Amounts represent net interest earned (incurred) in connection with interest rate swap agreements (Note 2F). |
See notes to consolidated financial statements
45
Consolidated Financial Statements (continued)
Consolidated Statements of Changes in Net Assets
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | |
| Increase (Decrease) in Net Assets | | 2009 | | | 2008 | | | 2007 | | | |
| |
| From operations — | | | | | | | | | | | | | | |
| Net investment income | | $ | 18,400,136 | | | $ | 16,913,726 | | | $ | 14,366,025 | | | |
| Net realized gain (loss) from investment transactions, foreign currency transactions and interest rate swap agreements | | | (68,518,485 | ) | | | (24,134,008 | ) | | | 87,655,683 | | | |
| Net change in unrealized appreciation (depreciation) of investments, foreign currency and interest rate swap agreements | | | 107,511,452 | | | | (607,664,020 | ) | | | (35,700,865 | ) | | |
| |
| |
Net increase (decrease) in net assets from operations | | $ | 57,393,103 | | | $ | (614,884,302 | ) | | $ | 66,320,843 | | | |
| |
| |
| Transactions in Fund shares — | | | | | | | | | | | | | | |
| Net asset value of Fund shares issued to Shareholders in payment of distributions declared | | $ | 5,953,197 | | | $ | 10,487,126 | | | $ | 10,541,926 | | | |
| Net asset value of Fund shares redeemed | | | (192,373,315 | ) | | | (335,195,902 | ) | | | (151,606,234 | ) | | |
| |
| |
Net decrease in net assets from Fund share transactions | | $ | (186,420,118 | ) | | $ | (324,708,776 | ) | | $ | (141,064,308 | ) | | |
| |
| |
| Distributions — | | | | | | | | | | | | | | |
| Distributions to Shareholders | | $ | (12,389,386 | ) | | $ | (21,902,490 | ) | | $ | (21,844,832 | ) | | |
| Special Distributions | | | — | | | | (1,151,791 | ) | | | — | | | |
| |
| |
Total distributions | | $ | (12,389,386 | ) | | $ | (23,054,281 | ) | | $ | (21,844,832 | ) | | |
| |
| |
| | | | | | | | | | | | | | | |
Net decrease in net assets | | $ | (141,416,401 | ) | | $ | (962,647,359 | ) | | $ | (96,588,297 | ) | | |
| |
| |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| |
| Net Assets |
| |
| At beginning of year | | $ | 756,309,318 | | | $ | 1,718,956,677 | | | $ | 1,815,544,974 | | | |
| |
| |
At end of year | | $ | 614,892,917 | | | $ | 756,309,318 | | | $ | 1,718,956,677 | | | |
| |
| |
See notes to consolidated financial statements
46
Consolidated Financial Statements (continued)
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | |
| Increase (Decrease) in Cash | | 2009 | | | 2008 | | | 2007 | | | |
| |
| Cash Flows From Operating Activities — | | | | | | | | | | | | | | |
| Net increase (decrease) in net assets from operations | | $ | 57,393,103 | | | $ | (614,884,302 | ) | | $ | 66,320,843 | | | |
| Adjustments to reconcile net increase (decrease) in net assets from operations to net cash flows provided by (used in) operating activities — | | | | | | | | | | | | | | |
| Net investment income allocated from Belvedere Company | | | (11,113,761 | ) | | | (22,439,901 | ) | | | (24,239,120 | ) | | |
| Net investment income from Real Estate Joint Ventures | | | (9,889,535 | ) | | | (8,470,179 | ) | | | (12,046,827 | ) | | |
| Net payments from Real Estate Joint Ventures | | | 14,791,748 | | | | 29,719,317 | | | | 2,558,047 | | | |
| Net investment income from Co-owned Property | | | (966,465 | ) | | | (423,431 | ) | | | — | | | |
| Payments to Co-owned Property | | | (3,611 | ) | | | (14,585 | ) | | | — | | | |
| (Increase) decrease in affiliated investment and interest receivable from affiliated investment | | | (2,580,069 | ) | | | 4,696,149 | | | | (292,387 | ) | | |
| (Increase) decrease in distributions and interest receivable | | | — | | | | 181,345 | | | | (181,130 | ) | | |
| Decrease in interest receivable for open interest rate swap agreements | | | — | | | | 39,658 | | | | 12,858 | | | |
| Increase in other assets | | | (518,010 | ) | | | — | | | | — | | | |
| Increase (decrease) in payable to affiliate for investment advisory and administrative fees | | | (33,921 | ) | | | (75,939 | ) | | | 3,402 | | | |
| Decrease in payable to affiliate for distribution and servicing fees | | | (57,526 | ) | | | (342,793 | ) | | | (3,333 | ) | | |
| Increase in interest payable for open interest rate swap agreements | | | 3,120 | | | | 42,938 | | | | — | | | |
| Increase (decrease) in accrued interest and other accrued expenses and liabilities | | | 617,497 | | | | (136,974 | ) | | | (5,254 | ) | | |
| Purchases of Partnership Preference Units | | | (10,129 | ) | | | (6,121,803 | ) | | | (10,006,217 | ) | | |
| Decreases in Partnership Preference Units | | | 1,044,476 | | | | 1,063,835 | | | | 549,372 | | | |
| Purchase of investment in Co-owned Property | | | — | | | | (12,656,650 | ) | | | — | | | |
| Decreases in investment in Belvedere Company | | | 117,650,000 | | | | 23,500,000 | | | | — | | | |
| Net payment for sales of affiliated investment | | | (468 | ) | | | — | | | | — | | | |
| Payment for interest rate swap agreement | | | — | | | | (53,310 | ) | | | — | | | |
| Net interest earned (incurred) on interest rate swap agreements | | | (5,423,084 | ) | | | (2,738,144 | ) | | | 2,607,950 | | | |
| Net realized (gain) loss from investment transactions, foreign currency transactions and interest rate swap agreements | | | 68,518,485 | | | | 24,134,008 | | | | (87,655,683 | ) | | |
| Net change in unrealized (appreciation) depreciation of investments, foreign currency and interest rate swap agreements | | | (107,511,452 | ) | | | 607,664,020 | | | | 35,700,865 | | | |
| |
| |
Net cash flows provided by (used in) operating activities | | $ | 121,910,398 | | | $ | 22,683,259 | | | $ | (26,676,614 | ) | | |
| |
| |
| Cash Flows From Financing Activities — | | | | | | | | | | | | | | |
| Proceeds from Credit Facility | | $ | — | | | $ | 90,000,000 | | | $ | 47,000,000 | | | |
| Repayments of Credit Facility | | | (111,000,000 | ) | | | (99,500,000 | ) | | | (5,000,000 | ) | | |
| Payments for Fund shares redeemed | | | (1,796,970 | ) | | | (2,142,685 | ) | | | (3,923,360 | ) | | |
| Distributions paid to Shareholders | | | (6,436,189 | ) | | | (11,415,364 | ) | | | (11,302,906 | ) | | |
| Payment of Special Distributions | | | (1,151,791 | ) | | | — | | | | — | | | |
| Distributions paid to minority investors | | | (16,920 | ) | | | (16,920 | ) | | | (17,705 | ) | | |
| |
| |
Net cash flows provided by (used in) financing activities | | $ | (120,401,870 | ) | | $ | (23,074,969 | ) | | $ | 26,756,029 | | | |
| |
| |
| | | | | | | | | | | | | | | |
Net increase (decrease) in cash | | $ | 1,508,528 | | | $ | (391,710 | ) | | $ | 79,415 | | | |
| |
| |
| | | | | | | | | | | | | | | |
Cash at beginning of year | | $ | 251,323 | | | $ | 643,033 | | | $ | 563,618 | | | |
| |
| |
| | | | | | | | | | | | | | | |
Cash at end of year | | $ | 1,759,851 | | | $ | 251,323 | | | $ | 643,033 | | | |
| |
| |
See notes to consolidated financial statements
47
Consolidated Financial Statements (continued)
Consolidated Statements of Cash Flows (continued)
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | |
| Supplemental Disclosure and Non-cash Operating and Financing Activities | | 2009 | | | 2008 | | | 2007 | | | |
| |
| Interest paid on loan — Credit Facility | | $ | 1,221,731 | | | $ | 9,801,945 | | | $ | 15,520,110 | | | |
| Interest paid (received) on interest rate swap agreements, net | | $ | 5,419,964 | | | $ | 2,655,548 | | | $ | (2,620,808 | ) | | |
| Reinvestment of distributions paid to Shareholders | | $ | 5,953,197 | | | $ | 10,487,126 | | | $ | 10,541,926 | | | |
| Market value of securities distributed in payment of redemptions | | $ | 190,334,067 | | | $ | 332,094,403 | | | $ | 147,782,874 | | | |
| Recharacterization of Real Estate Joint Venture advances to equity | | $ | — | | | $ | — | | | $ | 17,723,937 | | | |
| Swap interest receivable assumed in conjunction with the purchase of the interest rate swap agreement | | $ | — | | | $ | (13,611 | ) | | $ | — | | | |
| |
| |
See notes to consolidated financial statements
48
Consolidated Financial Statements (continued)
Financial Highlights
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | |
| | | 2009 | | | 2008 | | | 2007 | | | |
| |
| Net asset value — Beginning of year | | $ | 76.430 | | | $ | 130.110 | | | $ | 127.060 | | | |
| |
| |
| Income (loss) from operations |
| |
Net investment income(1) | | $ | 2.148 | | | $ | 1.391 | | | $ | 1.046 | | | |
| Net realized and unrealized gain (loss) | | | 6.762 | | | | (53.316 | ) | | | 3.534 | | | |
| |
| |
Total income (loss) from operations | | $ | 8.910 | | | $ | (51.925 | ) | | $ | 4.580 | | | |
| |
| |
| Distributions |
| |
| Distributions to Shareholders | | $ | (1.270 | ) | | $ | (1.660 | ) | | $ | (1.530 | ) | | |
Special Distributions(1) | | | — | | | | (0.095 | ) | | | — | | | |
| |
| |
Total distributions | | $ | (1.270 | ) | | $ | (1.755 | ) | | $ | (1.530 | ) | | |
| |
| |
Net asset value — End of year | | $ | 84.070 | | | $ | 76.430 | | | $ | 130.110 | | | |
| |
| |
Total Return(2) | | | 12.05 | % | | | (40.44 | )% | | | 3.64 | % | | |
| |
| |
| Ratios as a percentage of average net assets |
| |
Investment advisory and administrative fees, distribution and servicing fees and other operating expenses(3)(4) | | | 1.50 | % | | | 1.21 | % | | | 1.10 | % | | |
Interest and other borrowing costs(3)(5) | | | 0.20 | % | | | 0.73 | % | | | 0.86 | % | | |
| | | |
| | | |
| Total expenses | | | 1.70 | % | | | 1.94 | % | | | 1.96 | % | | |
| | | | | | | | | | | | | | | |
Net investment income(5) | | | 2.94 | % | | | 1.28 | % | | | 0.80 | % | | |
| |
| |
| Ratios as a percentage of average gross assets(6) |
| |
Investment advisory and administrative fees, distribution and servicing fees and other operating expenses(3)(4) | | | 0.80 | % | | | 0.82 | % | | | 0.84 | % | | |
Interest and other borrowing costs(3)(5) | | | 0.11 | % | | | 0.50 | % | | | 0.66 | % | | |
| | | |
| | | |
| Total expenses | | | 0.91 | % | | | 1.32 | % | | | 1.50 | % | | |
| | | | | | | | | | | | | | | |
Net investment income(5) | | | 1.57 | % | | | 0.87 | % | | | 0.61 | % | | |
| |
| |
| Supplemental Data |
| |
| Net assets, end of year (000’s omitted) | | $ | 614,893 | | | $ | 756,309 | | | $ | 1,718,957 | | | |
Portfolio turnover of Tax-Managed Growth Portfolio(7) | | | 2 | % | | | 1 | % | | | 2 | % | | |
| |
| |
| | |
| (1) | | Calculated using average shares outstanding. |
| |
| (2) | | Returns are historical and are calculated by determining the percentage change in net asset value with all distributions reinvested (except for Special Distributions). |
| |
| (3) | | Includes the expenses of Belport Capital Fund LLC (Belport Capital) and Belport Realty Corporation. |
| |
| (4) | | Includes Belport Capital’s share of Belvedere Capital Fund Company LLC’s (Belvedere Company) allocated expenses, including those expenses allocated from Tax-Managed Growth Portfolio (the Portfolio). |
| |
| (5) | | Ratios do not include net interest earned or incurred in connection with interest rate swap agreements. Had such amounts been included, ratios would be lower or higher. |
| |
| (6) | | Average gross assets means the average daily amount of the value of all assets of Belport Capital (including Belport Capital’s interest in Belvedere Company and Belport Capital’s ratable share of the assets of its direct and indirect subsidiaries, real estate joint ventures and co-owned real property investments), without reduction by any liabilities. |
| |
| (7) | | Excludes the value of portfolio securities contributed or distributed as a result of in-kind shareholder transactions. The portfolio turnover rate of the Portfolio including in-kind contributions and distributions was 3%, 3% and 6% for the years ended December 31, 2009, 2008 and 2007, respectively. |
See notes to consolidated financial statements
49
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements
1 Organization
Belport Capital Fund LLC (Belport Capital) is a Delaware limited liability company established to offer diversification and tax-sensitive investment management to investors holding large and concentrated positions in equity securities of selected publicly traded companies. The investment objective of Belport Capital is to achieve long-term, after-tax returns for Belport Capital shareholders (Shareholders). Belport Capital pursues this objective primarily by investing indirectly in Tax-Managed Growth Portfolio (the Portfolio), a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act). The Portfolio is organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts. Prior to December 14, 2009, the Portfolio was organized as a trust under the laws of the state of New York. Belport Capital maintains its investment in the Portfolio by investing in Belvedere Capital Fund Company LLC (Belvedere Company), a separate Massachusetts limited liability company that invests exclusively in the Portfolio. The performance of Belport Capital and Belvedere Company is directly and substantially affected by the performance of the Portfolio. The audited financial statements of the Portfolio, including the Portfolio of Investments, are included elsewhere in this report and should be read in conjunction with these financial statements.
Separate from its investment in the Portfolio through Belvedere Company, Belport Capital invests in real estate investments through a controlled subsidiary, Belport Realty Corporation (Belport Realty). Such investments include preferred equity interests in real estate operating partnerships (Partnership Preference Units) affiliated with publicly traded real estate investment trusts (REITs), investments in real estate joint ventures (Real Estate Joint Ventures) and atenancy-in-common interest in real property (Co-owned Property).
2 Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed in the preparation of the consolidated financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America (GAAP).
Management has evaluated all subsequent events and transactions through March 1, 2010, the date the consolidated financial statements were issued, for possible adjustment toand/or disclosure in the consolidated financial statements.
A Principles of Consolidation. The consolidated financial statements include the accounts of Belport Capital and its subsidiaries (collectively, the Fund). All material intercompany accounts and transactions have been eliminated.
Investments in which the Fund cannot exercise a majority voting interest, but in which the Fund has the ability to exercise significant influence over operating and financial policies, are presented using the equity method and stated at fair value (Note 2E). Real Estate Joint Ventures and Co-owned Property are presented using the equity method. Under the equity method, Real Estate Joint Ventures and Co-owned Property are initially recognized on the Consolidated Statements of Assets and Liabilities at cost (provided such cost is indicative of fair value) and are subsequently adjusted to reflect the Fund’s proportionate share of the net increase (decrease) in net assets from operations of Real Estate Joint Ventures and Co-owned Property. Real Estate Joint Ventures and Co-owned Property are also adjusted to reflect distributions, contributions, advances in the form of loans, interest earned on advances and certain other adjustments, as appropriate.
B Basis of Presentation. Belport Capital is an investment company and, as such, presents its assets at fair value. Fixed liabilities are generally stated at amounts payable.
C Cash. The Fund considers deposits in banks that can be liquidated without prior notice or penalty to be cash.
50
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
D Investment Costs. The financial reporting cost basis of the Fund’s investment in Belvedere Company is the aggregate initial fair value of securities contributed to the Fund adjusted for the estimated allocation of the Fund’s share of net investment income or loss and net realized gain or loss of Belvedere Company as well as other adjustments including the value of securities and cash contributed to Belvedere Company and received from Belvedere Company for redemptions or distributions. The tax cost basis of the Fund’s investment in Belvedere Company is the aggregate tax cost basis of securities contributed to the Fund adjusted for the Fund’s share of income or loss and net realized capital gain or loss of Belvedere Company determined in accordance with income tax regulations as well as other adjustments including, but not limited to, basis adjustments determined in accordance with the income tax regulations, and the tax cost basis of securities and cash contributed to Belvedere Company and received from Belvedere Company for redemptions or distributions.
The financial reporting cost basis of the Fund’s Partnership Preference Units purchased by the Fund is the purchase cost. The financial reporting cost basis of the Fund’s real estate investments accounted for using the equity method is the purchase cost adjusted to reflect the Fund’s proportionate share of the net investment income or loss and net realized gain or loss of such real estate investment as well as other adjustments, as appropriate. The tax cost basis of the Fund’s real estate investments purchased by the Fund is typically the purchase cost adjusted for certain items including depreciation of real estate assets and distributions treated as a return of capital for tax purposes.
E Investment and Other Valuations. The Fund invests in shares of Belvedere Company, Partnership Preference Units, Real Estate Joint Ventures and Co-owned Property. The Real Estate Joint Ventures and Co-owned Property are referred to herein collectively as Subsidiary Real Estate Investments. The Fund may also invest cash on a temporary basis in Cash Management Portfolio (Cash Management), an affiliated investment company managed by Boston Management and Research (Boston Management), a subsidiary of Eaton Vance Management (Eaton Vance). Additionally, Belport Capital has entered into interest rate swap agreements (Note 10). Belvedere Company’s only investment is an interest in the Portfolio, the value of which is derived from a proportional interest therein. Valuation of securities by the Portfolio is discussed in Note 1A of the Portfolio’s Notes to Financial Statements, which are included elsewhere in this report. Boston Management makes valuation determinations in accordance with the Fund’s policies. The valuation policies followed by the Fund are as follows:
Market prices for the Fund’s investments in Partnership Preference Units and Subsidiary Real Estate Investments are not readily available. Such investments are stated in the Fund’s consolidated financial statements at fair value which represents the amount at which Boston Management, as manager of Belport Realty, believes would be received to sell an asset in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants under current market conditions. In valuing these investments, Boston Management considers relevant factors, data and information.
Valuations of the Fund’s Partnership Preference Units and Subsidiary Real Estate Investments are inherently uncertain because they involve the use of assumptions and estimates. If the assumptions and estimates used in the valuations were to change, it could materially impact the fair value of the Fund’s holdings of Partnership Preference Units and Subsidiary Real Estate Investments.
The fair value of property held by the Fund’s Subsidiary Real Estate Investments is based on appraisals provided by independent, licensed appraisers (Appraisers) and valuations, if applicable, prepared by Boston Management.
The appraisals of properties are conducted by Appraisers on at least an annual basis. Appraisals of properties may be conducted more frequently than once a year if Boston Management determines that significant changes in economic circumstances, that may materially impact fair values, have occurred since the most recent appraisal.
51
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
Each appraisal is conducted in accordance with the Uniform Standards of Professional Appraisal Practices (as well as other relevant standards). Boston Management reviews the appraisal of each property and generally relies on the assumptions and estimates made by the Appraiser when determining fair value.
In deriving the fair value of a property, an Appraiser considers numerous factors, including the expected future cash flows from the property, recent sale prices for similar properties and, if applicable, the replacement cost of the property, in order to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the property.
For those properties not appraised by Appraisers in a given quarter, Boston Management will review the fair values of such properties and, if Boston Management believes it is warranted based on the appraisals of appraised properties or for other reasons, Boston Management may prepare a valuation of such properties considering results of operations, market conditions, significant changes in economic circumstances, recent independent appraisals of similar propertiesand/or other relevant facts or circumstances. In determining valuations, Boston Management follows a process consistent with industry practice and the practice of Appraisers, as described above. Valuations may occur more frequently than quarterly if it is determined by Boston Management that the current property valuation has changed materially since the most recent appraisal or valuation.
Boston Management determines the fair value of the Fund’s equity interest in a Real Estate Joint Venture based on an estimate of the allocation of equity interests between Belport Realty and the unaffiliated minority investor of the Real Estate Joint Venture (the Operating Partner). This allocation is generally calculated by a third party specialist, using current valuations of the properties owned by the Real Estate Joint Venture. The specialist uses a financial model that considers (i) the terms of the joint venture agreement relating to allocation of distributable cash flow, (ii) the expected duration of the joint venture, and (iii) the projected property values and cash flows from the properties based on estimates used in the property valuations. The estimated allocation of equity interests between Belport Realty and the Operating Partner of a Real Estate Joint Venture is prepared quarterly and reviewed by Boston Management. Interim allocations of equity interests may be conducted more frequently than quarterly if Boston Management determines that significant changes in economic circumstances that may materially impact the allocation of equity interests have occurred since the most recent allocation.
Boston Management determines the fair value of the Fund’s interest in Co-owned Property by applying the Fund’s ownership interest to the fair value of the property, net of associated mortgage debt, if any.
The fair value of the Partnership Preference Units is based on analysis and calculations performed on at least a monthly basis by a third party service provider. The service provider calculates an estimated price and yield (before accrued distributions) for each issue of Partnership Preference Units based on descriptions of such issue provided by Boston Management and certain publicly available information including, but not limited to, the trading prices of publicly issued debtand/or preferred stock instruments of the same or similar issuers, which may be adjusted to reflect the illiquidity and other structural characteristics of the Partnership Preference Units (such as call provisions). Daily valuations of Partnership Preference Units are determined by adjusting prices from the service provider to account for accrued distributions under the terms of the Partnership Preference Units. If changes in relevant markets, events that materially affect an issuer or other events that have a significant effect on the price or yield of Partnership Preference Units occur, relevant prices or yields may be adjusted to take such occurrences into account. Boston Management reviews the analysis and calculations performed by the service provider. Boston Management generally relies on the assumptions and estimates made by the service provider when determining the fair value of the Partnership Preference Units.
Cash Management generally values its investment securities utilizing the amortized cost valuation technique permitted byRule 2a-7 under the 1940 Act, pursuant to which Cash Management must comply with certain conditions. This technique involves initially valuing a portfolio security at its cost and thereafter assuming a
52
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
constant amortization to maturity of any discount or premium. If amortized cost is determined not to approximate fair value, Cash Management may value its investment securities based on available market quotations provided by a third party pricing service.
Interest rate swap agreements are normally valued on the basis of valuations furnished daily by a third party pricing service. The valuations are based on the present value of fixed and projected floating rate cash flows over the term of the agreement. Future cash flows are discounted to their present value using swap quotations provided by electronic data services or by broker-dealers.
Changes in the fair value of the Fund’s investments are recorded as unrealized appreciation (depreciation) in the Consolidated Statements of Operations.
F Interest Rate Swaps. Belport Capital has entered into interest rate swap agreements to fix the cost of a portion of its borrowings under the Credit Facility (Note 11A). Pursuant to the agreements, Belport Capital makes periodic payments to the counterparty at predetermined fixed rates in exchange for floating rate payments that fluctuate with theone-month London Interbank Offered Rate (LIBOR). Net interest paid and accrued or received and earned is recorded as realized gains or losses and changes in the underlying values of the swaps are recorded as unrealized appreciation (depreciation), each in the Consolidated Statements of Operations.
G Income. Belvedere Company’s net investment income or loss consists of Belvedere Company’s pro rata share of the net investment income or loss of the Portfolio, less all expenses of Belvedere Company, determined in accordance with GAAP.
The Fund’s net investment income or loss consists of the Fund’s pro rata share of the net investment income or loss of Belvedere Company, the Fund’s pro rata share of the net investment income or loss of Cash Management, plus all net investment income earned on the Fund’s real estate investments, less all expenses of the Fund, determined in accordance with GAAP.
Distributions from Partnership Preference Units are recorded on the ex-dividend date or on the date the Fund is informed of the distribution. Income or loss from the Real Estate Joint Ventures and Co-owned Property is recorded based on the Fund’s proportional interest in the net investment income or loss earned or incurred by the Real Estate Joint Ventures and Co-owned Property.
Interest income is recorded on the accrual basis.
H Deferred Loan Costs. Deferred loan costs are amortized over the term of the related debt and are included in other assets. Amortization expense of deferred loan costs is included in interest expense.
I Income Taxes. Belport Capital, Belvedere Company and the Portfolio are treated as partnerships for federal income tax purposes. As a result, Belport Capital, Belvedere Company and the Portfolio do not incur federal income tax liability, and the Shareholders and partners thereof are individually responsible for taxes on items of partnership income, gain, loss and deduction. The policy of Belport Realty is to comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to REITs. Belport Realty will generally not be subject to federal income tax to the extent that it distributes its taxable income to its stockholders each year and maintains its qualification as a REIT. Subsidiaries of Belport Realty are generally treated as pass-through entities for federal income tax purposes.
In the event the Fund recognizes an uncertain tax position, related interest expense and penalties will be recognized as tax expense when incurred.
Net investment income and capital gains determined in accordance with income tax regulations may differ from such amounts determined in accordance with GAAP. Such differences could be significant and are primarily due to
53
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
differences in the cost basis of securities and other contributed investments, depreciation of real estate assets, periodic payments made or received in connection with interest rate swap agreements and the character of distributions received from Belport Realty and real estate investments thereof.
The Fund files numerous U.S. federal, state and local income, and franchise tax returns. With few exceptions, the Fund is not subject to U.S. federal, state or local tax examinations by taxing authorities for years prior to 2006.
J Investment Transactions. Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost.
K Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
L Indemnifications and Guarantees. Under Belport Capital’s operating agreement, Belport Capital’s officers, its manager, investment adviser, and any affiliate, associate, officer, employee or trustee thereof, and any manager, director, officer or employee of Belport Realty or any other subsidiary may be indemnified against certain liabilities and expenses arising out of their duties to the Fund. Shareholders also may be indemnified against personal liability for the liabilities of Belport Capital. Additionally, in the normal course of business, the Fund enters into agreements with service providers, lenders and counterparties that may contain indemnification or guarantee clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve possible future claims that may be made against the Fund that have not yet occurred.
3 Fair Value Measurements
GAAP establishes athree-tier hierarchy to prioritize the assumptions, referred to as inputs, used in valuation techniques to measure fair value. The three levels of the fair value hierarchy are described below.
| |
| • | Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
| |
| • | Level 2 – Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly; |
| |
| • | Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
In determining the fair value of its investments, the Fund uses appropriate valuation techniques based on available inputs. The Fund maximizes its use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Accordingly, when available, the Fund measures fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value. If market data is not readily available, fair value is based upon other significant unobservable inputs such as inputs that reflect the Fund’s own assumptions about the inputs market participants would use in valuing the investment. Investments valued using unobservable inputs are classified to the lowest level of any input that is most significant to the valuation. Thus, a valuation may be classified as Level 3 even though the valuation may include significant inputs that are readily observable.
The Fund’s investments in Belvedere Company and Cash Management are classified as Level 1 within the fair value hierarchy. Interest rate swap agreements are classified as Level 2 within the fair value hierarchy, while the
54
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
Fund’s real estate investments are classified as Level 3 within the fair value hierarchy. The Fund’s assets classified as Level 3 as of December 31, 2009 and 2008 represent 20.0% and 20.2% of the Fund’s total assets, respectively.
The following tables present for each of the hierarchy levels, the Fund’s assets and liabilities that are measured at fair value as of December 31, 2009 and 2008.
| | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements
|
| | | | | | at December 31, 2009 |
| Description | | December 31, 2009 | | | Level 1 | | | Level 2 | | | Level 3 | | | |
| |
| Assets | | | | | | | | | | | | | | | | | | |
| Investment in Belvedere Company | | $ | 637,979,572 | | | $ | 637,979,572 | | | $ | — | | | $ | — | | | |
| Partnership Preference Units | | | 42,301,657 | | | | — | | | | — | | | | 42,301,657 | | | |
| Real Estate Joint Ventures | | | 114,887,403 | | | | — | | | | — | | | | 114,887,403 | | | |
| Co-owned Property | | | 4,087,760 | | | | — | | | | — | | | | 4,087,760 | | | |
| Short-Term Investment | | | 3,849,385 | | | | 3,849,385 | | | | | | | | | | | |
| |
| |
Total | | $ | 803,105,777 | | | $ | 641,828,957 | | | $ | — | | | $ | 161,276,820 | | | |
| |
| |
| Liabilities | | | | | | | | | | | | | | | | | | |
| Interest Rate Swap Agreements | | $ | 2,044,732 | | | $ | — | | | $ | 2,044,732 | | | $ | — | | | |
| |
| |
Total | | $ | 2,044,732 | | | $ | — | | | $ | 2,044,732 | | | $ | — | | | |
| |
| |
| | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements
| | | |
| | | | | | at December 31, 2008 | | | |
| Description | | December 31, 2008 | | | Level 1 | | | Level 2 | | | Level 3 | | | |
| |
| Assets | | | | | | | | | | | | | | | | | | |
| Investment in Belvedere Company | | $ | 845,480,051 | | | $ | 845,480,051 | | | $ | — | | | $ | — | | | |
| Partnership Preference Units | | | 32,355,977 | | | | — | | | | — | | | | 32,355,977 | | | |
| Real Estate Joint Ventures | | | 173,949,254 | | | | — | | | | — | | | | 173,949,254 | | | |
| Co-owned Property | | | 8,017,684 | | | | — | | | | — | | | | 8,017,684 | | | |
| Short-Term Investment | | | 1,267,642 | | | | — | | | | 1,267,642 | | | | — | | | |
| |
| |
Total | | $ | 1,061,070,608 | | | $ | 845,480,051 | | | $ | 1,267,642 | | | $ | 214,322,915 | | | |
| |
| |
| Liabilities | | | | | | | | | | | | | | | | | | |
| Interest Rate Swap Agreements | | $ | 5,171,035 | | | $ | — | | | $ | 5,171,035 | | | $ | — | | | |
| |
| |
Total | | $ | 5,171,035 | | | $ | — | | | $ | 5,171,035 | | | $ | — | | | |
| |
| |
55
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
The following tables present the changes in the Level 3 fair value category for the years ended December 31, 2009 and 2008.
| | | | | | | | | | | | | | | | | | | |
| | | Level 3 Fair Value Measurements for the
| | | | | | |
| | | Year Ended December 31, 2009 | | | | | | |
| | | Partnership
| | | Real Estate
| | | | | | | | | |
| | | Preference
| | | Joint
| | | Co-owned
| | | | | | |
| | | Units | | | Ventures | | | Property | | | Total | | | |
| |
| Beginning balance as of December 31, 2008 | | $ | 32,355,977 | | | $ | 173,949,254 | | | $ | 8,017,684 | | | $ | 214,322,915 | | | |
| Net realized loss | | | (146,096 | ) | | | (7,878,930 | ) | | | — | | | | (8,025,026 | ) | | |
| Net change in unrealized appreciation (depreciation) | | | 11,126,123 | | | | (46,280,708 | ) | | | (4,900,000 | ) | | | (40,054,585 | ) | | |
| Net sales | | | (1,034,347 | ) | | | — | | | | — | | | | (1,034,347 | ) | | |
Net investment income(1) | | | — | | | | 9,894,299 | | | | 966,465 | | | | 10,860,764 | | | |
Other(2) | | | — | | | | (14,796,512 | ) | | | 3,611 | | | | (14,792,901 | ) | | |
Net transfers inand/or out of Level 3 | | | — | | | | — | | | | — | | | | — | | | |
| |
| |
Ending balance as of December 31, 2009 | | $ | 42,301,657 | | | $ | 114,887,403 | | | $ | 4,087,760 | | | $ | 161,276,820 | | | |
| |
| |
Net change in unrealized appreciation (depreciation) from investments still held at December 31, 2009 | | $ | 10,827,247 | | | $ | (46,280,708 | ) | | $ | (4,900,000 | ) | | $ | (40,353,461 | ) | | |
| |
| |
| | | | | | | | | | | | | | | | | | | |
| | | Level 3 Fair Value Measurements for the
| | | | | | |
| | | Year Ended December 31, 2008 | | | | | | |
| | | Partnership
| | | Real Estate
| | | | | | | | | |
| | | Preference
| | | Joint
| | | Co-owned
| | | | | | |
| | | Units | | | Ventures | | | Property | | | Total | | | |
| |
| Beginning balance as of December 31, 2007 | | $ | 43,174,861 | | | $ | 267,723,969 | | | $ | — | | | $ | 310,898,830 | | | |
| Net realized gain (loss) | | | (134,159 | ) | | | 21,253 | | | | — | | | | (112,906 | ) | | |
| Net change in unrealized appreciation (depreciation) | | | (15,742,693 | ) | | | (72,546,830 | ) | | | (5,076,982 | ) | | | (93,366,505 | ) | | |
| Net purchases | | | 5,057,968 | | | | — | | | | 12,656,650 | | | | 17,714,618 | | | |
Net investment income(1) | | | — | | | | 8,470,179 | | | | 423,431 | | | | 8,893,610 | | | |
Other(2) | | | — | | | | (29,719,317 | ) | | | 14,585 | | | | (29,704,732 | ) | | |
Net transfers inand/or out of Level 3 | | | — | | | | — | | | | — | | | | — | | | |
| |
| |
Ending balance as of December 31, 2008 | | $ | 32,355,977 | | | $ | 173,949,254 | | | $ | 8,017,684 | | | $ | 214,322,915 | | | |
| |
| |
Net change in unrealized appreciation (depreciation) from investments still held at December 31, 2008 | | $ | (15,719,690 | ) | | $ | (72,546,830 | ) | | $ | (5,076,982 | ) | | $ | (93,343,502 | ) | | |
| |
| |
| | | |
(1) | | Represents net investment income recorded using the equity method of accounting. |
(2) | | Represents net capital contributions (distributions) recorded using the equity method of accounting. |
56
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
4 Shareholder Transactions
Belport Capital may issue an unlimited number of full and fractional Fund shares. Shareholders who elect the estate freeze feature have their shares subdivided into preferred shares and common shares. Transactions in Fund shares were as follows:
| | | | | | | | | | | | | | | |
| | | Year Ended |
| | | |
| | | December 31,
| | | December 31,
| | | December 31,
| | | |
| | | 2009 | | | 2008 | | | 2007 | | | |
| |
| Issued to Shareholders electing to receive payment of distributions in Fund shares | | | 85,855 | | | | 87,736 | | | | 83,573 | | | |
| Redemptions | | | (2,666,963 | ) | | | (3,403,416 | ) | | | (1,161,315 | ) | | |
| |
| |
Net decrease | | | (2,581,108 | ) | | | (3,315,680 | ) | | | (1,077,742 | ) | | |
| |
| |
5 Distributions to Shareholders
Belport Capital intends to distribute at the end of each year, or shortly thereafter, an amount approximately equal to the taxes payable on its net investment income allocated to Shareholders. Prior to December 31, 2009, the Fund had distributed all of its net investment income to Shareholders.
Belport Capital also intends to distribute at the end of each year, or shortly thereafter, approximately 18% of its net realized capital gains, if any, other than precontribution gains allocated to a Shareholder in connection with a taxable tender offer or other taxable corporate event with respect to a security contributed by that Shareholder or such Shareholder’s predecessor in interest. Whenever a distribution in respect of a precontribution gain is made, Belport Capital intends to make a supplemental distribution to compensate Shareholders receiving such distributions for taxes that may be due on income specially allocated in connection with the precontribution gain and supplemental distributions. Capital gain distributions that are made with respect to realized precontribution gains and the associated supplemental distributions (collectively, Special Distributions) are made solely to the Shareholders to whom such realized precontribution gain is allocated. There were no Special Distributions accrued during the year ended December 31, 2009. Special Distributions of $1,151,791 were accrued during the year ended December 31, 2008 and subsequently paid during the year ended December 31, 2009. There were no Special Distributions paid or accrued during the year ended December 31, 2007.
The Fund’s distributions generally are based on determinations of net investment income and net realized capital gains for federal income tax purposes. Such amounts may differ from net investment income or loss and net realized gain or loss as set forth in the Fund’s consolidated financial statements due to differences in the treatment of various income, gain, loss, expense and other items for federal income tax purposes and under GAAP. The amount of the Fund’s distributions may be adjusted in the future to reflect changes in effective tax rates.
In addition, Belport Realty intends to distribute to Belport Capital substantially all of its taxable income earned during the year.
Distributions made to Shareholders electing the Fund’s estate freeze feature will be paid, first, to holders of preferred shares to the extent of the unpaid cumulative annual priority return of the preferred shares and, second, to the holders of the associated common shares. Distributions made in respect of any realized precontribution gains and associated supplemental distributions will be apportioned between preferred shares and common shares consistent with the allocation to the preferred shares and common shares of such realized precontribution gains. It is expected that substantially all Belport Capital distributions in respect of estate freeze shares will be paid to holders of preferred shares rather than holders of common shares. Distributions on estate freeze shares may be reinvested in Belport Capital to purchase undivided Fund shares at the Fund’s net asset value per share on the date of reinvestment.
57
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
6 Investment Transactions
The following table summarizes the Fund’s investment transactions, other than short-term investments, for the years ended December 31, 2009, 2008 and 2007.
| | | | | | | | | | | | | | | |
| | | Year Ended |
| | | December 31,
| | | December 31,
| | | December 31,
| | | |
| Investment Transactions | | 2009 | | | 2008 | | | 2007 | | | |
| |
| Decreases in investment in Belvedere Company | | $ | 307,984,067 | | | $ | 355,594,403 | | | $ | 147,782,874 | | | |
Increases in Partnership Preference Units(1) | | $ | 10,129 | | | $ | 6,121,803 | | | $ | 10,006,217 | | | |
| Decreases in Partnership Preference Units | | $ | 1,044,476 | | | $ | 1,063,835 | | | $ | 549,372 | | | |
| Increases in investment in Real Estate Joint Ventures | | $ | — | | | $ | — | | | $ | 19,978,824 | | | |
| Decreases in investment in Real Estate Joint Ventures | | $ | 14,791,748 | | | $ | 29,719,317 | | | $ | 22,536,871 | | | |
Increases in investment in Co-owned Property(2) | | $ | 3,611 | | | $ | 12,671,235 | | | $ | — | | | |
| |
| |
| | | |
(1) | | Increases in Partnership Preference Units for the year ended December 31, 2008 represent Partnership Preference Units purchased from real estate investment affiliates of other investment funds advised by Boston Management. |
(2) | | Increases in investment in Co-owned Property for the year ended December 31, 2008 include the purchase of a Co-owned Property from the real estate investment affiliate of another investment fund advised by Boston Management for $12,656,650. |
7 Indirect Investment in the Portfolio
The following table summarizes the Fund’s investment in the Portfolio through Belvedere Company for the years ended December 31, 2009, 2008 and 2007, including allocations of income, expenses and net realized and unrealized gains (losses).
| | | | | | | | | | | | | | | |
| | | Year Ended |
| | | December 31,
| | | December 31,
| | | December 31,
| | | |
| | | 2009 | | | 2008 | | | 2007 | | | |
| |
Belvedere Company’s interest in the Portfolio(1) | | $ | 6,702,473,451 | | | $ | 7,830,200,429 | | | $ | 14,763,099,076 | | | |
The Fund’s investment in Belvedere Company(2) | | $ | 637,979,572 | | | $ | 845,480,051 | | | $ | 1,708,714,578 | | | |
| Income allocated to Belvedere Company from the Portfolio | | $ | 154,559,605 | | | $ | 270,863,516 | | | $ | 298,751,556 | | | |
| Income allocated to the Fund from Belvedere Company | | $ | 15,181,858 | | | $ | 30,594,549 | | | $ | 34,814,839 | | | |
| Expenses allocated to Belvedere Company from the Portfolio | | $ | 31,400,023 | | | $ | 53,705,900 | | | $ | 67,348,884 | | | |
Expenses allocated to the Fund from Belvedere Company(3) | | $ | 4,068,097 | | | $ | 8,154,648 | | | $ | 10,575,719 | | | |
| Net realized gain (loss) from investment transactions and foreign currency transactions allocated to Belvedere Company from the Portfolio | | $ | (540,322,752 | ) | | $ | (203,248,973 | ) | | $ | 581,142,259 | | | |
| Net realized gain (loss) from investment transactions and foreign currency transactions allocated to the Fund from Belvedere Company | | $ | (55,069,907 | ) | | $ | (21,282,958 | ) | | $ | 67,455,190 | | | |
| Net change in unrealized appreciation (depreciation) of investments and foreign currency allocated to Belvedere Company from the Portfolio | | $ | 1,646,321,220 | | | $ | (4,579,608,072 | ) | | $ | (99,671,823 | ) | | |
| Net change in unrealized appreciation (depreciation) of investments and foreign currency allocated to the Fund from Belvedere Company | | $ | 144,439,734 | | | $ | (508,797,067 | ) | | $ | (11,637,486 | ) | | |
| |
| |
| | | |
(1) | | As of December 31, 2009, 2008 and 2007, the value of Belvedere Company’s interest in the Portfolio represents 70.7%, 73.9% and 74.3% of the Portfolio’s net assets, respectively. |
(2) | | As of December 31, 2009, 2008 and 2007, the Fund’s investment in Belvedere Company represents 9.5%, 10.8% and 11.6% of Belvedere Company’s net assets, respectively. |
58
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
| | | |
(3) | | Expenses allocated to the Fund from Belvedere Company represent: |
| | | | | | | | | | | | | | | |
| | | Year Ended |
| | | December 31,
| | | December 31,
| | | December 31,
| | | |
| | | 2009 | | | 2008 | | | 2007 | | | |
| |
| Expenses allocated from the Portfolio | | $ | 3,073,053 | | | $ | 6,081,393 | | | $ | 7,851,078 | | | |
| Servicing fee (see Note 12) | | $ | 971,749 | | | $ | 2,010,619 | | | $ | 2,657,156 | | | |
| Operating expenses | | $ | 23,295 | | | $ | 62,636 | | | $ | 67,485 | | | |
| |
| |
8 Investment in Real Estate Joint Ventures
At December 31, 2009 and 2008, Belport Realty owned a majority economic interest in two Real Estate Joint Ventures, Monadnock Property Trust, LLC (Monadnock) and Bel Multifamily Property Trust (Bel Multifamily).
A board of trustees or managers controls the business of each Real Estate Joint Venture. Each of Belport Realty and the Operating Partner of the Real Estate Joint Venture has representation on the board and the unanimous consent of the board is required for all major decisions (which include such actions as (i) capital transactions (i.e., acquisitions, dispositions or financings); (ii) organizational events (i.e., mergers or liquidation); and (iii) operating plans (i.e., annual budgets)). The board of each Real Estate Joint Venture has delegated theday-to-day administration of the Real Estate Joint Venture and theday-to-day management of its real properties to the Operating Partner. Through its control of theday-to-day operations of the Real Estate Joint Venture and its properties, as well as its required consent to all major decisions affecting the Real Estate Joint Venture, each Operating Partner has significant participating rights and responsibilities with respect to the Real Estate Joint Venture. Each Operating Partner receives management-related fees from the Real Estate Joint Venture and, in addition, is reimbursed for certain payroll and other direct expenses incurred.
Distributable cash flows from operations of each Real Estate Joint Venture are allocated per each Real Estate Joint Venture agreement in a manner that provides Belport Realty: 1) a priority with respect to a fixed annual preferred return; and 2) participation on a pro rata or reduced basis in distributable cash flows in excess of the annual preferred return of Belport Realty and the subordinated preferred return of each Operating Partner. Distributable cash flows from dispositions of real properties or liquidation of each Real Estate Joint Venture is allocated on a pro rata basis up until the return of Belport Realty and each Operating Partner’s contributed capital with any excess allocated in a manner similar to that of cash flows from operations.
The Real Estate Joint Ventures are financed through mortgage notes secured by the real properties held by the respective entities. The mortgage notes are without recourse to Fund Shareholders and generally without recourse to Belport Capital and Belport Realty. In the case of Bel Multifamily, there may be recourse to Belport Capital and Belport Realty for certain liabilities associated with fraud, misrepresentation, misappropriation of funds or breach of material covenants and liabilities arising from environmental conditions involving or affecting the real property subject to the mortgage notes. Monadnock’s mortgage notes mature in April 2011 and Bel Multifamily’s mortgage notes mature in March 2011.
Pursuant to an agreement with the Monadnock Operating Partner, Monadnock may be liquidated at any time upon unanimous consent of the board, or after September 13, 2010 either Belport Realty or the Monadnock Operating Partner can give notice to buy the other’s equity interest in Monadnock or to sell its own equity in Monadnock. Pursuant to an agreement with the Bel Multifamily Operating Partner, Bel Multifamily may be liquidated at any time upon unanimous consent of the board, or after February 22, 2010 either Belport Realty or the Bel Multifamily Operating Partner can give notice to buy the other’s equity interest in Bel Multifamily or to sell its own equity in Bel Multifamily. No such notice has been received or provided.
59
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
During 2006, Belport Capital loaned amounts to Monadnock. The notes bear interest on the outstanding principal amount at the rate of 8.75% per annum. Repayment of the principal balance is contingent upon the occurrence of certain events at Monadnock. As of December 31, 2009 and 2008, respectively, $2,937,262 and $2,940,617 of principal and interest was payable to Belport Capital. In January 2010, $1,561,500 of principal was repaid to Belport Capital.
Combined and condensed financial data of the Real Estate Joint Ventures is presented below.
| | | | | | | | | | | |
| | | At December 31,
| | | At December 31,
| | | |
| | | 2009 | | | 2008 | | | |
| |
| Assets | | | | | | | | | | |
| Investment in real estate | | $ | 479,930,525 | | | $ | 596,233,443 | | | |
| Other assets | | | 15,819,203 | | | | 18,960,233 | | | |
| |
| |
Total assets | | $ | 495,749,728 | | | $ | 615,193,676 | | | |
| |
| |
| Liabilities and Shareholders’ Equity | | | | | | | | | | |
Mortgage notes payable, at face(1) | | $ | 335,715,000 | | | $ | 362,050,000 | | | |
| Other liabilities | | | 16,249,869 | | | | 16,222,723 | | | |
| |
| |
Total liabilities | | $ | 351,964,869 | | | $ | 378,272,723 | | | |
| |
| |
| Shareholders’ equity | | $ | 143,784,859 | | | $ | 236,920,953 | | | |
| |
| |
Total liabilities and shareholders’ equity | | $ | 495,749,728 | | | $ | 615,193,676 | | | |
| |
| |
| | | |
(1) | | The mortgage notes payable generally cannot be prepaid or otherwise disposed of without incurring a substantial prepayment penalty. The Real Estate Joint Ventures generally have no current plans to prepay or otherwise dispose of the mortgage notes payable without the sale of the related real property. |
| | | | | | | | | | | | | | | |
| | | Year Ended |
| | | December 31,
| | | December 31,
| | | December 31,
| | | |
| | | 2009 | | | 2008 | | | 2007 | | | |
| |
| Revenues | | $ | 75,427,428 | | | $ | 75,433,313 | | | $ | 74,825,569 | | | |
| Expenses | | | 63,133,965 | | | | 66,272,070 | | | | 59,183,143 | | | |
| |
| |
| Net investment income before realized and unrealized gain (loss) | | $ | 12,293,463 | | | $ | 9,161,243 | | | $ | 15,642,426 | | | |
| Realized gain (loss) | | | (9,946,976 | ) | | | 30,047 | | | | 24,788,072 | | | |
| Change in net unrealized appreciation (depreciation) | | | (79,703,124 | ) | | | (109,753,487 | ) | | | (16,293,411 | ) | | |
| |
| |
Net investment income (loss) | | $ | (77,356,637 | ) | | $ | (100,562,197 | ) | | $ | 24,137,087 | | | |
| |
| |
9 Investment in Co-owned Property
At December 31, 2009 and 2008, Belport Realty held an investment in Co-owned Property through Bel Stamford III LLC. The other investors in the Co-owned Property are real estate investment affiliates of other investment funds advised by Boston Management. The Co-owned Property is financed through a mortgage note secured by the real property. The mortgage note is generally without recourse to Belport Capital and Belport Realty, except that there may be recourse for certain liabilities arising from actions such as fraud, misrepresentation, misappropriation of funds or breach of material covenants and liabilities arising from environmental conditions.
60
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
10 Interest Rate Swap Agreements
Belport Capital has entered into interest rate swap agreements with Merrill Lynch Capital Services, Inc. to fix the cost of a portion of its borrowings under the Credit Facility (Note 11A). Pursuant to the agreements, Belport Capital makes periodic payments to the counterparty at predetermined fixed rates in exchange for floating rate payments that fluctuate withone-month LIBOR. See Note 2F for additional information. The notional or contractual amounts of these instruments may not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these investments is meaningful only when considered in conjunction with all related assets, liabilities and agreements. The risks of interest rate swap agreements include changes in market conditions that will affect the value of the agreement or the cash flows and the possible inability of the counterparty to fulfill its obligations under the agreement. Belport Capital’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from/paid to the counterparty over the agreement’s remaining life, to the extent that the amount is positive. The following table summarizes Belport Capital’s interest rate swap agreements.
| | | | | | | | | | | |
Derivatives Not Designated as
| | Liability Derivatives at |
| Hedging Instruments | | December 31, 2009 | | | December 31, 2008 | | | |
| |
Notional amount(1) | | $ | 155,982,000 | | | $ | 155,982,000 | | | |
| Average notional amount during the respective period | | $ | 155,982,000 | | | $ | 242,572,000 | | | |
| Weighted average fixed interest rate | | | 3.97% | | | | 3.97% | | | |
| Floating rate | | | LIBOR + 0.20% | | | | LIBOR + 0.20% | | | |
| Initial optional termination date | | | 2/2010 | | | | 2/2010 | | | |
| Final termination date | | | 6/2010 | | | | 6/2010 | | | |
| Fair value | | $ | (2,044,732 | ) | | $ | (5,171,035 | ) | | |
| |
| |
| | | |
(1) | | At December 31, 2009 and 2008, an interest rate swap agreement held with a notional amount of $46,160,000 has an initial optional termination date. |
11 Debt
A Credit Facility. Belport Capital has entered into credit arrangements with Dresdner Kleinwort Holdings I, Inc. (DKH) and Merrill Lynch Mortgage Capital, Inc. (Merrill Lynch) (collectively, the Credit Facility). The Credit Facility matures on June 25, 2010.
The credit arrangement with DKH is a term loan facility that accrues interest at a rate ofone-month LIBOR plus 0.20% per annum. During the year ended December 31, 2009, Belport Capital made repayments to decrease the term loan with DKH by an aggregate amount of $110,000,000.
The credit arrangement with Merrill Lynch is a revolving loan facility. In December 2009, Belport Capital decreased the amount of the revolving loan facility by $90,000,000 to an aggregate amount available for borrowing of $24,000,000. Borrowings under this credit arrangement accrue interest at a rate ofone-month LIBOR plus 0.38% per annum. A commitment fee of 0.10% per annum is paid on the unused commitment amount and is included in Credit Facility interest expense in the accompanying consolidated financial statements. A letter of credit was issued as a substitute for funding certain mortgage escrow accounts required by the lender of Bel Multifamily. The letter of credit expires on June 15, 2010.
Obligations under the Credit Facility are without recourse to Shareholders. Belport Capital is required under the Credit Facility to maintain at all times a specified asset coverage ratio. The rights of the lender to receive payments of interest on and repayments of principal of borrowings are senior to the rights of Shareholders. Under the terms of the Credit Facility, Belport Capital is not permitted to make distributions of cash or securities while there is
61
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
outstanding any event of default under the Credit Facility. During such periods, Belport Capital would not be able to honor redemption requests or make cash distributions. The Credit Facility is secured by a pledge of Belport Capital’s assets, excluding the Fund’s Real Estate Joint Ventures and Co-owned Property.
The following table summarizes Belport Capital’s Credit Facility. The fair value of the Credit Facility approximates its carrying value.
| | | | | | | | | | | |
| | | At December 31, 2009 | | | At December 31, 2008 | | | |
| |
| Total amount available under the Credit Facility | | $ | 209,500,000 | | | $ | 409,500,000 | | | |
| DKH borrowings outstanding | | $ | 185,500,000 | | | $ | 295,500,000 | | | |
| Merrill Lynch borrowings outstanding | | $ | — | | | $ | 1,000,000 | | | |
| Outstanding letter of credit | | $ | 1,680,923 | | | $ | 1,618,185 | | | |
| |
| |
On December 21, 2009, Belport Capital entered into a credit arrangement with Bank of America (the new Credit Facility) to refinance the existing Credit Facility on or before April 1, 2010 (the Refinancing Date). On the Refinancing Date, Belport Capital will borrow under the new Credit Facility to repay and terminate the existing Credit Facility. The new Credit Facility will have a minimum initial term of 540 days from the Refinancing Date but may be terminated by the lender any time thereafter upon 180 days’ notice. Belport Capital may terminate the new Credit Facility upon 30 days’ notice subject to an early termination fee.
The maximum aggregate amount that will be available for borrowing under the new Credit Facility is $210,000,000.
Belport Capital will pay a rate of interest equal tothree-month LIBOR plus 1.75% per annum on outstanding borrowings under the new Credit Facility. A loan structure fee payable equal to 0.25% of the total amount available under the new Credit Facility is payable on the Refinancing Date. A commitment fee of 0.25% per annum will be paid on the unused commitment amount through the Refinancing Date and 0.40% per annum thereafter. The commitment fee may be increased if outstanding borrowings fall below certain levels.
Obligations under the new Credit Facility will be without recourse to Shareholders. Borrowings under the new Credit Facility will be secured by a pledge of Belport Capital’s assets, excluding the Fund’s real estate investments. The new Credit Facility contains provisions requiring the maintenance of specified asset coverage ratios and restricting redemptions and cash distributions in the case of any event of default by Belport Capital.
Borrowings under the Credit Facility have been used to purchase the Fund’s interests in real estate investments, to pay selling commissions and organizational expenses and to provide for the liquidity needs of the Fund. Additional borrowings under the Credit Facility and the new Credit Facility may be made in the future for these purposes.
B Average Borrowings and Average Interest Rate. During the year ended December 31, 2009, the average balance of borrowings under the Credit Facility was approximately $203,300,000 with a weighted average interest rate of 0.62%. The weighted average interest rate includes all costs of borrowings under the Credit Facility.
12 Management Fee and Other Transactions with Affiliates
Belport Capital and the Portfolio have engaged Boston Management as investment adviser. Under the terms of the advisory agreement with the Portfolio, Boston Management receives a monthly advisory fee of 5/96 of 1% (0.625% annually) of the average daily net assets of the Portfolio up to $500,000,000 and at reduced rates as daily net assets exceed that level. For the years ended December 31, 2009, 2008 and 2007, the advisory fee applicable to the Portfolio was 0.45%, 0.43% and 0.43% of average daily net assets, respectively.
62
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
Subject to the fee waiver described below, Boston Management is entitled to receive a monthly advisory and administrative fee of 1/20 of 1% (equivalent to 0.60% annually) of the average daily gross assets of Belport Capital. The term “gross assets” means the value of all of Belport Capital’s assets, including Belport Capital’s interest in Belvedere Company and Belport Capital’s ratable share of the assets of its direct and indirect subsidiaries, real estate joint ventures and co-owned real property investments, without reduction by any liabilities. Belport Realty pays Boston Management a monthly management fee at a rate of 1/20 of 1% (equivalent to 0.60% annually) of the average daily gross assets of Belport Realty. The term “gross assets” means the value of all assets of Belport Realty, including Belport Realty’s ratable share of the assets of its direct and indirect subsidiaries, real estate joint ventures and co-owned real property investments, without reduction by any liabilities.
As compensation for its services as placement agent, Belport Capital pays Eaton Vance Distributors, Inc. (EV Distributors) a monthly distribution fee at a rate of 1/120 of 1% (equivalent to 0.10% annually) of Belport Capital’s average daily net assets. Distribution fees accrue from Belport Capital’s initial closing, March 14, 2001, and continue for a period of ten years so long as such continuance is approved at least annually by Eaton Vance, Inc. as trustee of Eaton Vance. Distribution fees are subject to the fee waiver described below. As a result of the fee waiver, payment of distribution fees does not result in higher expenses for the Fund. Similarly, termination of distribution fees does not reduce Fund expenses.
Eaton Vance and Boston Management do not receive separate compensation for serving as manager of Belport Capital and manager of Belvedere Company, respectively.
Boston Management has agreed to waive that portion of the monthly investment advisory and administrative fee payable by Belport Capital to the extent that such fee, together with the monthly distribution fee payable by Belport Capital to EV Distributors and Belport Capital’s attributable share of the monthly investment advisory fee and management fee payable by the Portfolio and Belport Realty, respectively, exceeds 0.60% of the average daily gross assets of Belport Capital (as described above). In addition, if Belport Capital invests in Cash Management, the advisory and administrative fees paid to Boston Management by Cash Management in respect of Belport Capital’s investment therein will be credited towards Belport Capital’s advisory and administrative fee payments, reducing the amount of such fees otherwise payable by Belport Capital.
Pursuant to a servicing agreement between Belvedere Company and EV Distributors, Belvedere Company pays a servicing fee to EV Distributors for providing certain services and information to direct and indirect investors in Belvedere Company. The servicing fee is paid on a quarterly basis at an annual rate of 0.15% of Belvedere Company’s average daily net assets. Pursuant to a servicing agreement between Belport Capital and EV Distributors, Belport Capital pays a servicing fee to EV Distributors on a quarterly basis at an annual rate of 0.25% of Belport Capital’s average daily net assets. Belport Capital’s allocated share of the servicing fee payable by Belvedere Company is credited towards Belport Capital’s servicing fee payment, reducing the amount of such fee that would otherwise be payable by Belport Capital. With respect to Shareholders who subscribe through a subagent, EV Distributors has assigned servicing responsibilities and fees to the applicable subagent.
63
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
The table below sets forth the fees paid or payable by, or allocable to, the Fund for the years ended December 31, 2009, 2008 and 2007 in connection with the services rendered by Eaton Vance and its affiliates.
| | | | | | | | | | | | | | | |
| | | Year Ended |
| | | December 31,
| | | December 31,
| | | December 31,
| | | |
| | | 2009 | | | 2008 | | | 2007 | | | |
| |
| Advisory fee allocated to Belvedere Company from the Portfolio | | $ | 29,752,815 | | | $ | 50,952,553 | | | $ | 64,755,126 | | | |
| Advisory fee allocated to the Fund from Belvedere Company | | $ | 2,910,923 | | | $ | 5,772,898 | | | $ | 7,548,548 | | | |
| Advisory fee allocated to the Fund from Cash Management | | $ | 11,181 | | | $ | 14,730 | | | $ | 24,536 | | | |
| Advisory and administrative fees incurred directly by the Fund | | $ | 4,072,644 | | | $ | 5,813,726 | | | $ | 6,523,286 | | | |
| Distribution fee incurred directly by the Fund | | $ | 625,832 | | | $ | 1,325,693 | | | $ | 1,799,873 | | | |
| Reduction of advisory and administrative fees | | $ | 625,832 | | | $ | 1,325,693 | | | $ | 1,799,873 | | | |
| Servicing fee of Belvedere Company | | $ | 9,934,858 | | | $ | 17,747,191 | | | $ | 22,797,451 | | | |
| Servicing fee allocated to the Fund from Belvedere Company | | $ | 971,749 | | | $ | 2,010,619 | | | $ | 2,657,156 | | | |
| Servicing fee incurred directly by the Fund | | $ | 592,812 | | | $ | 1,305,345 | | | $ | 1,842,120 | | | |
| Servicing fee paid or accrued to subagents | | $ | 1,559,524 | | | $ | 3,280,182 | | | $ | 4,454,181 | | | |
| |
| |
13 Segment Information
Belport Capital pursues its investment objective primarily by investing indirectly in the Portfolio through Belvedere Company. The Portfolio is a diversified investment company that emphasizes investments in common stocks of domestic and foreign growth companies that are considered by its investment adviser to be high in quality and attractive in their long-term investment prospects. The Fund’s investment income includes the Fund’s pro rata share of Belvedere Company’s net investment income. Separate from its investment in Belvedere Company, Belport Capital invests in real estate investments through Belport Realty (Note 1). The Fund’s investment income from real estate investments primarily consists of distribution income from Partnership Preference Units and net investment income from Real Estate Joint Ventures and Co-owned Property.
Belport Capital evaluates performance of the reportable segments based on the net increase (decrease) in net assets from operations of the respective segment, which includes net investment income (loss), net realized gain (loss) and the net change in unrealized appreciation (depreciation).
The Fund’s Credit Facility borrowings and related interest expense are centrally managed by the Fund. A portion of the Credit Facility borrowings and related interest expense have been approximated and allocated to the real estate segment for presentation purposes herein. Credit Facility borrowings allocated to the real estate segment primarily represent estimated net amounts borrowed to purchase the Fund’s interests in real estate investments. The Fund’s interest rate swap agreement balances are presented as part of the real estate segment for presentation purposes
64
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
herein. The accounting policies of the reportable segments are the same as those for Belport Capital on a consolidated basis (Note 2). No reportable segments have been aggregated. Reportable information by segment is as follows:
| | | | | | | | | | | | | | | |
| | | Year Ended |
| | | December 31,
| | | December 31,
| | | December 31,
| | | |
| | | 2009 | | | 2008 | | | 2007 | | | |
| |
| Investment income | | | | | | | | | | | | | | |
| The Portfolio* | | $ | 11,113,761 | | | $ | 22,439,901 | | | $ | 24,239,120 | | | |
| Real Estate | | | 13,852,250 | | | | 11,889,860 | | | | 14,572,355 | | | |
| Unallocated | | | 6,748 | | | | 80,560 | | | | 251,922 | | | |
| |
| |
Total investment income | | $ | 24,972,759 | | | $ | 34,410,321 | | | $ | 39,063,397 | | | |
| |
| |
| Interest expense | | | | | | | | | | | | | | |
| The Portfolio* | | $ | — | | | $ | — | | | $ | 776,150 | | | |
| Real Estate | | | 1,194,379 | | | | 6,660,993 | | | | 10,245,175 | | | |
Unallocated(1) | | | 62,862 | | | | 2,992,620 | | | | 4,501,668 | | | |
| |
| |
Total interest expense | | $ | 1,257,241 | | | $ | 9,653,613 | | | $ | 15,522,993 | | | |
| |
| |
| Net realized gain (loss) | | | | | | | | | | | | | | |
| The Portfolio* | | $ | (55,069,907 | ) | | $ | (21,282,958 | ) | | $ | 67,455,190 | | | |
| Real Estate | | | (13,448,110 | ) | | | (2,851,050 | ) | | | 20,200,493 | | | |
| Unallocated | | | (468 | ) | | | — | | | | — | | | |
| |
| |
Total net realized gain (loss) | | $ | (68,518,485 | ) | | $ | (24,134,008 | ) | | $ | 87,655,683 | | | |
| |
| |
| Net change in unrealized appreciation (depreciation) | | | | | | | | | | | | | | |
| The Portfolio* | | $ | 144,439,734 | | | $ | (508,797,067 | ) | | $ | (11,637,486 | ) | | |
| Real Estate | | | (36,928,282 | ) | | | (98,866,953 | ) | | | (24,063,379 | ) | | |
| Unallocated | | | — | | | | — | | | | — | | | |
| |
| |
Total net change in unrealized appreciation (depreciation) | | $ | 107,511,452 | | | $ | (607,664,020 | ) | | $ | (35,700,865 | ) | | |
| |
| |
| Net increase (decrease) in net assets from operations | | | | | | | | | | | | | | |
| The Portfolio* | | $ | 100,146,805 | | | $ | (508,634,295 | ) | | $ | 77,945,204 | | | |
| Real Estate | | | (41,101,383 | ) | | | (100,338,428 | ) | | | (3,354,918 | ) | | |
Unallocated(2) | | | (1,652,319 | ) | | | (5,911,579 | ) | | | (8,269,443 | ) | | |
| |
| |
Net increase (decrease) in net assets from operations | | $ | 57,393,103 | | | $ | (614,884,302 | ) | | $ | 66,320,843 | | | |
| |
| |
65
| |
| Belport Capital Fund LLC | December 31, 2009 |
Notes to Consolidated Financial Statements (continued)
| | | | | | | | | | | |
| | | At December 31, 2009 | | | At December 31, 2008 | | | |
| |
| Segment assets | | | | | | | | | | |
| The Portfolio* | | $ | 637,979,572 | | | $ | 845,480,051 | | | |
| Real Estate | | | 161,768,930 | | | | 214,322,915 | | | |
Unallocated(3) | | | 5,635,136 | | | | 1,520,639 | | | |
| |
| |
Segment assets | | $ | 805,383,638 | | | $ | 1,061,323,605 | | | |
| |
| |
| Net assets | | | | | | | | | | |
| The Portfolio* | | $ | 636,749,513 | | | $ | 843,319,543 | | | |
| Real Estate | | | (18,454,751 | ) | | | 5,205,389 | | | |
Unallocated(4) | | | (3,401,845 | ) | | | (92,215,614 | ) | | |
| |
| |
Net assets | | $ | 614,892,917 | | | $ | 756,309,318 | | | |
| |
| |
| | | |
| * | | Belport Capital invests indirectly in the Portfolio through Belvedere Company. |
(1) | | Unallocated interest expense represents interest incurred on unallocated Credit Facility borrowings. Such borrowings are used to finance ongoing operations of the Fund and are not allocable to reportable segments. |
(2) | | Unallocated amounts pertain to the overall operation of Belport Capital and do not pertain to either segment. Primarily included in these amounts are the following expenses. |
| | | | | | | | | | | | | | | |
| | | Year Ended |
| | | December 31,
| | | December 31,
| | | December 31,
| | | |
| | | 2009 | | | 2008 | | | 2007 | | | |
| |
| Distribution and servicing fees | | $ | 1,218,644 | | | $ | 2,631,038 | | | $ | 3,641,993 | | | |
| Audit expense | | $ | 251,976 | | | $ | 250,709 | | | $ | 239,002 | | | |
| Interest expense on Credit Facility | | $ | 62,862 | | | $ | 2,992,620 | | | $ | 4,501,668 | | | |
| |
| |
| | | |
(3) | | Primarily includes cash held by the Fund and the Fund’s investment in Cash Management. |
(4) | | Amounts include unallocated liabilities, net of unallocated assets. Unallocated liabilities primarily consist of outstanding unallocated Credit Facility borrowings. Such borrowings are used to finance ongoing operations of the Fund and are not allocable to reportable segments. As of December 31, 2009 and 2008, such borrowings totaled approximately $8,568,000 and $93,265,000, respectively. |
14 Subsequent Event
On January 27, 2010, the Fund made a distribution of $0.22 per share to Shareholders of record on January 26, 2010.
66
| |
| Belport Capital Fund LLC | December 31, 2009 |
Report of Independent Registered Public Accounting Firm
To the Shareholders of Belport Capital Fund LLC and Subsidiaries
We have audited the accompanying consolidated statements of assets and liabilities of Belport Capital Fund LLC and subsidiaries (collectively, the “Fund”), including the consolidated portfolios of investments, as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in net assets, cash flows, and the financial highlights for each of the three years in the period ended December 31, 2009. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2009 and 2008, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Belport Capital Fund LLC and subsidiaries as of December 31, 2009 and 2008, the results of their operations, the changes in their net assets, their cash flows, and the financial highlights for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Fund’s internal control over financial reporting as of December 31, 2009, based on the criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2010 expressed an unqualified opinion on the Fund’s internal control over financial reporting.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 1, 2010
67
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| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Portfolio of Investments
| | | | | | | | | | | |
| Common Stocks — 98.5% |
| |
| Security | | Shares | | | Value | | | |
| |
| |
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| Aerospace & Defense — 4.8% |
| |
| Boeing Co. (The) | | | 960,677 | | | $ | 52,001,446 | | | |
| General Dynamics Corp. | | | 473,021 | | | | 32,245,842 | | | |
| Honeywell International, Inc. | | | 293,134 | | | | 11,490,853 | | | |
| Lockheed Martin Corp. | | | 19,800 | | | | 1,491,930 | | | |
| Northrop Grumman Corp. | | | 1,701,074 | | | | 95,004,983 | | | |
| Raytheon Co. | | | 58,153 | | | | 2,996,042 | | | |
| Rockwell Collins, Inc. | | | 147,928 | | | | 8,189,294 | | | |
| United Technologies Corp. | | | 3,657,193 | | | | 253,845,766 | | | |
| |
| |
| | | | | | | $ | 457,266,156 | | | |
| |
| |
| |
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| Air Freight & Logistics — 2.4% |
| |
| FedEx Corp. | | | 1,156,039 | | | $ | 96,471,455 | | | |
| United Parcel Service, Inc., Class B | | | 2,262,306 | | | | 129,788,495 | | | |
| |
| |
| | | | | | | $ | 226,259,950 | | | |
| |
| |
| |
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| Auto Components — 0.2% |
| |
| Johnson Controls, Inc. | | | 740,109 | | | $ | 20,160,569 | | | |
| WABCO Holdings, Inc. | | | 1,156 | | | | 29,813 | | | |
| |
| |
| | | | | | | $ | 20,190,382 | | | |
| |
| |
| |
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| Automobiles — 0.0% |
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| DaimlerChrysler AG | | | 17,284 | | | $ | 921,237 | | | |
| Harley-Davidson, Inc. | | | 133,800 | | | | 3,371,760 | | | |
| |
| |
| | | | | | | $ | 4,292,997 | | | |
| |
| |
| |
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| Beverages — 5.0% |
| |
| Brown-Forman Corp., Class A | | | 393,146 | | | $ | 22,153,777 | | | |
| Brown-Forman Corp., Class B | | | 156,213 | | | | 8,368,330 | | | |
| Coca-Cola Co. (The) | | | 2,871,938 | | | | 163,700,466 | | | |
| Coca-Cola Enterprises, Inc. | | | 54,516 | | | | 1,155,739 | | | |
| Molson Coors Brewing Co., Class B | | | 186,000 | | | | 8,399,760 | | | |
| PepsiCo, Inc. | | | 4,422,231 | | | | 268,871,645 | | | |
| |
| |
| | | | | | | $ | 472,649,717 | | | |
| |
| |
| |
| |
| Biotechnology — 1.9% |
| |
| Amgen, Inc.(1) | | | 2,920,204 | | | $ | 165,195,940 | | | |
| Biogen Idec, Inc.(1) | | | 13,543 | | | | 724,550 | | | |
| Genzyme Corp.(1) | | | 23,267 | | | | 1,140,316 | | | |
| Gilead Sciences, Inc.(1) | | | 246,207 | | | | 10,655,839 | | | |
| |
| |
| | | | | | | $ | 177,716,645 | | | |
| |
| |
| |
| Building Products — 0.0% |
| |
| Masco Corp. | | | 140,317 | | | $ | 1,937,778 | | | |
| |
| |
| | | | | | | $ | 1,937,778 | | | |
| |
| |
| |
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| Capital Markets — 4.0% |
| |
| Ameriprise Financial, Inc. | | | 74,124 | | | $ | 2,877,494 | | | |
| Bank of New York Mellon Corp. (The) | | | 894,847 | | | | 25,028,871 | | | |
| Charles Schwab Corp. (The) | | | 718,360 | | | | 13,519,535 | | | |
| Credit Suisse Group AG | | | 47,576 | | | | 2,356,978 | | | |
| E*Trade Financial Corp.(1) | | | 45,935 | | | | 80,386 | | | |
| Federated Investors, Inc., Class B | | | 293,517 | | | | 8,071,718 | | | |
| Franklin Resources, Inc. | | | 539,468 | | | | 56,832,954 | | | |
| Goldman Sachs Group, Inc. (The) | | | 557,466 | | | | 94,122,559 | | | |
| Legg Mason, Inc. | | | 104,784 | | | | 3,160,285 | | | |
| Morgan Stanley | | | 2,837,118 | | | | 83,978,693 | | | |
| Northern Trust Corp. | | | 715,649 | | | | 37,500,008 | | | |
| Piper Jaffray Cos., Inc.(1) | | | 504 | | | | 25,507 | | | |
| State Street Corp. | | | 531,412 | | | | 23,137,678 | | | |
| T. Rowe Price Group, Inc. | | | 323,743 | | | | 17,239,315 | | | |
| UBS AG(1) | | | 94,307 | | | | 1,462,702 | | | |
| Waddell & Reed Financial, Inc., Class A | | | 273,635 | | | | 8,356,813 | | | |
| |
| |
| | | | | | | $ | 377,751,496 | | | |
| |
| |
| |
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| Chemicals — 1.0% |
| |
| Ashland, Inc. | | | 30,391 | | | $ | 1,204,092 | | | |
| Dow Chemical Co. (The) | | | 152,627 | | | | 4,217,084 | | | |
| E.I. Du Pont de Nemours & Co. | | | 978,736 | | | | 32,954,041 | | | |
| Ecolab, Inc. | | | 380,814 | | | | 16,976,688 | | | |
| Monsanto Co. | | | 29,739 | | | | 2,431,163 | | | |
| PPG Industries, Inc. | | | 4,400 | | | | 257,576 | | | |
| Sigma-Aldrich Corp. | | | 809,485 | | | | 40,903,277 | | | |
| |
| |
| | | | | | | $ | 98,943,921 | | | |
| |
| |
| |
| |
| Commercial Banks — 2.8% |
| |
| Bank of Hawaii Corp. | | | 616 | | | $ | 28,989 | | | |
| Bank of Montreal | | | 33,047 | | | | 1,754,135 | | | |
| BB&T Corp. | | | 1,043,443 | | | | 26,472,149 | | | |
| City National Corp. | | | 52,552 | | | | 2,396,371 | | | |
| Comerica, Inc. | | | 230,933 | | | | 6,828,689 | | | |
| Fifth Third Bancorp | | | 1,588,904 | | | | 15,491,814 | | | |
| First Horizon National Corp.(1) | | | 69,184 | | | | 927,066 | | | |
| HSBC Holdings PLC | | | 220,592 | | | | 2,509,220 | | | |
| HSBC Holdings PLC ADR | | | 103,266 | | | | 5,895,456 | | | |
| KeyCorp | | | 180,824 | | | | 1,003,573 | | | |
| M&T Bank Corp. | | | 25,938 | | | | 1,734,993 | | | |
| Marshall & Ilsley Corp. | | | 158,431 | | | | 863,449 | | | |
See notes to financial statements
68
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Portfolio of Investments (continued)
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| Security | | Shares | | | Value | | | |
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| Commercial Banks (continued) |
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| | | | | | | | | | | |
| PNC Financial Services Group, Inc. | | | 81,695 | | | $ | 4,312,679 | | | |
| Regions Financial Corp. | | | 250,097 | | | | 1,323,013 | | | |
| Royal Bank of Canada | | | 252,530 | | | | 13,522,981 | | | |
| Societe Generale | | | 669,675 | | | | 46,528,985 | | | |
| SunTrust Banks, Inc. | | | 321,840 | | | | 6,530,134 | | | |
| Synovus Financial Corp. | | | 52,977 | | | | 108,603 | | | |
| Toronto-Dominion Bank | | | 17,915 | | | | 1,123,629 | | | |
| Trustmark Corp. | | | 205,425 | | | | 4,630,280 | | | |
| U.S. Bancorp | | | 2,933,385 | | | | 66,030,496 | | | |
| Wells Fargo & Co. | | | 2,165,006 | | | | 58,433,512 | | | |
| Westamerica Bancorporation | | | 1,968 | | | | 108,968 | | | |
| Zions Bancorporation | | | 63,409 | | | | 813,537 | | | |
| |
| |
| | | | | | | $ | 269,372,721 | | | |
| |
| |
| |
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| Commercial Services & Supplies — 0.1% |
| |
| Avery Dennison Corp. | | | 56,594 | | | $ | 2,065,115 | | | |
| Cintas Corp. | | | 208,456 | | | | 5,430,279 | | | |
| Pitney Bowes, Inc. | | | 15,870 | | | | 361,201 | | | |
| Waste Management, Inc. | | | 108,828 | | | | 3,679,475 | | | |
| |
| |
| | | | | | | $ | 11,536,070 | | | |
| |
| |
| |
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| Communications Equipment — 3.9% |
| |
| Cisco Systems, Inc.(1) | | | 7,187,656 | | | $ | 172,072,485 | | | |
| Juniper Networks, Inc.(1) | | | 109,780 | | | | 2,927,833 | | | |
| Motorola, Inc.(1) | | | 1,151,307 | | | | 8,934,142 | | | |
| Nokia Oyj ADR | | | 1,721,613 | | | | 22,122,727 | | | |
| QUALCOMM, Inc. | | | 3,168,806 | | | | 146,588,965 | | | |
| Telefonaktiebolaget LM Ericsson ADR | | | 1,750,000 | | | | 16,082,500 | | | |
| |
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| | | | | | | $ | 368,728,652 | | | |
| |
| |
| |
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| Computers & Peripherals — 4.6% |
| |
| Apple, Inc.(1) | | | 291,406 | | | $ | 61,445,869 | | | |
| Dell, Inc.(1) | | | 4,062,859 | | | | 58,342,655 | | | |
| EMC Corp.(1) | | | 2,038,992 | | | | 35,621,190 | | | |
| Hewlett-Packard Co. | | | 1,117,077 | | | | 57,540,636 | | | |
| International Business Machines Corp. | | | 1,581,888 | | | | 207,069,139 | | | |
| Lexmark International, Inc., Class A(1) | | | 34,181 | | | | 888,023 | | | |
| NetApp, Inc.(1) | | | 417,589 | | | | 14,360,886 | | | |
| |
| |
| | | | | | | $ | 435,268,398 | | | |
| |
| |
| |
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| Construction & Engineering — 0.0% |
| |
| Jacobs Engineering Group, Inc.(1) | | | 64,781 | | | $ | 2,436,413 | | | |
| |
| |
| | | | | | | $ | 2,436,413 | | | |
| |
| |
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| Construction Materials — 0.0% |
| |
| Vulcan Materials Co. | | | 34,690 | | | $ | 1,827,122 | | | |
| |
| |
| | | | | | | $ | 1,827,122 | | | |
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| Consumer Finance — 0.5% |
| |
| American Express Co. | | | 420,726 | | | $ | 17,047,818 | | | |
| Capital One Financial Corp. | | | 407,705 | | | | 15,631,410 | | | |
| Discover Financial Services | | | 1,105,050 | | | | 16,255,285 | | | |
| SLM Corp.(1) | | | 10,200 | | | | 114,954 | | | |
| |
| |
| | | | | | | $ | 49,049,467 | | | |
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| Containers & Packaging — 0.1% |
| |
| Bemis Co., Inc. | | | 133,186 | | | $ | 3,948,965 | | | |
| Temple-Inland, Inc. | | | 90,660 | | | | 1,913,832 | | | |
| |
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| | | | | | | $ | 5,862,797 | | | |
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| Distributors — 0.1% |
| |
| Genuine Parts Co. | | | 188,424 | | | $ | 7,152,575 | | | |
| |
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| | | | | | | $ | 7,152,575 | | | |
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| |
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| Diversified Consumer Services — 0.4% |
| |
| Apollo Group, Inc., Class A(1) | | | 10,887 | | | $ | 659,535 | | | |
| H&R Block, Inc. | | | 1,506,291 | | | | 34,072,302 | | | |
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| | | | | | | $ | 34,731,837 | | | |
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| Diversified Financial Services — 1.8% |
| |
| Bank of America Corp. | | | 2,830,245 | | | $ | 42,623,490 | | | |
| Citigroup, Inc. | | | 119,611 | | | | 395,912 | | | |
| CME Group, Inc. | | | 28,751 | | | | 9,658,898 | | | |
| ING Groep NV ADR(1) | | | 191,170 | | | | 1,875,378 | | | |
| IntercontinentalExchange, Inc.(1) | | | 13,162 | | | | 1,478,093 | | | |
| JPMorgan Chase & Co. | | | 2,683,320 | | | | 111,813,944 | | | |
| Moody’s Corp. | | | 179,602 | | | | 4,813,334 | | | |
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| | | | | | | $ | 172,659,049 | | | |
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| Diversified Telecommunication Services — 1.0% |
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| AT&T, Inc. | | | 1,500,639 | | | $ | 42,062,911 | | | |
| CenturyTel, Inc. | | | 11,539 | | | | 417,827 | | | |
| Deutsche Telekom AG ADR | | | 1,374,898 | | | | 20,211,001 | | | |
| McLeodUSA, Inc., Class A(1)(2) | | | 947 | | | | 0 | | | |
| Telefonos de Mexico SA de CV ADR | | | 704,876 | | | | 11,686,844 | | | |
| Telmex Internacional SAB de CV ADR | | | 283,026 | | | | 5,023,711 | | | |
See notes to financial statements
69
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Portfolio of Investments (continued)
| | | | | | | | | | | |
| Security | | Shares | | | Value | | | |
| |
| |
| Diversified Telecommunication Services (continued) |
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| | | | | | | | | | | |
| Verizon Communications, Inc. | | | 444,858 | | | $ | 14,738,146 | | | |
| Windstream Corp. | | | 247,947 | | | | 2,724,938 | | | |
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| | | | | | | $ | 96,865,378 | | | |
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| Electric Utilities — 0.0% |
| |
| Duke Energy Corp. | | | 47,382 | | | $ | 815,444 | | | |
| Exelon Corp. | | | 9,202 | | | | 449,702 | | | |
| Southern Co. (The) | | | 68,451 | | | | 2,280,787 | | | |
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| | | | | | | $ | 3,545,933 | | | |
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| Electrical Equipment — 1.1% |
| |
| Emerson Electric Co. | | | 2,283,488 | | | $ | 97,276,589 | | | |
| Rockwell Automation, Inc. | | | 125,000 | | | | 5,872,500 | | | |
| SunPower Corp., Class B(1) | | | 1 | | | | 21 | | | |
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| | | | | | | $ | 103,149,110 | | | |
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| Electronic Equipment, Instruments & Components — 0.8% |
| |
| Agilent Technologies, Inc.(1) | | | 456,730 | | | $ | 14,190,601 | | | |
| Corning, Inc. | | | 2,838,521 | | | | 54,811,841 | | | |
| Flextronics International, Ltd.(1) | | | 161,054 | | | | 1,177,305 | | | |
| National Instruments Corp. | | | 35,783 | | | | 1,053,809 | | | |
| Tyco Electronics, Ltd. | | | 10,142 | | | | 248,986 | | | |
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| | | | | | | $ | 71,482,542 | | | |
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| Energy Equipment & Services — 1.3% |
| |
| Baker Hughes, Inc. | | | 136,681 | | | $ | 5,532,847 | | | |
| Halliburton Co. | | | 846,488 | | | | 25,470,824 | | | |
| Schlumberger, Ltd. | | | 1,175,550 | | | | 76,516,550 | | | |
| Transocean, Ltd.(1) | | | 196,993 | | | | 16,311,020 | | | |
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| | | | | | | $ | 123,831,241 | | | |
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| Food & Staples Retailing — 3.2% |
| |
| Costco Wholesale Corp. | | | 873,262 | | | $ | 51,670,913 | | | |
| CVS Caremark Corp. | | | 1,958,996 | | | | 63,099,261 | | | |
| Kroger Co. (The) | | | 69,668 | | | | 1,430,284 | | | |
| Safeway, Inc. | | | 186,891 | | | | 3,978,909 | | | |
| Sysco Corp. | | | 1,717,782 | | | | 47,994,829 | | | |
| Wal-Mart Stores, Inc. | | | 2,002,154 | | | | 107,015,131 | | | |
| Walgreen Co. | | | 893,009 | | | | 32,791,291 | | | |
| |
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| | | | | | | $ | 307,980,618 | | | |
| |
| |
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| Food Products — 2.6% |
| |
| Archer-Daniels-Midland Co. | | | 1,574,460 | | | $ | 49,296,342 | | | |
| Campbell Soup Co. | | | 54,780 | | | | 1,851,564 | | | |
| ConAgra Foods, Inc. | | | 100,372 | | | | 2,313,575 | | | |
| Del Monte Foods Co. | | | 17,418 | | | | 197,520 | | | |
| General Mills, Inc. | | | 27,469 | | | | 1,945,080 | | | |
| H.J. Heinz Co. | | | 114,878 | | | | 4,912,183 | | | |
| Hershey Co. (The) | | | 512,481 | | | | 18,341,695 | | | |
| Kraft Foods, Inc., Class A | | | 242,546 | | | | 6,592,400 | | | |
| Nestle SA | | | 2,750,000 | | | | 133,467,372 | | | |
| Sara Lee Corp. | | | 2,026,393 | | | | 24,681,467 | | | |
| Unilever NV | | | 72,175 | | | | 2,333,418 | | | |
| |
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| | | | | | | $ | 245,932,616 | | | |
| |
| |
| |
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| Health Care Equipment & Supplies — 1.5% |
| |
| Baxter International, Inc. | | | 224,448 | | | $ | 13,170,608 | | | |
| Becton, Dickinson and Co. | | | 63,708 | | | | 5,024,013 | | | |
| Boston Scientific Corp.(1) | | | 434,359 | | | | 3,909,231 | | | |
| CareFusion Corp.(1) | | | 315,076 | | | | 7,880,051 | | | |
| Covidien PLC | | | 193,320 | | | | 9,258,095 | | | |
| Hospira, Inc.(1) | | | 48,238 | | | | 2,460,138 | | | |
| Medtronic, Inc. | | | 1,746,454 | | | | 76,809,047 | | | |
| St. Jude Medical, Inc.(1) | | | 66,365 | | | | 2,440,905 | | | |
| Stryker Corp. | | | 155,879 | | | | 7,851,625 | | | |
| Zimmer Holdings, Inc.(1) | | | 240,888 | | | | 14,238,890 | | | |
| |
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| | | | | | | $ | 143,042,603 | | | |
| |
| |
| |
| |
| Health Care Providers & Services — 1.1% |
| |
| AmerisourceBergen Corp. | | | 586,036 | | | $ | 15,277,959 | | | |
| Cardinal Health, Inc. | | | 300,019 | | | | 9,672,613 | | | |
| CIGNA Corp. | | | 49,467 | | | | 1,744,701 | | | |
| Express Scripts, Inc.(1) | | | 196,994 | | | | 17,030,131 | | | |
| Henry Schein, Inc.(1) | | | 818,371 | | | | 43,046,315 | | | |
| McKesson Corp. | | | 6,462 | | | | 403,875 | | | |
| Medco Health Solutions, Inc.(1) | | | 146,516 | | | | 9,363,838 | | | |
| PharMerica Corp.(1) | | | 25,547 | | | | 405,686 | | | |
| UnitedHealth Group, Inc. | | | 201,101 | | | | 6,129,558 | | | |
| WellPoint, Inc.(1) | | | 53,673 | | | | 3,128,599 | | | |
| |
| |
| | | | | | | $ | 106,203,275 | | | |
| |
| |
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| |
| Health Care Technology — 0.0% |
| |
| IMS Health, Inc. | | | 56,530 | | | $ | 1,190,522 | | | |
| |
| |
| | | | | | | $ | 1,190,522 | | | |
| |
| |
| |
See notes to financial statements
70
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Portfolio of Investments (continued)
| | | | | | | | | | | |
| Security | | Shares | | | Value | | | |
| |
| |
| |
| Hotels, Restaurants & Leisure — 1.7% |
| |
| Carnival Corp.(1) | | | 537,768 | | | $ | 17,041,868 | | | |
| Darden Restaurants, Inc. | | | 147,345 | | | | 5,167,389 | | | |
| International Game Technology | | | 459,500 | | | | 8,624,815 | | | |
| Interval Leisure Group, Inc.(1) | | | 85,966 | | | | 1,071,996 | | | |
| Marriott International, Inc., Class A | | | 401,544 | | | | 10,942,074 | | | |
| McDonald’s Corp. | | | 865,066 | | | | 54,014,721 | | | |
| Starbucks Corp.(1) | | | 2,222,271 | | | | 51,245,569 | | | |
| Yum! Brands, Inc. | | | 246,105 | | | | 8,606,292 | | | |
| |
| |
| | | | | | | $ | 156,714,724 | | | |
| |
| |
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| Household Durables — 0.2% |
| |
| D.R. Horton, Inc. | | | 417,028 | | | $ | 4,533,094 | | | |
| Fortune Brands, Inc. | | | 117,078 | | | | 5,057,770 | | | |
| Leggett & Platt, Inc. | | | 313,428 | | | | 6,393,931 | | | |
| Newell Rubbermaid, Inc. | | | 49,838 | | | | 748,069 | | | |
| |
| |
| | | | | | | $ | 16,732,864 | | | |
| |
| |
| |
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| Household Products — 2.6% |
| |
| Clorox Co. (The) | | | 31,145 | | | $ | 1,899,845 | | | |
| Colgate-Palmolive Co. | | | 680,288 | | | | 55,885,659 | | | |
| Energizer Holdings, Inc.(1) | | | 76,555 | | | | 4,691,290 | | | |
| Kimberly-Clark Corp. | | | 530,925 | | | | 33,825,232 | | | |
| Procter & Gamble Co. | | | 2,495,665 | | | | 151,312,169 | | | |
| |
| |
| | | | | | | $ | 247,614,195 | | | |
| |
| |
| |
| |
| Independent Power Producers & Energy Traders — 0.0% |
| |
| AES Corp. (The)(1) | | | 93,180 | | | $ | 1,240,226 | | | |
| |
| |
| | | | | | | $ | 1,240,226 | | | |
| |
| |
| |
| |
| Industrial Conglomerates — 1.8% |
| |
| 3M Co. | | | 901,357 | | | $ | 74,515,183 | | | |
| General Electric Co. | | | 6,321,340 | | | | 95,641,874 | | | |
| Textron, Inc. | | | 18,236 | | | | 343,019 | | | |
| Tyco International, Ltd.(1) | | | 23,014 | | | | 821,140 | | | |
| |
| |
| | | | | | | $ | 171,321,216 | | | |
| |
| |
| |
| |
| Insurance — 2.7% |
| |
| Aegon NV ADR(1) | | | 5,178,488 | | | $ | 33,194,108 | | | |
| Aflac, Inc. | | | 262,505 | | | | 12,140,856 | | | |
| Allstate Corp. (The) | | | 124,523 | | | | 3,740,671 | | | |
| AON Corp. | | | 274,044 | | | | 10,506,847 | | | |
| Berkshire Hathaway, Inc., Class A(1) | | | 638 | | | | 63,289,600 | | | |
| Berkshire Hathaway, Inc., Class B(1) | | | 22,738 | | | | 74,717,068 | | | |
| Chubb Corp. | | | 25,054 | | | | 1,232,156 | | | |
| Cincinnati Financial Corp. | | | 179,991 | | | | 4,722,964 | | | |
| Hartford Financial Services Group, Inc. | | | 11,362 | | | | 264,280 | | | |
| Lincoln National Corp. | | | 54,170 | | | | 1,347,750 | | | |
| Manulife Financial Corp. | | | 69,765 | | | | 1,279,490 | | | |
| Marsh & McLennan Cos., Inc. | | | 172,845 | | | | 3,816,418 | | | |
| MetLife, Inc. | | | 81 | | | | 2,863 | | | |
| Old Republic International Corp. | | | 216,805 | | | | 2,176,722 | | | |
| Progressive Corp.(1) | | | 1,205,542 | | | | 21,687,700 | | | |
| Torchmark Corp. | | | 278,479 | | | | 12,239,152 | | | |
| Travelers Companies, Inc. (The) | | | 98,892 | | | | 4,930,755 | | | |
| |
| |
| | | | | | | $ | 251,289,400 | | | |
| |
| |
| |
| |
| Internet & Catalog Retail — 0.1% |
| |
| Amazon.com, Inc.(1) | | | 43,801 | | | $ | 5,892,111 | | | |
| Expedia, Inc.(1) | | | 119,213 | | | | 3,064,966 | | | |
| HSN, Inc.(1) | | | 60,017 | | | | 1,211,743 | | | |
| Liberty Media Corp. – Interactive, Class A(1) | | | 11,902 | | | | 129,018 | | | |
| Ticketmaster Entertainment, Inc.(1) | | | 80,619 | | | | 985,164 | | | |
| |
| |
| | | | | | | $ | 11,283,002 | | | |
| |
| |
| |
| |
| Internet Software & Services — 1.7% |
| |
| Akamai Technologies, Inc.(1) | | | 200,000 | | | $ | 5,066,000 | | | |
| AOL, Inc.(1) | | | 48,584 | | | | 1,131,035 | | | |
| eBay, Inc.(1) | | | 1,260,217 | | | | 29,665,508 | | | |
| Google, Inc., Class A(1) | | | 199,296 | | | | 123,559,534 | | | |
| IAC/InterActiveCorp(1) | | | 13,368 | | | | 273,777 | | | |
| VeriSign, Inc.(1) | | | 14,758 | | | | 357,734 | | | |
| |
| |
| | | | | | | $ | 160,053,588 | | | |
| |
| |
| |
| |
| IT Services — 2.9% |
| |
| Accenture PLC, Class A | | | 2,738,000 | | | $ | 113,627,000 | | | |
| Acxiom Corp.(1) | | | 68,785 | | | | 923,095 | | | |
| Automatic Data Processing, Inc. | | | 1,339,373 | | | | 57,351,952 | | | |
| Broadridge Financial Solutions, Inc. | | | 18,597 | | | | 419,548 | | | |
| Computer Sciences Corp.(1) | | | 150,923 | | | | 8,682,600 | | | |
| DST Systems, Inc.(1) | | | 600 | | | | 26,130 | | | |
| Fidelity National Information Services, Inc. | | | 106,171 | | | | 2,488,648 | | | |
| Fiserv, Inc.(1) | | | 47,355 | | | | 2,295,771 | | | |
| Paychex, Inc. | | | 757,686 | | | | 23,215,499 | | | |
| Total System Services, Inc. | | �� | 52,739 | | | | 910,803 | | | |
| Western Union Co. | | | 3,213,318 | | | | 60,571,044 | | | |
| |
| |
| | | | | | | $ | 270,512,090 | | | |
| |
| |
| |
See notes to financial statements
71
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Portfolio of Investments (continued)
| | | | | | | | | | | |
| Security | | Shares | | | Value | | | |
| |
| |
| |
| Leisure Equipment & Products — 0.0% |
| |
| Mattel, Inc. | | | 22,565 | | | $ | 450,849 | | | |
| |
| |
| | | | | | | $ | 450,849 | | | |
| |
| |
| |
| |
| Life Sciences Tools & Services — 0.2% |
| |
| Life Technologies Corp.(1) | | | 344,969 | | | $ | 18,017,731 | | | |
| Thermo Fisher Scientific, Inc.(1) | | | 18,700 | | | | 891,803 | | | |
| |
| |
| | | | | | | $ | 18,909,534 | | | |
| |
| |
| |
| |
| Machinery — 2.5% |
| |
| Caterpillar, Inc. | | | 159,554 | | | $ | 9,092,982 | | | |
| Danaher Corp. | | | 94,953 | | | | 7,140,466 | | | |
| Deere & Co. | | | 2,623,301 | | | | 141,894,351 | | | |
| Dover Corp. | | | 578,638 | | | | 24,077,127 | | | |
| Illinois Tool Works, Inc. | | | 1,183,752 | | | | 56,808,259 | | | |
| Parker Hannifin Corp. | | | 37,997 | | | | 2,047,278 | | | |
| |
| |
| | | | | | | $ | 241,060,463 | | | |
| |
| |
| |
| |
| Media — 3.4% |
| |
| Ascent Media Corp., Class A(1) | | | 755 | | | $ | 19,275 | | | |
| CBS Corp., Class B | | | 79,463 | | | | 1,116,455 | | | |
| Comcast Corp., Class A | | | 288,237 | | | | 4,859,676 | | | |
| Comcast Corp., Class A Special | | | 2,012,974 | | | | 32,227,714 | | | |
| DIRECTV(1) | | | 30,225 | | | | 1,008,004 | | | |
| Discovery Communications, Inc., Class A(1) | | | 7,555 | | | | 231,712 | | | |
| Discovery Communications, Inc., Class C(1) | | | 7,555 | | | | 200,359 | | | |
| Gannett Co., Inc. | | | 320,258 | | | | 4,755,831 | | | |
| Liberty Capital, Class A(1) | | | 7,556 | | | | 180,437 | | | |
| Liberty Global, Inc., Series A(1) | | | 2,381 | | | | 52,168 | | | |
| Liberty Global, Inc., Series C(1) | | | 2,382 | | | | 52,047 | | | |
| Liberty Media Corp. - Starz, Series A(1) | | | 3,022 | | | | 139,465 | | | |
| McGraw-Hill Cos., Inc. (The) | | | 299,599 | | | | 10,039,562 | | | |
| New York Times Co. (The), Class A(1) | | | 5,269 | | | | 65,125 | | | |
| News Corp., Class A | | | 97 | | | | 1,328 | | | |
| Omnicom Group, Inc. | | | 2,032,655 | | | | 79,578,443 | | | |
| Time Warner Cable, Inc. | | | 133,705 | | | | 5,534,050 | | | |
| Time Warner, Inc. | | | 531,114 | | | | 15,476,662 | | | |
| Viacom, Inc., Class B(1) | | | 83,155 | | | | 2,472,198 | | | |
| Walt Disney Co. (The) | | | 4,870,943 | | | | 157,087,912 | | | |
| Washington Post Co., Class B | | | 1,500 | | | | 659,400 | | | |
| WPP PLC, ADR | | | 46,597 | | | | 2,266,944 | | | |
| |
| |
| | | | | | | $ | 318,024,767 | | | |
| |
| |
| |
| Metals & Mining — 0.5% |
| |
| Alcoa, Inc. | | | 52,760 | | | $ | 850,491 | | | |
| BHP Billiton, Ltd. ADR | | | 190,000 | | | | 14,550,200 | | | |
| Freeport-McMoRan Copper & Gold, Inc.(1) | | | 225,000 | | | | 18,065,250 | | | |
| Nucor Corp. | | | 230,000 | | | | 10,729,500 | | | |
| |
| |
| | | | | | | $ | 44,195,441 | | | |
| |
| |
| |
| |
| Multiline Retail — 1.3% |
| |
| JC Penney Co., Inc. | | | 88,822 | | | $ | 2,363,553 | | | |
| Macy’s, Inc. | | | 94,265 | | | | 1,579,881 | | | |
| Nordstrom, Inc. | | | 131,384 | | | | 4,937,411 | | | |
| Sears Holdings Corp.(1) | | | 4,107 | | | | 342,729 | | | |
| Target Corp. | | | 2,290,940 | | | | 110,812,768 | | | |
| |
| |
| | | | | | | $ | 120,036,342 | | | |
| |
| |
| |
| |
| Oil, Gas & Consumable Fuels — 9.0% |
| |
| Anadarko Petroleum Corp. | | | 4,381,890 | | | $ | 273,517,574 | | | |
| Apache Corp. | | | 2,145,656 | | | | 221,367,330 | | | |
| BP PLC ADR | | | 226,725 | | | | 13,143,248 | | | |
| Chevron Corp. | | | 655,424 | | | | 50,461,094 | | | |
| ConocoPhillips | | | 1,176,165 | | | | 60,066,747 | | | |
| Devon Energy Corp. | | | 568,771 | | | | 41,804,668 | | | |
| Exxon Mobil Corp. | | | 2,496,998 | | | | 170,270,294 | | | |
| Hess Corp. | | | 35,579 | | | | 2,152,529 | | | |
| Marathon Oil Corp. | | | 177,334 | | | | 5,536,367 | | | |
| Murphy Oil Corp. | | | 78,679 | | | | 4,264,402 | | | |
| Royal Dutch Shell PLC ADR, Class A | | | 127,794 | | | | 7,681,697 | | | |
| Royal Dutch Shell PLC ADR, Class B | | | 9,594 | | | | 557,699 | | | |
| Spectra Energy Corp. | | | 218,914 | | | | 4,489,926 | | | |
| Williams Cos., Inc. | | | 2,000 | | | | 42,160 | | | |
| |
| |
| | | | | | | $ | 855,355,735 | | | |
| |
| |
| |
| |
| Paper & Forest Products — 0.0% |
| |
| International Paper Co. | | | 283 | | | $ | 7,579 | | | |
| Neenah Paper, Inc. | | | 1,886 | | | | 26,310 | | | |
| Weyerhaeuser Co. | | | 4,754 | | | | 205,087 | | | |
| |
| |
| | | | | | | $ | 238,976 | | | |
| |
| |
| |
| |
| Personal Products — 0.0% |
| |
| Avon Products, Inc. | | | 10,400 | | | $ | 327,600 | | | |
| Estee Lauder Cos., Inc., Class A | | | 13,035 | | | | 630,373 | | | |
| |
| |
| | | | | | | $ | 957,973 | | | |
| |
| |
| |
See notes to financial statements
72
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Portfolio of Investments (continued)
| | | | | | | | | | | |
| Security | | Shares | | | Value | | | |
| |
| |
| |
| Pharmaceuticals — 10.1% |
| |
| Abbott Laboratories | | | 3,397,401 | | | $ | 183,425,680 | | | |
| Allergan, Inc. | | | 82,562 | | | | 5,202,232 | | | |
| Bristol-Myers Squibb Co. | | | 2,140,192 | | | | 54,039,848 | | | |
| Eli Lilly & Co. | | | 2,884,751 | | | | 103,014,458 | | | |
| GlaxoSmithKline PLC ADR | | | 448,388 | | | | 18,944,393 | | | |
| Johnson & Johnson | | | 3,081,962 | | | | 198,509,172 | | | |
| King Pharmaceuticals, Inc.(1) | | | 152,305 | | | | 1,868,782 | | | |
| Merck & Co., Inc. | | | 2,489,783 | | | | 90,976,671 | | | |
| Novo Nordisk A/S ADR | | | 353,594 | | | | 22,576,977 | | | |
| Pfizer, Inc. | | | 9,948,483 | | | | 180,962,906 | | | |
| Teva Pharmaceutical Industries, Ltd. ADR | | | 1,671,886 | | | | 93,926,556 | | | |
| |
| |
| | | | | | | $ | 953,447,675 | | | |
| |
| |
| |
| |
| Real Estate Management & Development — 0.0% |
| |
| Forest City Enterprises, Inc., Class A(1) | | | 56,500 | | | $ | 665,570 | | | |
| Forestar Real Estate Group, Inc.(1) | | | 30,220 | | | | 664,236 | | | |
| |
| |
| | | | | | | $ | 1,329,806 | | | |
| |
| |
| |
| |
| Road & Rail — 0.2% |
| |
| Burlington Northern Santa Fe Corp. | | | 54,168 | | | $ | 5,342,048 | | | |
| Norfolk Southern Corp. | | | 12,365 | | | | 648,173 | | | |
| Union Pacific Corp. | | | 132,257 | | | | 8,451,223 | | | |
| |
| |
| | | | | | | $ | 14,441,444 | | | |
| |
| |
| |
| |
| Semiconductors & Semiconductor Equipment — 3.3% |
| |
| Analog Devices, Inc. | | | 560,289 | | | $ | 17,693,927 | | | |
| Applied Materials, Inc. | | | 1,065,614 | | | | 14,854,659 | | | |
| Broadcom Corp., Class A(1) | | | 976,646 | | | | 30,715,517 | | | |
| Cypress Semiconductor Corp.(1) | | | 52,742 | | | | 556,955 | | | |
| Intel Corp. | | | 11,004,150 | | | | 224,484,660 | | | |
| KLA-Tencor Corp. | | | 143,189 | | | | 5,177,714 | | | |
| Linear Technology Corp. | | | 123,388 | | | | 3,768,269 | | | |
| Maxim Integrated Products, Inc. | | | 223,099 | | | | 4,528,910 | | | |
| Texas Instruments, Inc. | | | 552,587 | | | | 14,400,417 | | | |
| Verigy, Ltd.(1) | | | 3,524 | | | | 45,354 | | | |
| Xilinx, Inc. | | | 24,830 | | | | 622,240 | | | |
| |
| |
| | | | | | | $ | 316,848,622 | | | |
| |
| |
| |
| |
| Software — 3.1% |
| |
| Activision Blizzard, Inc.(1) | | | 96,350 | | | $ | 1,070,448 | | | |
| Adobe Systems, Inc.(1) | | | 440,317 | | | | 16,194,859 | | | |
| CA, Inc. | | | 45,408 | | | | 1,019,864 | | | |
| Electronic Arts, Inc.(1) | | | 21,405 | | | | 379,939 | | | |
| Microsoft Corp. | | | 3,425,420 | | | | 104,441,056 | | | |
| Oracle Corp. | | | 6,981,637 | | | | 171,329,372 | | | |
| Symantec Corp.(1) | | | 186,371 | | | | 3,334,177 | | | |
| |
| |
| | | | | | | $ | 297,769,715 | | | |
| |
| |
| |
| |
| Specialty Retail — 2.3% |
| |
| Abercrombie & Fitch Co., Class A | | | 3,578 | | | $ | 124,693 | | | |
| Best Buy Co., Inc. | | | 148,536 | | | | 5,861,230 | | | |
| Gap, Inc. (The) | | | 89,138 | | | | 1,867,441 | | | |
| Home Depot, Inc. | | | 3,945,465 | | | | 114,142,302 | | | |
| Limited Brands, Inc. | | | 42,136 | | | | 810,697 | | | |
| Lowe’s Companies, Inc. | | | 1,003,622 | | | | 23,474,719 | | | |
| Sherwin-Williams Co. (The) | | | 500 | | | | 30,825 | | | |
| Staples, Inc. | | | 257,430 | | | | 6,330,204 | | | |
| TJX Companies, Inc. (The) | | | 1,701,405 | | | | 62,186,353 | | | |
| |
| |
| | | | | | | $ | 214,828,464 | | | |
| |
| |
| |
| |
| Textiles, Apparel & Luxury Goods — 2.2% |
| |
| Coach, Inc. | | | 10,800 | | | $ | 394,524 | | | |
| Hanesbrands, Inc.(1) | | | 236,598 | | | | 5,704,378 | | | |
| NIKE, Inc., Class B | | | 3,058,444 | | | | 202,071,395 | | | |
| |
| |
| | | | | | | $ | 208,170,297 | | | |
| |
| |
| |
| |
| Thrifts & Mortgage Finance — 0.0% |
| |
| Tree.com, Inc.(1) | | | 13,436 | | | $ | 122,939 | | | |
| |
| |
| | | | | | | $ | 122,939 | | | |
| |
| |
| |
| |
| Tobacco — 0.4% |
| |
| Altria Group, Inc. | | | 310,619 | | | $ | 6,097,451 | | | |
| Philip Morris International, Inc. | | | 566,282 | | | | 27,289,130 | | | |
| |
| |
| | | | | | | $ | 33,386,581 | | | |
| |
| |
| |
| |
| Wireless Telecommunication Services — 0.1% |
| |
| America Movil SAB de CV ADR, Series L | | | 22,000 | | | $ | 1,033,560 | | | |
| Sprint Nextel Corp.(1) | | | 229,998 | | | | 841,792 | | | |
| Telephone and Data Systems, Inc. | | �� | 24,450 | | | | 738,390 | | | |
See notes to financial statements
73
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Portfolio of Investments (continued)
| | | | | | | | | | | |
| Security | | Shares | | | Value | | | |
| |
| |
| Wireless Telecommunication Services (continued) |
| |
| | | | | | | | | | | |
| Telephone and Data Systems, Inc., Special Shares | | | 9,066 | | | $ | 307,519 | | | |
| Vodafone Group PLC ADR | | | 258,909 | | | | 5,978,209 | | | |
| |
| |
| | | | | | | $ | 8,899,470 | | | |
| |
| |
| | | |
| Total Common Stocks | | |
| (identified cost $7,498,546,989) | | $ | 9,334,094,379 | | | |
| |
| |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Preferred Stocks — 0.0% |
| |
| Security | | Shares | | | Value | | | |
| |
| |
| |
| Commercial Banks — 0.0% |
| |
| Wells Fargo & Co. | | | 166 | | | $ | 116 | | | |
| |
| |
| | | |
| Total Preferred Stocks | | |
| (identified cost $4,929) | | $ | 116 | | | |
| |
| |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Convertible Preferred Stocks — 0.0% |
| |
| Security | | Shares | | | Value | | | |
| |
| |
| |
| Independent Power Producers & Energy Traders — 0.0% |
| |
Enron Corp.(1)(2) | | | 11,050 | | | $ | 0 | | | |
| |
| |
| | | |
| Total Convertible Preferred Stocks | | |
| (identified cost $16,626,069) | | $ | 0 | | | |
| |
| |
| | | | | | | | | |
| Short-Term Investments — 1.1% |
| |
| | | Interest
| | | | | |
| | | (000’s
| | | | | |
| Description | | omitted) | | Value | | | |
| |
| |
Cash Management Portfolio, 0.00%(3) | | $109,919 | | $ | 109,919,346 | | | |
| |
| |
| | | |
| Total Short-Term Investments | | |
| (identified cost $109,919,346) | | $ | 109,919,346 | | | |
| |
| |
| | | |
| Total Investments — 99.6% | | |
| (identified cost $7,625,097,333) | | $ | 9,444,013,841 | | | |
| |
| |
| | | | | | | |
| Other Assets, Less Liabilities — 0.4% | | $ | 35,465,423 | | | |
| |
| |
| | | | | | | |
| Net Assets — 100.0% | | $ | 9,479,479,264 | | | |
| |
| |
ADR - American Depositary Receipt
| | |
| (1) | | Non-income producing security. |
| (2) | | Security valued at fair value using methods determined in good faith by or at the direction of the Trustees. |
| (3) | | Affiliated investment company available to Eaton Vance portfolios and funds which invests in high quality, U.S. dollar denominated money market instruments. The rate shown is the annualizedseven-day yield as of December 31, 2009. |
See notes to financial statements
74
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Financial Statements
Statement of Assets and Liabilities
| | | | | | | |
| As of December 31, 2009 | | | | | |
| |
| Assets |
| |
| Unaffiliated investments, at value (identified cost, $7,515,177,987) | | $ | 9,334,094,495 | | | |
| Affiliated investments, at value (identified cost, $109,919,346) | | | 109,919,346 | | | |
| Cash | | | 1,618,404 | | | |
| Dividends receivable | | | 13,680,323 | | | |
| Receivable for investments sold | | | 21,882,113 | | | |
| Tax reclaims receivable | | | 2,217,408 | | | |
| |
| |
Total assets | | $ | 9,483,412,089 | | | |
| |
| |
| | | | | | | |
| | | | | | | |
| |
| Liabilities |
| |
| Payable to affiliates: | �� | | | | | |
| Investment adviser fee | | $ | 3,590,334 | | | |
| Trustees’ fees | | | 12,625 | | | |
| Accrued expenses | | | 329,866 | | | |
| |
| |
Total liabilities | | $ | 3,932,825 | | | |
| |
| |
Net Assets applicable to investors’ interest in Portfolio | | $ | 9,479,479,264 | | | |
| |
| |
| | | | | | | |
| | | | | | | |
| |
| Sources of Net Assets |
| |
| Net proceeds from capital contributions and withdrawals | | $ | 7,660,385,213 | | | |
| Net unrealized appreciation | | | 1,819,094,051 | | | |
| |
| |
Total | | $ | 9,479,479,264 | | | |
| |
| |
| | | | | | | |
For the Year Ended
| | | | | |
| December 31, 2009 | | | | | |
| |
| Investment Income |
| |
| Dividends (net of foreign taxes, $2,803,433) | | $ | 214,044,957 | | | |
| Interest income allocated from affiliated investment | | | 671,602 | | | |
| Expenses allocated from affiliated investment | | | (544,398 | ) | | |
| |
| |
Total investment income | | $ | 214,172,161 | | | |
| |
| |
| | | | | | | |
| | | | | | | |
| |
| Expenses |
| |
| Investment adviser fee | | $ | 41,375,335 | | | |
| Trustees’ fees and expenses | | | 50,500 | | | |
| Custodian fee | | | 1,295,412 | | | |
| Legal and accounting services | | | 170,213 | | | |
| Miscellaneous | | | 229,130 | | | |
| |
| |
Total expenses | | $ | 43,120,590 | | | |
| |
| |
| | | | | | | |
Net investment income | | $ | 171,051,571 | | | |
| |
| |
| | | | | | | |
| | | | | | | |
| |
| Realized and Unrealized Gain (Loss) |
| |
| Net realized gain (loss) — | | | | | | |
Investment transactions(1) | | $ | (446,325,786 | ) | | |
| Investment transactions allocated from affiliated investment | | | (59,244 | ) | | |
| Foreign currency transactions | | | 20,155 | | | |
| |
| |
Net realized loss | | $ | (446,364,875 | ) | | |
| |
| |
| Change in unrealized appreciation (depreciation) — | | | | | | |
| Investments | | $ | 2,039,474,627 | | | |
| Foreign currency | | | 65,756 | | | |
| |
| |
Net change in unrealized appreciation (depreciation) | | $ | 2,039,540,383 | | | |
| |
| |
| | | | | | | |
Net realized and unrealized gain | | $ | 1,593,175,508 | | | |
| |
| |
| | | | | | | |
Net increase in net assets from operations | | $ | 1,764,227,079 | | | |
| |
| |
| | |
| (1) | | Includes net realized losses of $67,236,452 from redemptions in-kind. |
See notes to financial statements
75
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Financial Statements (continued)
Statements of Changes in Net Assets
| | | | | | | | | | | |
Increase (Decrease)
| | Year Ended
| | | Year Ended
| | | |
| in Net Assets | | December 31, 2009 | | | December 31, 2008 | | | |
| |
| From operations — | | | | | | | | | | |
| Net investment income | | $ | 171,051,571 | | | $ | 291,159,659 | | | |
Net realized loss from
investment transactions and
foreign currency transactions | | | (446,364,875 | ) | | | (57,601,117 | ) | | |
| Net change in unrealized appreciation (depreciation) from investments and foreign currency | | | 2,039,540,383 | | | | (6,326,916,620 | ) | | |
| |
| |
Net increase (decrease) in net assets from operations | | $ | 1,764,227,079 | | | $ | (6,093,358,078 | ) | | |
| |
| |
| Capital transactions — | | | | | | | | | | |
| Contributions | | $ | 362,235,165 | | | $ | 1,174,044,484 | | | |
| Withdrawals | | | (3,249,726,036 | ) | | | (4,342,104,580 | ) | | |
| |
| |
Net decrease in net assets from capital transactions | | $ | (2,887,490,871 | ) | | $ | (3,168,060,096 | ) | | |
| |
| |
Net decrease in net assets | | $ | (1,123,263,792 | ) | | $ | (9,261,418,174 | ) | | |
| |
| |
| | | | | | | | | | | |
| | | | | | | | | | | |
| |
| Net Assets |
| |
| At beginning of year | | $ | 10,602,743,056 | | | $ | 19,864,161,230 | | | |
| |
| |
At end of year | | $ | 9,479,479,264 | | | $ | 10,602,743,056 | | | |
| |
| |
See notes to financial statements
76
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Financial Statements (continued)
Supplementary Data
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | |
| | | 2009 | | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | |
| |
| |
| |
| Ratios/Supplemental Data |
| |
| Ratios (as a percentage of average daily net assets): | | | | | | | | | | | | | | | | | | | | | | |
Expenses(1) | | | 0.47 | % | | | 0.45 | % | | | 0.44 | % | | | 0.45 | % | | | 0.45 | %(2) | | |
| Net investment income | | | 1.86 | % | | | 1.84 | % | | | 1.52 | % | | | 1.39 | % | | | 1.25 | %(2) | | |
Portfolio Turnover(3) | | | 2 | % | | | 1 | % | | | 2 | % | | | 1 | % | | | 0 | %(4) | | |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | |
Total Return | | | 23.32 | % | | | (32.76 | )% | | | 4.72 | % | | | 13.69 | % | | | 4.70 | % | | |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (000’s omitted) | | $ | 9,479,479 | | | $ | 10,602,743 | | | $ | 19,864,161 | | | $ | 20,387,292 | | | $ | 19,032,607 | | | |
| |
| |
| | |
| (1) | | Excludes the effect of custody fee credits, if any, of less than 0.005%. |
| |
| (2) | | The investment adviser waived a portion of its investment adviser fee equal to less than 0.01% of average daily net assets for the year ended December 31, 2005. |
| |
| (3) | | Excludes the value of the portfolio securities contributed or distributed as a result of in-kind shareholder transactions. The total turnover rate of the Portfolio including in-kind contributions and distributions was 3%, 3%, 6%, 7% and 6% for the years ended December 31, 2009, 2008, 2007, 2006 and 2005, respectively. |
| |
| (4) | | Amounts to less than 1%. |
See notes to financial statements
77
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Notes to Financial Statements
1 Significant Accounting Policies
Tax-Managed Growth Portfolio (the Portfolio) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, open-end management investment company. The Portfolio’s investment objective is to achieve long-term, after-tax returns for interestholders through investing in a diversified portfolio of equity securities. The Declaration of Trust permits the Trustees to issue interests in the Portfolio. At December 31, 2009, Eaton Vance Tax-Managed Growth Fund 1.0, Eaton Vance Tax-Managed Growth Fund 1.1, Eaton Vance Tax-Managed Growth Fund 1.2 and Eaton Vance Tax-Managed Equity Asset Allocation held an interest of 6.8%, 14.8%, 6.3%, and 1.4% respectively, in the Portfolio. In addition, an unregistered fund advised by the adviser to the Portfolio held 70.7% interest in the Portfolio.
The following is a summary of significant accounting policies of the Portfolio. The policies are in conformity with accounting principles generally accepted in the United States of America. A source of authoritative accounting principles applied in the preparation of the Portfolio’s financial statements is the Financial Accounting Standards Board (FASB) Accounting Standards Codification (the Codification), which superseded existing non-Securities and Exchange Commission accounting and reporting standards for interim and annual reporting periods ending after September 15, 2009. The adoption of the Codification for the current reporting period did not impact the Portfolio’s application of generally accepted accounting principles.
A Investment Valuation —Equity securities (including common shares of closed-end investment companies) listed on a U.S. securities exchange generally are valued at the last sale price on the day of valuation or, if no sales took place on such date, at the mean between the closing bid and asked prices therefore on the exchange where such securities are principally traded. Equity securities listed on the NASDAQ Global or Global Select Market generally are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing sales prices or closing quotations are not available are valued at the mean between the latest available bid and asked prices or, in the case of preferred equity securities that are not listed or traded in the over-the-counter market, by a third party pricing service that will use various techniques that consider factors including, but not limited to, prices or yields of securities with similar characteristics, benchmark yields, broker/dealer quotes, quotes of underlying common stock, issuer spreads, as well as industry and economic events. The value of preferred equity securities that are valued by a pricing service on a bond basis will be adjusted by an income factor, to be determined by the investment adviser, to reflect the next anticipated regular dividend. The daily valuation of exchange-traded foreign securities generally is determined as of the close of trading on the principal exchange on which such securities trade. Events occurring after the close of trading on foreign exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the close of regular trading on the New York Stock Exchange. When valuing foreign equity securities that meet certain criteria, the Trustees have approved the use of a fair value service that values such securities to reflect market trading that occurs after the close of the applicable foreign markets of comparable securities or other instruments that have a strong correlation to the fair-valued securities. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by a third party pricing service. The pricing service uses a proprietary model to determine the exchange rate. Inputs to the model include reported trades and implied bid/ask spreads. Short-term debt securities with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates market value. If short-term debt securities are acquired with a remaining maturity of more than sixty days, they will be valued by a pricing service. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Portfolio in a manner that most fairly reflects the security’s value, or the amount that the Portfolio might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. These factors may
78
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Notes to Financial Statements (continued)
include, but are not limited to, the type of security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies or entities, quotations or relevant information obtained from broker-dealers or other market participants, information obtained from the issuer, analysts,and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the company’s or entity’s financial condition, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.
The Portfolio may invest in Cash Management Portfolio (Cash Management), an affiliated investment company managed by Boston Management and Research (BMR), a subsidiary of Eaton Vance Management (EVM). Cash Management generally values its investment securities utilizing the amortized cost valuation technique permitted byRule 2a-7 of the 1940 Act, pursuant to which Cash Management must comply with certain conditions. This technique involves initially valuing a portfolio security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. If amortized cost is determined not to approximate fair value, Cash Management may value its investment securities based on available market quotations provided by a third party pricing service.
B Investment Transactions —Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost.
C Income —Dividend income is recorded on the ex-dividend date for dividends received in cashand/or securities. However, if the ex-dividend date has passed, certain dividends from foreign securities are recorded as the Portfolio is informed of the ex-dividend date. Withholding taxes on foreign dividends and capital gains have been provided for in accordance with the Portfolio’s understanding of the applicable countries’ tax rules and rates. Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount.
D Federal Taxes —The Portfolio has elected to be treated as a partnership for federal tax purposes. No provision is made by the Portfolio for federal or state taxes on any taxable income of the Portfolio because each investor in the Portfolio is ultimately responsible for the payment of any taxes on its share of taxable income. Since at least one of the Portfolio’s investors is a regulated investment company that invests all or substantially all of its assets in the Portfolio, the Portfolio normally must satisfy the applicable source of income and diversification requirements (under the Internal Revenue Code) in order for its investors to satisfy them. The Portfolio will allocate, at least annually among its investors, each investor’s distributive share of the Portfolio’s net investment income, net realized capital gains and any other items of income, gain, loss, deduction or credit.
As of December 31, 2009, the Portfolio had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. Each of the Portfolio’s federal tax returns filed in the3-year period ended December 31, 2009 remains subject to examination by the Internal Revenue Service.
E Expense Reduction —State Street Bank and Trust Company (SSBT) serves as custodian of the Portfolio. Pursuant to the custodian agreement, SSBT receives a fee reduced by credits, which are determined based on the average daily cash balance the Portfolio maintains with SSBT. All credit balances, if any, used to reduce the Portfolio’s custodian fees are reported as a reduction of expenses in the Statement of Operations.
F Foreign Currency Translation —Investment valuations, other assets, and liabilities initially expressed in foreign currencies are translated each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates in effect on the respective dates of such transactions. Recognized gains or losses on investment transactions attributable to changes in foreign currency exchange rates are recorded for financial statement purposes as net realized gains and losses on investments. That
79
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Notes to Financial Statements (continued)
portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
G Use of Estimates —The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
H Indemnifications —Under the Portfolio’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Portfolio. Under Massachusetts law, if certain conditions prevail, interestholders in the Portfolio could be deemed to have personal liability for the obligations of the Portfolio. However, the Portfolio’s Declaration of Trust contains an express disclaimer of liability on the part of Portfolio interestholders and the By-laws provide that the Portfolio shall assume the defense on behalf of any Portfolio interestholder. Moreover, the By-laws also provide for indemnification out of Portfolio property of any interestholder held personally liable solely by reason of being or having been an interestholder for all loss or expense arising from such liability. Additionally, in the normal course of business, the Portfolio enters into agreements with service providers that may contain indemnification clauses. The Portfolio’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Portfolio that have not yet occurred.
2 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by BMR as compensation for investment advisory services rendered to the Portfolio. The fee is computed at an annual rate of 0.625% of the Portfolio’s average daily net assets up to $500 million. The advisory free on net assets of $500 million or more is reduced as follows:
| | | | | | | |
| | | Annual Fee Rate
| | | |
| Average Daily Net Assets For the Month | | (for each level) | | | |
| |
| $500 million but less than $1 billion | | | 0.5625% | | | |
| $1 billion but less than $1.5 billion | | | 0.5000% | | | |
| $1.5 billion but less than $7 billion | | | 0.4375% | | | |
| $7 billion but less than $10 billion | | | 0.4250% | | | |
| $10 billion but less than $15 billion | | | 0.4125% | | | |
| $15 billion but less than $20 billion | | | 0.4000% | | | |
| $20 billion but less than $25 billion | | | 0.3900% | | | |
| $25 billion and over | | | 0.3800% | | | |
The portion of the adviser fee payable by Cash Management on the Portfolio’s investment of cash therein is credited against the Portfolio’s adviser fee. For the year ended December 31, 2009, the Portfolio’s adviser fee totaled $41,891,236 of which $515,901 was allocated from Cash Management and $41,375,335 was paid or accrued directly by the Portfolio. For the year ended December 31, 2009, the Portfolio’s adviser fee, including the portion allocated from Cash Management, was 0.45% of the Portfolio’s average daily net assets.
Except for Trustees of the Portfolio who are not members of EVM’s or BMR’s organizations, officers and Trustees receive remuneration for their services to the Portfolio out of the investment adviser fee. Trustees of the Portfolio who are not affiliated with the investment adviser may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the year ended December 31, 2009, no significant amounts have been deferred. Certain officers and Trustees of the Portfolio are officers of the above organizations.
3 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations, aggregated $221,831,019 and $974,009,926, respectively, for the year ended December 31, 2009. In addition, investments having an aggregate market value of $1,863,190,717 at dates of withdrawal were distributed in payment for capital withdrawals and investors contributed securities with a value of $12,022,740, during the year ended December 31, 2009.
80
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Notes to Financial Statements (continued)
4 Federal Income Tax Basis of Investments
The cost and unrealized appreciation (depreciation) of investments of the Portfolio at December 31, 2009, as determined on a federal income tax basis, were as follows:
| | | | | | | |
Aggregate cost | | $ | 2,237,110,712 | | | |
| |
| |
| Gross unrealized appreciation | | $ | 12,625,059,615 | | | |
| Gross unrealized depreciation | | | (5,418,156,486 | ) | | |
| |
| |
The net unrealized appreciation on foreign currency at December 31, 2009 on a federal income tax basis was $177,543.
5 Line of Credit
The Portfolio participates with other portfolios and funds managed by EVM and its affiliates in a $450 million unsecured line of credit agreement with a group of banks. Borrowings are made by the Portfolio solely to facilitate the handling of unusualand/or unanticipated short-term cash requirements. Interest is charged to the Portfolio based on its borrowings at an amount above either the Eurodollar rate or Federal Funds rate. In addition, a fee computed at an annual rate of 0.10% on the daily unused portion of the line of credit is allocated among the participating portfolios and funds at the end of each quarter. Because the line of credit is not available exclusively to the Portfolio, it may be unable to borrow some or all of its requested amounts at any particular time. The Portfolio did not have any significant borrowings or allocated fees during the year ended December 31, 2009.
6 Securities Lending Agreement
The Portfolio has established a securities lending agreement with SSBT as securities lending agent in which the Portfolio lends portfolio securities to qualified borrowers in exchange for collateral consisting of either cash or U.S. Government securities in an amount at least equal to the market value of the securities on loan. Cash collateral is invested in Cash Collateral Fund. The Portfolio earns interest on the amount invested in Cash Collateral Fund but it must pay the broker a loan rebate fee computed as a varying percentage of the collateral received. The loan rebate fee paid by the Portfolio amounted to $0 for the year ended December 31, 2009. In the event of counterparty default, the Portfolio is subject to potential loss if it is delayed or prevented from exercising its right to dispose of the collateral. The Portfolio bears risk in the event that invested collateral is not sufficient to meet obligations due on loans. At December 31, 2009, the Portfolio had no securities on loan.
7 Fair Value Measurements
Under generally accepted accounting principles for fair value measurements, athree-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. Thethree-tier hierarchy of inputs is summarized in the three broad levels listed below.
| |
| • | Level 1 – quoted prices in active markets for identical investments |
| |
| • | Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| |
| • | Level 3 – significant unobservable inputs (including a fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
81
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Notes to Financial Statements (continued)
At December 31, 2009, the inputs used in valuing the Portfolio’s investments, which are carried at value, were as follows:
| | | | | | | | | | | | | | | | | |
| | | Quoted Prices
| | | Significant
| | | | | | | |
| | | in Active
| | | Other
| | | Significant
| | | | |
| | | Markets for
| | | Observable
| | | Unobservable
| | | | |
| | | Identical Assets | | | Inputs | | | Inputs | | | | |
| | | | |
| Asset Description | | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total | |
| | |
| Common Stocks | | | | | | | | | | | | | | | | |
| Consumer Discretionary | | $ | 1,112,609,100 | | | $ | — | | | $ | — | | | $ | 1,112,609,100 | |
| Consumer Staples | | | 1,175,054,328 | | | | 133,467,372 | | | | — | | | | 1,308,521,700 | |
| Energy | | | 979,186,976 | | | | — | | | | — | | | | 979,186,976 | |
| Financials | | | 1,070,179,695 | | | | 51,395,183 | | | | — | | | | 1,121,574,878 | |
| Health Care | | | 1,400,510,253 | | | | — | | | | — | | | | 1,400,510,253 | |
| Industrials | | | 1,229,408,599 | | | | — | | | | — | | | | 1,229,408,599 | |
| Information Technology | | | 1,920,663,608 | | | | — | | | | — | | | | 1,920,663,608 | |
| Materials | | | 151,068,258 | | | | — | | | | — | | | | 151,068,258 | |
| Telecommunication Services | | | 105,764,848 | | | | — | | | | 0 | | | | 105,764,848 | |
| Utilities | | | 4,786,159 | | | | — | | | | — | | | | 4,786,159 | |
| |
| |
Total Common Stocks | | $ | 9,149,231,824 | | | $ | 184,862,555 | * | | $ | — | | | $ | 9,334,094,379 | |
| |
| |
| Convertible Preferred Stocks | | | — | | | | — | | | | 0 | | | | 0 | |
| Preferred Stocks | | | 116 | | | | — | | | | — | | | | 116 | |
| Short-Term Investments | | | 109,919,346 | | | | — | | | | — | | | | 109,919,346 | |
| |
| |
Total | | $ | 9,259,151,286 | | | $ | 184,862,555 | | | $ | 0 | | | $ | 9,444,013,841 | |
| |
| |
| | | |
* | | Includes foreign equity securities whose values were adjusted to reflect market trading that occurred after the close of trading in their applicable foreign market. |
The level classification by major category of investments (other than for categories presented above) is the same as the category presentation in the Portfolio of Investments.
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
| | | | | | | |
| | | Investments in
| | | |
| | | Common Stocks
| | | |
| | | and Convertible
| | | |
| | | Preferred Stocks* | | | |
| |
Balance as of December 31, 2008 | | $ | 0 | | | |
| Realized gains (losses) | | | 0 | | | |
| Change in net unrealized appreciation (depreciation) | | | 0 | | | |
| Net purchases (sales) | | | — | | | |
| Net transfers to (from) Level 3 | | | — | | | |
| |
| |
Balance as of December 31, 2009 | | $ | 0 | | | |
| |
| |
| | | |
* | | All Level 3 investments held at December 31, 2008 and December 31, 2009 were valued at $0. |
8 Review for Subsequent Events
In connection with the preparation of the financial statements of the Portfolio as of and for the year ended December 31, 2009, events and transactions subsequent to December 31, 2009 through February 16, 2010, the date the financial statements were issued, have been evaluated by the Portfolio’s management for possible adjustmentand/or disclosure. Management has not identified any subsequent events requiring financial statement disclosure as of the date these financial statements were issued.
82
| |
| Tax-Managed Growth Portfolio | as of December 31, 2009 |
Report of Independent Registered Public Accounting Firm
To the Trustees and Investors of Tax-Managed Growth Portfolio:
We have audited the accompanying statement of assets and liabilities of Tax-Managed Growth Portfolio (the “Portfolio”), including the portfolio of investments, as of December 31, 2009, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the supplementary data for each of the five years in the period then ended. These financial statements and supplementary data are the responsibility of the Portfolio’s management. Our responsibility is to express an opinion on these financial statements and supplementary data based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and supplementary data are free of material misstatement. The Portfolio is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2009, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and supplementary data referred to above present fairly, in all material respects, the financial position of Tax-Managed Growth Portfolio as of December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the supplementary data for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 16, 2010
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | |
| | BELPORT CAPITAL FUND LLC
(Registrant)
| |
| | By: | /s/ Andrew C. Frenette | |
| | | Andrew C. Frenette | |
| | | Duly Authorized Officer and
Principal Accounting Officer | |
| |
Date: March 1, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, 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/ Thomas E. Faust Jr. | |
| | | Thomas E. Faust Jr. | |
| | | Chief Executive Officer | |
| |
Date: March 1, 2010
| | | | | |
| | | |
| | By: | /s/ Andrew C. Frenette | |
| | | Andrew C. Frenette | |
| | | Chief Financial Officer | |
| |
Date: March 1, 2010
84
EXHIBIT INDEX
| | | |
| Exhibit No. | | Description |
| 3 | | Copy of Limited Liability Company Agreement of the Fund dated December 5, 2001 filed as Exhibit 3 to the Fund’s Initial Registration Statement on Form 10 and incorporated herein by reference. (Note: the LLC Agreement also defines the rights of the holders of Shares of the Fund.) |
| | | |
| 3(a) | | Copy of Amendment No. 1 to the Fund’s Limited Liability Company Agreement dated December 30, 2003 filed as Exhibit 3(a) to the Fund’s Report on Form 10-K for the period ended December 31, 2003 and incorporated herein by reference. |
| | | |
| 3(b) | | Copy of Amendment No. 2 to the Fund’s Amended and Restated Operating Agreement dated December 31, 2009 filed as an Exhibit hereto. |
| | | |
| 4.1 | | Copy of Loan and Security Agreement between the Fund and DrKW Holdings, Inc. dated as of June 30, 2003 filed as Exhibit 4.1 to the Fund’s Report on Form 10-Q filed for the period ended June 30, 2003 and incorporated herein by reference. |
| | | |
| 4.1(a) | | Copy of Amendment dated September 29, 2003 to the Loan and Security Agreement between the Fund and DrKW Holdings, Inc. filed as Exhibit 4.1(a) to the Fund’s Report on Form 10-Q filed for the period ended September 30, 2003 and incorporated herein by reference. |
| | | |
| 4.1(b) | | Copy of Amendment No. 2 to the Loan and Security Agreement between the Fund and DrKW Holdings, Inc. dated December 15, 2005 filed as Exhibit 4.1(b) to the Fund’s Report on Form 10-K filed for the period ended December 31, 2005 and incorporated herein by reference. |
| | | |
| 4.1(c) | | Copy of Amendment No. 3 to the Loan and Security Agreement between the Fund and Dresdner Kleinwort Holdings, I, Inc. (formerly known as DRKW Holings, Inc.) dated February 14, 2008 filed as Exhibit 4.1(c) to the Fund’s Report on Form 10-K filed for the period ended December 31, 2007 and incorporated herein by reference. |
| | | |
| 4.1(d) | | Copy of Amendment No. 4 to the Loan and Security Agreement between the Fund and Dresdner Kleinwort Holdings, I, Inc. dated June 13, 2008 filed as Exhibit 4.1(d) to the Fund’s Report on Form 10-Q filed for the period ended June 30, 2008 and incorporated herein by reference. |
| | | |
| 4.2 | | Copy of Loan and Security Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., the lenders referred to therein and Merrill Lynch Capital Services, Inc., dated June 30, 2003 filed as Exhibit 4.2 to the Fund’s Form 10-Q for the period ended June 30, 2003 and incorporated herein by reference. |
| | | |
| 4.2(a) | | Copy of Amendment dated September 29, 2003 to Loan and Security Agreement among Belport Capital Fund, Merrill Lynch Mortgage Capital, Inc., as Agent, the Lenders referred to therein and Merrill Lynch Capital Services, Inc. filed as Exhibit 4.2(b) to the Fund’s Form 10-Q for the period ended September 30, 2003 and incorporated herein by reference. |
| | | |
| 4.2(b) | | Copy of Amendment No. 2 dated June 30, 2006 to the Loan and Security Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., as Agent, the Lenders referred to therein and Merrill Lynch Capital Services, Inc. filed as Exhibit 4.2(b) to the Fund’s Form 10-Q for the period ended September 30, 2006 and incorporated herein by reference. |
| | | |
| 4.3 | | Copy of Master Credit Agreement dated as of December 21, 2009 among the Fund, the other borrowers thereunder, Bank of America, N.A. and each of the other lenders thereunder and Bank of America, N.A. as administrative agent filed herewith. |
| | | |
| 10(1) | | Copy of Investment Advisory and Administration Agreement between the Fund and Boston Management and Research dated March 7, 2001 filed as Exhibit 10(1) to the Fund’s Initial Registration Statement on Form 10 and incorporated herein by reference. |
| | | |
| 10(2) | | Copy of Management Agreement between Belport Realty Corporation and Boston Management and Research dated March 14, 2001 filed as Exhibit 10(2) to the Fund’s Initial Registration Statement on Form 10 and incorporated herein by reference. |
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| | | |
| Exhibit No. | | Description |
| 10(3) | | Copy of Investor Servicing Agreement between the Fund and Eaton Vance Distributors, Inc. dated December 5, 2000 filed as Exhibit 10(3) to the Fund’s Initial Registration Statement on Form 10 and incorporated herein by reference. |
| | | |
| 10(4) | | Copy of Custody and Transfer Agency Agreement between the Fund and Investors Bank & Trust Company dated December 5, 2000 filed as Exhibit 10(4) to the Fund’s Initial Registration Statement on Form 10 and incorporated herein by reference. |
| | | |
| 10(4)(a) | | Copy of Amendment dated March 29, 2005 to Custody and Transfer Agency Agreement between the Fund and Investors Bank and Trust filed as Exhibit 10(4)(a) to the Fund’s Report on Form 10-Q for the period ended June 30, 2005 and incorporated herein by reference. |
| | | |
| 20(a) | | Report on Form 8-K filed electronically with the Securities and Exchange Commission on January 26, 2007 and incorporated herein by reference. |
| | | |
| 20(b) | | Report on Form 8-K filed electronically with the Securities and Exchange Commission on June 5, 2007 and incorporated herein by reference. |
| | | |
| 21 | | List of Subsidiaries of the Fund filed herewith. |
| | | |
| 31.1 | | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 filed herewith. |
| | | |
| 31.2 | | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 filed herewith. |
| | | |
| 32.1 | | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 filed herewith. |
| | | |
| 32.2 | | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 filed herewith. |
| | | |
| 99.3 | | Form N-CSR of Eaton Vance Tax-Managed Growth Portfolio (File No. 811-7409) for its year ended December 31, 2009 filed electronically with the Securities and Exchange Commission under the Investment Company Act of 1940 on February 25, 2010 incorporated herein by reference pursuant to Rule 12b-32. |
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