UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number | 811-08014 |
|
Utilities Portfolio |
(Exact name of registrant as specified in charter) |
|
The Eaton Vance Building, 255 State Street, Boston, Massachusetts | | 02109 |
(Address of principal executive offices) | | (Zip code) |
|
Alan R. Dynner
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109 |
(Name and address of agent for service) |
|
Registrant’s telephone number, including area code: | (617) 482-8260 | |
|
Date of fiscal year end: | December 31 | |
|
Date of reporting period: | June 30, 2005 | |
| | | | | | | | |
Item 1. Reports to Stockholders
Utilities Portfolio as of June 30, 2005
PORTFOLIO OF INVESTMENTS (Unaudited)
| Common Stocks - 97.2% | |
| Security | | Shares | | Value | |
| Auto and Parts - 1.0% | |
| Adesa, Inc. | | | 350,000 | | | $ | 7,619,500 | | |
| | | $ | 7,619,500 | | |
| Broadcasting and Cable - 2.0% | | | |
| Antena 3 Television SA | | | 3,380 | | | $ | 67,581 | | |
| Inmarsat PLC(1) | | | 500,000 | | | | 3,029,240 | | |
| New Skies Satellites Holding, Ltd. | | | 150,000 | | | | 2,977,500 | | |
| Ovation, Inc.(1)(2) | | | 18,040 | | | | 200,000 | | |
| PanAmSat Holding Corp. | | | 419,005 | | | | 8,593,793 | | |
| | | $ | 14,868,114 | | |
| Communications Equipment - 0.5% | | | |
| Nokia Oyj ADR | | | 250,000 | | | $ | 4,160,000 | | |
| | | $ | 4,160,000 | | |
| Electric Utilities - 37.8% | | | |
| ALLETE, Inc. | | | 316,666 | | | $ | 15,801,633 | | |
| British Energy Group PLC(1) | | | 1,000,000 | | | | 7,283,599 | | |
| E. ON AG ADR | | | 560,000 | | | | 16,581,600 | | |
| Edison International | | | 600,000 | | | | 24,330,000 | | |
| Enel SPA | | | 1,000,000 | | | | 8,730,317 | | |
| Entergy Corp. | | | 305,000 | | | | 23,042,750 | | |
| Exelon Corp. | | | 461,250 | | | | 23,675,962 | | |
| FirstEnergy Corp. | | | 100,000 | | | | 4,811,000 | | |
| Fortis, Inc. | | | 50,000 | | | | 3,173,171 | | |
| Fortum Oyj | | | 450,000 | | | | 7,218,501 | | |
| FPL Group, Inc. | | | 381,860 | | | | 16,061,032 | | |
| National Grid Transco PLC | | | 563,810 | | | | 5,451,558 | | |
| NorthWestern Corp. | | | 225,000 | | | | 7,092,000 | | |
| NRG Energy, Inc.(1) | | | 340,000 | | | | 12,784,000 | | |
| NSTAR | | | 200,000 | | | | 6,166,000 | | |
| Ormat Technologies, Inc. | | | 296,400 | | | | 5,661,240 | | |
| PG&E Corp. | | | 575,000 | | | | 21,585,500 | | |
| PPL Corp. | | | 180,000 | | | | 10,688,400 | | |
| Public Power Corp. | | | 65,000 | | | | 1,620,466 | | |
| RWE AG | | | 220,000 | | | | 14,133,274 | | |
| Scottish and Southern Energy PLC | | | 650,000 | | | | 11,767,618 | | |
| Scottish Power PLC | | | 1,054,290 | | | | 9,358,748 | | |
| Terna SPA | | | 1,250,000 | | | | 3,237,128 | | |
| TXU Corp. | | | 325,000 | | | | 27,004,250 | | |
| | | $ | 287,259,747 | | |
| Security | | Shares | | Value | |
| Engineering and Construction - 1.4% | | | |
| Bouygues SA | | | 250,000 | | | $ | 10,338,969 | | |
| | | $ | 10,338,969 | | |
| Gas Utilities - 6.8% | | | |
| AGL Resources, Inc. | | | 200,000 | | | $ | 7,730,000 | | |
| Equitable Resources, Inc. | | | 210,000 | | | | 14,280,000 | | |
| KeySpan Corp. | | | 98,857 | | | | 4,023,480 | | |
| NiSource, Inc. | | | 150,000 | | | | 3,709,500 | | |
| ONEOK, Inc. | | | 272,600 | | | | 8,900,390 | | |
| Questar Corp. | | | 200,000 | | | | 13,180,000 | | |
| | | $ | 51,823,370 | | |
| Integrated Oil - 3.2% | | | |
| BP PLC ADR | | | 25,000 | | | $ | 1,559,500 | | |
| Exxon Mobil Corp. | | | 125,000 | | | | 7,183,750 | | |
| Statoil ASA | | | 250,000 | | | | 5,087,406 | | |
| Statoil ASA ADR | | | 250,000 | | | | 5,075,000 | | |
| Total SA ADR | | | 50,000 | | | �� | 5,842,500 | | |
| | | $ | 24,748,156 | | |
| Oil and Gas-Exploration and Production - 3.1% | | | |
| Denbury Resources, Inc.(1) | | | 25,000 | | | $ | 994,250 | | |
| Southwestern Energy Co.(1) | | | 252,000 | | | | 11,838,960 | | |
| Talisman Energy, Inc. | | | 170,000 | | | | 6,386,900 | | |
| Vintage Petroleum, Inc. | | | 150,000 | | | | 4,570,500 | | |
| | | $ | 23,790,610 | | |
| Oil and Gas-Refining and Marketing - 5.9% | | | |
| Halliburton Co. | | | 200,000 | | | $ | 9,564,000 | | |
| Kinder Morgan, Inc. | | | 135,000 | | | | 11,232,000 | | |
| Neste Oil Oyj | | | 312,500 | | | | 8,096,222 | | |
| Williams Co., Inc. (The) | | | 850,000 | | | | 16,150,000 | | |
| | | $ | 45,042,222 | | |
| Telecommunications Services - 20.1% | | | |
| BCE, Inc. | | | 585,400 | | | $ | 13,862,272 | | |
| BellSouth Corp. | | | 550,000 | | | | 14,613,500 | | |
| Chunghwa Telecom Co., Ltd. ADR | | | 180,000 | | | | 3,857,400 | | |
| Commonwealth Telephone Enterprises, Inc. | | | 100,000 | | | | 4,191,000 | | |
| Deutsche Telekom AG ADR | | | 300,000 | | | | 5,526,000 | | |
See notes to financial statements
14
Utilities Portfolio as of June 30, 2005
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
| Security | | Shares | | Value | |
| Telecommunications Services (continued) | |
| Fairpoint Communciations, Inc. | | | 150,000 | | | $ | 2,422,500 | | |
| France Telecom SA | | | 500,000 | | | | 14,556,997 | | |
| Koninklijke (Royal) KPN NV | | | 700,000 | | | | 5,856,813 | | |
| Portugal Telecom, SGPS, SA | | | 500,000 | | | | 4,758,343 | | |
| SBC Communications, Inc. | | | 350,000 | | | | 8,312,500 | | |
| Sprint Corp. | | | 175,000 | | | | 4,390,750 | | |
| TDC A/S | | | 335,600 | | | | 14,373,553 | | |
| Telecom Corporation of New Zealand, Ltd. | | | 1,000,000 | | | | 4,183,428 | | |
| Telecom Italia SPA | | | 1,000,000 | | | | 2,587,677 | | |
| Telefonos de Mexico SA de CV (Telmex) ADR | | | 500,000 | | | | 9,445,000 | | |
| Telenor ASA | | | 500,000 | | | | 3,973,858 | | |
| TELUS Corp. | | | 450,000 | | | | 15,304,500 | | |
| Verizon Communications, Inc. | | | 590,000 | | | | 20,384,500 | | |
| | | $ | 152,600,591 | | |
| Transportation - 0.3% | | | |
| Societe des Autoroutes du Nord et de l'Est de la France(1) | | | 15,850 | | | $ | 850,832 | | |
| Societe des Autoroutes Paris-Rhin-Rhone | | | 30,000 | | | | 1,779,247 | | |
| | | $ | 2,630,079 | | |
| Utilities-Electric and Gas - 8.1% | | | |
| CMS Energy Corp.(1) | | | 1,275,000 | | | $ | 19,201,500 | | |
| Constellation Energy Group, Inc. | | | 25,000 | | | | 1,442,250 | | |
| Electrabel SA | | | 20,000 | | | | 8,734,834 | | |
| Energy East Corp. | | | 400,000 | | | | 11,592,000 | | |
| MDU Resources Group, Inc. | | | 130,000 | | | | 3,662,100 | | |
| Sempra Energy | | | 320,000 | | | | 13,219,200 | | |
| Wisconsin Energy Corp. | | | 100,000 | | | | 3,900,000 | | |
| | | $ | 61,751,884 | | |
| Water Utilities - 3.0% | | | |
| Aqua America, Inc. | | | 325,000 | | | $ | 9,665,500 | | |
| United Utilities PLC | | | 630,207 | | | | 7,436,160 | | |
| Veolia Environnement | | | 150,000 | | | | 5,617,168 | | |
| | | $ | 22,718,828 | | |
| Wireless Telecommunication Services - 4.0% | | | |
| Alltel Corp. | | | 100,000 | | | $ | 6,228,000 | | |
| China Netcom Group Corp. (Hong Kong), Ltd. ADR | | | 2,500 | | | | 72,500 | | |
| Security | | Shares | | Value | |
| Wireless Telecommunication Services (continued) | | | |
| Nextel Communications, Inc., Class A(1) | | | 100,000 | | | $ | 3,231,000 | | |
| O2 PLC(1) | | | 2,000,000 | | | | 4,884,426 | | |
| Vodafone Group PLC ADR | | | 650,000 | | | | 15,808,000 | | |
| | | $ | 30,223,926 | | |
Total Common Stocks
(identified cost $547,988,561) | | | | | | $ | 739,575,996 | | |
| Convertible Preferred Stocks - 0.4% | | | |
| Security | | Shares | | Value | |
| Oil and Gas-Refining and Marketing - 0.4% | | | |
| Williams Holdings of Delaware(3) | | | 29,400 | | | $ | 2,682,750 | | |
| | | $ | 2,682,750 | | |
Total Convertible Preferred Stocks
(identified cost $1,470,000) | | | | | | $ | 2,682,750 | | |
| Preferred Stocks - 0.2% | | | |
| Security | | Shares | | Value | |
| Broadcasting and Cable - 0.2% | | | |
| Ovation, Inc. (PIK)(1)(2) | | | 807 | | | $ | 1,566,000 | | |
| | | $ | 1,566,000 | | |
Total Preferred Stocks
(identified cost $3,595,224) | | | | | | $ | 1,566,000 | | |
| Convertible Bonds - 0.0% | | | |
| Security | | Principal
Amount
(000's omitted) | | Value | |
| Reliant Resources, Inc., 5.00%, 8/15/10(3) | | $ | 100 | | | $ | 148,375 | | |
Total Convertible Bonds
(identified cost, $100,000) | | | | | | $ | 148,375 | | |
See notes to financial statements
15
Utilities Portfolio as of June 30, 2005
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
| Warrants - 0.0% | | | |
| Security | | Shares | | Value | |
| Communications Equipment - 0.0% | | | |
| Lucent Technologies, Inc., Exp. 12/10/07(1) | | | 8,205 | | | $ | 6,318 | | |
| | | $ | 6,318 | | |
Total Warrants
(identified cost $0) | | | | | | $ | 6,318 | | |
| Commercial Paper - 1.4% | | | |
| Security | | Principal
Amount
(000's omitted) | | Value | |
| General Electric Capital Corp., 3.38%, 7/1/05 | | $ | 10,761 | | | $ | 10,761,000 | | |
Total Commercial Paper
(at amortized cost, $10,761,000) | | | | | | $ | 10,761,000 | | |
| Short-Term Investments - 0.3% | | | |
| Security | | Principal
Amount
(000's omitted) | | Value | |
Investors Bank and Trust Company Time Deposit,
3.40%, 7/1/05 | | $ | 2,000 | | | $ | 2,000,000 | | |
Total Short-Term Investments
(at amortized cost, $2,000,000) | | | | | | $ | 2,000,000 | | |
Total Investments - 99.5%
(identified cost $565,914,785) | | | | | | $ | 756,740,439 | | |
| Other Assets, Less Liabilities - 0.5% | | | | | | $ | 4,112,608 | | |
| Net Assets - 100.0% | | | | | | $ | 760,853,047 | | |
ADR - American Depository Receipt
PIK - Payment In Kind.
(1) Non-income producing security.
(2) Private Placement security valued at fair value using methods determined in good faith by or at the direction of the Trustees.
(3) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2005, the aggregate value of the securities is $2,831,125 or 0.4% of the Portfolio's net assets.
| Country Concentration of Portfolio | | | |
| Country | | Percentage
of Net Assets | | Value | |
| Hong Kong | | | 0 | % | | $ | 72,500 | | |
| Spain | | | 0 | | | | 67,581 | | |
| Greece | | | 0.2 | | | | 1,620,466 | | |
| Bermuda | | | 0.4 | | | | 2,977,500 | | |
| Taiwan | | | 0.5 | | | | 3,857,400 | | |
| New Zealand | | | 0.6 | | | | 4,183,428 | | |
| Portugal | | | 0.6 | | | | 4,758,343 | | |
| Netherlands | | | 0.8 | | | | 5,856,813 | | |
| Belgium | | | 1.1 | | | | 8,734,834 | | |
| Mexico | | | 1.2 | | | | 9,445,000 | | |
| Denmark | | | 1.9 | | | | 14,373,553 | | |
| Italy | | | 1.9 | | | | 14,555,122 | | |
| Norway | | | 1.9 | | | | 14,136,264 | | |
| Finland | | | 2.6 | | | | 19,474,722 | | |
| Germany | | | 4.8 | | | | 36,240,874 | | |
| Canada | | | 5.1 | | | | 38,726,843 | | |
| France | | | 5.1 | | | | 38,985,713 | | |
| United Kingdom | | | 8.8 | | | | 66,578,850 | | |
| United States | | | 62 | | | | 472,094,633 | | |
See notes to financial statements
16
Utilities Portfolio as of June 30, 2005
FINANCIAL STATEMENTS (Unaudited)
Statement of Assets and Liabilities
As of June 30, 2005
| Assets | | | |
| Investments, at value (identified cost, $565,914,785) | | $ | 756,740,439 | | |
| Cash | | | 1,828 | | |
| Interest and dividends receivable | | | 3,785,632 | | |
| Tax reclaim receivable | | | 438,133 | | |
| Total assets | | $ | 760,966,032 | | |
| Liabilities | | | |
| Miscellaneous liabilities | | $ | 37,863 | | |
| Payable to affiliate for Trustees' fees | | | 4,717 | | |
| Accrued expenses | | | 70,405 | | |
| Total liabilities | | $ | 112,985 | | |
| Net Assets applicable to investors' interest in Portfolio | | $ | 760,853,047 | | |
| Sources of Net Assets | | | |
| Net proceeds from capital contributions and withdrawals | | $ | 570,096,901 | | |
| Net unrealized appreciation (computed on the basis of identified cost) | | | 190,756,146 | | |
| Total | | $ | 760,853,047 | | |
Statement of Operations
For the Six Months Ended
June 30, 2005
| Investment Income | | | |
| Dividends (net of foreign taxes, $975,387) | | $ | 15,055,785 | | |
| Interest | | | 91,014 | | |
| Total investment income | | $ | 15,146,799 | | |
| Expenses | | | |
| Investment adviser fee | | $ | 2,172,426 | | |
| Trustees' fees and expenses | | | 9,050 | | |
| Custodian fee | | | 169,570 | | |
| Legal and accounting services | | | 19,005 | | |
| Interest expense | | | 10,099 | | |
| Miscellaneous | | | 6,879 | | |
| Total expenses | | $ | 2,387,029 | | |
Deduct -
Preliminary reduction of investment adviser fee | | $ | 13,140 | | |
| Total expense reductions | | $ | 13,140 | | |
| Net expenses | | $ | 2,373,889 | | |
| Net investment income | | $ | 12,772,910 | | |
| Realized and Unrealized Gain (Loss) | | | |
Net realized gain (loss) -
Investment transactions (identified cost basis) | | $ | 23,428,738 | | |
| Foreign currency transactions | | | (94,587 | ) | |
| Net realized gain | | $ | 23,334,151 | | |
Change in unrealized appreciation (depreciation) -
Investments (identified cost basis) | | $ | 35,881,799 | | |
| Foreign currency | | | (78,096 | ) | |
| Net change in unrealized appreciation (depreciation) | | $ | 35,803,703 | | |
| Net realized and unrealized gain | | $ | 59,137,854 | | |
| Net increase in net assets from operations | | $ | 71,910,764 | | |
See notes to financial statements
17
Utilities Portfolio as of June 30, 2005
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease)
in Net Assets | | Six Months Ended
June 30, 2005
(Unaudited) | | Year Ended
December 31, 2004 | |
From operations -
Net investment income | | $ | 12,772,910 | | | $ | 16,421,865 | | |
Net realized gain from investment and
foreign currency transactions | | | 23,334,151 | | | | 30,445,305 | | |
Net change in unrealized appreciation
(depreciation) from investments and
foreign currency | | | 35,803,703 | | | | 76,946,660 | | |
| Net increase in net assets from operations | | $ | 71,910,764 | | | $ | 123,813,830 | | |
Capital transactions -
Contributions | | $ | 122,362,435 | | | $ | 132,359,731 | | |
| Withdrawals | | | (59,059,136 | ) | | | (88,873,138 | ) | |
Net increase in net assets from
capital transactions | | $ | 63,303,299 | | | $ | 43,486,593 | | |
| Net increase in net assets | | $ | 135,214,063 | | | $ | 167,300,423 | | |
| Net Assets | |
| At beginning of period | | $ | 625,638,984 | | | $ | 458,338,561 | | |
| At end of period | | $ | 760,853,047 | | | $ | 625,638,984 | | |
See notes to financial statements
18
Utilities Portfolio as of June 30, 2005
FINANCIAL STATEMENTS CONT'D
Supplementary Data
| | | Six Months Ended
June 30, 2005 | | Year Ended December 31, | |
| | | (Unaudited) | | 2004 | | 2003 | | 2002 | | 2001 | | 2000 | |
| Ratios/Supplemental Data† | |
| Ratios (As a percentage of average daily net assets): | |
| Expenses | | | 0.71 | %(1) | | | 0.72 | % | | | 0.72 | % | | | 0.73 | % | | | 0.71 | % | | | 0.71 | % | |
| Expenses after custodian fee reduction | | | 0.71 | %(1) | | | 0.72 | % | | | 0.72 | % | | | 0.73 | % | | | 0.71 | % | | | 0.71 | % | |
| Interest expense | | | - | (2) | | | - | (2) | | | - | (2) | | | - | (2) | | | 0.01 | % | | | 0.01 | % | |
| Net investment income | | | 3.81 | %(1) | | | 3.16 | % | | | 3.22 | % | | | 3.40 | % | | | 2.00 | % | | | 1.54 | % | |
| Portfolio Turnover | | | 32 | % | | | 59 | % | | | 106 | % | | | 146 | % | | | 169 | % | | | 149 | % | |
| Total Return(3) | | | 10.79 | % | | | 25.57 | % | | | 26.44 | % | | | (12.13 | )% | | | (18.61 | )% | | | - | | |
| Net assets, end of period (000's omitted) | | $ | 760,853 | | | $ | 625,639 | | | $ | 458,339 | | | $ | 351,078 | | | $ | 425,707 | | | $ | 574,586 | | |
† The operating expenses of the Portfolio reflect a reduction of the investment advisor fee. Had such actions not been taken, the ratios and net investment income per share would have been the same.
(1) Annualized.
(2) Represents less than 0.01%.
(3) Total return is required to be disclosed for fiscal years beginning after December 15, 2000.
See notes to financial statements
19
Utilities Portfolio as of June 30, 2005
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1 Significant Accounting Policies
Utilities Portfolio (the Portfolio) is registered under the Investment Company Act of 1940, as amended, as a diversified open-end management investment company. The Portfolio, which was organized as a trust under the laws of the State of New York on May 1, 1992, seeks to achieve total return by investing principally in dividend-paying common stocks and dividend-paying or interest-bearing securities that are convertible into common stock. The Declaration of Trust permits the Trustees to issue beneficial interests in the Portfolio. At June 30, 2005, the Eaton Vance Utilities Fund held an approximate 99.9% interest in the Portfolio. Under normal circumstances, the Portfolio invests at least 80% of its total assets in equity securities of utilities companies. The following is a summary of significant accounting policies of the Portfolio. The policies are in conformity with accounting princ iples generally accepted in the United States of America.
A Investment Valuation - Securities 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 National Market System generally are valued at the official NASDAQ 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 t he over-the-counter market, by an independent 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 sales on such date, at the mean between the latest bid and asked prices therefore. Futures positions on securities and currencies generally are valued at closing settlement prices. Short-term debt securities with a remaining maturity of 60 days or less are valued at amortized cost. If short-term debt securities were acquired with a remaining maturity of more than 60 days, their amortized cost value will be based on their value on the sixty-first day prior to maturity. 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. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by an independent quotation service. 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. Investments held by the Portfolio for which valuations or market quotations are unavaila ble are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Portfolio considering relevant factors, data and information including the market value of freely tradable securities of the same class in the principal market on which such securities are normally traded.
B Income - Interest income is determined on the basis of interest accrued, adjusted for amortization of premium or accretion of discount. Dividend income is recorded on the ex-dividend date for dividends received in cash and/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.
C Income Taxes - The Portfolio is 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. Since 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 i nvestor'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. 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.
D Foreign Currency Translation - Investment valuations, other assets, and liabilities initially expressed in foreign currencies are converted each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and
20
Utilities Portfolio as of June 30, 2005
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions. Realized 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 portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
E Delayed Delivery Transactions - The Portfolio may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place at a period in time after the date of the transaction. At the time the transaction is negotiated, the price of the security that will be delivered and paid for is fixed. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
F Expense Reduction - Investors Bank & Trust Company (IBT) serves as custodian to the Portfolio. Pursuant to the custodian agreement, IBT receives a fee reduced by credits which are determined based on the average daily cash balances the Portfolio maintains with IBT. All credit balances used to reduce the Portfolio's custodian fees are reported as a reduction of expenses on the Statement of Operations.
G Other - Investment transactions are accounted for on a trade date basis. Realized gains and losses are computed based on the specific identification of the securities sold.
H 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.
I 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. Interestholders in the Portfolio are jointly and severally liable for the liabilities and obligations of the Portfolio in the event that the Portfolio fails to satisfy such liabilities and obligations; provided, however, that, to the extent assets are available in the Portfolio, the Portfolio may, under certain circumstances, indemnify interestholders fro m and against any claim or liability to which such holder may become subject by reason of being or having been an interestholder in the Portfolio. 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
J Interim Financial Statements - The interim financial statements relating to June 30, 2005 and for the six months then ended have not been audited by an Independent Registered Public Accounting Firm, but in the opinion of the Portfolio's management reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial statements.
2 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by Boston Management and Research (BMR), a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for management and investment advisory services rendered to the Portfolio. The fee is payable monthly at the annual rate of 0.75% of the Portfolio's average daily net assets up to $500 million, 0.6875% from $500 million up to $1 billion, and at reduced rates as daily net assets exceed that level. However, BMR has contractually agreed to reduce its advisory fee to 0.65% of the Portfolio's average daily net assets up to $500 million, 0.625% from $500 million up to $1 billion, and at reduced rates as daily net assets exceed that level. This contractual reduction which cannot be terminated or modified without Trustee and shareholder consent, was accepted by a vote of the Trustees on June 14, 2004. For the six months ended June 30, 2005, th e fee was equivalent to 0.648% (annualized) of the Portfolio's average daily net assets for such period and amounted to $2,172,426. Effective May 1, 2004, BMR has also agreed to reduce the investment advisor fee by an amount equal to that portion of commissions paid to broker dealers in execution of portfolio transactions that is consideration for third-party research services. For the period ended June 30, 2005, BMR waived $13,140 of its advisory fee. Except as to Trustees of the Portfolio who are not members of EVM's or BMR's organization, officers and Trustees receive remuneration for their services to the Portfolio out of such investment adviser fee. Certain officers and Trustees of the Portfolio are officers of the
21
Utilities Portfolio as of June 30, 2005
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
above organizations. Trustees of the Portfolio that 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 six months ended June 30, 2005, no significant amounts have been deferred.
3 Investment Transactions
Purchases and sales of investments, other than short-term obligations, aggregated $266,811,595, and $205,125,260, respectively, for the six months ended June 30, 2005.
4 Federal Income Tax Basis of Investments
The cost and unrealized appreciation (depreciation) in value of the investments owned at June 30, 2005, as computed on a federal income tax basis, were as follows:
| Aggregate cost | | $ | 565,914,785 | | |
| Gross unrealized appreciation | | $ | 200,051,197 | | |
| Gross unrealized depreciation | | | (9,225,543 | ) | |
| Net unrealized appreciation | | $ | 190,825,654 | | |
The net unrealized depreciation on foreign currency was $69,508 at June 30, 2005.
5 Line of Credit
The Portfolio participates with other portfolios and funds managed by BMR and EVM and its affiliates in a $150 million unsecured line of credit agreement with a group of banks. Borrowings will be made by the Portfolio solely to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Interest is charged to each portfolio or fund based on its borrowings at an amount above 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. The Portfolio did not have any significant borrowings or allocated fees during the six months ended June 30, 2005.
6 Interestholder Meeting
The Portfolio held a Special Meeting of Interestholders on April 29, 2005 to elect Trustees. The results of the vote were as follows:
| | | Interest in the Portfolio | |
| Nominee for Trustee | | Affirmative | | Withhold | |
| Benjamin C. Esty | | | 99 | % | | | 1 | % | |
| James B. Hawkes | | | 99 | % | | | 1 | % | |
| Samuel L. Hayes, III | | | 99 | % | | | 1 | % | |
| William H. Park | | | 99 | % | | | 1 | % | |
| Ronald A. Pearlman | | | 99 | % | | | 1 | % | |
| Norton H. Reamer | | | 99 | % | | | 1 | % | |
| Lynn A. Stout | | | 99 | % | | | 1 | % | |
| Ralph F. Verni | | | 99 | % | | | 1 | % | |
Results are rounded to the nearest whole number.
22
Eaton Vance Utilities Fund
BOARD OF TRUSTEES' ANNUAL APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT
The investment advisory agreement between Utilities Portfolio (the "Portfolio") and its investment adviser, Boston Management and Research, provides that the advisory agreement will continue in effect from year to year so long as its continuance is approved at least annually (i) by a vote of a majority of the noninterested Trustees of the Portfolio cast in person at a meeting called for the purpose of voting on such approval and (ii) by the Trustees of the Portfolio or by vote of a majority of the outstanding interests of the Portfolio.
In considering the annual approval of the investment advisory agreement, the Special Committee of the Board of Trustees considered information that had been provided throughout the year at regular Board meetings, as well as information furnished to the Special Committee for a series of meetings held in February and March in preparation for a Board meeting held on March 21, 2005 to specifically consider the renewal of the investment advisory agreement. Such information included, among other things, the following:
• An independent report comparing the advisory fees of the Portfolio with those of comparable funds;
• An independent report comparing the expense ratio of the Eaton Vance Utilities Fund (the "Fund") to those of comparable funds;
• Information regarding Fund investment performance in comparison to relevant peer groups of funds and appropriate indices;
• The economic outlook and the general investment outlook in relevant investment markets;
• Eaton Vance Management's ("Eaton Vance") results and financial condition and the overall organization of the investment adviser;
• The procedures and processes used to determine the fair value of Fund assets and actions taken to monitor and test the effectiveness of such procedures and processes;
• The allocation of brokerage and the benefits received by the investment adviser as a result of brokerage allocation;
• Eaton Vance's management of the relationship with the custodian, subcustodians and fund accountants;
• The resources devoted to compliance efforts undertaken by Eaton Vance on behalf of the funds it manages and the record of compliance with the investment policies and restrictions and with policies on personal securities transactions;
• The quality, nature, cost and character of the administrative and other non-investment management services provided by Eaton Vance and its affiliates; and
• The terms of the advisory agreement and the reasonableness and appropriateness of the particular fee paid by the Portfolio for the services described therein.
In evaluating the investment advisory agreement, the Special Committee also considered information relating to the education, experience and number of investment professionals and other investment advisory personnel whose responsibilities include portfolio management. The Special Committee evaluated the level of skill and expertise required to manage the Portfolio and concluded that the human resources available at the investment adviser were appropriate to fulfill effectively its duties on behalf of the Portfolio.
In its review of comparative information with respect to investment performance, the Special Committee concluded that the Fund has performed within a range that the Special Committee deemed competitive. With respect to its review of investment advisory fees, the Special Committee concluded that the fee paid by the Portfolio is within the range of those paid by comparable funds within the mutual fund industry. In reviewing the information regarding the expense ratio of the Fund, the Special Committee concluded that the Fund's expense ratio is within a range that is competitive with comparable funds. The Special Committee
23
Eaton Vance Utilities Fund
BOARD OF TRUSTEES' ANNUAL APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT CONT'D
also considered the extent to which the investment adviser and its affiliates appear to be realizing benefits from economies of scale in managing the Portfolio, and concluded that the fee breakpoints which are in place for the Portfolio will allow for an equitable sharing of such benefits, when realized, with the Portfolio and the shareholders of the Fund.
In addition to the factors mentioned above, the Special Committee reviewed the level of the investment adviser's profits in providing investment management services for the Portfolio and for all Eaton Vance funds as a group, as well as the investment adviser's implementation of a soft dollar reimbursement program. Pursuant to the soft dollar reimbursement program, the Portfolio may receive reimbursement payments in respect of third party research services obtained by the investment adviser as a result of soft dollar credits generated through trading on behalf of the Portfolio. The Special Committee also considered the other profits realized by Eaton Vance and its affiliates in connection with the operation of the Portfolio. In addition, the Special Committee considered the fiduciary duty assumed by the investment adviser in connection with the services rendered to the Portfolio and the business reputation of the investment adviser and its financial resources. The Trustees concluded that, in light of the services rendered, the profits realized by the investment adviser are not unreasonable.
The Special Committee did not consider any single factor as controlling in determining whether or not to renew the investment advisory agreement. Nor are the items described herein all the matters considered by the Special Committee. In assessing the information provided by Eaton Vance and its affiliates, the Special Committee also took into consideration the benefits to shareholders of investing in a fund that is a part of a large family of funds which provides a large variety of shareholder services.
Based on its consideration of the foregoing factors and conclusions, and such other factors and conclusions as it deemed relevant, and assisted by independent counsel, the Special Committee concluded that the renewal of the investment advisory agreement, including the fee structure, is in the interests of shareholders.
24
Eaton Vance Utilities Fund
INVESTMENT MANAGEMENT
Eaton Vance Utilities Fund
Officers
Thomas E. Faust Jr.
President
Duke E. Laflamme
Vice President
Thomas H. Luster
Vice President
George C. Pierides
Vice President
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Paul M. O'Neil
Chief Compliance Officer | | Trustees
Samuel L. Hayes, III
(Chairman)
Benjamin C. Esty
James B. Hawkes
William H. Park
Ronald A. Pearlman
Norton H. Reamer
Lynn A. Stout
Ralph F. Verni | |
|
Utilities Portfolio
Officers
Duncan W. Richardson
President
Judith A. Saryan
Vice President and Portfolio
Manager
William J. Austin, Jr.
Treasurer
Alan R. Dynner
Secretary
Paul M. O'Neil
Chief Compliance Officer | | Trustees
Samuel L. Hayes, III
(Chairman)
Benjamin C. Esty
James B. Hawkes
William H. Park
Ronald A. Pearlman
Norton H. Reamer
Lynn A. Stout
Ralph F. Verni | |
|
25
Item 2. Code of Ethics
The registrant has adopted a code of ethics applicable to its Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer. The registrant undertakes to provide a copy of such code of ethics to any person upon request, without charge, by calling 1-800-262-1122.
Item 3. Audit Committee Financial Expert
The registrant’s Board has designated William H. Park, Samuel L. Hayes, III and Norton H. Reamer, each an independent trustee, as its audit committee financial experts. Mr. Park is a certified public accountant who is the President and Chief Executive Officer of Prizm Capital Management, LLC (investment management firm). Previously, he served as Executive Vice President and Chief Financial Officer of United Asset Management Corporation (“UAM”) (a holding company owning institutional investment management firms). Mr. Hayes is the Jacob H. Schiff Professor of Investment Banking Emeritus of the Harvard University Graduate School of Business Administration. Mr. Reamer is the President, Chief Executive Officer and a Director of Asset Management Finance Corp. (a specialty finance company serving the investment management industry) and is President of Unicorn Corporation (an investment and financial advisory services company). Formerly, Mr. Reamer was Chairman of Hellman, Jordan Management Co., Inc. (an investment management company) and Advisory Director of Berkshire Capital Corporation (an investment banking firm), Chairman of the Board of UAM and Chairman, President and Director of the UAM Funds (mutual funds).
Item 4. Principal Accountant Fees and Services
Not required in this filing
Item 5. Audit Committee of Listed registrants
Not required in this filing.
Item 6. Schedule of Investments
Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not required in this filing.
Item 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not required in this filing.
Item 9. Submission of Matters to a Vote of Security Holders.
Effective February 7, 2005, the Governance Committee of the Board of Trustees revised the procedures by which a Fund’s shareholders may recommend nominees to the registrant’s Board of Trustees to add the following (highlighted):
The Governance Committee shall, when identifying candidates for the position of Independent Trustee, consider any such candidate recommended by a shareholder of a Fund if such recommendation contains
(i)sufficient background information concerning the candidate, including evidence the candidate is willing to serve as an Independent Trustee if selected for the position; and (ii) is received in a sufficiently timely manner (and in any event no later than the date specified for receipt of shareholder proposals in any applicable proxy statement with respect to a Fund). Shareholders shall be directed to address any such recommendations in writing to the attention of the Governance Committee, c/o the Secretary of the Fund. The Secretary shall retain copies of any shareholder recommendations which meet the foregoing requirements for a period of not more than 12 months following receipt. The Secretary shall have no obligation to acknowledge receipt of any shareholder recommendations
Item 10. Controls and Procedures
(a) It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.
(b) There have been no changes in the registrant’s internal controls over financial reporting during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 11. Exhibits
(a)(1) | Registrant’s Code of Ethics – Not applicable (please see Item 2). |
(a)(2)(i) | Treasurer’s Section 302 certification. |
(a)(2)(ii) | President’s Section 302 certification. |
(b) | Combined Section 906 certification. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Utilities Portfolio | |
|
| |
By: | /s/ Duncan W. Richardson | |
| Duncan W. Richardson |
| President |
| |
| |
Date: | | August 22, 2005 | |
| | | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ William J. Austin, Jr.. | |
| William J. Austin, Jr. |
| Treasurer |
| |
| |
Date: | August 22, 2005 | |
| | | |
By: | /s/ Duncan W. Richardson | |
| Duncan W. Richardson |
| President |
| |
| |
Date: | | August 22, 2005 | |
| | | | |
