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 | 811-8014 |
|
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, 2006 | |
| | | | | | | | |
Item 1. Reports to Stockholders
Utilities Portfolio as of June 30, 2006
PORTFOLIO OF INVESTMENTS (Unaudited)
| Common Stocks — 97.3% | |
| Security | | Shares | | Value | |
| Broadcasting and Cable — 3.7% | |
| Inmarsat PLC | | | 1,800,000 | | | $ | 11,401,540 | | |
| Ovation, Inc.(1)(2) | | | 18,040 | | | | 0 | | |
| PanAmSat Holding Corp. | | | 419,005 | | | | 10,470,935 | | |
| Rogers Communications, Inc., Class B(3) | | | 400,000 | | | | 16,160,000 | | |
| | | $ | 38,032,475 | | |
| Chemicals — 0.0% | |
| Arkema ADR(1) | | | 1,249 | | | $ | 48,726 | | |
| | | $ | 48,726 | | |
| Electric Utilities — 44.4% | |
| Allegheny Energy, Inc.(1) | | | 592,900 | | | $ | 21,978,803 | | |
| ALLETE, Inc. | | | 316,666 | | | | 14,994,135 | | |
| BKW FMB Energie AG | | | 60,000 | | | | 5,223,102 | | |
| British Energy Group PLC(1) | | | 1,000,000 | | | | 12,425,373 | | |
| Drax Group PLC(1) | | | 650,000 | | | | 9,862,196 | | |
| E.ON AG ADR(3) | | | 360,000 | | | | 13,806,000 | | |
| Edison International | | | 600,000 | | | | 23,400,000 | | |
| Endesa SA ADR(3) | | | 650,000 | | | | 20,878,000 | | |
| Entergy Corp. | | | 225,000 | | | | 15,918,750 | | |
| Exelon Corp.(3) | | | 461,250 | | | | 26,212,838 | | |
| FirstEnergy Corp. | | | 500,000 | | | | 27,105,000 | | |
| Fortis, Inc. | | | 200,000 | | | | 4,008,632 | | |
| Fortum Oyj | | | 850,000 | | | | 21,708,970 | | |
| FPL Group, Inc.(3) | | | 281,860 | | | | 11,663,367 | | |
| International Power PLC ADR(3) | | | 400,000 | | | | 21,320,000 | | |
| ITC Holdings Corp. | | | 250,000 | | | | 6,645,000 | | |
| Mirant Corp.(1)(3) | | | 1,000,000 | | | | 26,790,000 | | |
| Northeast Utilities | | | 100,000 | | | | 2,067,000 | | |
| NorthWestern Corp. | | | 375,000 | | | | 12,881,250 | | |
| NRG Energy, Inc.(1) | | | 305,000 | | | | 14,694,900 | | |
| Oesterreichische Elektrizitaetswirtschafts AG, Class A(1) | | | 300,000 | | | | 14,418,786 | | |
| PG&E Corp.(3) | | | 575,000 | | | | 22,586,000 | | |
| PPL Corp. | | | 600,000 | | | | 19,380,000 | | |
| Public Power Corp. | | | 65,000 | | | | 1,537,237 | | |
| RWE AG | | | 220,000 | | | | 18,251,915 | | |
| Scottish and Southern Energy PLC | | | 650,000 | | | | 13,826,566 | | |
| Scottish Power PLC | | | 873,015 | | | | 9,405,959 | | |
| TXU Corp. | | | 700,000 | | | | 41,853,000 | | |
| | | $ | 454,842,779 | | |
| Security | | Shares | | Value | |
| Engineering and Construction — 2.8% | |
| Bouygues SA(3) | | | 350,000 | | | $ | 17,966,461 | | |
| Halliburton Co. | | | 140,000 | | | | 10,389,400 | | |
| | | $ | 28,355,861 | | |
| Gas Utilities — 1.7% | |
| AGL Resources, Inc. | | | 50,000 | | | $ | 1,906,000 | | |
| Enbridge, Inc. | | | 50,000 | | | | 1,528,500 | | |
| Equitable Resources, Inc. | | | 70,000 | | | | 2,345,000 | | |
| TransCanada Corp.(3) | | | 400,000 | | | | 11,472,000 | | |
| | | $ | 17,251,500 | | |
| Integrated Oil — 1.7% | |
| Statoil ASA ADR(3) | | | 500,000 | | | $ | 14,260,000 | | |
| Total SA ADR(3) | | | 50,000 | | | | 3,276,000 | | |
| | | $ | 17,536,000 | | |
| Oil and Gas-Exploration and Production — 0.9% | |
| Southwestern Energy Co.(1) | | | 204,000 | | | $ | 6,356,640 | | |
| Talisman Energy, Inc. | | | 150,000 | | | | 2,622,000 | | |
| | | $ | 8,978,640 | | |
| Oil and Gas-Refining and Marketing — 1.3% | |
| Neste Oil Oyj | | | 380,000 | | | $ | 13,350,210 | | |
| | | $ | 13,350,210 | | |
| Telecommunications Services — 19.3% | |
| AT&T, Inc. | | | 900,000 | | | $ | 25,101,000 | | |
| BCE, Inc.(3) | | | 385,400 | | | | 9,114,710 | | |
| BellSouth Corp. | | | 650,000 | | | | 23,530,000 | | |
| BT Group PLC ADR(3) | | | 300,000 | | | | 13,287,000 | | |
| Chunghwa Telecom Co., Ltd. ADR | | | 254,800 | | | | 4,706,156 | | |
| Embarq Corp.(1) | | | 38,000 | | | | 1,557,620 | | |
| Koninklijke (Royal) KPN NV | | | 1,000,000 | | | | 11,234,449 | | |
| Qwest Communications International, Inc.(1)(3) | | | 250,000 | | | | 2,022,500 | | |
| Sprint Corp.(3) | | | 1,160,000 | | | | 23,188,400 | | |
| Telefonos de Mexico SA de CV (Telmex) ADR | | | 775,000 | | | | 16,143,250 | | |
| Telekom Austria AG | | | 200,000 | | | | 4,451,461 | | |
| Telenor ASA | | | 1,500,000 | | | | 18,128,937 | | |
| TELUS Corp.(3) | | | 500,000 | | | | 20,190,000 | | |
| Verizon Communications, Inc. | | | 750,000 | | | | 25,117,500 | | |
| | | $ | 197,772,983 | | |
See notes to financial statements
14
Utilities Portfolio as of June 30, 2006
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
| Security | | Shares | | Value | |
| Utilities-Electric and Gas — 13.0% | |
| CMS Energy Corp.(1) | | | 1,000,000 | | | $ | 12,940,000 | | |
| Constellation Energy Group, Inc. | | | 190,000 | | | | 10,358,800 | | |
| Dominion Resources, Inc. | | | 100,000 | | | | 7,479,000 | | |
| Dynegy, Inc., Class A(1) | | | 500,000 | | | | 2,735,000 | | |
| E.ON AG | | | 100,000 | | | | 11,491,489 | | |
| Electricite de France(3) | | | 300,000 | | | | 15,832,424 | | |
| Iberdrola SA | | | 500,000 | | | | 17,201,904 | | |
| MDU Resources Group, Inc. | | | 130,000 | | | | 4,759,300 | | |
| National Grid PLC | | | 494,772 | | | | 5,347,015 | | |
| Public Service Enterprise Group, Inc. | | | 100,000 | | | | 6,612,000 | | |
| Sempra Energy | | | 220,000 | | | | 10,005,600 | | |
| Suez SA ADR(3) | | | 350,000 | | | | 14,612,500 | | |
| TransAlta Corp. | | | 500,000 | | | | 10,350,000 | | |
| Wisconsin Energy Corp. | | | 100,000 | | | | 4,030,000 | | |
| | | $ | 133,755,032 | | |
| Water Utilities — 3.4% | |
| Aqua America, Inc. | | | 200,000 | | | $ | 4,558,000 | | |
| Basin Water, Inc.(1)(3) | | | 105,000 | | | | 1,052,100 | | |
| Severn Trent PLC | | | 300,000 | | | | 6,487,584 | | |
| United Utilities PLC | | | 315,103 | | | | 3,732,128 | | |
| Veolia Environment ADR(3) | | | 375,000 | | | | 19,395,000 | | |
| | | $ | 35,224,812 | | |
| Wireless Telecommunication Services — 5.1% | |
| Alltel Corp. | | | 325,000 | | | $ | 20,744,750 | | |
| China Netcom Group Corp. (Hong Kong), Ltd. ADR(3) | | | 2,500 | | | | 87,900 | | |
| Leap Wireless International, Inc.(1) | | | 200,000 | | | | 9,490,000 | | |
| Vodafone Group PLC ADR(3) | | | 1,050,000 | | | | 22,365,000 | | |
| | | $ | 52,687,650 | | |
Total Common Stocks
(identified cost $781,442,272) | | | | | | $ | 997,836,668 | | |
| Preferred Stocks — 0.1% | |
| Security | | Shares | | Value | |
| Broadcasting and Cable — 0.1% | |
| Ovation, Inc. (PIK)(1)(2) | | | 807 | | | $ | 630,000 | | |
| | | $ | 630,000 | | |
Total Preferred Stocks
(identified cost $3,595,225) | | | | | | $ | 630,000 | | |
| Convertible Bonds — 0.0% | |
| Security | | Principal
Amount
(000's omitted) | | Value | |
| Reliant Resources, Inc., 5.00%, 8/15/10(4) | | $ | 100 | | | $ | 137,625 | | |
Total Convertible Bonds
(identified cost, $100,000) | | | | | | $ | 137,625 | | |
| Warrants — 0.0% | |
| Security | | Shares | | Value | |
| Communications Equipment — 0.0% | |
| Lucent Technologies, Inc., Exp. 12/10/07(1) | | | 8,205 | | | $ | 2,215 | | |
| | | $ | 2,215 | | |
Total Warrants
(identified cost $0) | | | | | | $ | 2,215 | | |
| Short-Term Investments — 16.7% | |
| Security | | Principal
Amount
(000's omitted) | | Value | |
| Eaton Vance Cash Collateral Fund, LLC, 5.19%(5) | | $ | 148,965 | | | $ | 148,964,948 | | |
Investors Bank and Trust Company Time Deposit,
5.30%, 7/3/06 | | | 2,000 | | | | 2,000,000 | | |
| Societe Generale Time Deposit, 5.281%, 7/3/06 | | | 20,403 | | | | 20,403,000 | | |
Total Short-Term Investments
(at amortized cost, $171,367,948) | | | | | | $ | 171,367,948 | | |
See notes to financial statements
15
Utilities Portfolio as of June 30, 2006
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
| | | Value | |
Total Investments — 114.1%
(identified cost $956,505,445) | | $ | 1,169,974,456 | | |
| Other Assets, Less Liabilities — (14.1)% | | $ | (144,730,102 | ) | |
| Net Assets — 100.0% | | $ | 1,025,244,354 | | |
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) All or a portion of these securities were on loan at June 30, 2006.
(4) 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, 2006, the aggregate value of the securities is $137,625 or 0.0% of the Portfolio's net assets.
(5) Affiliated fund investing in high quality, U.S. dollar denominated money market instruments that is available only to Eaton Vance portfolios and funds. The rate shown is the annualized seven-day yield as of June 30, 2006. The amount invested therein by the Portfolio represents cash collateral received for securities on loan at June 30, 2006. Other Assets, Less Liabilities includes an equal and offsetting liability of the Portfolio to repay collateral amounts upon the return of loaned securities.
| Country Concentration of Portfolio | |
| Country | | Percentage
of Total
Investments | | Value | |
| United States | | | 72.8 | % | | $ | 851,242,908 | | |
| Canada | | | 6.5 | | | | 75,445,842 | | |
| United Kingdom | | | 6.2 | | | | 72,488,361 | | |
| Finland | | | 3.0 | | | | 35,059,180 | | |
| France | | | 2.9 | | | | 33,798,885 | | |
| Germany | | | 2.5 | | | | 29,743,404 | | |
| Austria | | | 1.6 | | | | 18,870,247 | | |
| Norway | | | 1.5 | | | | 18,128,937 | | |
| Spain | | | 1.5 | | | | 17,201,904 | | |
| Netherlands | | | 1.0 | | | | 11,234,449 | | |
| Switzerland | | | 0.4 | | | | 5,223,102 | | |
| Greece | | | 0.1 | | | | 1,537,237 | | |
| | | | 100.0 | % | | $ | 1,169,974,456 | | |
See notes to financial statements
16
Utilities Portfolio as of June 30, 2006
FINANCIAL STATEMENTS (Unaudited) CONT'D
Statement of Assets and Liabilities
As of June 30, 2006
| Assets | |
Investments, at value, including $143,042,872 of securities
on loan (identified cost, $956,505,445) | | $ | 1,169,974,456 | | |
| Foreign currency, at value (identified cost, $151,726) | | | 154,496 | | |
| Receivable for investments sold | | | 4,773,182 | | |
| Interest and dividends receivable | | | 5,848,381 | | |
| Tax reclaim receivable | | | 240,193 | | |
| Total assets | | $ | 1,180,990,708 | | |
| Liabilities | |
| Collateral for securities loaned | | $ | 148,964,948 | | |
| Payable for investments purchased | | | 5,537,260 | | |
| Payable to affiliate for investment advisory fees | | | 531,575 | | |
| Due to custodian | | | 7,408 | | |
| Payable to affiliate for Trustees' fees | | | 6,179 | | |
| Accrued expenses | | | 698,984 | | |
| Total liabilities | | $ | 155,746,354 | | |
| Net Assets applicable to investors' interest in Portfolio | | $ | 1,025,244,354 | | |
| Sources of Net Assets | |
| Net proceeds from capital contributions and withdrawals | | $ | 811,729,711 | | |
| Net unrealized appreciation (computed on the basis of identified cost) | | | 213,514,643 | | |
| Total | | $ | 1,025,244,354 | | |
Statement of Operations
For the Six Months Ended
June 30, 2006
| Investment Income | |
| Dividends (net of foreign taxes, $1,343,965) | | $ | 19,459,755 | | |
| Interest | | | 311,853 | | |
| Security lending income, net | | | 585,449 | | |
| Total investment income | | $ | 20,357,057 | | |
| Expenses | |
| Investment adviser fee | | $ | 3,116,981 | | |
| Trustees' fees and expenses | | | 12,572 | | |
| Custodian fee | | | 217,872 | | |
| Legal and accounting services | | | 20,335 | | |
| Interest expense | | | 10,873 | | |
| Miscellaneous | | | 6,793 | | |
| Total expenses | | $ | 3,385,426 | | |
Deduct —
Reduction of custodian fee | | $ | 12 | | |
| Reduction of investment adviser fee | | | 8,369 | | |
| Total expense reductions | | $ | 8,381 | | |
| Net expenses | | $ | 3,377,045 | | |
| Net investment income | | $ | 16,980,012 | | |
| Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) —
Investment transactions (identified cost basis) | | $ | 78,063,204 | | |
| Foreign currency transactions | | | (395,907 | ) | |
| Net realized gain | | $ | 77,667,297 | | |
Change in unrealized appreciation (depreciation) —
Investments (identified cost basis) | | $ | (23,409,148 | ) | |
| Foreign currency | | | 80,122 | | |
| Net change in unrealized appreciation (depreciation) | | $ | (23,329,026 | ) | |
| Net realized and unrealized gain | | $ | 54,338,271 | | |
| Net increase in net assets from operations | | $ | 71,318,283 | | |
See notes to financial statements
17
Utilities Portfolio as of June 30, 2006
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease)
in Net Assets | | Six Months Ended
June 30, 2006
(Unaudited) | | Year Ended
December 31, 2005 | |
From operations —
Net investment income | | $ | 16,980,012 | | | $ | 20,809,919 | | |
Net realized gain from investment and
foreign currency transactions | | | 77,667,297 | | | | 39,201,416 | | |
Net change in unrealized appreciation
(depreciation) from investments and
foreign currency | | | (23,329,026 | ) | | | 81,891,226 | | |
| Net increase in net assets from operations | | $ | 71,318,283 | | | $ | 141,902,561 | | |
Capital transactions —
Contributions | | $ | 177,940,082 | | | $ | 276,060,443 | | |
| Withdrawals | | | (118,627,252 | ) | | | (148,988,747 | ) | |
Net increase in net assets
from capital transactions | | $ | 59,312,830 | | | $ | 127,071,696 | | |
| Net increase in net assets | | $ | 130,631,113 | | | $ | 268,974,257 | | |
| Net Assets | |
| At beginning of period | | $ | 894,613,241 | | | $ | 625,638,984 | | |
| At end of period | | $ | 1,025,244,354 | | | $ | 894,613,241 | | |
See notes to financial statements
18
Utilities Portfolio as of June 30, 2006
FINANCIAL STATEMENTS CONT'D
Supplementary Data
| | | Six Months Ended
June 30, 2006 | | Year Ended December 31, | |
| | | (Unaudited) | | 2005 | | 2004 | | 2003 | | 2002 | | 2001 | |
| Ratios/Supplemental Data† | |
| Ratios (As a percentage of average daily net assets): | |
| Net expenses | | | 0.69 | %(1) | | | 0.70 | % | | | 0.72 | % | | | 0.72 | % | | | 0.73 | % | | | 0.71 | % | |
| Net expenses after custodian fee reduction | | | 0.69 | %(1) | | | 0.70 | % | | | 0.72 | % | | | 0.72 | % | | | 0.73 | % | | | 0.71 | % | |
| Interest expense | | | — | (2) | | | — | (2) | | | — | (2) | | | — | (2) | | | — | (2) | | | 0.01 | % | |
| Net investment income | | | 3.50 | %(1) | | | 2.72 | % | | | 3.16 | % | | | 3.22 | % | | | 3.40 | % | | | 2.00 | % | |
| Portfolio Turnover | | | 46 | % | | | 54 | % | | | 59 | % | | | 106 | % | | | 146 | % | | | 169 | % | |
| Total Return | | | 7.89 | % | | | 20.68 | % | | | 25.57 | % | | | 26.44 | % | | | (12.13 | )% | | | (18.61 | )% | |
| Net assets, end of period (000's omitted) | | $ | 1,025,244 | | | $ | 894,613 | | | $ | 625,639 | | | $ | 458,339 | | | $ | 351,078 | | | $ | 425,707 | | |
† The operating expenses of the Portfolio reflect a reduction of the investment adviser 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%.
See notes to financial statements
19
Utilities Portfolio as of June 30, 2006
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 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, 2006, 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 net 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 principles 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 the 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 are acquired with a remaining maturity of more than 60 days, they will be valued by a pricing service. 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 val uation 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 unavailable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Port folio 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 — 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. 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.
C 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 a mong 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.
20
Utilities Portfolio as of June 30, 2006
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
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 expenses are converted into U.S. dollars based upon currency exchange rates prevailing 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 portion of unrealized gains and losses on investments that results from fluctuation s 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 balance the Portfolio maintains with IBT. All credit balances used to reduce the Portfolio's custodian fees are reported as a reduction of expenses in the Statement of Operations.
G Other — Investment transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses on securities sold are determined on the basis of identified cost.
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 from 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, 2006 and for the six months then ended have not been audited by an independent registered public accounting firm, but in the opinion of the Fund'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, 2006, the fee was equivalent to 0.642% (annualized) of the Portfolio's average daily net assets for such period and amounted to $3,116,981. 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 six months
21
Utilities Portfolio as of June 30, 2006
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
ended June 30, 2006, BMR waived $8,369 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 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, 2006, no significant amounts have been deferred.
3 Investment Transactions
Purchases and sales of investments, other than short-term obligations, aggregated $501,979,283, and $443,443,396, respectively, for the six months ended June 30, 2006.
4 Federal Income Tax Basis of Investments
The cost and unrealized appreciation (depreciation) in value of the investments owned at June 30, 2006, as determined on a federal income tax basis, were as follows:
| Aggregate cost | | $ | 956,505,445 | | |
| Gross unrealized appreciation | | $ | 226,748,672 | | |
| Gross unrealized depreciation | | | (13,279,661 | ) | |
| Net unrealized appreciation | | $ | 213,469,011 | | |
The net unrealized appreciation on foreign currency was $23,817 at June 30, 2006.
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, 2006.
6 Overdraft Advances
Pursuant to the custodian agreement between the Portfolio and Investors Bank & Trust (IBT), IBT may in its discretion advance funds to the Portfolio to make properly authorized payments. When such payments result in an overdraft by the Portfolio, the Portfolio is obligated to repay IBT at the current rate of interest charged by IBT for secured loans (currently, a rate above the Federal Funds rate). This obligation is payable on demand to IBT. IBT has a lien on the Portfolio's assets to the extent of any overdraft. At June 30, 2006, the Portfolio had payments due to IBT pursuant to the foregoing arrangement of $7,408.
7 Securities Lending Agreement
The Portfolio has established a securities lending agreement with a securities lending agent, IBT, 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 Eaton Vance Cash Collateral Fund, LLC (Cash Collateral Fund). Cash Collateral Fund invests in high quality money market instruments. 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. In addition, the Portfolio pays IBT a lending agent fee computed as a percentage of the earnings on its investment in Cash Collateral Fund less the loan rebate fee. The loan rebate fee and lending agent fee paid by the Portfolio amounted to $1,506,786 and $103,299, respectively, for the six months ended June 30, 2006. At June 30, 2006, the value of the securities loaned and the value of the collateral amounted to $143,042,872 and $148,964,948, respectively. 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.
8 Recently Issued Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, ("FIN 48") "Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109". FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, "Accounting for Income Taxes." This interpretation prescribes a recognition threshold and measurement
22
Utilities Portfolio as of June 30, 2006
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Portfolio is currently evaluating the impact of applying the various provisions of FIN 48.
23
Eaton Vance Utilities Fund
BOARD OF TRUSTEES' ANNUAL APPROVAL OF THE INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS
Overview of the Contract Review Process
The Investment Company Act of 1940, as amended (the "1940 Act"), provides, in substance, that each investment advisory agreement between a fund and its investment adviser will continue in effect from year to year only if its continuance is approved at least annually by the fund's board of trustees, including by a vote of a majority of the trustees who are not "interested persons" of the fund ("Independent Trustees") cast in person at a meeting called for the purpose of considering such approval.
At a meeting of the Boards of Trustees (each a "Board") of the Eaton Vance group of mutual funds (the "Eaton Vance Funds") held on March 27, 2006, the Board, including a majority of the Independent Trustees, voted to approve continuation of existing advisory and sub-advisory agreements for the Eaton Vance Funds for an additional one-year period. In voting its approval, the Board relied upon the affirmative recommendation of the Special Committee of the Board, which is a committee comprised exclusively of Independent Trustees. Prior to making its recommendation, the Special Committee reviewed information furnished for a series of meetings of the Special Committee held in February and March 2006. Such information included, among other things, the following:
Information about Fees, Performance and Expenses
• An independent report comparing the advisory and related fees paid by each fund with fees paid by comparable funds;
• An independent report comparing each fund's total expense ratio and its components to comparable funds;
• An independent report comparing the investment performance of each fund to the investment performance of comparable funds over various time periods;
• Data regarding investment performance in comparison to relevant peer groups of funds and appropriate indices;
• Comparative information concerning fees charged by each adviser for managing other mutual funds and institutional accounts using investment strategies and techniques similar to those used in managing the fund;
• Profitability analyses for each adviser with respect to each fund managed by it;
Information about Portfolio Management
• Descriptions of the investment management services provided to each fund, including the investment strategies and processes employed;
• Information concerning the allocation of brokerage and the benefits received by each adviser as a result of brokerage allocation, including information concerning the acquisition of research through "soft dollar" benefits received in connection with the funds' brokerage, and the implementation of a soft dollar reimbursement program established with respect to the funds;
• Data relating to portfolio turnover rates of each fund;
• 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;
Information about each Adviser
• Reports detailing the financial results and condition of each adviser;
• Descriptions of the qualifications, education and experience of the individual investment professionals whose responsibilities include portfolio management and investment research for the funds, and information relating to their compensation and responsibilities with respect to managing other mutual funds and investment accounts;
• Copies of the Codes of Ethics of each adviser and its affiliates, together with information relating to compliance with and the administration of such codes;
• Information concerning the resources devoted to compliance efforts undertaken by each adviser and its affiliates on behalf of the funds (including descriptions of various compliance programs) and their record of compliance with investment policies and restrictions, including policies with respect to market-timing, late trading and selective portfolio disclosure, and with policies on personal securities transactions;
• Descriptions of the business continuity and disaster recovery plans of each adviser and its affiliates;
Other Relevant Information
• Information concerning the nature, cost and character of the administrative and other non-investment management services provided by Eaton Vance Management and its affiliates;
• Information concerning management of the relationship with the custodian, subcustodians and fund accountants by each adviser or the funds' administrator; and
• The terms of each advisory agreement.
In addition to the information identified above, the Special Committee considered information provided from time to time by each adviser throughout the year at meetings of the Board and its committees. Over the course of the twelve month period ended March 31,
24
Eaton Vance Utilities Fund
BOARD OF TRUSTEES' ANNUAL APPROVAL OF THE INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS CONT'D
2006, the Board met nine times and the Special Committee, the Audit Committee and the Governance Committee, each of which is a Committee comprised solely of Independent Trustees, met eight, twelve and five times, respectively. At such meetings, the Trustees received, among other things, presentations by the portfolio managers and other investment professionals of each adviser relating to the investment performance of each fund and the investment strategies used in pursuing the fund's investment objective.
For funds that invest through one or more underlying portfolios, the Board considered similar information about the portfolio(s) when considering the approval of advisory agreements. In addition, in cases where the fund's investment adviser has engaged a sub-adviser, the Board considered similar information about the sub-adviser when considering the approval of any sub-advisory agreement.
The Special Committee was assisted throughout the contract review process by Goodwin Procter LLP, legal counsel for the Independent Trustees. The members of the Special Committee relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating each advisory and sub-advisory agreement and the weight to be given to each such factor. The conclusions reached with respect to each advisory and sub-advisory agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each member of the Special Committee may have placed varying emphasis on particular factors in reaching conclusions with respect to each advisory and sub-advisory agreement.
Results of the Process
Based on its consideration of the foregoing, and such other information as it deemed relevant, including the factors and conclusions described below, the Special Committee concluded that the continuance of the investment advisory agreement of the Utilities Portfolio (the "Portfolio"), the portfolio in which the Eaton Vance Utilities Fund (the "Fund") invests, with Boston Management and Research (the "Adviser"), including its fee structure, is in the interests of shareholders and, therefore, the Special Committee recommended to the Board approval of the agreement. The Board accepted the recommendation of the Special Committee as well as the factors considered and conclusions reached by the Special Committee with respect to the agreement. Accordingly, the Board, including a majority of the Independent Trustees, voted to approve continuation of the investment advisory agreement for the Portfolio.
Nature, Extent and Quality of Services
In considering whether to approve the investment advisory agreement of the Portfolio, the Board evaluated the nature, extent and quality of services provided to the Portfolio by the Adviser.
The Board considered the Adviser's management capabilities and investment process with respect to the types of investments held by the Portfolio, including the education, experience and number of its investment professionals and other personnel who provide portfolio management, investment research, and similar services to the Portfolio. The Board specifically noted the Adviser's in-house equity research capabilities. The Board also took into account the resources dedicated to portfolio management and other services, including the compensation paid to recruit and retain investment personnel, and the time and attention devoted to the Portfolio by senior management.
The Board reviewed the compliance programs of the Adviser and relevant affiliates thereof. Among other matters, the Board considered compliance and reporting matters relating to personal trading by investment personnel, selective disclosure of portfolio holdings, late trading, frequent trading, portfolio valuation, business continuity and the allocation of investment opportunities. The Board also evaluated the responses of the Adviser and its affiliates to requests from regulatory authorities such as the Securities and Exchange Commission and the National Association of Securities Dealers.
The Board considered shareholder and other administrative services provided or managed by Eaton Vance Management and its affiliates, including transfer agency and accounting services. The Board evaluated the benefits to shareholders of investing in a fund that is a part of a large family of funds, including the ability, in many cases, to exchange an investment among different funds without incurring additional sales charges.
After consideration of the foregoing factors, among others, the Board concluded that the nature, extent and quality of services provided by the Adviser, taken as a whole, are appropriate and consistent with the terms of the investment advisory agreement.
Fund Performance
The Board compared the Fund's investment performance to a relevant universe of similarly managed funds identified by an independent data provider and appropriate benchmark indices. The Board reviewed comparative performance data for the one-, three-, five- and ten-year periods ended September 30, 2005 for the Fund. The Board concluded that the Fund's performance was satisfactory.
25
Eaton Vance Utilities Fund
BOARD OF TRUSTEES' ANNUAL APPROVAL OF THE INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS CONT'D
Management Fees and Expenses
The Board reviewed contractual investment advisory fee rates payable by the Portfolio and the Fund (referred to as "management fees"). As part of its review, the Board considered the management fees and the Fund's total expense ratio for the one-year period ended September 30, 2005, as compared to a group of similarly managed funds selected by an independent data provider.
After reviewing the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the management fees charged for advisory and related services and the Fund's total expense ratio are reasonable.
Profitability
The Board reviewed the level of profits realized by the Adviser and relevant affiliates thereof in providing investment advisory and administrative services to the Portfolio, the Fund and to all Eaton Vance Funds as a group. The Board considered the level of profits realized without regard to revenue sharing or other payments by the Adviser and its affiliates to third parties in respect of distribution services. The Board also considered other direct or indirect benefits received by the Adviser and its affiliates in connection with its relationship with the Portfolio and the Fund, including the benefits of research services that may be available to the Adviser as a result of securities transactions effected for the Portfolio and other advisory clients.
The Board concluded that, in light of the foregoing factors and the nature, extent and quality of the services rendered, the profits realized by the Adviser and its affiliates are reasonable.
Economies of Scale
In reviewing management fees and profitability, the Board also considered the extent to which the Adviser and its affiliates, on the one hand, and the Fund, on the other hand, can expect to realize benefits from economies of scale as the assets of the Fund and the Portfolio increase. The Board acknowledged the difficulty in accurately measuring the benefits resulting from the economies of scale with respect to the management of any specific fund or group of funds. The Board reviewed data summarizing the increases and decreases in the assets of the Fund and of all Eaton Vance Funds as a group over various time periods, and evaluated the extent to which the total expense ratio of the Fund and the profitability of the Adviser and its affiliates may have been affected by such increases or decreases. Based upon the foregoing, the Board concluded that the benefits from economies of scale are currently being shared equitably by the Adv iser and its affiliates and the Fund. The Board also concluded that, assuming reasonably foreseeable increases in the assets of the Portfolio, the structure of the advisory fee, which includes breakpoints at several asset levels, can be expected to cause the Adviser and its affiliates and the Fund to continue to share such benefits equitably.
26
Eaton Vance Utilities Fund
INVESTMENT MANAGEMENT
Eaton Vance Utilities Fund
Officers
Thomas E. Faust Jr.
President
J. Scott Craig
Vice President
William E. Dodge
Vice President
Gregory R. Greene
Vice President
Elizabeth S. Kenyon
Vice President
Duke E. Laflamme
Vice President
Thomas H. Luster
Vice President
George C. Pierides
Vice President
Barbara E. Campbell
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 | |
|
27
This Page Intentionally Left Blank
Investment Adviser of Utilities Portfolio
Boston Management and Research
The Eaton Vance Building
255 State Street
Boston, MA 02109
Administrator of Eaton Vance Utilities Fund
Eaton Vance Management
The Eaton Vance Building
255 State Street
Boston, MA 02109
Principal Underwriter
Eaton Vance Distributors, Inc.
The Eaton Vance Building
255 State Street
Boston, MA 02109
(617) 482-8260
Custodian
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
Transfer Agent
PFPC Inc.
Attn: Eaton Vance Funds
P.O. Box 9653
Providence, RI 02940-9653
(800) 262-1122
Eaton Vance Utilities Fund
The Eaton Vance Building
255 State Street
Boston, MA 02109
This report must be preceded or accompanied by a current prospectus. Before investing, investors should consider carefully the Fund's investment objective(s), risks, and charges and expenses. The Fund's current prospectus contains this and other information about the Fund and is available through your financial advisor. Please read the prospectus carefully before you invest or send money. For further information please call 1-800-225-6265.
159-8/06 UTSRC
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 Vice Chairman of Commercial Industrial Finance Corp (specialty finance company). Previously, he served as President and Chief Executive Officer of Prizm Capital Management, LLC (investment management firm) and 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. Portfolio Managers of Closed-End Management Investment Companies
Not required in this filing.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not required in this filing.
Item 10. Submission of Matters to a Vote of Security Holders.
No Material Changes.
Item 11. 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 12. 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 |
| |
| |
| | | |
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 15, 2006 | |
By: | /s/Duncan W. Richardson | |
| Duncan W. Richardson |
| President |
| |
| |
Date: | August 15, 2006 | |
| | | |
