UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001
Commission File No. 000-25767
Belair Capital Fund LLC
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3404037
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(State of organization) (I.R.S. Employer Identification No.)
The Eaton Vance Building
255 State Street, Boston, Massachusetts 02109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 617-482-8260
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Liability Company Interests in the Fund ("Shares")
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of the Shares held by non-affiliates of Registrant,
based on the closing net asset value on February 28, 2002 was $1,635,016,963.76.
Calculation of holdings by non-affiliates is based upon the assumption, for
these purposes only, that the Registrant's manager, its executive officers and
directors and persons holding 5% or more of the Registrant's Shares are
affiliates.
Incorporation by Reference
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The financial statements contained in Registrant's Form 10-K filed with the
Securities and Exchange Commission on March 30, 2001 (Accession No.
0000940394-01-500115) have been incorporated into the following Parts of this
report: Part II and Part III.
The Exhibit Index is located on page 50.
PART I
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ITEM 1. BUSINESS
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Belair Capital Fund LLC (the "Fund") is a Massachusetts limited liability
company organized in 1997 to provide diversification and tax-sensitive
investment management to investors who are "qualified purchasers" as defined in
Section 2(a)(51)(A) of the Investment Company Act of 1940, as amended (the "1940
Act"), and the rules thereunder. The Fund commenced its investment operations on
February 6, 1998. The Fund conducted no operations prior to that date.
The Fund seeks to achieve long-term, after-tax returns for qualified
purchasers who have invested in the Fund ("Shareholders") by acquiring limited
liability company interests ("Shares") in the Fund. The Fund pursues its
investment objective primarily by investing indirectly in Tax-Managed Growth
Portfolio (the "Portfolio"), a diversified, open-end management investment
company registered under the 1940 Act, with net assets of approximately $18.3
billion as of December 31, 2001. The Portfolio was organized in 1995 as
successor to the investment operations of Eaton Vance Tax-Managed Growth Fund
1.0 (formerly Capital Exchange Fund), a mutual fund established in 1966 and
managed from inception for long-term, after-tax returns. The Fund maintains its
indirect investment in the Portfolio by investing in Belvedere Capital Fund
Company LLC (the "Company"), a separate Massachusetts limited liability company
that invests exclusively in the Portfolio. As of December 31, 2001, the
investment assets of the Company consisted exclusively of an interest in the
Portfolio with a value of $10.33 billion. As of such date, assets of the Fund
invested in the Company totaled $1.82 billion.
The investment objective of the Portfolio is to achieve long-term,
after-tax returns for its investors by investing in a diversified portfolio of
equity securities. The Portfolio emphasizes investments in common stocks of
domestic and foreign growth companies that are considered to be high in quality
and attractive in their long-term investment prospects. Under normal market
conditions, the Portfolio invests at least 65% of its assets in common stocks.
Although the Portfolio may also invest in investment-grade preferred stocks and
debt securities, purchases of such securities are normally limited to securities
convertible into common stocks and temporary investments in short-term notes and
government obligations. During periods in which the investment adviser to the
Portfolio believes that returns on common stock investments may be unfavorable,
the Portfolio may invest a portion of its assets in U.S. government obligations
and high quality short-term notes. The Portfolio's holdings represent a number
of different industries. Not more than 25% of the Portfolio's assets may be
invested in the securities of issuers having their principal business activity
in the same industry, determined as of the time of acquisition of any such
securities.
In its operations, the Portfolio seeks to achieve long-term, after-tax
returns in part by minimizing the taxes incurred by investors in the Portfolio
in connection with the Portfolio's investment income and realized capital gains.
Taxes on investment income are minimized by investing primarily in
lower-yielding securities. Taxes on realized capital gains are minimized by
avoiding or minimizing the sale of securities holdings with large accumulated
capital gains. The Portfolio seeks to invest in a broadly diversified portfolio
of stocks and to invest primarily in established companies with characteristics
of above-average growth, predictability and stability that are acquired with the
expectation of being held for a period of years. The Portfolio generally seeks
to avoid realizing short-term capital gains. When a decision is made to sell a
particular appreciated security, the Portfolio will select for sale the share
lots resulting in the most favorable tax treatment, generally those with holding
periods sufficient to qualify for long-term capital gains treatment that have
the highest cost basis. The Portfolio may, when deemed prudent by its investment
adviser, sell securities to realize capital losses that can be used to offset
realized gains.
To protect against price declines in securities holdings with large
accumulated capital gains, the Portfolio may use various investment techniques,
including, but not limited to, the purchase of put options on securities held,
equity collars (combining the purchase of a put option and the sale of a call
option), equity swaps, covered short sales, and the sale of stock index futures
contracts. By using these techniques rather than selling such securities, the
Portfolio can reduce its exposure to price declines in the securities without
realizing substantial capital gains under current tax law. The Portfolio's
ability to utilize covered short sales, certain equity swaps and certain equity
collar strategies as a tax-efficient management technique with respect to
holdings of appreciated securities is limited to circumstances in which the
hedging transaction is closed out within thirty days after the end of the
Portfolio's taxable year and the underlying appreciated securities position is
held unhedged for at least the next sixty days after such hedging transaction is
closed. The use of these investment techniques may require the Portfolio to
commit or make available cash and, therefore, may not be available at such times
as the Portfolio has limited holdings of cash.
Separate from its investment in the Portfolio through the Company, the Fund
invests through its subsidiary, Belair Real Estate Corporation ("BREC"), in a
portfolio of income-producing preferred equity interests in real estate
operating partnerships generally affiliated with real estate investment trusts
("REITs") that are publicly traded ("Partnership Preference Units"), and
interests in real estate joint ventures ("Real Estate Joint Ventures")
(collectively, "real estate investments"). BREC may make other types of real
estate investments, such as interests in real properties subject to long-term
leases. BREC may purchase real estate investments from, and sell them to, other
investment funds sponsored by the Eaton Vance organization and REIT subsidiaries
thereof.
Each issue of Partnership Preference Units held by BREC pays, or is
expected to pay, regular quarterly dividends at fixed rates. None of the issues
of Partnership Preference Units is or will be registered under the Securities
Act of 1933, as amended (the "Securities Act"), and each issue is thus subject
to restrictions on transfer. BREC invests in Partnership Preference Units of
issuers whose preferred equity or senior debt securities have been deemed by
BREC's investment adviser to be of investment-grade quality as of the time of
purchase. Each Real Estate Joint Venture in which BREC invests will be majority
owned by BREC. The principal minority investor in each Real Estate Joint Venture
(the "Operating Partner") will own a substantial interest therein and will
provide the day-to-day operating management of the Real Estate Joint Venture,
subject to the oversight of a board of directors controlled by BREC. Operating
Partners may include publicly-traded REITs or their affiliates, as well as
private real estate operating companies. It is expected that each Real Estate
Joint Venture entered by BREC will be structured as described below. The
property owned by each Real Estate Joint Venture is expected to be primarily
multi-family residential properties, but may include other types of properties.
At December 31, 2001, BREC owned a controlling interest in two Real Estate
Joint Ventures. The assets of the Real Estate Joint Ventures consist primarily
of multi-family residential properties acquired from or in conjunction with the
Operating Partner. Real Estate Joint Ventures distributable cash flows are
allocated such that BREC: 1) holds a priority position versus the Operating
Partner with respect to a fixed annual preferred return; and 2) participates on
a pro rata or reduced basis in distributable cash flows in excess of the annual
preferred return of BREC and a subordinated preferred return of the Operating
Partner. The Real Estate Joint Ventures include a buy/sell provision that can be
activated by either BREC or the Operating Partner after a fixed period of years.
Financing for the Real Estate Joint Ventures consist primarily of fixed-rate
secured mortgage debt obligations of the respective Real Estate Joint Venture
that generally are without recourse to BREC and the Fund. Equity capital also
was invested in the Real Estate Joint Ventures by BREC and the Operating
Partners. BREC's equity in the Real Estate Joint Ventures was acquired using the
proceeds of Fund borrowings. For a description of the Real Estate Joint
Ventures, see Item 2 below.
BREC is a Delaware corporation that operates in such a manner as to qualify
for taxation as a REIT under the Internal Revenue Code (the "Code"). As a REIT,
BREC generally is not subject to federal income tax on that portion of its
ordinary income or taxable gain that it distributes to its stockholders each
year. The Fund owns 100% of the common stock issued by BREC, and intends to hold
all of BREC's common stock at all times. Additionally, at December 31, 2001,
2,100 shares of Class A preferred stock were outstanding. The preferred stock is
owned by approximately 105 charitable organizations. As at December 31, 2001,
assets of the Fund invested in BREC totaled $462.9 million.
-2-
The Fund's investments in its real estate held through BREC are financed
using borrowings under a seven-year revolving credit facility (the "Credit
Facility"), which includes the ability for the Fund to utilize letters of
credit, established with Merrill Lynch International Bank Limited. The Fund's
obligations under the Credit Facility are secured by a pledge of its assets,
including BREC common stock and shares of the Company. Borrowings under the
Credit Facility are at an annual rate of LIBOR plus 0.45%, based on interest
periods of one month to five years as selected by the Fund, and fees on letters
of credit are charged at a rate of 0.45% per annum. Interest on outstanding
borrowings is payable at the end of each interest period, but not less
frequently than semi-annually. The Fund also pays a commitment fee of 0.10% on
the unused loan commitment amount. As of December 31, 2001, outstanding
borrowings under the Credit Facility totaled $558.769 million and $1.260 million
outstanding in letters of credit. The unused loan commitment amount was $229.971
million.
The Fund has entered into cancelable interest rate swap agreements (the
"swap agreements") with Merrill Lynch Capital Services, Inc. ("MLCS"), to lock
in a positive spread between the distributions expected from BREC's equity in
its real estate investments and the interest cost of the associated Fund
borrowings under the Credit Facility. The swap agreements are valued on an
ongoing basis by the Fund's investment adviser. Fluctuations in the value of the
real estate investments derived from other factors besides general interest rate
movements (including issuer-specific and sector-specific credit concerns,
property-specific concerns and changes in interest rate spread relationships)
are not offset by changes in the value of the swap agreements. The Fund has the
right to terminate the swap agreements beginning in 2003, generally at dates
corresponding approximately to the initial call dates of the Partnership
Preference Units held by BREC. MLCS is a secured party under the Credit
Facility. The obligations of MLCS under the arrangements are supported by the
guarantee of Merrill Lynch & Co., Inc.
In addition to its investment in the Portfolio through the Company and its
investment in BREC, the Fund may invest directly in traded physical commodities
(other than precious metals) and certain other types of assets that are not
securities.
The Fund issued Shares to Shareholders at closings taking place on February
6, April 20, and June 25, 1998. At the three closings, an aggregate of
17,179,862 Shares were issued in exchange for Shareholder contributions totaling
$1,848.8 million. All Shareholder contributions (other than contributions by the
Fund's Manager) were made in the form of securities. At each closing, all of the
securities contributed by Shareholders were exchanged by the Fund into the
Company for shares of the Company. Immediately thereafter, all of such
securities were exchanged by the Company into the Portfolio for an interest in
the Portfolio.
Shares of the Fund were privately offered and sold only to "accredited
investors" as defined in Rule 501(a) under the Securities Act who were
"qualified purchasers" (as defined in Section 2(a)(51)(A) of the 1940 Act). The
offering was conducted by Eaton Vance Distributors, Inc. ("EVD") as placement
agent and by certain subagents appointed by EVD in reliance upon the exemption
from registration provided by Rule 506 under the Securities Act.
The Fund discontinued its private offering on June 25, 1998.
The Fund has no officers or employees, inasmuch as its business affairs are
conducted by its Manager, Eaton Vance Management ("EVM"), a Massachusetts
business trust with offices at The Eaton Vance Building, 255 State Street,
Boston, Massachusetts 02109, and its investment operations are conducted by its
investment adviser, Boston Management and Research, a wholly-owned subsidiary of
EVM.
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ITEM 2. PROPERTIES.
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The Fund does not own any physical properties, other than indirectly as a
result of BREC's investments in Partnership Preference Units and two Real Estate
Joint Ventures. At December 31, 2001, in addition to investments in Partnership
Preference Units, BREC owned a majority interest in Bel Residential Properties
Trust, which owns eleven multi-family residential properties located in seven
states (Texas, Arizona, Georgia, North Carolina, Washington, Colorado and
Florida), and a majority interest in Katahdin Property Trust, LLC, which owns
six multi-family residential properties located in five states (Florida, North
Carolina, New Mexico, Texas and Washington).
ITEM 3. LEGAL PROCEEDINGS.
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Although in the ordinary course of business, the Fund, BREC or the real
estate investments in which BREC has equity interests may become involved in
legal proceedings, the Fund is not aware of any material pending legal
proceedings to which the Fund or BREC is a party or of which any of BREC's real
estate investments is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No items were submitted to a vote of security holders during the fiscal
year ended December 31, 2001.
PART II
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ITEM 5. MARKET FOR THE FUND'S SHARES AND RELATED SHAREHOLDER MATTERS.
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(a) Market Information, Restrictions on Transfer of Shares and Redemption
of Shares.
There is no established public trading market for the Shares of the Fund,
and the transfer of Shares is severely restricted by the Operating Agreement of
the Fund.
Other than transfer to the Fund in a redemption, transfers of Shares are
expressly prohibited without the consent of EVM, which consent may be withheld
in its sole discretion for any reason or for no reason. The Shares have not been
and will not be registered under the Securities Act, and may not be resold
unless an exemption from such registration is available. Shareholders have no
right to require registration of the Shares and the Fund does not intend to
register the Shares under the Securities Act or take any action to cause an
exemption (whether pursuant to Rule 144 of the Securities Act or otherwise) to
be available. The Fund is not and will not be registered under the 1940 Act, and
no transfer of Shares may be made that would, in the opinion of counsel to the
Fund, result in the Fund being required to be registered under the 1940 Act. In
addition, no transfer of Shares may be made unless, in the opinion of counsel
for the Fund, such transfer would not result in termination of the Fund for
purposes of Section 708 of the Code or result in the classification of the Fund
as an association or a publicly traded partnership taxable as a corporation
under the Code. In no event shall all or any part of a Shareholder's Shares be
assigned to a minor or an incompetent, unless in trust for the benefit of such
person. Shares may be sold, transferred, assigned or otherwise disposed of by a
Shareholder only if, in the opinion of counsel, such transfer, assignment or
disposition would not violate federal securities or state securities or "blue
sky" laws (including investor qualification standards).
Shares of the Fund may be redeemed on any business day. Redemptions of
Shares held for at least three years will be met at net asset value. Shares
redeemed within three years of issuance are generally subject to a redemption
fee equal to 1% of the net asset value of the Shares redeemed. See Item 13
below. The Fund meets redemption requests principally by distributing securities
drawn from the Portfolio, but may also distribute cash. If requested by a
redeeming Shareholder, the Fund will meet a redemption request by distributing
securities that were contributed by the redeeming Shareholder, provided that
such securities are held in the Portfolio at the time of redemption. The
securities contributed by a Shareholder will not be distributed to any other
-4-
Shareholder in the Fund (or to any other investor in the Company or the
Portfolio) during the first seven years following their contribution. A
shareholder redemption request within seven years of a contribution of
securities by such Shareholder will ordinarily be met by distributing securities
that were contributed by such Shareholder, prior to distributing to such
Shareholder any other securities held in the Portfolio. Securities contributed
by a Shareholder may be distributed to other Shareholders in the Fund (or to
other investors in the Company or the Portfolio) after a holding period of at
least seven years and, if so distributed, would not be available to meet
subsequent redemption requests made by the contributing Shareholder. If
requested by a redeeming Shareholder making a redemption of at least $1 million
occurring more than seven years after such Shareholder's admission to the Fund,
the Fund will generally distribute to the redeeming Shareholder a diversified
basket of securities representing a range of industry groups that is drawn from
the Portfolio, but the selection of individual securities would be made by BMR
in its sole discretion. No Partnership Preference Units or other real estate
investments held by BREC will be distributed to meet a redemption request, and
"restricted securities" will be distributed only to the Shareholder who
contributed such securities or such Shareholder's successor in interest. Other
than as set forth above, the allocation of each redemption between securities
and cash and the selection of securities to be distributed will be at the sole
discretion of BMR. Distributed securities may include securities contributed by
Shareholders as well as other readily marketable securities held in the
Portfolio. The value of securities and cash distributed to meet a redemption
will equal the net asset value of the number of Shares being redeemed less the
applicable redemption fee, if any. The Fund's Credit Facility prohibits the Fund
from honoring redemption requests while there is outstanding an event of default
under the Credit Facility.
The Fund may compulsorily redeem all or a portion of the Shares of a
Shareholder if the Fund has determined that such redemption is necessary or
appropriate to avoid registration of the Fund or the Company under the 1940 Act,
to avoid adverse tax or other consequences to the Portfolio, the Company, the
Fund or the Shareholders, or to discharge such Shareholder's obligation to
reimburse the Fund for state taxes paid by the Fund on behalf of the Shareholder
and accrued interest thereon. No redemption fee is payable in the event of a
compulsory redemption.
The high and low net asset values per Share of the Fund during each full
quarterly period within the Fund's fiscal years ended December 31, 2001 and 2000
are as follows:
Quarter Ended High Low
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12/31/01 $123.24 $103.65
9/30/01 126.11 94.94
6/30/01 133.78 111.25
3/31/01 136.62 112.50
12/31/00 141.76 128.05
9/30/00 146.69 134.49
6/30/00 141.35 124.40
3/31/00 143.52 125.05
There are no outstanding options or warrants to purchase, or securities
convertible into, Shares of the Fund. Shares of the Fund cannot be sold pursuant
to Rule 144 under the Securities Act, and the Fund does not propose to publicly
offer any of its Shares at any time.
(b) Record Holders of Shares of the Fund.
As of February 28, 2002, there were 597 record holders of Shares of the
Fund.
(c) Distributions.
Except as provided in the next paragraph, the Fund intends to make annual
income distributions approximately equal to the amount of its net investment
income, if any, and annual capital gains distributions equal to approximately
22% of the amount of its net realized capital gains, if any, other than
-5-
precontribution gain allocated to a Shareholder in connection with a tender
offer or other extraordinary corporate event involving a security contributed by
such Shareholder. In addition, whenever a distribution in respect of a
precontribution gain is made, the Fund intends to make a supplemental
distribution generally equal to approximately 6% of the allocated
precontribution gain or such other percentage as deemed appropriate to
compensate Shareholders receiving such distributions for taxes that may be due
in connection with the precontribution gain and supplemental distributions. The
Fund's distribution rates with respect to realized gains may be adjusted at a
future time to reflect changes in the effective maximum marginal individual
federal tax rate applicable to long-term capital gains. Shareholder
distributions with respect to net investment income and realized
post-contribution gains will be made pro rata in proportion to the number of
Shares held as of the record date of the distribution. Distributions that are
made in respect of realized precontribution gains and the associated
supplemental distributions will be made solely to the Shareholders to whom such
gain is allocated. The Fund's net investment income and net realized gains
include the Fund's allocated share of the net investment income and net realized
gains of the Company and, indirectly, the Portfolio plus all income earned on
the Fund's direct and indirect investments, less all actual and accrued expenses
of the Fund and BREC. The Fund's Credit Facility prohibits the Fund from making
any distribution to Shareholders while there is outstanding an event of default
under the Credit Facility.
On December 31, 2001, the Fund made a distribution of $1.22 per Share to
Shareholders of record on December 28, 2001. On December 29, 2000, the Fund made
a distribution of $1.61 per share to Shareholders of record on December 28,
2000.
(d) Recent Sales of Unregistered Securities.
The Fund held its initial closing on February 6, 1998, at which time
qualified purchasers contributed cash of $100,000* and equity securities with an
aggregate exchange value of $600,662,712 in exchange for an aggregate of
5,982,693.481 Shares of the Fund. Shares of the Fund were privately offered and
sold only to "accredited investors" as defined in Rule 501(a) under the
Securities Act who were "qualified purchasers" (as defined in Section
2(a)(51)(A) of the 1940 Act) in certain states through EVD, the placement agent,
and certain subagents appointed by EVD in reliance upon the exemption from
registration provided by Rule 506 under the Securities Act.
The Fund held a second closing on April 20, 1998, at which time qualified
purchasers contributed equity securities with an aggregate exchange value of
$631,286,477 in exchange for an aggregate of 5,609,299.634 Shares of the Fund.
The Fund held a third and final closing on June 25, 1998, at which time
qualified purchasers contributed equity securities with an aggregate exchange
value of $616,885,067 in exchange for an aggregate of 5,587,868.885 Shares of
the Fund. In connection with each of the foregoing closings, Shares of the Fund
were privately offered and sold only to accredited investors who were qualified
purchasers in the manner described above.
* Contributed by EVM in exchange for 1,000 Shares of the Fund. No selling
commission applied to such 1,000 Shares.
-6-
ITEM 6. FINANCIAL INFORMATION.
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The Fund commenced its investment operations on February 6, 1998, and the
consolidated data referred to below reflects the period commencing on that date
through December 31, 1998 (the end of the Fund's first fiscal year) and the
fiscal years ended December 31, 1999, 2000 and 2001.
Table of Selected Financial Data Fiscal Year Ended December 31
- -------------------------------- -----------------------------------------------------------------------------------------
2001 2000 1999 1998
---- ---- ---- ----
Total investment income $ 91,896,767 $ 86,023,141 $ 59,436,107 $ 34,740,028
Interest expense $ 59,681,065 $ 57,304,272 $ 36,722,400 $ 24,793,685
Total expenses
(including interest expense) $ 84,221,693 $ 75,194,663 $ 50,382,824 $ 32,933,527
Net investment income $ 5,443,857 $ 10,187,457 $ 9,053,283 $ 1,806,501
Minority interest in net income $ 2,231,217 $ 641,021 --- ---
Net realized gain (loss) $ 17,059,547 $ 29,455,703 $ (38,647,548) $ (55,088,152)
Net change in unrealized
appreciation (depreciation) $ (241,417,383) $ 16,818,313 $ 293,174,886 $ 213,360,195
Net increase (decrease) in net
assets from operations $ (218,913,979) $ 56,461,473 $ 263,580,621 $ 160,078,544
Total assets $2,543,067,122 $2,795,549,632 $2,759,005,507 $2,539,968,731
Loan payable $ 558,769,000 $ 643,000,000 $ 655,000,000 $ 583,000,000
Net assets $1,687,637,826 $2,010,997,840 $2,094,369,753 $1,932,848,372
Shares outstanding 14,376,567 15,106,086 15,900,744 16,568,833
Net Asset Value and
Redemption Price per Share $117.39 $133.13 $131.72 $116.66
Distribution paid per Share $1.22 $1.61 $1.27 $0.43
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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Results of Operations
- ---------------------
Increases and decreases in the Fund's net asset value per Share are derived
from net investment income or loss, and realized and unrealized gains and losses
on investments, including securities investments held through the Fund's
indirect interest (through the Company) in the Portfolio, real estate
investments held through BREC and any direct investments of the Fund. Expenses
of the Fund include its pro-rata share of the expenses of BREC, the Company, and
indirectly the Portfolio, as well as the actual and accrued expenses of the
Fund. The Fund's most significant expense is interest incurred on borrowings
under the Credit Facility. Fund borrowings are used primarily to finance the
purchase of real estate investments through BREC. The Fund's realized and
unrealized gains and losses on investments are based on its allocated share of
the realized and unrealized gains and losses of the Company, and indirectly the
Portfolio, as well as realized and unrealized gains and losses on real estate
investments held through BREC. The realized and unrealized gains and losses on
investments have the most significant impact on the Fund's net asset value per
Share and result from sales of such investments and changes in their underlying
value. The investments of the Portfolio consist primarily of common stocks of
-7-
domestic and foreign growth companies that are considered to be high in quality
and attractive in their long-term investment prospects. Because the securities
holdings of the Portfolio are broadly diversified, the performance of the
Portfolio cannot be attributed to one particular stock or one particular
industry or market sector. The performance of the Portfolio and the Fund are
substantially influenced by the overall performance of the United States stock
market, as well as by the relative performance versus the overall market of
specific stocks and classes of stocks in which the Portfolio maintains large
positions. Through the impact of interest rates on the valuation of the Fund's
real estate investments held through BREC and its positions in swap agreements,
the performance of the Fund is also affected by movements in interest rates and,
particularly, changes in credit spread relationships. On a combined basis, the
Fund's real estate investments and interest rate swaps generally decline in
value when credit spreads widen (as fixed income markets grow more risk-averse)
and generally increase in value when credit spreads tighten.
For the fiscal year ended December 31, 1999, the Fund achieved a total
return of 14.07%. This return reflects an increase in the Fund's net asset value
per Share from $116.66 to $131.72, and the payment of a distribution of $1.27
per share at the conclusion of the year. For comparison, the Standard & Poor's
500 Index (the "S&P 500"), an unmanaged index commonly used to measure the
performance of U.S. stocks, had a total return of 21.03% over the same period.
For the fiscal year ended December 31, 2000, the Fund achieved a total
return of 2.28%. This return reflects an increase in the Fund's net asset value
per Share from $131.72 to $133.13, and the distribution of $1.61 per share at
the conclusion of the year. For comparison, the S&P 500 had a total return of
- -9.10% over the same period.
For the fiscal year ended December 31, 2001, the Fund's total return was
- -10.92%. This return reflects a decrease in the Fund's net asset value per Share
from $133.13 to $117.39, and the distribution of $1.22 per share at the
conclusion of the year. For comparison, the S&P 500, had a total return of
- -11.88% over the same period.
The year 2001 witnessed a significant slowing of the U.S. and global
economies, characterized by deteriorating corporate profits, job layoffs and
sharply lower capital spending. Against this discouraging backdrop, the equity
markets moved dramatically lower through much of the year. The tragic events of
September 11th served to accelerate the downward trend. In their wake, consumer
spending declined sharply and the U.S. economy slid into recession in the third
quarter as the nation's Gross Domestic Product contracted 1.3%, the first such
quarterly decline since 1991. The initial estimates from the Commerce Department
for the fourth quarter indicated that GDP grew by a modest 0.2%. In an effort to
stimulate economic activity, the Federal Reserve has continued the accommodative
monetary policy it began in January 2001. By year-end, the Fed had lowered its
benchmark Federal Funds rate - a key short-term interest rate barometer - on 11
occasions by a total of 475 basis points (4.75%).
Even as the economy continued to struggle in the fourth quarter, the U.S.
equity markets started to gain some traction in October. The fourth quarter saw
a sharp rebound from the September lows, led by technology stocks and other
aggressive sectors of the market. But the late gains were not sufficient for the
broad market to avoid its second consecutive year of negative returns.
The combined impact on performance of the Fund's investments and activities
outside of the Portfolio was modestly negative. For the year, the performance of
the Fund trailed that of the Portfolio by 1.25% for the year. Investments in
Partnership Preference Units benefited from generally favorable issuer
performance and a narrowing of interest rate spreads across many fixed-income
markets, particularly in the first half of the year. The Fund's investments in
Real Estate Joint Ventures also generally performed well. Asset values were well
maintained and operating results, although weaker toward year-end, were in line
with expectations. The value of the Fund's interest rate swap agreements
declined as interest rates fell, more than fully offsetting the positive
contribution from the Fund's real estate investments.
-8-
Liquidity and Capital Resources
- -------------------------------
As of December 31, 2001, the Fund had outstanding borrowings of $558.769
million and unused loan commitments of $229.971 million under the Credit
Facility established with Merrill Lynch International Bank Limited, the term of
which extends until February 6, 2005. As of December 31, 2001, the Fund had
outstanding letters of credit of $1.26 million that expire during 2002 and
automatically extend for one-year periods, not to extend beyond February 7,
2005. As of December 31, 2000 and 1999, the Fund had outstanding borrowings of
$643.0 million (with unused loan commitments of $147.0 million) and $655.0
million under the Credit Facility (with no unused loan commitment amounts),
respectively. The Credit Facility is being used primarily to finance the Fund's
equity in its real estate investments. The Credit Facility will continue to be
used for such purposes in the future, as well as to provide for any short-term
liquidity needs of the Fund. In the future, the Fund may increase the size of
the Credit Facility (subject to lender consent) and the amount of outstanding
borrowings thereunder for these purposes.
The Fund may redeem shares of the Company at any time. Both the Company and
the Portfolio follow the practice of normally meeting redemptions by
distributing securities, consisting, in the case of the Company, of securities
drawn from the Portfolio. The Company and the Portfolio may also meet
redemptions by distributing cash. As of December 31, 2001, the Portfolio had
cash and short-term investments totaling $421.0 million, compared to $314.2
million and $642.7 million as of December 31, 2000 and December 31, 1999,
respectively. The Portfolio participates in a $150 million multi-fund unsecured
line of credit agreement with a group of banks. The Portfolio may temporarily
borrow from the line of credit to satisfy redemption requests in cash or to
settle investment transactions. The Portfolio had no outstanding borrowings at
December 31, 2001, December 31, 2000 or December 31, 1999. As of December 31,
2001, the net assets of the Portfolio totaled $18.3 billion, compared to $18.4
billion and $15.1 billion as of December 31, 2000 and December 31, 1999,
respectively. To ensure liquidity for investors in the Portfolio, the Portfolio
may not invest more than 15% of its net assets in illiquid assets. As of
December 31, 2001, restricted securities, which are considered illiquid,
constituted 2.0% of the net assets of the Portfolio, compared to 2.7% and 5.0%
as of December 31, 2000 and December 31, 1999, respectively.
The Partnership Preference Units held by BREC are not registered under the
Securities Act and are subject to substantial restrictions on transfer. As such,
they are considered illiquid. The liquidity of BREC's Real Estate Joint Venture
investments is extremely limited, and relies principally upon a buy/sell
arrangement with the Operating Partners that is invokable after a specified
period (up to ten years) after the formation of the Real Estate Joint Venture.
Transfers of BREC's interest in the Real Estate Joint Ventures to parties other
than the Operating Partner thereof are constrained by terms of the operating
management agreements, buy/sell arrangements with the Operating Partner, and
lender consent requirements.
Redemptions of Fund Shares are met primarily by distributing securities
drawn from the Portfolio, although cash may also be distributed. Shareholders
generally do not have the right to receive the proceeds of Fund redemptions in
cash.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
- ----------------------------------------------------------------------
a) Quantitative Disclosure about Market Risk.
Interest Rate Risk
- ------------------
The Fund's primary exposure to interest rate risk arises from investments in
real estate that are financed with floating rate bank borrowings. The interest
rate on borrowings under the Fund's Credit Facility is reset at regular
intervals based on a fixed and predetermined premium to LIBOR for short-term
extensions of credit. The Fund utilizes cancelable interest rate swap agreements
to fix the cost of its borrowings over the term of the Credit Facility and to
-9-
mitigate the impact of interest rate changes on the Fund's net asset value.
Under the terms of the interest rate swap agreements, the Fund makes cash
payments at fixed rates in exchange for floating rate payments that fluctuate
with three-month LIBOR. In the future, the Fund may use other interest rate
hedging arrangements (such as caps, floors and collars) to fix or limit
borrowing costs. The use of interest rate hedging arrangements is a specialized
activity that may be considered speculative and which can expose the Fund to
significant loss.
The following table summarizes the contractual maturities and weighted-average
interest rates associated with the Fund's significant non-trading financial
instruments. The Fund has no market risk sensitive instruments held for trading
purposes. This information should be read in conjunction with Notes 7 and 8 to
the condensed consolidated financial statements.
Interest Rate Sensitivity
Principal (Notional) Amount by Contractual Maturity
For the Twelve Months Ended December 31,
2002 2003 2004 2005 2006 Thereafter Total Fair Value
---------------------------------------------------------------------------------------
Rate sensitive
liabilities:
Long term debt-
variable rate $558,769,000 $558,769,000 $558,769,000
Credit Facility
Average
interest rate 2.33% 2.33%
Rate sensitive
derivative financial
instruments:
Pay fixed/
Receive variable
interest rate swap
contracts $674,373,000 $674,373,000 $(29,867,703)
Average
pay rate 6.86% 6.86%
Average
receive rate 2.33% 2.33%
b) Qualitative Information About Market Risk
The value of Fund Shares may not increase or may decline. The performance of the
Fund fluctuates. There can be no assurance that the performance of the Fund will
match that of the United States stock market or that of other equity funds. In
managing the Portfolio for long-term, after-tax returns, the Portfolio's
investment adviser generally seeks to avoid or minimize sales of securities with
large accumulated capital gains, including contributed securities. Such
securities constitute a substantial portion of the assets of the Portfolio.
Although the Portfolio may utilize certain management strategies in lieu of
selling appreciated securities, the Portfolio's, and hence the Fund's, exposure
to losses during stock market declines may nonetheless be higher than that of
funds that do not follow a general policy of avoiding sales of
highly-appreciated securities.
The Portfolio invests in securities issued by foreign companies and the Fund may
acquire foreign investments. Foreign investments involve considerations and
possible risks not typically associated with investing in the United States. The
value of foreign investments to U.S. investors may be adversely affected by
changes in currency rates. Foreign brokerage commissions, custody fees and other
costs of investing are generally higher than in the United States, and foreign
investments may be less liquid, more volatile and more subject to government
regulation than in the United States. Foreign investments could be adversely
affected by other factors not present in the United States, including
expropriation, confiscatory taxation, lack of uniform accounting and auditing
standards, armed conflict, and potential difficulty in enforcing contractual
obligations.
-10-
Risks of Certain Investment Techniques
- --------------------------------------
In managing the Portfolio, the investment adviser may purchase or sell
derivative instruments (which derive their value by reference to other
securities, indices, instruments, or currencies) to hedge against securities
price declines and currency movements and to enhance returns. Such transactions
may include, without limitation, the purchase and sale of stock index futures
contracts and options on stock index futures; the purchase of put options and
the sale of call options on securities held; equity swaps; and the purchase and
sale of forward currency exchange contracts and currency futures. The Portfolio
may make short sales of securities provided that an equal amount is held of the
security sold short (a covered short sale) and may also lend portfolio
securities. The use of these investment techniques is a specialized activity
that may be considered speculative and which can expose the Fund and the
Portfolio to significant risk of loss. Successful use of these investment
techniques is subject to the ability and performance of the investment adviser.
The Fund's and the Portfolio's ability to meet their investment objectives may
be adversely affected by the use of these techniques. The writer of an option or
a party to an equity swap may incur losses that substantially exceed the
payments, if any, received from a counterparty. Swaps, caps, floors, collars and
over-the-counter options are private contracts in which there is also a risk of
loss in the event of a default on an obligation to pay by the counterparty. Such
instruments may be difficult to value, may be illiquid and may be subject to
wide swings in valuation caused by changes in the price of the underlying
security, index, instrument or currency. In addition, if the Fund or the
Portfolio has insufficient cash to meet margin, collateral or settlement
requirements, it may have to sell assets to meet such requirements.
Alternatively, should the Fund or the Portfolio fail to meet these requirements,
the counterparty or broker may liquidate positions of the Fund or the Portfolio.
The Portfolio may also have to sell or deliver securities holdings in the event
that it is not able to purchase securities on the open market to cover its short
positions or to close out or satisfy an exercise notice with respect to options
positions it has sold. In any of these cases, such sales may be made at prices
or in circumstances that the investment adviser considers unfavorable.
The Portfolio's ability to utilize covered short sales, certain equity swaps and
certain equity collar strategies (combining the purchase of a put option and the
sale of a call option) as a tax-efficient management technique with respect to
holdings of appreciated securities is limited to circumstances in which the
hedging transaction is closed out within thirty days of the end of the
Portfolio's taxable year and the underlying appreciated securities position is
held unhedged for at least the next sixty days after such hedging transaction is
closed. There can be no assurance that counterparties will at all times be
willing to enter into covered short sales, interest rate hedges, equity swaps
and other derivative instrument transactions on terms satisfactory to the Fund
or the Portfolio. The Fund's and the Portfolio's ability to enter into such
transactions may also be limited by covenants under the Fund's revolving
securitization facility, the federal margin regulations and other laws and
regulations. The Portfolio's use of certain investment techniques may be
constrained because the Portfolio is a diversified, open-end management
investment company registered under the Investment Company Act of 1940 and
because other investors in the Portfolio are regulated investment companies
under Subchapter M of the Internal Revenue Code. Moreover, the Fund and the
Portfolio are subject to restrictions under the federal securities laws on their
ability to enter into transactions in respect of securities that are subject to
restrictions on transfer pursuant to the Securities Act.
Risks of Investing in Real Estate Investments and Leverage
- ----------------------------------------------------------
The success of BREC's real estate investments depends in part on many factors
related to the real estate market. These factors include, without limitation,
general economic conditions, the supply and demand for different types of real
properties, the financial health of tenants, the timing of lease expirations and
terminations, fluctuations in rental rates and operating costs, exposure to
adverse environmental conditions and losses from casualty or condemnation,
interest rates, availability of financing, managerial performance, government
rules and regulations, and acts of God (whether or not insured against).
Partnership Preference Units also depend upon factors relating to the issuing
partnerships that may affect such partnerships' profitability and their ability
to make distributions to holders of Partnership Preference Units. BREC's
-11-
investments in interests in Real Estate Joint Ventures may be influenced by
decisions which the Operating Partner may make on behalf of the property owned
thereby and potential changes in the specific real estate sub-markets in which
the properties are located. The debt of each Real Estate Joint Venture is
fixed-rate, secured by the underlying properties and with limited recourse to
BREC. However, changes in interest rates, the availability of financing and
other financial conditions can have a material impact on property values and
therefore on the value of BREC's equity interest. There can be no assurance that
BREC's ownership of real estate investments will be an economic success.
Moreover, the success of any Real Estate Joint Venture investment depends in
large part upon the performance of the Operating Partner. Operating Partners
will be subject to substantial conflicts of interest in structuring, operating
and winding up the Real Estate Joint Ventures. Operating Partners will have an
economic incentive to maximize the prices at which they sell properties to Real
Estate Joint Ventures and to minimize the prices at which they acquire
properties from Real Estate Joint Ventures. Operating Partners may devote
greater attention or more resources to managing their wholly-owned properties
than properties held by Real Estate Joint Ventures. Future investment
opportunities identified by Operating Partners will more likely be pursued
independently, rather than through, the Real Estate Joint Ventures. Financial
difficulties encountered by Operating Partners in their other businesses may
interfere with the operations of Real Estate Joint Ventures.
Although intended to add to returns, the borrowing of funds to purchase real
estate investments exposes the Fund to the risk that the returns achieved on the
real estate investments will be lower than the cost of borrowing to purchase
such assets and that the leveraging of the Fund to buy such assets will
therefore diminish the returns to be achieved by the Fund as a whole. In
addition, there is a risk that the availability of financing will be interrupted
at some future time, requiring the Fund to sell assets to repay outstanding
borrowings or a portion thereof. It may be necessary to make such sales at
unfavorable prices. The Fund's obligations under the Credit Facility are secured
by a pledge of its assets. In the event of default, the lender could elect to
sell assets of the Fund without regard to consequences of such action for
Shareholders. The rights of the lender to receive payments of interest on and
repayments of principal of borrowings is senior to the rights of the
Shareholders. Under the terms of the Credit Facility, the Fund is not permitted
to make distributions of cash or securities while there is outstanding an event
of default under the Credit Facility. During such periods, the Fund would not be
able to honor redemption requests or make cash distributions.
The valuations of Partnership Preference Units held by the Fund through its
investment in BREC fluctuate over time to reflect, among other factors, changes
in interest rates, changes in the perceived riskiness of such units (including
call risk), changes in the perceived riskiness of comparable or similar
securities trading in the public market and the relationship between supply and
demand for comparable or similar securities trading in the public market.
Increases in interest rates and increases in the perceived riskiness of such
units or comparable or similar securities will adversely affect the valuation of
the Partnership Preference Units. The ongoing value of BREC's investments in
Real Estate Joint Ventures will be substantially uncertain. BREC's investments
in Real Estate Joint Ventures generally will be stated at estimated market value
based on independent valuations, assuming an orderly disposition of assets.
Detailed investment evaluations will be performed annually and reviewed
periodically. Interim valuations will reflect results of operations and
distributions, and may be adjusted to reflect significant changes in economic
circumstances since the most recent independent evaluation. Given that such
valuations include many assumptions, including but not limited to, an orderly
disposition of assets, values may differ from amounts ultimately realized.
Fluctuations in the value of real estate investments derived from changes in
general interest rates can be expected to be offset in part (but not entirely)
by changes in the value of interest rate swap agreements or other interest rate
hedges entered into by the Fund with respect to its borrowings under the Credit
Facility. Fluctuations in the value of real estate investments derived from
other factors besides general interest rate movements (including issuer-specific
and sector-specific credit concerns, property-specific concerns and changes in
interest rate spread relationships) will not be offset by changes in the value
of interest rate swap agreements or other interest rate hedges entered into by
the Fund. Changes in the valuation of real estate investments not offset by
changes in the valuation of interest rate swap agreements or other interest rate
hedges entered into by the Fund will cause the performance of the Fund to
-12-
deviate from the performance of the Portfolio. Over time, the performance of the
Fund can be expected to be more volatile than the performance of the Portfolio.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- -----------------------------------------------------
The Fund's financial statements and auditor's report thereon for the fiscal
year ended December 31, 2000, appearing on page 20 through 49 of the Fund's Form
10-K filed with the Securities and Exchange Commission on March 30, 2001, are
incorporated herein by reference. The Fund's financial statements for the fiscal
year ended December 31, 2001, together with the auditors' report thereon,
appearing on pages 18 through 48 hereof, are incorporated here by reference.
The following is a summary of unaudited quarterly results of operations of the
Fund for 2001 and 2000.
2001
-----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------
Investment income $19,805,073 $14,355,407 $25,329,596 $32,406,691
Minority interest in net
income of controlled
subsidiary ($15,751) ($174,292) ($562,905) ($1,478,269)
Net investment income $1,675,767 ($6,242,914) $1,990,652 $8,020,352
Per share data:
Investment income $1.32 $0.98 $1.73 $2.25
Net investment income $0.11 ($0.42) $0.14 $0.56
2000
-----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------
Investment income $16,288,296 $18,320,471 $16,223,997 $35,190,377
Minority interest in
net income of
controlled subsidiary $0 $0 $42,579 ($683,600)
Net investment income $2,825,857 $3,341,372 ($7,139,366) $11,159,594
Per share data:
Investment income $1.06 $1.20 $1.07 $2.33
Net investment income $0.18 $0.22 ($0.47) $0.74
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
- --------------------------------------------------------------------------------
There have been no changes in, or disagreements with, accountants on
accounting and financial disclosures.
-13-
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
- -------------------------------------------
The Fund has no individual directors or executive officers. The Fund is
managed by EVM. Each of the Fund, BREC and the Portfolio engage Boston
Management and Research ("BMR"), a wholly-owned subsidiary of EVM, as investment
adviser. EVM, its affiliates and predecessor companies have been investment
advisers to individuals and institutions since 1924 and have been advising
investment companies since 1931. BMR and EVM currently have assets under
investment management of more than $55 billion. EVM is a wholly-owned subsidiary
of Eaton Vance Business Trust, which is wholly-owned by Eaton Vance Corp.
("EVC"), a publicly-held holding company which, through its subsidiaries and
affiliates, engages primarily in investment management, administration and
marketing activities. The non-voting common stock of EVC is listed and traded on
the New York Stock Exchange. All shares of the voting common stock of EVC are
held in a voting trust, the voting trustees of which are senior officers of the
Eaton Vance organization. Eaton Vance, Inc. ("EV"), a wholly-owned subsidiary of
EVC, is the sole trustee of Eaton Vance Business Trust, EVM and BMR, each of
which is a Massachusetts business trust. The names of the executive officers and
the directors of EV and their ages and principal occupations are set forth
below:
DIRECTORS AND EXECUTIVE OFFICERS OF EATON VANCE, INC.
James B. Hawkes, (60), is Chairman, President and Chief Executive Officer
of EVM, BMR, EVC and EV and a Director of EVC and EV. He is also a Trustee and
an officer of various investment companies managed by EVM or BMR and has been
employed by the Eaton Vance organization for 30 years.
Thomas E. Faust Jr., (43), is Executive Vice President of Eaton Vance, BMR,
EVC and EV, and Chief Equity Investment Officer of Eaton Vance and BMR. He is
also an officer of various investment companies managed by Eaton Vance or BMR
and has been employed by the Eaton Vance organization for 15 years.
Alan R. Dynner, (61), is Vice President and Chief Legal Officer of EVM, BMR
and EVC, and Secretary and Clerk of EV. He is also an officer of various
investment companies managed by EVM or BMR. He joined Eaton Vance on November 1,
1996.
William M. Steul, (59), is Vice President and Chief Financial Officer of
EVM, BMR, EVC and EV. He joined Eaton Vance in December 1994.
ITEM 11. EXECUTIVE COMPENSATION.
- ---------------------------------
Under the terms of the Fund's investment advisory and administrative
agreement with BMR, BMR receives a monthly advisory and administrative fee at
the rate of 1/20th of 1% (equivalent to 0.60% annually) of the average daily
gross assets of the Fund, reduced by that portion of the monthly advisory fee
for such month payable by the Portfolio which is attributable to value of the
Fund's investment in the Company. The term gross assets of the Fund is defined
in the agreement to include the value of all assets of the Fund other than the
Fund's investments in BREC, minus the sum of the Fund's liabilities other than
the principal amount of money borrowed. For the fiscal years ended December 31,
2001 and 2000, the advisory and administrative fees paid by the Fund to BMR,
less the Fund's allocated share of the Portfolio's advisory fee, totaled
$3,045,469 and $3,741,435, respectively.
Under the terms of BREC's management agreement with BMR, BMR receives a
monthly management fee at the rate of 1/20th of 1% (equivalent to 0.60%
annually) of the average daily gross assets of BREC. The term gross assets of
BREC is defined in the agreement to include the value of all assets of BREC,
minus the sum of BREC's liabilities other than the principal amount of money
borrowed. For this purpose, the assets and liabilities of BREC's controlled
subsidiaries are reduced by the proportionate interests therein of investors
-14-
other than BREC. For the fiscal years ended December 31, 2001 and 2000, BREC
paid BMR management fees of $3,991,422 and $3,646,298, respectively.
Under the terms of the Portfolio's investment advisory agreement with BMR,
BMR receives a monthly advisory fee at a base rate of 5/96 of 1% (equivalent to
0.625% annually) of the average daily net assets of the Portfolio up to $500
million. On net assets of $500 million or more the monthly fee is reduced and is
computed as follows: 9/192 of 1% (equivalent to 0.5625% annually) of the average
daily net assets of the Portfolio of $500 million but less than $1 billion; 1/24
of 1% (equivalent to 0.50% annually) of the average daily net assets of the
Portfolio of $1 billion but less than $1.5 billion; 7/192 of 1% (equivalent to
0.4375% annually) of the average daily net assets of the Portfolio of $1.5
billion but less than $7 billion; 17/480 of 1% (equivalent to 0.425% annually)
of the average daily net assets of the Portfolio of $7 billion but less than $10
billion; 11/320 of 1% (equivalent to 0.4125% annually) of the average daily net
assets of the Portfolio of $10 billion but less than $15 billion; and 1/30 of 1%
(equivalent to 0.40% annually) of the average daily net assets of the Portfolio
of $15 billion and above. As indicated above, the Fund's allocated share of the
monthly advisory fee paid by the Portfolio to BMR is credited toward the Fund's
advisory and administrative fee payments. As of December 31, 2001, the net
assets of the Portfolio totaled $18.3 billion. For the fiscal years ended
December 31, 2001 and 2000, the advisory fee applicable to the Portfolio was
0.43% and 0.43%, respectively, of average daily net assets for such periods, and
the Fund's allocated portion of the fee amounted to $8,355,528 and $9,624,513,
respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners.
To the knowledge of the Fund, no person beneficially owns more than
five percent of the Shares of the Fund.
(b) Security Ownership of Management.
EVM, the Manager of the Fund, beneficially owned 1,140.355 Shares of
the Fund as of February 28, 2002. None of the other entities or individuals
named in response to Item 10 above beneficially owned Shares of the Fund as of
such date.
(c) Changes in Control.
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ---------------------------------------------------------
See the information set forth under Item 11 above.
Pursuant to a servicing agreement between the Company and EVD, the Company
pays a servicing fee to EVD for providing certain services and information to
direct and indirect investors in the Company. The servicing fee is paid on a
quarterly basis, at an annual rate of 0.15% of the Company's average daily net
assets. With respect to investors in the Company and Shareholders of the Fund
who subscribed through a subagent, EVD has assigned servicing responsibilities
and fees to the applicable subagent, beginning twelve months after the issuance
of shares of the Company or Shares of the Fund to such persons. The Fund assumes
its allocated share of the Company's servicing fee. The servicing fee payable in
respect of the Fund's investment in the Company is credited toward the Fund
servicing fee described below. During the Fund's fiscal year ended December 31,
2001, the Company paid servicing fees aggregating $2,890,297 which were
attributable to the Fund's investments in the Company.
-15-
Pursuant to a servicing agreement between the Fund and EVD, the Fund pays a
servicing fee to EVD for providing certain services and information to the
Shareholders of the Fund. The servicing fee is paid on a quarterly basis, at an
annual rate of 0.20% of the Fund's average daily net assets. With respect to
Shareholders who subscribed through a subagent, EVD has assigned servicing
responsibilities and fees to the applicable subagent, beginning twelve months
after the issuance of Shares of the Fund to such persons. The Fund's allocated
share of the servicing fee paid by the Company is credited toward the Fund's
servicing fee payment, thereby reducing the amount of the servicing fee paid by
the Fund. During the Fund's fiscal year ended December 31, 2001, the Fund paid
EVD servicing fees aggregating $681,075. EVD paid all of such servicing fees to
sub-agents based on the value of Shares sold by them.
Shares of the Fund redeemed within three years of issuance are generally
subject to a redemption fee equal to 1% of the net asset value of the Shares
redeemed. The redemption fee is payable to BMR in cash by the Fund on behalf of
the redeeming Shareholder. No redemption fee is imposed on Shares of the Fund
held for at least three years, Shares acquired through the reinvestment of Fund
distributions, Shares redeemed in connection with a tender offer or other
extraordinary corporate event involving securities contributed by the redeeming
Shareholder, or Shares redeemed following the death of all of the initial owners
of the Shares redeemed. No redemption fee applies to redemptions by a
Shareholder who, during any 12 month period, redeems less than 8% of the total
number of Shares held by the Shareholder as of the beginning of such period.
During the Fund's fiscal year ended December 31, 2001, BMR received redemption
fees of $82,633 from the Fund on behalf of redeeming Shareholders.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
- -----------------------------------------------------------------
(a) Financial Statements.
(1) (i) The following is a list of all financial statements
incorporated by reference from the Fund's Form 10-K dated March
30, 2001 into this report:
Consolidated Portfolio of Investments as of December 31, 2000
Consolidated Statement of Assets and Liabilities as of December
31, 2000
Consolidated Statement of Operations for the fiscal year ended
December 31, 2000
Consolidated Statements of Changes in Net Assets for the fiscal
years ended December 31, 2000 and December 31, 1999
Consolidated Statement of Cash Flows for the fiscal year ended
December 31, 2000
Notes to Consolidated Financial Statements
Independent Auditors' Report dated March 16, 2001
Portfolio of Investments of Tax-Managed Growth Portfolio as of
December 31, 2000
Statement of Assets and Liabilities of Tax-Managed Growth
Portfolio as of December 31, 2000
Statement of Operations of Tax-Managed Growth Portfolio for the
fiscal year ended December 31, 2000
Statements of Changes in Net Assets of Tax-Managed Growth
Portfolio for the fiscal years ended December 31, 2000 and
December 31, 1999
-16-
Supplementary Data of Tax-Managed Growth Portfolio for the fiscal
periods ended December 31, 2000, December 31, 1999, December 31,
1998, October 31, 1998, October 31, 1997 and October 31, 1996
Notes to Financial Statements
Independent Auditors' Report dated February 16, 2001
(ii) The following is a list of all financial statements filed as
a part of this report:
Consolidated Portfolio of Investments as of December 31, 2001
Consolidated Statement of Assets and Liabilities as of December
31, 2001
Consolidated Statement of Operations for the fiscal year ended
December 31, 2001
Consolidated Statements of Changes in Net Assets for the fiscal
years ended December 31, 2001 and December 31, 2000
Consolidated Statement of Cash Flows for the fiscal year ended
December 31, 2001
Financial Highlights for the fiscal year ended December 31, 2001
Notes to Consolidated Financial Statements
Independent Auditors' Report dated March 1, 2002
Portfolio of Investments of Tax-Managed Growth Portfolio as of
December 31, 2001
Statement of Assets and Liabilities of Tax-Managed Growth
Portfolio as of December 31, 2001
Statement of Operations of Tax-Managed Growth Portfolio for the
fiscal year ended December 31, 2001
Statements of Changes in Net Assets of Tax-Managed Growth
Portfolio for the fiscal years ended December 31, 2001 and
December 31, 2000
Supplementary Data of Tax-Managed Growth Portfolio for the fiscal
periods ended December 31, 2001, December 31, 2000, December 31,
1999, December 31, 1998, October 31, 1998 and October 31, 1997
Notes to Financial Statements
Independent Auditors' Report dated February 15, 2002
(b) Reports on Form 8-K:
None.
(c) A list of the exhibits filed as a part of this registration
statement is included in the Exhibit Index appearing on pages 50
and 51 hereof.
-17-
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 2001
================================================================================
CONSOLIDATED PORTFOLIO OF INVESTMENTS
================================================================================
INVESTMENT IN BELVEDERE CAPITAL FUND
COMPANY LLC -- 72.0%
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Investment in Belvedere Capital Fund
Company LLC (Belvedere Capital) 11,449,054 $1,820,021,041
- --------------------------------------------------------------------------------
Total Investment in Belvedere Capital
(identified cost, $1,476,111,400) $1,820,021,041
- --------------------------------------------------------------------------------
PARTNERSHIP PREFERENCE UNITS -- 14.9%
SECURITY UNITS VALUE
- --------------------------------------------------------------------------------
Bradley Operating Limited Partnership
(Delaware Limited Partnership affiliate
of Bradley Real Estate, Inc.), 8.875%
Series B Cumulative Redeemable Perpetual
Preferred Units, Callable from 2/23/04+ 205,044 $ 3,983,800
Camden Operating, L.P. (Delaware Limited
Partnership affiliate of Camden Property
Trust), 8.50% Series B Cumulative
Redeemable Perpetual Preferred Units,
Callable from 2/23/04+ 598,046 14,089,366
Colonial Realty Limited Partnership
(Delaware Limited Partnership affiliate
of Colonial Properties Trust), 8.875%
Series B Cumulative Redeemable Perpetual
Preferred Units, Callable from 2/23/04+ 970,000 44,512,330
Essex Portfolio, L.P. (California
Limited Partnership affiliate of Essex
Property Trust, Inc.), 7.875% Series B
Cumulative Redeemable Preferred Units,
Callable from 2/6/03+ 50,000 2,009,260
Kilroy Realty, L.P. (Delaware Limited
Partnership affiliate of Kilroy Realty
Corporation), 8.075% Series B Cumulative
Redeemable Preferred Units, Callable
from 2/6/03+ 776,000 31,048,303
Liberty Property L.P. (Pennsylvania
Limited Partnership affiliate of Liberty
Property Trust), 9.25% Series B
Cumulative Redeemable Preferred Units,
Callable from 7/28/04+ 1,235,000 31,487,560
MHC Operating Limited Partnership
(Illinois Limited Partnership affiliate
of Manufactured Home
Communities, Inc.), 9% Series D
Cumulative Redeemable Perpetual
Preference Units, Callable
from 9/29/04+ 2,000,000 48,544,000
National Golf Operating Partnership,
L.P. (Delaware Limited Partnership
affiliate of National Golf
Properties, Inc.), 8% Series A
Cumulative Redeemable Preferred Units,
Callable from 3/4/03+ 740,000 21,512,540
SECURITY UNITS VALUE
- --------------------------------------------------------------------------------
National Golf Operating Partnership,
L.P. (Delaware Limited Partnership
affiliate of National Golf
Properties, Inc.), 9.30% Series B
Cumulative Redeemable Preferred Units,
Callable from 7/28/04+ 200,000 $ 3,379,520
Prentiss Properties Acquisition
Partners, L.P. (Delaware Limited
Partnership affiliate of Prentiss
Properties Trust), 8.30% Series B
Cumulative Redeemable Perpetual
Preferred Units, Callable from 6/25/03+ 36,464 1,480,693
Prentiss Properties Acquisition
Partners, L.P. (Delaware Limited
Partnership affiliate of Prentiss
Properties Trust), 9.45% Series C
Cumulative Redeemable Perpetual
Preferred Units, Callable from 9/17/04+ 600,000 15,000,000
PSA Institutional Partners, L.P.
(California Limited Partnership
affiliate of Public Storage, Inc.),
9.50% Series N Cumulative Redeemable
Perpetual Preferred Units, Callable
from 3/17/05+ 1,930,000 51,969,110
Price Development Company, L.P.
(Maryland Limited Partnership affiliate
of J.P. Realty, Inc.), 8.95% Series B
Cumulative Redeemable Preferred
Partnership Interests, Callable
from 7/28/04+ 1,225,000 26,559,225
Regency Centers, L.P. (Delaware Limited
Partnership affiliate of Regency Realty
Corporation), 8.125% Series A Cumulative
Redeemable Preferred Units, Callable
from 6/25/03+ 600,000 26,874,600
Summit Properties Partnership, L.P.
(Delaware Limited Partnership affiliate
of Summit Properties, Inc.), 8.95%
Series B Cumulative Redeemable
Perpetual Preferred Units, Callable
from 4/29/04+ 1,185,000 28,296,615
Urban Shopping Centers, L.P. (Illinois
Limited Partnership affiliate of Urban
Shopping Centers, Inc.), 9.45% Series D
Cumulative Redeemable Perpetual
Preferred Units, Callable from 10/1/04+ 1,000,000 25,729,000
- --------------------------------------------------------------------------------
Total Partnership Preference Units
(identified cost, $407,154,475) $ 376,475,922
- --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 2001
================================================================================
CONSOLIDATED PORTFOLIO OF INVESTMENTS CONT'D
================================================================================
OTHER REAL ESTATE INVESTMENTS -- 13.0%
DESCRIPTION VALUE
- --------------------------------------------------------------------------------
Rental Property(1)(2) $ 327,945,162
- --------------------------------------------------------------------------------
Total Other Real Estate Investments
(identified cost, $329,372,536) $ 327,945,162
- --------------------------------------------------------------------------------
COMMERCIAL PAPER -- 0.1%
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
General Electric Capital Corp.,
1.78%, 1/2/02 $ 4,560 $ 4,559,775
- --------------------------------------------------------------------------------
Total Commercial Paper
(at amortized cost, $4,559,775) $ 4,559,775
- --------------------------------------------------------------------------------
Total Investments -- 100.0%
(identified cost, $2,217,198,186) $2,529,001,900
- --------------------------------------------------------------------------------
+ Security exempt from registration under the Securities Act of 1933. At
December 31, 2001, the value of these securities totaled $376,475,922 or
22.3% of net assets.
(1) Investment valued at fair value using methods determined in good faith by
or at the direction of the Manager of Belair Real Estate Corporation.
(2) Rental property represents seventeen multi-family residential properties
located in eight states. None of the individual properties represent more
than 5% percent of net assets.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 2001
================================================================================
CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 2001
Assets
- --------------------------------------------------------------------------------
Investments at value (identified cost, $2,217,198,186) $2,529,001,900
Cash 6,540,394
Escrow deposits -- restricted 4,637,336
Dividends receivable 2,547,069
Deferred expenses 118,859
Other assets 221,564
- --------------------------------------------------------------------------------
TOTAL ASSETS $2,543,067,122
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Loan payable $ 558,769,000
Mortgage payable, net of unamortized debt issuance
costs $2,069,458 226,411,059
Open interest rate swap contracts, at value 29,867,703
Swap interest payable 4,394,148
Security deposits 878,199
Other accrued expenses:
Interest expense 3,717,765
Property taxes 2,053,094
Other expenses and liabilities 1,988,505
Minority interest in controlled subsidiaries 27,349,823
- --------------------------------------------------------------------------------
TOTAL LIABILITIES $ 855,429,296
- --------------------------------------------------------------------------------
NET ASSETS FOR 14,376,567 FUND SHARES OUTSTANDING $1,687,637,826
- --------------------------------------------------------------------------------
Shareholders' Capital
- --------------------------------------------------------------------------------
SHAREHOLDERS' CAPITAL $1,687,637,826
- --------------------------------------------------------------------------------
Net Asset Value and Redemption
Price Per Share
- --------------------------------------------------------------------------------
($1,687,637,826 DIVIDED BY 14,376,567 FUND SHARES OUTSTANDING) $ 117.39
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 2001
Investment Income
- --------------------------------------------------------------------------------
Dividends allocated from Belvedere Capital
(net of foreign taxes, $117,387) $ 19,153,352
Interest allocated from Belvedere Capital 1,736,127
Expenses allocated from Belvedere Capital (11,547,206)
- --------------------------------------------------------------------------------
Net investment income allocated from Belvedere Capital $ 9,342,273
Dividends from Partnership Preference Units 44,069,529
Rental income 37,927,291
Interest 557,674
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME $ 91,896,767
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment advisory and administrative fee $ 7,036,891
Property management fees 1,518,482
Servicing fees 681,075
Interest expense on Credit Facility 31,586,938
Interest expense on mortgages 14,326,911
Interest expense on swap contracts 13,767,216
Property and maintenance expenses 9,359,578
Property taxes and insurance 4,159,716
Amortization of deferred expenses 109,759
Miscellaneous 1,675,127
- --------------------------------------------------------------------------------
TOTAL EXPENSES $ 84,221,693
- --------------------------------------------------------------------------------
Net investment income before minority interest
in net income of controlled subsidiaries $ 7,675,074
Minority interest in net income of controlled subsidiaries (2,231,217)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 5,443,857
- --------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions from Belvedere Capital
(identified cost basis) $ 19,154,065
Investment transactions in Partnership Preference Units
(identified cost basis) (2,094,518)
- --------------------------------------------------------------------------------
NET REALIZED GAIN $ 17,059,547
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investment in Belvedere Capital (identified cost basis) $ (247,802,793)
Investments in Partnership Preference Units
(identified cost basis) 32,845,834
Investment in other real estate investments
(net of minority interest in unrealized
gain (loss) of controlled subsidiaries) (1,427,374)
Interest rate swap contracts (25,033,050)
- --------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) $ (241,417,383)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS $ (224,357,836)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (218,913,979)
- --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20
BELAIR CAPITAL FUND LLC AS DECEMBER 31, 2001
================================================================================
CONSOLIDATED FINANCIAL STATEMENTS CONT'D
================================================================================
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
INCREASE (DECREASE) YEAR ENDED YEAR ENDED
IN NET ASSETS DECEMBER 31, 2001 DECEMBER 31, 2000
- --------------------------------------------------------------------------------
Net investment income $ 5,443,857 $ 9,877,111
Net realized gain from investment
transactions 17,059,547 29,455,703
Net change in unrealized appreciation
(depreciation) of investments (241,417,383) 16,818,313
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ (218,913,979) $ 56,151,127
- --------------------------------------------------------------------------------
Transactions in Fund Shares --
Net asset value of Fund Shares issued to
Fund Shareholders in payment of
distributions declared $ 7,760,160 $ 12,185,024
Net asset value of Fund Shares redeemed (94,749,468) (120,420,279)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS $ (86,989,308) $ (108,235,255)
- --------------------------------------------------------------------------------
Distributions --
Distributions to all Belair Capital
Fund LLC Shareholders $ (17,456,727) $ (24,175,059)
Special Distributions to Belair
Capital Fund LLC Shareholders -- (7,112,726)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (17,456,727) $ (31,287,785)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS $ (323,360,014) $ (83,371,913)
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $2,010,997,840 $2,094,369,753
- --------------------------------------------------------------------------------
AT END OF YEAR $1,687,637,826 $2,010,997,840
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
INCREASE (DECREASE) IN CASH DECEMBER 31, 2001
- --------------------------------------------------------------------------------
Cash Flows From (For) Operating Activities --
Net investment income $ 5,443,857
Adjustments to reconcile net investment income to net
cash flows from operating activities --
Amortization of debt issuance costs 183,447
Amortization of deferred expenses 109,759
Net investment income allocated from Belvedere Capital (9,342,273)
Decrease in dividends receivable 5,474,617
Decrease in escrow deposits 930,636
Decrease in other assets 64,905
Increase in interest payable for open swap contracts 4,920,801
Increase in accrued property taxes 760,905
Decrease in accrued interest and other accrued
expenses and liabilities (6,739,375)
Cash assumed in connection with acquisition of other
real estate investments 538,111
Improvements to rental property (2,424,707)
Purchase of Partnership Preference Units (9,386,616)
Payments for investments in other real estate (41,261,497)
Sale of Partnership Preference Units 102,705,269
Net decrease in investment in Belvedere Capital 6,702,854
Decrease in minority interest (52,500)
Decrease in short-term investments 2,106,096
Minority interest in net income of controlled subsidiaries 2,231,217
- --------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 62,965,506
- --------------------------------------------------------------------------------
Cash Flows For Financing Activities --
Repayment of Credit Facility $ (84,231,000)
Payments for Fund Shares redeemed (7,984,678)
Distributions paid to Belair Capital Fund LLC Shareholders (9,696,567)
Distributions paid to minority shareholders (1,387,931)
- --------------------------------------------------------------------------------
NET CASH FLOWS USED FOR FINANCING ACTIVITIES $ (103,300,176)
- --------------------------------------------------------------------------------
NET DECREASE IN CASH $ (40,334,670)
- --------------------------------------------------------------------------------
CASH AT BEGINNING OF YEAR $ 46,875,064
- --------------------------------------------------------------------------------
CASH AT END OF YEAR $ 6,540,394
- --------------------------------------------------------------------------------
Supplemental Disclosure and Non-cash Investing
and Financing Activities
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of
investments and open swap contracts $ (241,417,383)
Interest paid for loan $ 35,952,396
Interest paid for mortgages $ 13,490,360
Interest paid for swap contracts $ 8,846,415
Market value of securities distributed in
payment of redemptions $ 86,764,790
Market value of real property and other assets, net of
current liabilities, assumed in conjunction with
acquisition of real estate investments $ 170,124,083
Mortgages assumed in conjunction with acquisition of
real estate investments $ 115,850,000
- --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 2001
================================================================================
CONSOLIDATED FINANCIAL STATEMENTS CONT'D
================================================================================
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
Net asset value -- Beginning of year $ 133.130
- --------------------------------------------------------------------------------
Income (loss) from operations
- --------------------------------------------------------------------------------
Net investment income(5) $ 0.369
Net realized and unrealized loss (14.889)
- --------------------------------------------------------------------------------
TOTAL LOSS FROM OPERATIONS $ (14.520)
- --------------------------------------------------------------------------------
Distributions
- --------------------------------------------------------------------------------
Distributions to all Belair Capital Fund LLC Shareholders $ (1.220)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (1.220)
- --------------------------------------------------------------------------------
NET ASSET VALUE -- END OF YEAR $ 117.390
- --------------------------------------------------------------------------------
TOTAL RETURN(1) (10.92)%
- --------------------------------------------------------------------------------
AS A PERCENTAGE AS A PERCENTAGE
OF AVERAGE NET OF AVERAGE GROSS
RATIOS ASSETS(4) ASSETS(2)(4)
- --------------------------------------------------------------------------------
Expenses of Consolidated Real Property Subsidiaries
Interest and other borrowing costs(3) 0.60% 0.41%
Operating expenses(3) 0.63% 0.43%
Belair Capital Fund LLC Expenses
Interest and other borrowing cost(6) 2.54% 1.77%
Investment advisory and administrative
fees, servicing fees and other Fund
operating expenses(6)(7) 1.17% 0.82%
------------------------------------
Total expenses 4.94% 3.43%
Net investment income 0.31% 0.21%
- --------------------------------------------------------------------------------
Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $ 1,687,638
Portfolio Turnover of Tax-Managed Growth Portfolio 18%
- --------------------------------------------------------------------------------
(1) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on last day of the period.
Distributions, if any, are assumed reinvested at the net asset value on the
reinvestment date.
(2) Average Gross Assets is defined as the average daily amount of all assets
of Belair Capital Fund LLC (not including its investment in Belair Real
Estate Corporation (BREC)) plus all assets of BREC minus the sum of each
entities' liabilities other than the principal amount of money borrowed.
For this purpose, the assets and liabilities of BREC's controlled
subsidiaries are reduced by the proportionate interests therein of
investors other than BREC.
(3) Ratio includes BREC's proportional share of expenses incurred by its
majority-owned subsidiaries (see Note 1).
(4) For the purpose of calculating ratios, the income and expenses of BREC's
controlled subsidiaries are reduced by the proportionate interests therein
of investors other than BREC.
(5) Calculated using average shares outstanding.
(6) Ratio includes the expenses of Belair Capital Fund LLC and BREC for which
Belair Capital Fund LLC owns 100% of the outstanding common stock. The
ratio does not include expenses of other real estate subsidiaries.
(7) Ratio includes Belair Capital Fund LLC's share of Belvedere Capital's
allocated expenses, including those expenses allocated from the Portfolio.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 2001
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1 Organization
- --------------------------------------------------------------------------------
A Investment Objective -- Belair Capital Fund LLC (Belair Capital) is a
Massachusetts limited liability company established to offer
diversification and tax-sensitive investment management to persons holding
large and concentrated positions in equity securities of selected
publicly-traded companies. The investment objective of Belair Capital is to
achieve long-term, after-tax returns for Belair Capital shareholders
(Shareholders). Belair Capital pursues this objective primarily by
investing indirectly in Tax-Managed Growth Portfolio (the Portfolio), a
diversified, open-end management investment company registered under the
Investment Company Act of 1940, as amended. The Portfolio is organized as a
trust under the laws of the State of New York. Belair Capital maintains its
investment in the Portfolio by investing in Belvedere Capital Fund Company
LLC (Belvedere Capital), a separate Massachusetts limited liability company
that invests exclusively in the Portfolio. The performance of Belair
Capital and Belvedere Capital is directly and substantially affected by the
performance of the Portfolio. Separate from its investment in the Portfolio
through Belvedere Capital, Belair Capital invests in real estate assets
including income-producing preferred equity interests in real estate
operating partnerships (Partnership Preference Units) affiliated with
publicly-traded real estate investment trusts (REITs) and interests in
controlled real property subsidiaries.
B Subsidiaries -- Belair Capital invests in real estate through its
subsidiary Belair Real Estate Corporation (BREC). At December 31, 2001 BREC
invested directly in Partnership Preference Units and indirectly in real
property through controlled subsidiaries.
BREC -- BREC invests directly in Partnership Preference Units and also
holds a majority interest in Bel Residential Properties Trust (Bel
Residential) and Katahdin Property Trust, LLC (Katahdin). At December 31,
2001, Belair Capital owned 100% of the common stock issued by BREC and
intends to hold all of BREC's common stock at all times. Additionally,
2,100 shares of preferred stock of BREC are outstanding at December 31,
2001. The preferred stock has a par value of $0.01 per share and is
redeemable by BREC at a redemption price of $100 per share after the
occurrence of certain tax events or after December 31, 2004. Dividends on
the preferred stock are cumulative and payable annually equal to $8 per
share. The interest in preferred stock is recorded as a minority interest
on the Consolidated Statement of Assets and Liabilities.
Bel Residential -- Bel Residential, a majority-owned subsidiary of BREC,
owns eleven multi-family residential properties consisting of 2,681 units
(collectively, the Bel Residential Properties) located in seven states
(Texas, Arizona, Georgia, North Carolina, Washington, Colorado and
Florida). The average occupancy rate was approximately 95% at December 31,
2001. BREC owns Class A units of Bel Residential, representing 75% of the
voting interests in Bel Residential, and a minority shareholder (the Bel
Residential Minority Shareholder) owns Class B units, representing 25% of
the voting interests in Bel Residential. The Class B equity interest is
recorded as a minority interest on the Consolidated Statement of Assets and
Liabilities. The primary distinction between the two classes of shares is
the distribution priority and voting rights. BREC has priority in
distributions and has greater voting rights than the holder of Class B
units. Pursuant to a buy/sell agreement entered into at the time Bel
Residential was established, either BREC or the Bel Residential Minority
Shareholder can give notice after July 31, 2009, either to buy the other's
equity interest in Bel Residential or to sell its own equity interest in
Bel Residential.
Katahdin -- Katahdin, a majority-owned subsidiary of BREC, owns six
multi-family residential properties consisting of 2,476 units
(collectively, the Katahdin Properties) located in five states (Florida,
North Carolina, New Mexico, Texas and Washington). The average occupancy
rate was approximately 94% at December 31, 2001. BREC owns Class A units of
Katahdin, representing 60% of the voting interests in Katahdin, and a
minority shareholder (the Katahdin Minority Shareholder) owns Class B
units, representing 40% of the voting interests in Katahdin. The Class B
equity interest is recorded as a minority interest on the Consolidated
Statements of Assets and Liabilities. The primary distinction between the
two classes of shares is the distribution priority and voting rights. BREC
has priority in distributions and has greater voting rights than the holder
of Class B units. Pursuant to a buy/sell agreement entered into at the time
Katahdin was established, either BREC or the Katahdin Minority Shareholder
can give notice after November 23, 2010, either to buy the other's equity
interest in Katahdin or to sell its own equity interest in Katahdin.
The accompanying consolidated financial statements include the accounts of
Belair Capital, BREC, Bel Residential, and Katahdin (collectively, the
Fund). All material intercompany accounts and transactions have been
eliminated.
23
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 2001
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
================================================================================
The audited financial statements of the Portfolio, including the Portfolio
of Investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
2 Significant Accounting Policies
- --------------------------------------------------------------------------------
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its consolidated financial
statements. The policies are in conformity with accounting principles
generally accepted in the United States of America.
A Investment Costs -- The Fund's investment assets were acquired through
contributions of common stock by Shareholders in exchange for Shares of the
Fund, in private purchases of Partnership Preference Units and through
contributions of real estate investments in exchange for cash and minority
interests in controlled subsidiaries. Upon receipt of common stock from
Shareholders, Belair Capital immediately exchanged the contributed
securities into Belvedere Capital for shares thereof, and Belvedere
Capital, in turn, immediately thereafter exchanged the contributed
securities into the Portfolio for an interest in the Portfolio. The cost at
which the Fund's investments of contributed securities is carried in the
consolidated financial statements is the value of the contributed common
stock as of the close of business on the day prior to their contribution to
the Fund. The initial tax basis of the Fund's investment in the Portfolio
through Belvedere Capital is the same as the contributing Shareholders'
basis in securities and cash contributed to the Fund. The initial tax and
financial reporting basis of the Fund's investment in Partnership
Preference Units and other real estate investments purchased by the Fund is
the purchase cost. The initial cost at which the Fund's investment in real
estate contributed to the Fund is carried in the consolidated financial
statements is the market value on contribution date. The initial tax basis
of real estate investments contributed to the Fund is the contributor's tax
basis at the time of contribution or the fair value on the date of
contribution, depending on the taxability of the contribution.
B Investment Valuations -- The Fund's investments consist of Partnership
Preference Units, other real property investments, shares of Belvedere
Capital and short-term debt securities. Belvedere Capital's only investment
is an interest in the Portfolio, the value of which is derived from a
proportional interest therein. Additionally, the Fund has entered into
interest rate swap contracts (Note 7). The valuation policy followed by the
Fund, Belvedere Capital and the Portfolio is as follows:
Marketable securities, including options, that are listed on foreign or
U.S. securities exchanges or in the NASDAQ National Market System are
valued at closing sale prices on the exchange where such securities are
principally traded. Futures positions on securities or currencies are
generally valued at closing settlement prices. Unlisted or listed
securities for which closing sale prices are not available are valued at
the mean between the latest bid and asked prices. Short-term debt
securities with a remaining maturity of 60 days or less are valued at
amortized cost, which approximates fair value. Other fixed income and debt
securities, including listed securities and securities for which price
quotations are available, are normally valued on the basis of valuations
furnished by a pricing service. 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. Investments held by the Fund for which valuations or market
quotations are unavailable are valued at fair value using methods
determined in good faith by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as Investment
Adviser of Belair Capital and as Manager of BREC. Interest rate swap
contracts for which prices are unavailable are valued as determined in good
faith by BMR .
The value of the Fund's real estate investments is determined in good faith
by BMR, as Manager of BREC, taking into account all relevant factors, data
and information, including, with respect to investments in Partnership
Preference Units, information from dealers and similar firms with knowledge
of such issues and the prices of comparable preferred equity securities and
other fixed or adjustable rate instruments having similar investment
characteristics. Real estate investments other than Partnership Preference
Units are generally stated at estimated market values based upon
independent valuations assuming an orderly disposition of assets. Detailed
valuations are performed annually and reviewed periodically and adjusted if
there has been a significant change in economic circumstances since the
previous valuation. Given that such valuations include many assumptions,
including but not limited to an orderly disposition of assets, values may
differ from amounts ultimately realized.
24
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 2001
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
================================================================================
C Interest Rate Swaps -- Belair Capital has entered into interest rate swap
agreements with respect to its borrowings and real estate investments.
Pursuant to these agreements, Belair Capital makes quarterly payments to
the counterparty at predetermined fixed rates, in exchange for
floating-rate payments from the counterparty at a predetermined spread to
three-month LIBOR. During the terms of the outstanding swap agreements,
changes in the underlying values of the swaps are recorded as unrealized
gains or losses. Belair Capital is exposed to credit loss in the event of
non-performance by the swap counterparty.
D Written Options -- The Portfolio and the Fund may write listed and
over-the-counter call options on individual securities, on baskets of
securities and on stock market indices. Upon the writing of a call option,
an amount equal to the premium received by the Portfolio or Fund is
included in the Consolidated Statement of Assets and Liabilities of the
respective entity as a liability. The amount of the liability is
subsequently marked-to-market to reflect the current value of the option
written in accordance with the investment valuation policies discussed
above. Premiums received from writing options that expire are treated as
realized gains. Premiums received from writing options that are exercised
or are closed are added to or offset against the proceeds or amount paid on
the transaction to determine the realized gain or loss. The Portfolio or
Fund, as a writer of an option, may have no control over whether the
underlying securities may be sold and as a result bears the market risk of
an unfavorable change in the price of the securities underlying the written
option.
E Purchased Options -- Upon the purchase of a put option, the premium paid
by the Portfolio or Fund is included in the Consolidated Statement of
Assets and Liabilities of the respective entity as an investment. The
amount of the investment is subsequently marked-to-market to reflect the
current market value of the option purchased, in accordance with the
investment valuation policies discussed above. If an option which the
Portfolio or Fund has purchased expires on the stipulated expiration date,
the Portfolio or Fund will realize a loss in the amount of the cost of the
option. If the Portfolio or Fund enters into a closing sale transaction,
the Portfolio or Fund will realize a gain or loss, depending on whether the
sales proceeds from the closing sale transaction are greater or less than
the cost of the option. If the Portfolio or Fund exercises a put option, it
will realize a gain or loss from the sale of the underlying security and
the proceeds from such sale will be decreased by the premium originally
paid.
F Rental Operations -- The apartment units held by Bel Residential and
Katahdin are leased to residents generally for a term of one year renewable
upon consent of both parties on a year-to-year or month-to-month basis.
The escrow accounts related to Bel Residential and Katahdin consist of
deposits for real estate taxes, insurance, reserves for replacements and
capital repairs that are required under the mortgage agreements as well as
tenant security deposits. The mortgage escrow accounts are held by the
respective financial institutions and controlled by lenders (Note 8).
Costs incurred in connection with acquisitions of properties have been
capitalized. Significant betterments and improvements are capitalized as
part of real property.
G Income -- Dividend income is recorded on the ex-dividend date and
interest and rental income are recorded on the accrual basis.
Belvedere Capital's net investment income or loss consists of Belvedere
Capital's pro-rata share of the net investment income of the Portfolio,
less all actual or accrued expenses of Belvedere Capital, determined in
accordance with accounting principles generally accepted in the United
States of America. The Fund's net investment income or loss consists of the
Fund's pro-rata share of the net investment income of Belvedere Capital,
plus all income earned on the Fund's direct investments, less all actual
and accrued expenses of the Fund determined in accordance with accounting
principles generally accepted in the United States of America.
H Organization Costs and Deferred Expenses -- Costs incurred by Belair
Capital in connection with its organization are being amortized over five
years. Costs incurred in connection with BREC's organization were expensed
as incurred. Deferred mortgage origination expenses incurred in connection
with the financing of Bel Residential and Katahdin are amortized over the
terms of the respective loans.
I Income Taxes -- Belair Capital, Belvedere Capital and the Portfolio are
treated as partnerships for federal income tax purposes. As a result,
Belair Capital, Belvedere Capital and the Portfolio do not incur federal
income tax liability, and the shareholders and partners thereof are
individually responsible for taxes on items of partnership income, gain,
loss and deduction. The policy of BREC, Bel Residential and Katahdin is to
25
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 2001
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
================================================================================
comply with the Internal Revenue Code applicable to REITs. BREC, Bel
Residential and Katahdin will generally not be subject to federal income
tax to the extent that they each distribute their earnings to their
stockholders each year and maintain their qualification as a REIT.
J Other -- Investment transactions are accounted for on a trade-date basis.
K Reclassifications -- Certain amounts in the prior year's consolidated
financial statements have been reclassified to conform with the current
year presentation. L Use of Estimates -- The preparation of 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.
3 Distributions to Shareholders
- --------------------------------------------------------------------------------
Each year Belair Capital intends to distribute all of its net investment
income for the year, if any, and approximately 22% of its net realized
capital gains for such year, if any, other than precontribution gains
allocated to a Shareholder in connection with a tender offer or other
extraordinary corporate event with respect to a security contributed by
such Shareholder, for which no capital gain distribution is made. In
addition, whenever a distribution with respect to a precontribution gain is
made, Belair Capital makes a special distribution to compensate
Shareholders receiving such distributions for taxes that may be due in
connection with the precontribution gain and supplemental distributions
(Special Distribution). No Special Distributions were accrued for or paid
during the year ended December 31, 2001.
In addition, BREC, Bel Residential and Katahdin intend to distribute
substantially all of their taxable income earned by the respective entities
during the year.
4 Shareholder Transactions
- --------------------------------------------------------------------------------
Belair Capital may issue an unlimited number of full and fractional Fund
Shares. Transactions in Fund Shares were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
- --------------------------------------------------------------------------------
Issued to Shareholders
electing to receive payment
of distributions in Fund Shares 65,705 90,521
Redemptions (795,224) (885,179)
- --------------------------------------------------------------------------------
NET DECREASE (729,519) (794,658)
- --------------------------------------------------------------------------------
Redemptions of Fund Shares held less than three years are generally subject
to a redemption fee of 1% of the net asset value of Fund Shares redeemed.
The redemption fee is paid to Eaton Vance Distributors, Inc. (EVD) by
Belair Capital on behalf of the redeeming Shareholder. No charge is levied
on redemptions of Fund Shares acquired through the reinvestment of
distributions, Fund Shares redeemed in connection with a tender offer or
other extraordinary corporate event or Fund Shares redeemed following the
death of all of the initial holders of the Fund Shares redeemed. In
addition, no fee applies to redemptions by Shareholders, who, during any
12-month period, redeems less than 8% of the total number of Fund Shares
held by the Shareholder as of the beginning of the 12-month period. For the
year ended December 31, 2001, EVD received $82,633 in redemption fees.
5 Investment Transactions
- --------------------------------------------------------------------------------
For the year ended December 31, 2001 increases and decreases of Belair
Capital's investment in Belvedere Capital aggregated $193,991,870 and
$287,459,513, respectively, purchases and sales of Partnership Preference
Units aggregated $9,386,616 and $102,705,269, respectively, and
acquisitions of other real estate investments aggregated $41,261,497.
Purchases and sales of Partnership Preference Units during the year ended
December 31, 2001 include amounts purchased from and sold to other funds
sponsored by EVM.
6 Indirect Investment in Portfolio
- --------------------------------------------------------------------------------
Belvedere Capital's interest in the Portfolio at December 31, 2001 was
26
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 2001
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
================================================================================
$10,334,131,781, representing 56.4% of the Portfolio's net assets. The
Fund's investment in Belvedere Capital at December 31, 2001 was
$1,820,021,041, representing 17.6% of Belvedere Capital's net assets.
Investment income allocated to Belvedere Capital from the Portfolio for the
year ended December 31, 2001 totaled $105,790,876, of which $20,889,479 was
allocated to the Fund. Expenses allocated to Belvedere Capital from the
Portfolio for the year ended December 31, 2001 totaled $43,414,135, of
which $8,582,226 was allocated to the Fund. Belvedere Capital allocated
additional expenses to the Fund of $2,964,980 for the year ended December
31, 2001, representing $74,683 of operating expenses and $2,890,297 of
service fees (Note 9).
7 Cancelable Interest Rate Swap Agreements
- --------------------------------------------------------------------------------
Belair Capital has entered into cancelable interest rate swap agreements in
connection with its real estate investments and the associated borrowings.
Under such agreements Belair Capital has agreed to make periodic payments
at fixed rates in exchange for payments at floating rates. The notional or
contractual amounts of these instruments may not necessarily represent the
amounts potentially subject to risk. The measurement of the risks
associated with these investments is meaningful only when considered in
conjunction with all related assets, liabilities and agreements. As of
December 31, 2001, Belair Capital has entered into cancelable interest rate
swap agreements with Merrill Lynch Capital Services, Inc.
NOTIONAL INITIAL UNREALIZED
AMOUNT OPTIONAL DEPRECIATION AT
EFFECTIVE (000'S FIXED FLOATING TERMINATION MATURITY DECEMBER 31,
DATE OMITTED) RATE RATE DATE DATE 2001
- --------------------------------------------------------------------------------
2/98 $120,000 6.715% Libor+0.45% 2/03 2/05 $ (4,036,969)
4/98 50,000 6.84% Libor+0.45% 2/03 2/05 (1,789,764)
4/98 150,000 6.835% Libor+0.45% 4/03 4/05 (5,769,278)
6/98 20,000 6.67% Libor+0.45% 6/03 2/05 (780,852)
6/98 75,000 6.68% Libor+0.45% 6/03 2/05 (2,943,209)
6/98 80,000 6.595% Libor+0.45% 6/03 2/05 (3,002,682)
11/98 14,709 6.13% Libor+0.45% 11/03 2/05 (455,595)
2/99 34,951 6.34% Libor+0.45% 2/04 2/05 (1,322,041)
4/99 5,191 6.49% Libor+0.45% 2/04 2/05 (216,372)
7/99 24,902 7.077% Libor+0.45% 7/04 2/05 (1,507,472)
9/99 10,471 7.37% Libor+0.45% 9/04 2/05 (734,425)
3/00 19,149 7.89% Libor+0.45% 2/04 2/05 (1,428,015)
3/00 70,000 7.71% Libor+0.45% -- 2/05 (5,881,029)
- --------------------------------------------------------------------------------
TOTAL $(29,867,703)
- --------------------------------------------------------------------------------
8 Debt
- --------------------------------------------------------------------------------
A Mortgages -- Rental property held by BREC's controlled subsidiaries is
financed through mortgages issued to the controlled subsidiaries. The
mortgages are secured by the rental property and are generally without
recourse to the other assets of Belair Capital's Shareholders. The value of
the rental property securing the loans is $327,945,162 at December 31,
2001. Balances outstanding at December 31, 2001, excluding unamortized debt
issuance costs, are as follows:
ANNUAL MONTHLY BALANCE AT
MATURITY DATE INTEREST RATE INTEREST PAYMENT* DECEMBER 31, 2001
- --------------------------------------------------------------------------------
May 1, 2010 8.33% $ 781,844 $112,630,517
June 1, 2011 6.765% 653,104 115,850,000
- --------------------------------------------------------------------------------
$1,434,948 $228,480,517
- --------------------------------------------------------------------------------
* Mortgages provide for monthly payments of interest only through the
respective maturity date with the entire principal balance due on the
respective maturity date.
B Credit Facility -- Belair Capital has obtained a $790,000,000 credit
facility (the Credit Facility), which includes the ability for Belair
Capital to utilize letters of credit, with a term of seven years from
Merrill Lynch International Bank Limited (MLIB). Belair Capital's
obligations under the Credit Facility are secured by a pledge of its
assets, excluding the assets of Bel Residential and Katahdin. Interest on
borrowed funds is based on the prevailing LIBOR rate for the respective
interest period plus a spread of 0.45% per annum and fees on letters of
credit are charged at a rate of 0.45% per annum. Belair Capital may borrow
for interest periods of one month to five years. In addition, Belair
Capital pays a commitment fee at a rate of 0.10% per annum on the unused
amount of the loan commitment. Borrowings under the Credit Facility have
been used to purchase qualifying assets, pay selling commissions and
organizational expenses, and to provide for the short-term liquidity needs
of the Fund. Additional borrowings under the Credit Facility may be made in
the future for these purposes. At December 31, 2001, borrowings outstanding
under the Credit Facility totaled $558,769,000. At December 31, 2001 a
letter of credit in the amount of $1,259,853 is outstanding and was issued
as a substitute for funding certain mortgage escrow accounts required by
the lender of Bel Residential. The letter of credit expires on September
24, 2002 and automatically extends for one-year periods, not to extend
beyond February 7, 2005.
27
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 2001
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
================================================================================
9 Management Fee and Other Transactions with Affiliates
- --------------------------------------------------------------------------------
Belair Capital and the Portfolio have engaged BMR as Investment Adviser.
Under the terms of the advisory agreement with the Portfolio, BMR receives
a monthly fee of 5/96 of 1% (0.625% annually) of the average daily net
assets of the Portfolio up to $500,000,000 and at reduced rates as daily
net assets exceed that level. For the year ended December 31, 2001, the
advisory fee applicable to the Portfolio was 0.43% of average daily net
assets. Belvedere Capital's allocated portion of the advisory fee was
$42,233,575 of which $8,355,528 was allocated to Belair Capital for the
year ended December 31, 2001. In addition, Belair Capital pays BMR a
monthly advisory and administrative fee of 1/20 of 1% (0.60% annually) of
the average daily gross assets of Belair Capital, reduced by that portion
of the monthly advisory fee for such month payable by the Portfolio which
is attributable to the value of Belair Capital's investment in Belvedere
Capital. The term gross assets is defined to include the value of all
assets of Belair Capital other than Belair Capital's investment in BREC,
minus the sum of Belair Capital's liabilities other than the principal
amount of money borrowed. BREC pays BMR a monthly management fee at a rate
of 1/20th of 1% (equivalent to 0.60% annually) of the average daily gross
assets of BREC. The term gross assets is defined to include all assets of
BREC minus the sum of BREC's liabilities other than the principal amount of
money borrowed. For this purpose, the assets and liabilities of BREC's
controlled subsidiaries are reduced by the proportionate interests therein
of investors other than BREC. For the year ended December 31, 2001, the
advisory and administrative fee accrued or paid to BMR by Belair Capital
plus the management fee payable to BMR by BREC, totaled $7,036,891.
EVM serves as Manager of Belair Capital and receives no separate
compensation for services provided in such capacity.
Pursuant to a servicing agreement between Belvedere Capital and EVD,
Belvedere Capital pays a servicing fee to EVD for providing certain
services and information to Shareholders. The servicing fee is paid on a
quarterly basis at an annual rate of 0.15% of Belvedere Capital's average
daily net assets and totaled $14,628,710 for the year ended December 31,
2001 of which $2,890,297 was allocated to Belair Capital. Pursuant to a
servicing agreement between Belair Capital and EVD, Belair Capital pays a
servicing fee to EVD on a quarterly basis at an annual rate of 0.20% of
Belair Capital's average daily net assets, less Belair Capital's allocated
share of the servicing fee payable by Belvedere Capital. For the year ended
December 31, 2001 the servicing fee paid directly by Belair Capital totaled
$681,075. All amounts allocated to and incurred by Belair Capital, for the
year ended December 31, 2001, were paid to subagents.
Management services for the real property held by Bel Residential and
Katahdin are provided by an affiliate of each respective entity's Minority
Shareholder (see Note 1B). Each management agreement provides for a
management fee and allows for reimbursement of payroll expenses incurred by
the managers in conjunction with managing each respective entity's
properties. For the year ended December 31, 2001 Bel Residential paid or
accrued property management fees of $957,350. For the period from
inception, May 23, 2001 to December 31, 2001, Kathadin paid or accrued
property management fees of $561,132.
28
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 2001
================================================================================
INDEPENDENT AUDITORS' REPORT
================================================================================
TO THE SHAREHOLDERS
OF BELAIR CAPITAL FUND LLC AND SUBSIDIARIES:
- --------------------------------------------------------------------------------
We have audited the accompanying consolidated statement of assets and
liabilities, including the consolidated portfolio of investments, of Belair
Capital Fund LLC and Subsidiaries (collectively, the Fund), as of December 31,
2001, and the related consolidated statements of operations and cash flows for
the year then ended, the consolidated statement of changes in net assets for
each of the two years in the period then ended and financial highlights for the
year then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 2001 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund as of December 31, 2001 and the results of its operations,
and its cash flows for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 1, 2002
29
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
PORTFOLIO OF INVESTMENTS
================================================================================
COMMON STOCKS -- 97.6%
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Aerospace and Defense -- 1.5%
- --------------------------------------------------------------------------------
Boeing Company (The) 361,794 $ 14,030,371
Boeing Company (The)(1)(2) 250,000 9,689,547
Boeing Company (The)(1)(2) 200,000 7,752,122
General Dynamics Corp. 1,505,000 119,858,200
Honeywell International, Inc. 292,998 9,909,192
Northrop Grumman Corp. 833,164 83,991,263
Raytheon Co., Class B 313,564 10,181,423
Rockwell Collins, Inc. 203,032 3,959,124
United Technologies Corp. 291,354 18,830,209
- --------------------------------------------------------------------------------
$ 278,201,451
- --------------------------------------------------------------------------------
Air Freight and Couriers -- 1.5%
- --------------------------------------------------------------------------------
FedEx Corp.(3) 1,631,578 $ 84,646,267
Fedex Corp.(1)(2)(3) 75,000 3,887,141
United Parcel Service, Inc., Class B 3,295,388 179,598,646
- --------------------------------------------------------------------------------
$ 268,132,054
- --------------------------------------------------------------------------------
Airlines -- 0.0%
- --------------------------------------------------------------------------------
Southwest Airlines Co. 52,000 $ 960,960
- --------------------------------------------------------------------------------
$ 960,960
- --------------------------------------------------------------------------------
Auto Components -- 0.2%
- --------------------------------------------------------------------------------
Aftermarket Technology Corp.(3) 46,000 $ 745,200
Arvinmeritor, Inc. 53,849 1,057,594
Borg-Warner Automotive, Inc. 230,270 12,031,607
Dana Corp. 46,137 640,382
Delphi Automotive Systems 6,128 83,708
Federal Signal Corp. 283,471 6,312,899
Johnson Controls 240,591 19,427,723
TRW, Inc. 2,000 74,080
Visteon Corp. 15,135 227,630
- --------------------------------------------------------------------------------
$ 40,600,823
- --------------------------------------------------------------------------------
Automobiles -- 0.1%
- --------------------------------------------------------------------------------
DaimlerChrysler 19,952 $ 831,400
Ford Motor Co. 179,556 2,822,620
General Motors Corp. 13,596 660,766
Harley-Davidson, Inc. 114,700 6,229,357
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Automobiles (continued)
- --------------------------------------------------------------------------------
Honda Motor Co. Ltd. ADR 5,000 $ 407,550
- --------------------------------------------------------------------------------
$ 10,951,693
- --------------------------------------------------------------------------------
Banks -- 7.0%
- --------------------------------------------------------------------------------
AmSouth Bancorporation 1,251,949 $ 23,661,836
Associated Banc-Corp. 624,922 22,053,497
Bank of America Corp. 1,717,799 108,135,447
Bank of Granite Corp. 22,500 444,825
Bank of Montreal 273,104 6,207,654
Bank of New York Co., Inc. (The) 477,978 19,501,502
Bank One Corp. 1,251,649 48,876,893
Banknorth Group, Inc. 65,720 1,480,014
BB&T Corp. 1,016,764 36,715,348
Charter One Financial, Inc. 544,901 14,794,062
City National Corp. 130,000 6,090,500
Colonial Bancgroup, Inc. (The) 396,090 5,580,908
Comerica, Inc. 222,464 12,747,187
Commerce Bancshares, Inc. 206,545 8,053,190
Community First Bancshares, Inc. 418,000 10,738,420
Compass Bancshares, Inc. 306,668 8,678,704
Credit Suisse Group 55,136 2,352,292
Fifth Third Bancorp 772,018 47,347,864
Fifth Third Bancorp(1)(2) 81,626 5,001,158
First Citizens BancShares, Inc. 65,900 6,441,725
First Financial Bancorp. 51,122 902,303
First Midwest Bancorp, Inc. 573,661 16,745,165
First Midwest Bancorp, Inc.(1)(2) 65,612 1,914,017
First Midwest Bancorp, Inc.(1)(2) 176,056 5,133,978
First Tennessee National Corp. 30,912 1,120,869
FleetBoston Financial Corp. 631,350 23,044,275
Golden West Financial Corp. 121,800 7,167,930
GreenPoint Financial Corp. 120,983 4,325,142
Greenpoint Financial Corp.(1)(2) 200,000 7,145,531
GreenPoint Financial Corp.(1)(2) 300,000 10,717,627
Hibernia Corp., Class A 165,893 2,951,236
Huntington Bancshares, Inc. 518,842 8,918,894
Investors Financial Services Corp. 205,701 13,619,463
Investors Financial Services Corp.(1)(2) 32,000 2,117,396
Keycorp 552,835 13,456,004
M&T Bank Corp. 33,977 2,475,224
Marshall and Ilsley Corp. 92,887 5,877,889
Mellon Financial Corp. 206,912 7,784,029
SEE NOTES TO FINANCIAL STATEMENTS
30
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
PORTFOLIO OF INVESTMENTS CONT'D
================================================================================
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Banks (continued)
- --------------------------------------------------------------------------------
Mellon Financial Corp.(1)(2) 15,000 $ 564,018
National City Corp. 567,618 16,597,150
National Commerce Financial Corp. 1,113,055 28,160,291
Northern Trust Corp. 1,451,188 87,390,541
Pacific Century Financial Corp. 49,425 1,279,613
PNC Financial Services Group, Inc. 171,634 9,645,831
Popular, Inc. 716 20,821
Regions Financial Corp. 1,375,042 41,168,757
Royal Bank of Canada 368,444 12,000,221
Royal Bank of Scotland Group PLC 52,322 1,271,994
Royal Bank of Scotland Group PLC (A.V.S.)(3) 50,837 58,210
S&T Bancorp, Inc. 100,000 2,428,000
Societe Generale, Class A 809,647 45,298,997
SouthTrust Corp. 332,978 8,214,567
Southwest Bancorporation of Texas, Inc.(3) 215,601 6,526,242
Southwest Bancorporation of Texas,Inc.(1)(2)(3) 600,000 18,150,649
Sovereign Bancorporation, Inc. 442,584 5,417,228
SunTrust Banks, Inc. 311,574 19,535,690
Synovus Financial 1,002,233 25,105,937
TCF Financial Corp. 512,000 24,565,760
U.S. Bancorp 4,083,706 85,471,967
Union Planters Corp. 408,979 18,457,222
Valley National Bancorp. 323,780 10,668,551
Wachovia Corp. 1,497,451 46,960,063
Washington Mutual, Inc. 2,327,799 76,119,027
Wells Fargo & Co. 2,972,457 129,153,257
Westamerica Bancorporation 266,506 10,545,642
Whitney Holding Corp. 245,252 10,754,300
Zions Bancorporation 227,671 11,970,941
- --------------------------------------------------------------------------------
$ 1,283,821,485
- --------------------------------------------------------------------------------
Beverages -- 3.0%
- --------------------------------------------------------------------------------
Anheuser-Busch Cos., Inc. 2,291,559 $ 103,601,382
Coca-Cola Company (The) 3,068,681 144,688,309
Coca-Cola Enterprises, Inc. 384,724 7,286,673
Panamerican Beverages, Inc., Class A 80,000 1,188,800
PepsiCo, Inc. 6,033,757 293,783,628
- --------------------------------------------------------------------------------
$ 550,548,792
- --------------------------------------------------------------------------------
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Biotechnology -- 2.1%
- --------------------------------------------------------------------------------
Amgen, Inc.(3) 3,822,612 $ 215,748,221
Celera Genomics Group - Applera Corp.(3) 47,100 1,257,099
Genzyme Corp.(3) 1,616,207 96,746,151
Genzyme Corp.(1)(2)(3) 9,605 574,385
Genzyme Corporation - Genzyme Biosurgery
Division(3) 86,784 460,823
Gilead Sciences, Inc.(3) 38,745 2,546,321
Incyte Genomics, Inc.(3) 1,145,302 22,264,671
Invitrogen Corp.(3) 37,645 2,331,355
Sepracor, Inc.(3) 884,000 50,441,040
Vertex Pharmaceuticals, Inc.(3) 83,000 2,040,970
- --------------------------------------------------------------------------------
$ 394,411,036
- --------------------------------------------------------------------------------
Building Products -- 0.6%
- --------------------------------------------------------------------------------
American Standard Companies, Inc.(3) 258,251 $ 17,620,466
American Standard Companies, Inc.(1)(2)(3) 63,436 4,327,833
Masco Corp. 3,506,516 85,909,642
- --------------------------------------------------------------------------------
$ 107,857,941
- --------------------------------------------------------------------------------
Chemicals -- 1.7%
- --------------------------------------------------------------------------------
Airgas, Inc.(3) 536,219 $ 8,107,631
Arch Chemicals, Inc. 4,950 114,840
Bayer AG ADR 40,000 1,271,448
Dow Chemical Co. (The) 183,245 6,190,016
DuPont (E.I.) de Nemours & Co. 1,173,241 49,874,475
Eastman Chemical Co. 148 5,775
Ecolab, Inc. 2,064,867 83,110,897
International Flavors & Fragrances, Inc. 148,101 4,400,081
MacDermid, Inc. 61,937 1,049,832
Monsanto Co. 2,990,100 101,065,380
Olin Corp. 9,900 159,786
PPG Industries, Inc. 23,542 1,217,592
RPM, Inc. 470,138 6,798,195
Sigma Aldrich Corp. 615,000 24,237,150
Solutia, Inc. 99,629 1,396,799
Syngenta AG ADR(3) 10,030 106,318
Valspar Corp. 768,316 30,425,314
- --------------------------------------------------------------------------------
$ 319,531,529
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
31
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
PORTFOLIO OF INVESTMENTS CONT'D
================================================================================
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Commercial Services and Supplies -- 5.1%
- --------------------------------------------------------------------------------
Allied Waste Industries, Inc.(3) 1,675,000 $ 23,550,500
Apollo Group, Inc.(3) 5,066 228,021
Arbitron, Inc.(3) 36,200 1,236,230
Automatic Data Processing, Inc. 3,247,523 191,279,105
Avery Dennison Corp. 1,432,004 80,951,186
Banta Corp. 42,341 1,249,906
BISYS Group, Inc. (The)(3) 107,746 6,894,667
BISYS Group, Inc. (The)(1)(2)(3) 12,500 799,472
BISYS Group, Inc. (The)(1)(2)(3) 20,000 1,279,032
Block (H&R), Inc. 732,354 32,736,224
Bowne & Co., Inc. 172,640 2,209,792
Cendant Corp.(3) 192,150 3,768,061
Century Business Services, Inc.(3) 400,000 920,000
Ceridian Corp.(3) 181,858 3,409,837
Certegy Inc.(3) 42,862 1,466,738
Cintas Corp. 1,410,561 67,706,928
Concord EFS, Inc.(3) 551,454 18,076,662
Consolidated Graphics, Inc.(3) 70,215 1,351,639
CSG Systems International, Inc.(3) 41,116 1,663,142
Deluxe Corp. 80,675 3,354,466
Donnelley (R.R.) & Sons Co. 200,521 5,953,468
DST Systems, Inc.(3) 2,017,634 100,579,055
eFunds Corp.(3) 44,484 611,655
Equifax, Inc. 85,724 2,070,235
First Data Corp. 2,227,384 174,738,275
Harland (John H.) Co. 51,540 1,139,034
HON Industries, Inc. 1,270,418 35,127,058
Imagistics International Inc.(3) 6,222 76,842
IMS Health, Inc. 498,012 9,716,214
Manpower, Inc. 112,000 3,775,520
Miller (Herman), Inc. 577,903 13,673,185
Navigant Consulting, Inc.(3) 496,795 2,732,372
Navigant International, Inc.(3) 59,630 682,763
Newpark Resources, Inc.(3) 96,537 762,642
Paychex, Inc. 929,490 32,392,727
Pitney Bowes, Inc. 77,782 2,925,381
ProQuest Company(3) 115,000 3,899,650
ServiceMaster Co. 704,262 9,718,816
Spherion Corp.(3) 90,000 878,400
Staff Leasing, Inc. 78,125 198,437
Steelcase, Inc., Class A 123,000 1,810,560
Sylvan Learning Systems, Inc.(3) 815,396 17,995,790
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Commercial Services and Supplies (continued)
- --------------------------------------------------------------------------------
Valassis Communications, Inc.(3) 775,000 $ 27,605,500
Viad Corp. 40,314 954,636
Waste Management, Inc. 1,399,736 44,665,576
Workflow Management, Inc.(3) 79,507 379,248
- --------------------------------------------------------------------------------
$ 939,194,647
- --------------------------------------------------------------------------------
Communications Equipment -- 1.5%
- --------------------------------------------------------------------------------
3Com Corp.(3) 873,949 $ 5,575,795
ADC Telecommunications, Inc.(3) 937,781 4,313,793
Advanced Fibre Communication, Inc.(3) 15,000 265,050
Alcatel S.A. ADR 43,728 723,698
Avaya, Inc.(3) 68,903 837,171
CIENA Corp.(3) 702,026 10,045,992
Cisco Systems, Inc.(3) 5,430,799 98,351,770
Comverse Technology, Inc.(3) 386,378 8,643,276
Corning, Inc. 705,943 6,297,012
Enterasys Networks, Inc.(3) 989,660 8,758,491
JDS Uniphase Corp.(3) 266,080 2,309,574
Lucent Technologies, Inc. 954,951 6,006,642
Marconi PLC 23,088 14,015
McData Corp., Class A(3) 23,016 563,892
Motorola, Inc. 551,445 8,282,704
Nokia Corp., Class A, ADR 2,881,697 70,688,027
Nortel Networks Corp. 2,131,110 15,983,325
Qualcomm, Inc.(3) 344,112 17,377,656
Riverstone Networks, Inc.(3) 46,005 763,683
Telefonaktiebolaget LM Ericsson, Class B ADR 1,816,000 9,479,520
Tellabs, Inc.(3) 338,790 5,068,298
- --------------------------------------------------------------------------------
$ 280,349,384
- --------------------------------------------------------------------------------
Computers and Peripherals -- 3.2%
- --------------------------------------------------------------------------------
Compaq Computer Corp. 82,245 $ 802,711
Dell Computer Corp.(3) 3,630,589 98,679,409
EMC Corp.(3) 1,075,543 14,455,298
Gateway, Inc.(3) 1,149,407 9,241,232
Hewlett-Packard Co. 1,991,489 40,905,184
International Business Machines Corp. 1,039,334 125,717,841
Lexmark International, Inc.(3) 4,536,940 267,679,460
Network Appliance, Inc.(3) 488,000 10,672,560
Palm, Inc.(3) 1,304,605 5,061,867
SEE NOTES TO FINANCIAL STATEMENTS
32
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
PORTFOLIO OF INVESTMENTS CONT'D
================================================================================
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Computers and Peripherals (continued)
- --------------------------------------------------------------------------------
Sun Microsystems, Inc.(3) 537,670 $ 6,613,341
- --------------------------------------------------------------------------------
$ 579,828,903
- --------------------------------------------------------------------------------
Construction and Engineering -- 0.1%
- --------------------------------------------------------------------------------
Dycom Industries(3) 160,464 $ 2,681,353
Jacobs Engineering Group, Inc.(3) 176,233 11,631,378
Salient 3 Communications, Inc., Class A 78,125 76,953
- --------------------------------------------------------------------------------
$ 14,389,684
- --------------------------------------------------------------------------------
Construction Materials -- 0.1%
- --------------------------------------------------------------------------------
CRH PLC 329,450 $ 5,806,873
Vulcan Materials Co. 136,109 6,525,065
- --------------------------------------------------------------------------------
$ 12,331,938
- --------------------------------------------------------------------------------
Containers and Packaging -- 0.1%
- --------------------------------------------------------------------------------
Bemis Co., Inc. 141,000 $ 6,934,380
Caraustar Industries, Inc. 264,862 1,835,494
Sealed Air Corp.(3) 174,914 7,139,989
Sonoco Products Co. 160,690 4,271,140
Temple Inland, Inc. 12,632 716,613
- --------------------------------------------------------------------------------
$ 20,897,616
- --------------------------------------------------------------------------------
Distributors -- 0.0%
- --------------------------------------------------------------------------------
MSC Industrial Direct Co.(3) 5,000 $ 98,750
- --------------------------------------------------------------------------------
$ 98,750
- --------------------------------------------------------------------------------
Diversified Financials -- 5.7%
- --------------------------------------------------------------------------------
Affiliated Managers Group, Inc.(3) 13,680 $ 964,166
American Express Co. 969,588 34,604,596
ANC Rental Corp.(1)(3) 689,786 6,898
Capital One Financial Corp. 836,371 45,122,215
Citigroup 3,970,061 200,408,679
E*Trade Group, Inc.(3) 288,290 2,954,972
Fannie Mae 1,006,357 80,005,381
Federated Investors, Inc. 1,634,947 52,122,110
Finova Group, Inc.(3) 175,587 107,108
FirstPlus Financial Group, Inc.(3) 120,000 9,600
Franklin Resources, Inc. 1,896,536 66,890,825
Freddie Mac 498,106 32,576,132
Freddie Mac(1)(2) 20,000 1,307,346
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Diversified Financials (continued)
- --------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 9,627 $ 892,904
Household International, Inc. 1,603,743 92,920,869
ING Groep NV ADR 210,570 5,359,007
J.P. Morgan Chase & Co. 421,490 15,321,162
Knight Trading Group, Inc.(3) 1,750,000 19,285,000
Legg Mason, Inc. 217,641 10,877,697
MBNA Corp. 131,157 4,616,726
MBNA Corp.(1)(2) 113,797 3,998,444
Merrill Lynch & Co., Inc.(1)(2) 150,000 7,812,625
Merrill Lynch & Co., Inc. 1,676,195 87,363,283
Morgan Stanley Dean Witter & Co. 3,015,769 168,702,118
Nuveen (John) Co. (The), Class A 75,000 4,011,000
Providian Financial Corp. 893,096 3,170,491
Raymond James Financial, Inc.(1)(2) 70,000 2,481,924
Schwab (Charles) Corp. 699,540 10,821,884
Schwab (Charles) Corp.(1)(2) 133,650 2,063,844
State Street Corp. 328,000 17,138,000
Stilwell Financial, Inc. 95,458 2,598,367
T. Rowe Price Group, Inc. 137,827 4,786,732
Ubs AG-Registered Foreign(3) 9,183 459,150
USA Education, Inc. 601,539 50,541,307
Waddell & Reed Financial, Inc., Class A 150,751 4,854,182
- --------------------------------------------------------------------------------
$ 1,037,156,744
- --------------------------------------------------------------------------------
Diversified Telecommunication -- 2.6%
- --------------------------------------------------------------------------------
Alltel Corp. 1,375,801 $ 84,928,196
American Tower Corp., Class A(3) 93,218 882,774
AT&T Corp. 1,181,497 21,432,356
BellSouth Corp. 1,439,465 54,915,590
Broadwing, Inc.(3) 764,587 7,263,577
Citizens Communications Co.(3) 59,563 634,942
Deutsche Telekom AG ADR(3) 1,616,197 27,313,734
Global Crossing Ltd.(3) 124,289 104,403
ITC Deltacom, Inc.(3) 1,118,041 972,696
McLeodUSA, Inc.(3) 1,608,292 595,068
NTL, Inc.(3) 400,390 376,367
PTEK Holdings, Inc.(3) 28,000 95,200
Qwest Communications International(3) 81,903 1,157,289
RSL Communications Ltd.(3) 747,161 5,230
SBC Communications, Inc. 4,236,990 165,962,898
Sprint Corp. 2,656,796 53,348,464
Talk America Holdings, Inc.(3) 247,376 101,424
SEE NOTES TO FINANCIAL STATEMENTS
33
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
PORTFOLIO OF INVESTMENTS CONT'D
================================================================================
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Diversified Telecommunication (continued)
- --------------------------------------------------------------------------------
Telecom Corp. of New Zealand Ltd. ADR 8,000 $ 134,000
Verizon Communications, Inc. 197,052 9,352,088
Williams Communications Group, Inc.(3) 4,086 9,602
Winstar Communications, Inc.(3) 17,136 296
Worldcom, Inc. - MCI Group(3) 105,035 1,333,945
WorldCom, Inc. - Worldcom Group(3) 2,799,665 39,419,283
- --------------------------------------------------------------------------------
$ 470,339,422
- --------------------------------------------------------------------------------
Electric Utilities -- 0.3%
- --------------------------------------------------------------------------------
AES Corp.(3) 69,254 $ 1,132,303
Ameren Corp. 5,000 211,500
American Electric Power, Inc. 960 41,789
Dominion Resources, Inc. 210,464 12,648,886
Duke Energy Corp. 9,234 362,527
Exelon Corp. 500,000 23,940,000
P G & E Corp.(3) 47,705 917,844
Teco Energy, Inc. 40,000 1,049,600
TXU Corp. 250,196 11,796,741
Wisconsin Energy Corp. 9,576 216,035
- --------------------------------------------------------------------------------
$ 52,317,225
- --------------------------------------------------------------------------------
Electrical Equipment -- 0.3%
- --------------------------------------------------------------------------------
American Power Conversion Corp.(3) 436,671 $ 6,314,263
Baldor Electric Co. 149,060 3,115,354
Emerson Electric Co. 522,858 29,855,192
Energizer Holdings, Inc.(3) 92,626 1,764,525
Molex, Inc., Class A 112,582 3,045,343
Rockwell International Corp. 203,032 3,626,152
Tecumseh Products Co., Class A 156,420 7,919,545
Thomas and Betts Corp. 132,863 2,810,052
- --------------------------------------------------------------------------------
$ 58,450,426
- --------------------------------------------------------------------------------
Electronic Equipment - Instruments -- 0.8%
- --------------------------------------------------------------------------------
Agilent Technologies, Inc.(3) 517,438 $ 14,752,157
Arrow Electronics, Inc.(3) 8,750 261,625
Flextronics International Ltd.(3) 204,816 4,913,536
Jabil Circuit, Inc.(3) 2,127,971 48,347,501
Millipore Corp. 101,440 6,157,408
PerkinElmer, Inc. 300,081 10,508,837
Plexus Corp.(3) 132,189 3,510,940
Plexus Corp.(1)(2)(3) 77,757 2,063,935
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Electronic Equipment - Instruments (continued)
- --------------------------------------------------------------------------------
Sanmina-SCI Corp.(3) 1,186,972 $ 23,620,743
Solectron Corp.(3) 1,818,848 20,516,605
Teledyne Technologies, Inc.(3) 6,117 99,646
Waters Corp.(3) 198,320 7,684,900
X-Rite, Inc. 428,000 3,642,280
- --------------------------------------------------------------------------------
$ 146,080,113
- --------------------------------------------------------------------------------
Energy Equipment and Services -- 1.1%
- --------------------------------------------------------------------------------
Baker Hughes, Inc. 977,604 $ 35,653,218
Core Laboratories NV(3) 205,000 2,874,100
Grant Prideco, Inc.(3) 163,681 1,882,332
Halliburton Co. 504,383 6,607,417
Nabors Industries, Inc.(3) 572,000 19,636,760
National-Oilwell, Inc.(3) 641,199 13,215,111
National-Oilwell, Inc.(1)(2)(3) 45,730 941,965
Noble Drilling, Inc.(3) 170,000 5,786,800
Patterson-UTI Energy, Inc.(3) 200,000 4,662,000
Schlumberger Ltd. 1,455,913 80,002,419
Smith International, Inc.(3) 70,000 3,753,400
Transocean Sedco Forex, Inc. 73,657 2,491,080
Weatherford International(3) 663,681 24,728,754
- --------------------------------------------------------------------------------
$ 202,235,356
- --------------------------------------------------------------------------------
Food and Drug Retailing -- 1.9%
- --------------------------------------------------------------------------------
Albertson's, Inc. 1,049,367 $ 33,044,567
Casey's General Stores, Inc. 91,201 1,358,895
CVS Corp. 961,153 28,450,129
Kroger Co. (The)(3) 1,066,630 22,260,568
Safeway, Inc.(3) 1,992,734 83,196,645
Sysco Corp. 5,842,567 153,192,107
Sysco Corp.(1)(2) 44,744 1,172,528
Walgreen Co. 643,194 21,649,910
Winn-Dixie Stores, Inc. 506,616 7,219,278
- --------------------------------------------------------------------------------
$ 351,544,627
- --------------------------------------------------------------------------------
Food Products -- 2.3%
- --------------------------------------------------------------------------------
Archer-Daniels-Midland Co. 234,652 $ 3,367,256
Campbell Soup Co. 1,243,047 37,129,814
Conagra Foods, Inc. 1,544,015 36,701,237
Dean Foods Co.(3) 128,072 8,734,510
Flowers Foods, Inc.(3) 98,255 3,922,340
SEE NOTES TO FINANCIAL STATEMENTS
34
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
PORTFOLIO OF INVESTMENTS CONT'D
================================================================================
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Food Products (continued)
- --------------------------------------------------------------------------------
General Mills, Inc. 254,545 $ 13,238,885
Heinz (H.J.) Co. 191,876 7,889,941
Hershey Foods Corp. 744,421 50,397,302
Kellogg Co. 101,647 3,059,575
Kraft Foods, Inc.(3) 387,000 13,169,610
McCormick & Co., Inc. 458,870 19,258,774
Riviana Foods, Inc. 250,000 4,437,500
Sara Lee Corp. 3,092,508 68,746,453
Smithfield Foods, Inc.(3) 4,207,530 92,733,961
Tyson Foods, Inc. 405,548 4,684,079
Unilever ADR 400,000 23,044,000
Wrigley (Wm.) Jr. Co. 441,026 22,655,506
- --------------------------------------------------------------------------------
$ 413,170,743
- --------------------------------------------------------------------------------
Gas Utilities -- 0.6%
- --------------------------------------------------------------------------------
El Paso Corporation 175,909 $ 7,847,300
Enron Corp. 17,000 10,200
Kinder Morgan, Inc.(1)(2) 500,000 27,829,337
Kinder Morgan, Inc. 1,288,072 71,732,730
National Fuel Gas Co. 4,000 98,800
- --------------------------------------------------------------------------------
$ 107,518,367
- --------------------------------------------------------------------------------
Health Care Equipment and Supplies -- 2.5%
- --------------------------------------------------------------------------------
Applied Biosystems Group - Applera Corp. 444,800 $ 17,467,296
Bausch & Lomb, Inc. 145,054 5,462,734
Baxter International, Inc. 3,262,710 174,979,137
Becton, Dickinson and Co. 255,921 8,483,781
Biomet, Inc. 334,411 10,333,300
Biomet, Inc.(1)(2) 76,929 2,374,749
Boston Scientific Corp.(3) 544,685 13,137,802
Dentsply International, Inc. 49,550 2,487,410
Edwards Lifesciences Corp.(3) 295,714 8,170,578
Guidant Corp.(3) 54,616 2,719,877
Hillenbrand Industries, Inc. 647,898 35,809,322
Lumenis Ltd.(3) 112,000 2,206,400
Medtronic, Inc. 3,100,748 158,789,305
St. Jude Medical, Inc.(3) 5,007 388,794
Steris Corp.(3) 56,377 1,030,008
VISX, Inc.(3) 50,000 662,500
Zimmer Holdings, Inc.(3) 244,725 7,473,902
- --------------------------------------------------------------------------------
$ 451,976,895
- --------------------------------------------------------------------------------
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Health Care Providers and Services -- 1.9%
- --------------------------------------------------------------------------------
Andrx Group(3) 93,750 $ 6,600,938
Andrx Group(1)(2)(3) 300,000 21,108,478
Beverly Enterprises, Inc.(3) 357,143 3,071,430
Cardinal Health, Inc. 1,727,365 111,691,421
Cardinal Health, Inc.(1)(2) 36,150 2,336,144
Caremark Rx, Inc.(3) 17,696 288,622
CIGNA Corp. 11,236 1,041,015
Covance, Inc.(3) 58,750 1,333,625
Cybear Group(3) 2,326 768
FPA Medical Management, Inc.(1)(3) 315,000 3,150
HCA - The Healthcare Company 53,310 2,054,567
Health Management Associates, Inc., Class A(3)1,936,833 35,637,727
HealthSouth Corp.(3) 314,854 4,666,136
IDX Systems Corp.(3) 60,000 780,600
LabOne, Inc.(3) 53,940 830,676
McKesson HBOC, Inc. 49,513 1,851,786
Orthodontic Centers of America, Inc.(3) 100,000 3,050,000
Pacificare Health Systems, Inc., Class A(3) 19,500 312,000
Parexel International Corp.(3) 35,000 502,250
PhyCor, Inc.(3) 312,500 10,938
Quest Diagnostics, Inc.(3) 481,250 34,510,438
Quintiles Transnational Corp.(3) 417,372 6,698,821
Renal Care Group, Inc.(3) 371,007 11,909,325
Response Oncology, Inc.(3) 44,761 2,462
Schein (Henry), Corp.(3) 1,125,194 41,665,934
Schein (Henry), Corp.(1)(2)(3) 147,354 5,453,790
Service Corp. International(3) 145,389 725,491
Stewart Enterprises, Inc.(3) 114,000 682,860
Sunrise Assisted Living, Inc.(3) 354,000 10,304,940
Synavant, Inc.(3) 24,900 99,600
Tenet Healthcare Corp.(3) 302,641 17,771,080
UnitedHealth Group, Inc. 68,371 4,838,616
Ventiv Health, Inc.(3) 160,833 588,649
Wellpoint Health Networks, Inc.(3) 200,000 23,370,000
- --------------------------------------------------------------------------------
$ 355,794,277
- --------------------------------------------------------------------------------
Hotels, Restaurants and Leisure -- 1.2%
- --------------------------------------------------------------------------------
Brinker International, Inc.(3) 582,237 $ 17,327,373
Carnival Corp. 54,748 1,537,324
Carnival Corp.(1)(2) 500,000 14,032,980
SEE NOTES TO FINANCIAL STATEMENTS
35
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
PORTFOLIO OF INVESTMENTS CONT'D
================================================================================
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Hotels, Restaurants and Leisure (continued)
- --------------------------------------------------------------------------------
CBRL Group, Inc. 62,047 $ 1,826,664
Evans (Bob) Farms, Inc. 51,662 1,269,335
International Game Technology(1)(2)(3) 100,000 6,826,585
International Speedway Corp., Class A 118,344 4,627,250
Jack in the Box, Inc.(3) 500,000 13,770,000
Lone Star Steakhouse and Saloon, Inc. 145,981 2,164,898
Marriott International, Inc., Class A 282,392 11,479,235
McDonald's Corp. 1,434,823 37,979,765
MGM Mirage, Inc.(3) 269,445 7,778,877
Outback Steakhouse, Inc.(3) 1,285,923 44,042,863
Outback Steakhouse, Inc.(1)(2)(3) 325,000 11,123,597
Papa John's International, Inc.(3) 199,997 5,495,918
Royal Caribbean Cruises Ltd. 500,000 8,100,000
Sonic Corp.(3) 71,007 2,556,252
Starbucks Corp.(3) 1,368,000 26,060,400
Tricon Global Restaurants, Inc.(3) 219,875 10,817,850
- --------------------------------------------------------------------------------
$ 228,817,166
- --------------------------------------------------------------------------------
Household Durables -- 0.4%
- --------------------------------------------------------------------------------
Blyth Industries, Inc. 1,258,693 $ 29,264,612
Department 56, Inc.(3) 255,162 2,194,393
Fortune Brands, Inc. 69,838 2,764,886
Helen of Troy Ltd.(3) 20,000 248,200
Interface, Inc. 207,000 1,161,270
Interface, Inc.(1) 54,608 306,351
Leggett & Platt, Inc. 878,704 20,210,192
Maytag Corp. 27,073 840,075
Newell Rubbermaid, Inc. 426,562 11,760,314
Snap-On, Inc. 51,429 1,731,100
Water Pik Technologies, Inc.(3) 2,141 18,605
- --------------------------------------------------------------------------------
$ 70,499,998
- --------------------------------------------------------------------------------
Household Products -- 1.1%
- --------------------------------------------------------------------------------
Clorox Co. 53,688 $ 2,123,360
Colgate-Palmolive Co. 608,213 35,124,301
Kimberly-Clark Corp. 1,784,920 106,738,216
Procter & Gamble Co. 718,761 56,875,558
- --------------------------------------------------------------------------------
$ 200,861,435
- --------------------------------------------------------------------------------
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Industrial Conglomerates -- 1.9%
- --------------------------------------------------------------------------------
General Electric Co. 5,842,676 $ 234,174,454
Minnesota Mining & Manufacturing Co. 196,745 23,257,226
Teleflex, Inc. 47,559 2,250,016
Tyco International Ltd. 1,540,147 90,714,658
- --------------------------------------------------------------------------------
$ 350,396,354
- --------------------------------------------------------------------------------
Insurance -- 6.5%
- --------------------------------------------------------------------------------
21st Century Insurance Group 70,700 $ 1,375,115
Aegon, NV ADR 2,909,484 77,886,887
Aflac Corp. 1,004,964 24,681,916
Allmerica Financial Corp. 1,500 66,825
Allstate Corp. (The) 79,921 2,693,338
American International Group, Inc. 5,687,070 451,553,358
AON Corp. 725,165 25,757,861
Axa ADR 200,000 4,204,000
Berkshire Hathaway, Inc.(3) 511 38,631,600
Berkshire Hathaway, Inc., Class B(3) 39,512 99,767,800
Chubb Corp. 104,451 7,207,119
Commerce Group, Inc. 120,000 4,522,800
Delphi Financial Group, Inc. 6,448 214,718
Gallagher (A.J.) and Co. 993,779 34,275,438
Hartford Financial Services Group 130,205 8,180,780
Jefferson-Pilot Corp. 121,089 5,602,788
Kansas City Life Insurance Co. 70,800 2,626,680
Lincoln National Corp. 26,903 1,306,679
Marsh & McLennan Cos., Inc. 2,230,877 239,707,734
Mercury General Corp. 2,000 87,320
MetLife, Inc. 1,985,000 62,884,800
MGIC Investment Corp. 765,000 47,215,800
Old Republic International Corp. 38,403 1,075,668
Progressive Corp. 197,650 29,509,145
Protective Life Corp. 37,271 1,078,250
Radian Group, Inc. 30,800 1,322,860
Safeco Corp. 19,809 617,050
St. Paul Cos., Inc. (The) 323,841 14,239,289
Torchmark Corp. 282,104 11,095,150
UICI(3) 100,854 1,361,529
- --------------------------------------------------------------------------------
$ 1,200,750,297
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
36
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
PORTFOLIO OF INVESTMENTS CONT'D
================================================================================
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Internet and Catalog Retail -- 0.0%
- --------------------------------------------------------------------------------
Land's End Inc.(3) 130,000 $ 6,520,800
School Specialty, Inc.(3) 66,255 1,515,914
- --------------------------------------------------------------------------------
$ 8,036,714
- --------------------------------------------------------------------------------
Internet Software and Services -- 0.2%
- --------------------------------------------------------------------------------
At Home Corp., Series A(3) 371,895 $ 2,157
Check Point Software Technologies Ltd.(3) 343,568 13,704,928
Retek, Inc.(3) 554,364 16,558,853
- --------------------------------------------------------------------------------
$ 30,265,938
- --------------------------------------------------------------------------------
IT Consulting and Services -- 1.6%
- --------------------------------------------------------------------------------
Accenture Ltd., Class A(3) 1,038,000 $ 27,942,960
Acxiom Corp.(3) 579,019 10,115,462
Affiliated Computer Services, Inc.(3) 20,000 2,122,600
Affiliated Computer Services, Inc.(1)(2)(3) 80,327 8,519,244
Computer Sciences Corp.(3) 1,890,302 92,586,992
Edwards (J.D.) & Co.(3) 891,844 14,670,834
Electronic Data Systems Corp. 157,612 10,804,303
Gartner Group, Inc.(3) 4,811 56,241
Gartner Group, Inc., Class B(3) 92,416 1,035,059
Keane, Inc.(3) 173,924 3,135,850
Perot Systems Corp., Class A(1)(2)(3) 400,000 8,162,895
Perot Systems Corp.(3) 347,730 7,100,647
Safeguard Scientifics, Inc.(3) 26,579 93,027
Sapient Corp.(3) 2,049,828 15,824,672
SunGard Data Systems, Inc.(3) 3,430,781 99,252,494
- --------------------------------------------------------------------------------
$ 301,423,280
- --------------------------------------------------------------------------------
Leisure Euipment and Products -- 0.0%
- --------------------------------------------------------------------------------
Callaway Golf Co. 35,715 $ 683,942
Eastman Kodak Co. 157,202 4,626,455
Mattel, Inc. 22,091 379,965
- --------------------------------------------------------------------------------
$ 5,690,362
- --------------------------------------------------------------------------------
Machinery -- 0.9%
- --------------------------------------------------------------------------------
Deere & Co. 1,650,000 $ 72,039,000
Dionex Corp.(3) 362,140 9,238,191
Donaldson Co., Inc. 40,220 1,562,145
Dover Corp. 586,188 21,729,989
Illinois Tool Works, Inc. 544,318 36,861,215
Nordson Corp. 163,978 4,330,659
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Machinery (continued)
- --------------------------------------------------------------------------------
Paccar, Inc. 12,894 $ 846,104
Pall Corp. 216,000 5,196,960
Parker-Hannifin Corp. 159,137 7,305,980
Regal-Beloit Corp. 265,000 5,777,000
SPX Corp.(3) 47,862 6,552,308
Wabtec 232,061 2,854,350
- --------------------------------------------------------------------------------
$ 174,293,901
- --------------------------------------------------------------------------------
Media -- 6.4%
- --------------------------------------------------------------------------------
Advo, Inc.(3) 670,000 $ 28,810,000
AOL Time Warner, Inc.(3) 2,133,278 68,478,224
Belo (A.H.) Corp. 542,924 10,179,825
Cablevision Systems New York Group(3) 130,000 6,168,500
Cablevision Systems-Rainbow Media Group(3) 65,000 1,605,500
Catalina Marketing Corp.(3) 86,297 2,994,506
Clear Channel Communications, Inc.(3) 340,290 17,324,164
Comcast Corp., Class A(3) 4,199,177 151,170,372
Cox Communications, Inc., Class A(3) 1,508,036 63,201,789
Disney (Walt) Co. 4,461,891 92,450,382
Dow Jones & Co., Inc. 376,300 20,594,899
E.W. Scripps Co., Class A 25,533 1,685,178
Gannett Co., Inc. 708,627 47,640,993
Gaylord Entertainment Co.(3) 428,482 10,540,657
General Motors Corp., Class H(3) 1,175,262 18,157,798
Harte-Hanks, Inc. 128,869 3,630,240
Havas Advertising ADR(3) 3,142,938 22,786,301
Interpublic Group Cos., Inc. 1,571,697 46,427,929
Interpublic Group Cos., Inc.(1)(2) 26,126 771,280
Lamar Advertising Co.(3) 857,818 36,320,014
Liberty Media Corp., Class A(3) 1,478,536 20,699,504
Liberty Media Corp., Class B(3) 32,876 499,715
MacClatchy Co. (The), Class A 48,066 2,259,102
McGraw-Hill Companies, Inc. (The) 1,428,164 87,089,441
Meredith Corp. 190,000 6,773,500
New York Times Co. (The), Class A 317,259 13,721,452
Omnicom Group, Inc. 2,324,141 207,661,998
Publicis Groupe SA 293,650 7,776,865
Reuters Holdings PLC ADR 270,131 16,205,159
Shaw Communications Inc., Class B 20,000 424,000
TMP Worldwide, Inc.(3) 1,404,426 60,249,875
Tribune Co. 62,327 2,332,900
SEE NOTES TO FINANCIAL STATEMENTS
37
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
PORTFOLIO OF INVESTMENTS CONT'D
================================================================================
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Media (continued)
- --------------------------------------------------------------------------------
Univision Communications, Inc.(3) 663,184 $ 26,832,425
Viacom, Inc., Class A(3) 21,774 963,500
Viacom, Inc., Class B(3) 640,391 28,273,263
Vivendi Universal ADR 490,725 26,396,098
Washington Post Co. (The), Class B 3,600 1,908,000
Westwood One, Inc.(3) 122,400 3,678,120
WPP Group PLC 488,000 5,392,595
WPP Group PLC ADR 155,310 8,371,209
- --------------------------------------------------------------------------------
$ 1,178,447,272
- --------------------------------------------------------------------------------
Metals and Mining -- 0.5%
- --------------------------------------------------------------------------------
Alcoa, Inc. 1,931,687 $ 68,671,473
Allegheny Technologies, Inc. 21,408 358,584
Nucor Corp. 239,966 12,708,599
Phelps Dodge Corp. 22,194 719,086
Steel Dynamics, Inc.(3) 311,800 3,619,998
Worthington Industries 147,466 2,094,017
- --------------------------------------------------------------------------------
$ 88,171,757
- --------------------------------------------------------------------------------
Multi - Utilities -- 0.1%
- --------------------------------------------------------------------------------
Dynegy, Inc. 451,500 $ 11,513,250
Dynegy, Inc.(1)(2) 63,525 1,618,893
Williams Cos., Inc. (The) 222,833 5,686,698
- --------------------------------------------------------------------------------
$ 18,818,841
- --------------------------------------------------------------------------------
Multiline Retail -- 2.7%
- --------------------------------------------------------------------------------
99 Cents Only Stores(3) 856,674 $ 32,639,279
Costco Wholesale Corporation(3) 20,435 906,905
Costco Wholesale Corporation(1)(2)(3) 56,823 2,520,071
Dollar General Corp. 249,983 3,724,747
Dollar Tree Stores, Inc.(3) 1,217,053 37,619,108
Family Dollar Stores 2,618,411 78,499,962
Kohl's Corp.(3) 49,500 3,486,780
May Department Stores Co. (The) 569,660 21,066,027
Neiman Marcus Group, Inc. (The), Class B(3) 65,206 1,936,618
Nordstrom, Inc. 65,692 1,328,949
Penney (J.C.) Company, Inc. 837,309 22,523,612
Sears Roebuck & Co. 15,750 750,330
Target Corporation 2,753,362 113,025,510
Wal-Mart Stores, Inc. 2,874,863 165,448,366
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Multiline Retail (continued)
- --------------------------------------------------------------------------------
Wal-Mart Stores, Inc.(1)(2) 40,000 $ 2,297,856
- --------------------------------------------------------------------------------
$ 487,774,120
- --------------------------------------------------------------------------------
Office - Electronics -- 0.0%
- --------------------------------------------------------------------------------
Ikon Office Solutions, Inc. 99,415 $ 1,162,161
Xerox Corp. 20,000 208,400
Zebra Technologies Corp.(3) 6,000 333,060
- --------------------------------------------------------------------------------
$ 1,703,621
- --------------------------------------------------------------------------------
Oil and Gas -- 3.6%
- --------------------------------------------------------------------------------
Anadarko Petroleum Corp. 2,961,941 $ 168,386,346
Apache Corp. 886,372 44,212,250
Ashland, Inc. 106,674 4,915,538
BP Amoco PLC ADR 1,328,827 61,803,744
Burlington Resources, Inc. 928,629 34,860,733
ChevronTexaco Corp. 999,818 89,593,691
Devon Energy Corp. 724,853 28,015,568
Exxon Mobil Corp. 3,612,103 141,955,648
Kerr - McGee Corp. 267,327 14,649,520
Murphy Oil Corp. 29,700 2,495,988
Newfield Exploration Co.(3) 60,000 2,130,600
Ocean Energy Inc. 900,000 17,280,000
Pennzoil-Quaker State Co. 74,457 1,075,904
Phillips Petroleum Co. 510,102 30,738,747
Royal Dutch Petroleum Co. 56,824 2,785,512
Syntroleum Corp.(3) 2,735 19,419
USX-Marathon Group 350,000 10,500,000
Valero Energy Corp. 51,510 1,963,561
- --------------------------------------------------------------------------------
$ 657,382,769
- --------------------------------------------------------------------------------
Paper and Forest Products -- 0.3%
- --------------------------------------------------------------------------------
Georgia-Pacific Corp. - G-P Group 647,827 $ 17,886,503
International Paper Co. 219,061 8,839,111
Louisiana Pacific Corp. 70,750 597,130
Mead Corporation (The) 38,768 1,197,544
Plum Creek Timber Co., Inc. 417,984 11,849,846
Westvaco Corp. 47,000 1,337,150
Weyerhaeuser Co. 119,608 6,468,401
Willamette Industries, Inc. 156,412 8,152,193
- --------------------------------------------------------------------------------
$ 56,327,878
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
38
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
PORTFOLIO OF INVESTMENTS CONT'D
================================================================================
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Personal Products -- 0.6%
- --------------------------------------------------------------------------------
Avon Products, Inc. 134,700 $ 6,263,550
Gillette Co. 1,088,640 36,360,576
Lauder (Estee) Companies, Inc. 2,092,312 67,079,523
- --------------------------------------------------------------------------------
$ 109,703,649
- --------------------------------------------------------------------------------
Pharmaceutical -- 9.4%
- --------------------------------------------------------------------------------
Abbott Laboratories 4,303,053 $ 239,895,205
Allergan, Inc. 34,340 2,577,217
American Home Products Corp. 1,955,001 119,958,861
AstraZeneca PLC ADR 80,720 3,761,552
Bristol-Myers Squibb Co. 2,675,910 136,471,410
Elan Corp., PLC ADR(3) 1,758,536 79,239,632
Forest Laboratories, Inc.(3) 28,400 2,327,380
GlaxoSmithKline PLC ADR(3) 630,613 31,417,140
Johnson & Johnson Co. 5,079,253 300,183,852
King Pharmaceuticals, Inc.(3) 200,000 8,426,000
King Pharmaceuticals, Inc.(1)(2)(3) 2,085,117 87,785,585
Lilly (Eli) & Co. 1,216,752 95,563,702
Lilly (Eli) & Co.(1)(2) 38,250 3,002,090
Merck & Co., Inc. 1,743,377 102,510,568
Mylan Laboratories 653,037 24,488,888
Novo Nordisk ADR 292,277 11,720,308
Pfizer, Inc. 5,482,579 218,480,773
Pharmacia Corp. 3,310,843 141,207,454
Schering-Plough Corp. 1,395,760 49,982,166
Teva Pharmaceutical Industries Ltd. 300,000 18,489,000
Watson Pharmaceuticals, Inc.(3) 1,241,828 38,980,981
- --------------------------------------------------------------------------------
$ 1,716,469,764
- --------------------------------------------------------------------------------
Real Estate -- 0.2%
- --------------------------------------------------------------------------------
Avalonbay Communities, Inc. 55,000 $ 2,602,050
Catellus Development Corp.(3) 415,722 7,649,285
Equity Office Properties Trust 2,812 84,585
Jones Lang Lasalle, Inc.(3) 213,193 3,848,134
Rouse Co. (The) 127,700 3,740,333
Trammell Crow Co.(3) 876,098 10,250,347
Ventas, Inc. 25,600 294,400
- --------------------------------------------------------------------------------
$ 28,469,134
- --------------------------------------------------------------------------------
Road and Rail -- 0.3%
- --------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 217,094 $ 6,193,692
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Road and Rail (continued)
- --------------------------------------------------------------------------------
CSX Corp. 36,496 $ 1,279,185
Florida East Coast Industries, Inc. 122,888 2,844,857
Heartland Express, Inc.(3) 312,500 8,678,125
Kansas City Southern Industrials, Inc.(3) 15,215 214,988
Norfolk Southern Corp. 390 7,149
Robinson (C.H.) Worldwide, Inc. 1,231,376 35,605,237
Union Pacific Corp. 92,156 5,252,892
- --------------------------------------------------------------------------------
$ 60,076,125
- --------------------------------------------------------------------------------
Semiconductor Equipment and Products -- 3.1%
- --------------------------------------------------------------------------------
Alpha Industries, Inc.(3) 60,075 $ 1,309,635
Altera Corp.(3) 80,516 1,708,550
Analog Devices, Inc.(3) 3,063,534 135,990,274
Applied Materials, Inc.(3) 80,212 3,216,501
Broadcom Corp., Class A(3) 234,000 9,563,580
Conexant Systems(3) 317,574 4,560,363
Cypress Semiconductor Corporation(3) 227,742 4,538,898
Intel Corp.(1)(2) 119,093 3,743,335
Intel Corp. 5,791,331 182,137,360
Intel Corp.(1)(2) 350,000 10,999,932
Intel Corp.(1)(2) 800,000 25,147,420
Intel Corp.(1)(2) 500,000 15,705,344
KLA-Tencor Corp.(3) 101,498 5,030,241
Lam Research Corp.(3) 151,152 3,509,749
Linear Technologies Corp. 267,760 10,453,350
LSI Logic Corp.(3) 132,810 2,095,742
Maxim Integrated Products Co.(3) 274,351 14,406,171
National Semiconductor Corp.(3) 79,368 2,443,741
SpeedFam-IPEC, Inc.(3) 221,000 658,580
Teradyne, Inc.(3) 27,996 843,799
Texas Instruments, Inc. 4,185,654 117,198,312
Ultratech Stepper, Inc.(3) 245,129 4,049,531
Xilinx, Inc.(3) 68,518 2,675,628
- --------------------------------------------------------------------------------
$ 561,986,036
- --------------------------------------------------------------------------------
Software -- 3.2%
- --------------------------------------------------------------------------------
Adobe Systems, Inc. 231,936 $ 7,201,613
Ascential Software Corp.(3) 6,127 24,814
BMC Software, Inc.(3) 35,000 572,950
Cadence Design Systems, Inc.(3) 956,000 20,955,520
Cognos, Inc.(3) 77,000 1,925,000
SEE NOTES TO FINANCIAL STATEMENTS
39
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
PORTFOLIO OF INVESTMENTS CONT'D
================================================================================
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Software (continued)
- --------------------------------------------------------------------------------
Computer Associates International, Inc. 632,395 $ 21,811,304
Compuware Corp.(3) 153,744 1,812,642
Fair, Isaac and Co., Inc. 358,242 22,576,411
Henry (Jack) & Associates 201,006 4,389,971
HNC Software, Inc.(3) 427,794 8,812,556
I2 Technologies, Inc.(3) 233,752 1,846,641
Intuit, Inc.(3) 1,557,278 66,620,353
Microsoft Corp.(3) 4,581,426 303,519,473
National Instruments Corp.(3) 466,603 17,478,948
Oracle Corp.(3) 2,178,195 30,080,873
Parametric Technology Corp.(3) 94,600 738,826
PeopleSoft, Inc.(3) 478,732 19,245,026
Reynolds & Reynolds, Inc., Class A 451,043 10,937,793
RSA Security, Inc.(3) 60,000 1,047,600
Siebel Systems, Inc.(3) 1,396,472 39,073,287
Veritas Software Corp.(3) 88,142 3,951,406
Wind River Systems, Inc.(3) 111,410 1,995,353
- --------------------------------------------------------------------------------
$ 586,618,360
- --------------------------------------------------------------------------------
Specialty Retail -- 4.3%
- --------------------------------------------------------------------------------
Abercrombie & Fitch Co., Class A(3) 10,900 $ 289,177
AutoNation, Inc.(3) 4,598,727 56,702,304
Best Buy Co., Inc.(3) 122,407 9,116,873
Burlington Coat Factory Warehouse Corp. 628,228 10,554,230
Circuit City Stores-Circuit City Group 216,000 5,605,200
Gap, Inc. (The) 21,812 304,059
Home Depot, Inc. (The) 5,566,099 283,926,710
Intimate Brands, Inc. 53,000 787,580
Limited, Inc. (The) 699,309 10,293,828
Limited, Inc. (The)(1)(2) 45,139 664,072
Limited, Inc. (The)(1)(2) 200,000 2,942,160
Lowe's Companies 5,775,619 268,046,478
Office Depot, Inc.(3) 283,487 5,255,849
OfficeMax, Inc.(3) 912,117 4,104,527
Payless Shoesource, Inc.(3) 7,700 432,355
Pep Boys - Manny, Moe & Jack (The) 97,976 1,680,288
Pier 1 Imports, Inc. 300,000 5,202,000
RadioShack Corporation 643,906 19,381,571
Sherwin-Williams Co. (The) 80,069 2,201,898
Staples, Inc.(3) 2,192,500 40,999,750
Tiffany and Co. 88,000 2,769,360
TJX Companies, Inc. (The) 1,000,000 39,860,000
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Specialty Retail (continued)
- --------------------------------------------------------------------------------
Too, Inc.(3) 39,087 $ 1,074,893
United Rentals, Inc.(3) 483,278 10,970,411
- --------------------------------------------------------------------------------
$ 783,165,573
- --------------------------------------------------------------------------------
Textiles and Apparel -- 0.0%
- --------------------------------------------------------------------------------
Coach, Inc.(3) 91,430 $ 3,563,941
Unifi, Inc.(3) 51,208 371,258
- --------------------------------------------------------------------------------
$ 3,935,199
- --------------------------------------------------------------------------------
Tobacco -- 0.1%
- --------------------------------------------------------------------------------
Philip Morris Co., Inc. 482,161 $ 22,107,082
UST, Inc. 439 15,365
- --------------------------------------------------------------------------------
$ 22,122,447
- --------------------------------------------------------------------------------
Trading Companies and Distributors -- 0.1%
- --------------------------------------------------------------------------------
Genuine Parts Co. 326,715 $ 11,990,441
- --------------------------------------------------------------------------------
$ 11,990,441
- --------------------------------------------------------------------------------
Water Utilities -- 0.0%
- --------------------------------------------------------------------------------
American Water Works Co. 77,310 $ 3,227,693
- --------------------------------------------------------------------------------
$ 3,227,693
- --------------------------------------------------------------------------------
Wireless Telecommunication Services -- 1.1%
- --------------------------------------------------------------------------------
AT&T Wireless Services, Inc.(3) 7,303,000 $ 104,944,110
Nextel Communications, Inc., Class A(3) 224,782 2,463,611
Sprint Corp., PCS Group(3) 3,119,754 76,153,195
Telephone & Data Systems, Inc. 132,964 11,933,519
Vodafone Group PLC ADR 40,745 1,046,333
- --------------------------------------------------------------------------------
$ 196,540,768
- --------------------------------------------------------------------------------
Total Common Stocks
(identified cost $14,839,179,959) $17,892,659,773
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 0.0%
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Gas Utilities -- 0.0%
- --------------------------------------------------------------------------------
Enron Corp.(1)(2) 3,663 $ 59,949
Enron Corp.(1)(2) 5,555 90,959
SEE NOTES TO FINANCIAL STATEMENTS
40
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
PORTFOLIO OF INVESTMENTS CONT'D
================================================================================
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Gas Utilities (continued)
- --------------------------------------------------------------------------------
Enron Corp.(1)(2) 1,832 $ 29,994
- --------------------------------------------------------------------------------
$ 180,902
- --------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(identified cost $16,637,836) $ 180,902
- --------------------------------------------------------------------------------
PREFERRED STOCKS -- 0.0%
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Banks -- 0.0%
- --------------------------------------------------------------------------------
Wachovia Corp.(1)(3) 166,518 $ 29,973
- --------------------------------------------------------------------------------
$ 29,973
- --------------------------------------------------------------------------------
Total Preferred Stocks
(identified cost $39,407) $ 29,973
- --------------------------------------------------------------------------------
RIGHTS -- 0.0%
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Banks -- 0.0%
- --------------------------------------------------------------------------------
Bank United Litigation Contingent
Payment Rights, Expire 2/14/05(3) 102,072 $ 10,207
- --------------------------------------------------------------------------------
$ 10,207
- --------------------------------------------------------------------------------
Computers and Business Equipment -- 0.0%
- --------------------------------------------------------------------------------
Seagate Technology, Inc. (Tax Refund
Rights)(3) 197,392 $ 0
- --------------------------------------------------------------------------------
$ 0
- --------------------------------------------------------------------------------
Total Rights
(identified cost $50,596) $ 10,207
- --------------------------------------------------------------------------------
COMMERCIAL PAPER -- 2.3%
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
American General Corp., 1.93%, 1/7/02 $ 100,000 $ 99,967,833
Barton Capital Corp., 1.79%, 1/9/02 85,000 84,966,189
Delaware Corp., 1.89%, 1/22/02 49,884 49,829,003
General Electric Capital Corp., 1.78%, 1/2/02 14,913 14,912,263
General Electric Capital Corp., 1.87%, 1/9/02 50,000 49,979,222
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
General Electric Capital Corp., 1.92%, 1/7/02 $ 46,368 $ 46,353,162
Household Finance Corp., 1.85%, 1/22/02 28,895 28,863,818
Panasonic Finance America, Inc., 2.05%, 1/2/02 45,243 45,240,423
- --------------------------------------------------------------------------------
Total Commercial Paper
(at amortized cost, $420,111,913) $ 420,111,913
- --------------------------------------------------------------------------------
Total Investments -- 99.9%
(identified cost $15,276,019,711) $18,312,992,768
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities -- 0.1% $ 22,872,212
- --------------------------------------------------------------------------------
Net Assets -- 100.0% $18,335,864,980
- --------------------------------------------------------------------------------
ADR - American Depositary Receipt
(1) Security valued at fair value using methods determined in good faith by or
at the direction of the Trustees.
(2) Security restricted from resale for a period not exceeding two years. At
December 31, 2001, the value of these securities totaled $366,043,256 or
2.0% of net assets.
(3) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
41
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
FINANCIAL STATEMENTS
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 2001
Assets
- --------------------------------------------------------------------------------
Investments, at value (identified cost, $15,276,019,711) $18,312,992,768
Cash 926,215
Receivable for investments sold 6,078,282
Dividends receivable 15,975,413
Tax reclaim receivable 80,636
Other Assets 168,677
- --------------------------------------------------------------------------------
TOTAL ASSETS $18,336,221,991
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable to affiliate for Trustees' fees $ 7,680
Accrued expenses 349,331
- --------------------------------------------------------------------------------
TOTAL LIABILITIES $ 357,011
- --------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS' INTEREST IN PORTFOLIO $18,335,864,980
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $15,298,891,403
Net unrealized appreciation
(computed on the basis of identified cost) 3,036,973,577
- --------------------------------------------------------------------------------
TOTAL $18,335,864,980
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 2001
Investment Income
- --------------------------------------------------------------------------------
Dividends (net of foreign taxes, $1,078,556) $ 176,692,519
Interest 15,674,562
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME $ 192,367,081
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee $ 76,812,367
Trustees' fees and expenses 16,773
Custodian fee 1,818,767
Legal and accounting services 95,442
Miscellaneous 230,033
- --------------------------------------------------------------------------------
TOTAL EXPENSES $ 78,973,382
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 113,393,699
- --------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ (407,571,786)
Securities sold short 47,451,257
Foreign currency transactions 229
- --------------------------------------------------------------------------------
NET REALIZED LOSS $ (360,120,300)
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $(1,560,996,614)
Securities sold short (44,213,817)
Foreign currency (659)
- --------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) $(1,605,211,090)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS $(1,965,331,390)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $(1,851,937,691)
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
42
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
FINANCIAL STATEMENTS CONT'D
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
INCREASE (DECREASE) YEAR ENDED YEAR ENDED
IN NET ASSETS DECEMBER 31, 2001 DECEMBER 31, 2000
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 113,393,699 $ 113,922,828
Net realized gain (loss) (360,120,300) 196,962,539
Net change in unrealized
appreciation (depreciation) (1,605,211,090) 141,360,943
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ (1,851,937,691) $ 452,246,310
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 3,921,075,957 $ 4,816,070,598
Withdrawals (2,118,342,171) (1,997,896,982)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL TRANSACTIONS $ 1,802,733,786 $ 2,818,173,616
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS $ (49,203,905) $ 3,270,419,926
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 18,385,068,885 $ 15,114,648,959
- --------------------------------------------------------------------------------
AT END OF YEAR $ 18,335,864,980 $ 18,385,068,885
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
43
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
FINANCIAL STATEMENTS CONT'D
================================================================================
SUPPLEMENTARY DATA
Year Ended
Year Ended December 31, Period Ended October 31,
-------------------------------- December 31, --------------------
2001 2000 1999 1998(1) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios (As a percentage of average daily net assets):
Expenses 0.45% 0.45% 0.46% 0.48%(2) 0.50% 0.56%
Net investment income 0.64% 0.67% 0.72% 0.72%(2) 0.78% 0.81%
Portfolio Turnover 18% 13% 11% 3% 12% 14%
Total Return(3) (9.67)% -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $18,335,865 $18,385,069 $15,114,649 $8,704,859 $6,985,678 $2,871,446
- ------------------------------------------------------------------------------------------------------------------------------------
(1) For the two-month period ended December 31, 1998.
(2) Annualized.
(3) Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
SEE NOTES TO FINANCIAL STATEMENTS
44
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
NOTES TO FINANCIAL STATEMENTS
================================================================================
1 Significant Accounting Policies
- --------------------------------------------------------------------------------
Tax-Managed Growth 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 December 1, 1995, seeks to
provide long-term after-tax returns by investing in a diversified portfolio
of equity securities. The Declaration of Trust permits the Trustees to
issue interests in the Portfolio. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the
preparation of its financial statements. The policies are in conformity
with accounting principles generally accepted in the United States of
America.
A Investment Valuations -- Marketable securities, including options, that
are listed on foreign or U.S. securities exchanges or in the NASDAQ
National Market System are valued at closing sale prices on the exchange
where such securities are principally traded. Futures positions on
securities or currencies are generally valued at closing settlement prices.
Unlisted or listed securities for which closing sale prices are not
available are generally valued at the mean between the latest bid and asked
prices. Short-term debt securities with a remaining maturity of 60 days or
less are valued at amortized cost, which approximates fair value. 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.
Over-the-counter options are normally valued at the mean between the latest
bid and asked price. Investments 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.
B 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 on its
share of such taxable income. Since some of the Portfolio's investors are
regulated investment companies that invest all or substantially all of
their assets in the Portfolio, the Portfolio normally must satisfy the
applicable source of income and diversification requirements (under the
Internal Revenue Code) in order for its investors to satisfy them. The
Portfolio will allocate, at least annually among its investors, each
investor's distributive share of the Portfolio's net investment income, net
realized capital gains, and any other items of income, gain, loss,
deduction or credit.
C Futures Contracts -- Upon the entering of a financial futures contract,
the Portfolio is required to deposit either in cash or securities an amount
(initial margin) equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made
or received by the Portfolio (margin maintenance) each day, dependent on
daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by the Portfolio.
The Portfolio's investment in financial futures contracts is designed to
hedge against anticipated future changes in the price of current or
anticipated portfolio positions. Should prices move unexpectedly, the
Portfolio may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss.
D Put Options -- Upon the purchase of a put option by the Portfolio, the
premium paid is recorded as an investment, the value of which is
marked-to-market daily. When a purchased option expires, the Portfolio will
realize a loss in the amount of the cost of the option. When the Portfolio
enters into a closing sale transaction, the Portfolio will realize a gain
or loss depending on whether the sales proceeds from the closing sale
transaction are greater or less than the cost of the option. When the
Portfolio exercises a put option, settlement is made in cash. The risk
associated with purchasing options is limited to the premium originally
paid.
E Securities Sold Short -- The Portfolio may sell securities it does not
own in anticipation of a decline in the market price of the securities or
in order to hedge portfolio positions. The Portfolio will generally borrow
the security sold in order to make delivery to the buyer. Upon executing
the transaction, the Portfolio records the proceeds as deposits with
brokers in the Statement of Assets and Liabilities and establishes an
offsetting payable for securities sold short for the securities due on
settlement. The proceeds are retained by the broker as collateral for the
short position. The liability is marked-to-market and the Portfolio is
required to pay the lending broker any dividend or interest income earned
while the short position is open. A gain or loss is recorded when the
security is delivered to the broker. The Portfolio may recognize a loss on
the transaction if the market value of the securities sold increases before
the securities are delivered.
45
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
NOTES TO FINANCIAL STATEMENTS CONT'D
================================================================================
F Other -- Investment transactions are accounted for on the date the
securities are purchased or sold. Dividend income is recorded on the
ex-dividend date. 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. Interest income is recorded on the accrual basis.
G Use of Estimates -- The preparation of the financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of income and expense
during the reporting period. Actual results could differ from those
estimates.
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. Under the advisory agreement, BMR receives a monthly
advisory fee of 5/96 of 1% (0.625% annually) of the average daily net
assets of the Portfolio up to $500,000,000, and at reduced rates as daily
net assets exceed that level. For the year ended December 31, 2001, the
adviser fee was 0.43% of the Portfolio's average net assets. Except for
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. Trustees of the
Portfolio who are not affiliated with the Investment Adviser may elect to
defer receipt of all or a percentage of their annual fees in accordance
with the terms of the Trustees' Deferred Compensation Plan. For the year
ended December 31, 2001, no significant amounts have been deferred.
Certain officers and Trustees of the Portfolio are officers of the above
organizations.
3 Investment Transactions
- --------------------------------------------------------------------------------
For the year ended December 31, 2001, purchases and sales of investments,
other than short-term obligations, aggregated $3,145,062,958 and
$3,120,025,819, respectively. In addition, investments having an aggregate
market value of $359,656,314 at dates of withdrawal were distributed in
payment for capital withdrawals. During the year ended December 31, 2001,
investors contributed securities with a value of $1,798,445,978.
4 Federal Income Tax Basis of Investments
- --------------------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at December 31, 2001 as computed on a federal income tax
basis, were as follows:
AGGREGATE COST $ 6,190,955,787
---------------------------------------------------------
Gross unrealized appreciation $12,129,439,542
Gross unrealized depreciation (7,402,561)
---------------------------------------------------------
NET UNREALIZED APPRECIATION $12,122,036,981
---------------------------------------------------------
5 Financial Instruments
- --------------------------------------------------------------------------------
The Portfolio may trade in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options, forward foreign currency exchange contracts and financial
futures contracts and may involve, to a varying degree, elements of risk in
excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment the Portfolio has in particular classes of financial instruments
and does not necessarily represent the amounts potentially subject to risk.
The measurement of the risks associated with these instruments is
meaningful only when all related and offsetting transactions are
considered. The Portfolio did not have any open obligations under these
financial instruments at December 31, 2001.
6 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 participating
portfolio or fund based on its borrowings at an amount above either the
Eurodollar rate or Federal Funds rate. In addition, a fee computed at an
annual rate of 0.10% on the daily unused portion of the line of credit is
allocated among the participating portfolios and funds at the end of each
46
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
NOTES TO FINANCIAL STATEMENTS CONT'D
================================================================================
quarter. The Portfolio did not have any significant borrowings or allocated
fees during the year ended December 31, 2001.
7 Restricted Securities
- --------------------------------------------------------------------------------
At December 31, 2001, the Portfolio owned the following securities
(representing 2.0% of net assets) which were restricted as to public resale
and not registered under the Securities Act of 1933. The securities are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
DATE OF
DESCRIPTION ACQUISITION SHARES COST FAIR VALUE
- ------------------------------------------------------------------------------------------------
COMMON STOCKS
- ------------------------------------------------------------------------------------------------
Affiliated Computer Services, Inc. 11/29/00 80,327 $ 4,523,414 $ 8,519,244
American Standard Companies, Inc. 10/4/01 63,436 3,702,125 4,327,833
Andrx Group 11/29/00 300,000 19,706,250 21,108,478
Biomet, Inc. 7/26/01 76,929 2,504,295 2,374,749
BISYS Group, Inc. (The) 7/26/01 12,500 670,125 799,472
BISYS Group, Inc. (The) 12/18/01 20,000 1,190,400 1,279,032
Boeing Company (The) 9/27/00 250,000 16,531,250 9,689,547
Boeing Company (The) 3/14/01 200,000 12,114,000 7,752,122
Cardinal Health, Inc. 9/27/00 36,150 2,291,006 2,336,144
Carnival Corp. 3/14/01 500,000 14,160,000 14,032,980
Costco Wholesale Corporation 11/29/00 56,823 2,003,011 2,520,071
Dynegy, Inc. 11/29/00 63,525 3,112,725 1,618,893
Fedex Corp. 7/26/01 75,000 3,046,500 3,887,141
Fifth Third Bancorp 7/26/01 81,626 5,008,571 5,001,158
First Midwest Bancorp, Inc. 5/23/01 65,612 1,502,264 1,914,017
First Midwest Bancorp, Inc. 7/26/01 176,056 4,436,617 5,133,978
Freddie Mac 3/14/01 20,000 1,252,000 1,307,346
Genzyme Corp. 7/26/01 9,605 500,901 574,385
GreenPoint Financial Corp. 11/29/00 300,000 8,793,750 10,717,627
Greenpoint Financial Corp. 5/23/01 200,000 7,712,000 7,145,531
Intel Corp. 11/29/00 350,000 14,710,955 10,999,932
Intel Corp. 11/29/00 119,093 5,005,634 3,743,335
Intel Corp. 3/14/01 800,000 23,500,000 25,147,420
Intel Corp. 10/4/01 500,000 10,615,000 15,705,344
DATE OF
DESCRIPTION ACQUISITION SHARES COST FAIR VALUE
- ------------------------------------------------------------------------------------------------
International Game Technology 3/14/01 100,000 $ 5,227,000 $ 6,826,585
Interpublic Group Cos., Inc. 6/25/01 26,126 1,001,516 771,280
Investors Financial Services Corp. 5/23/01 32,000 2,301,120 2,117,396
Kinder Morgan, Inc. 9/27/00 500,000 19,687,500 27,829,337
King Pharmaceuticals, Inc. 11/29/00 2,085,117 77,703,201 87,785,585
Lilly (Eli) & Co. 11/29/00 38,250 3,509,437 3,002,090
Limited, Inc. (The) 9/27/00 45,139 1,001,522 664,072
Limited, Inc. (The) 5/23/01 200,000 3,382,000 2,942,160
MBNA Corp. 12/18/01 113,797 3,768,957 3,998,444
Mellon Financial Corp. 3/14/01 15,000 635,250 564,018
Merrill Lynch & Co., Inc. 11/29/00 150,000 9,206,250 7,812,625
National-Oilwell, Inc. 9/27/00 45,730 1,349,035 941,965
Outback Steakhouse, Inc. 11/29/00 325,000 13,031,250 11,123,597
Perot Systems Corp., Class A 5/23/01 400,000 6,172,000 8,162,895
Plexus Corp. 5/23/01 77,757 3,004,530 2,063,935
Raymond James Financial, Inc. 12/18/01 70,000 2,326,800 2,481,924
Schein (Henry), Corp. 3/14/01 147,354 5,010,036 5,453,790
Schwab (Charles) Corp. 12/18/01 133,650 2,031,480 2,063,844
Southwest Bancorporation of Texas, Inc. 5/23/01 600,000 19,296,000 18,150,649
Sysco Corp. 9/27/00 44,744 1,016,528 1,172,528
Wal-Mart Stores, Inc. 12/18/01 40,000 2,234,000 2,297,856
- ------------------------------------------------------------------------------------------------
$ 351,488,205 $ 365,862,354
- ------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS
- ------------------------------------------------------------------------------------------------
3/14/01-
7/25/01 11,050 $ 16,637,836 $ 180,902
Enron Corp.
- ------------------------------------------------------------------------------------------------
$ 16,637,836 $ 180,902
- ------------------------------------------------------------------------------------------------
47
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001
================================================================================
INDEPENDENT AUDITORS' REPORT
================================================================================
TO THE TRUSTEES AND INVESTORS OF TAX-MANAGED GROWTH PORTFOLIO:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tax-Managed Growth Portfolio (the Portfolio) as
of December 31, 2001, and the related statement of operations for the year then
ended, the statements of changes in net assets for the two years then ended and
the supplementary data for the three years ended December 31, 2001, the
two-month period ended December 31, 1998 and for each of the years in the
two-year period ended October 31, 1998. These financial statements and
supplementary data are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
supplementary data based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and supplementary data are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2001 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of the
Portfolio as of December 31, 2001, and the results of its operations, the
changes in its net assets and its supplementary data for the respective stated
periods in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2002
48
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 27th day of March, 2002.
BELAIR CAPITAL FUND LLC
(Registrant)
By: EATON VANCE MANAGEMENT,
Its Manager
By: /s/ William M. Steul
------------------------------------------
William M. Steul
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ James B. Hawkes Principal Executive Officer of Eaton March 27, 2002
- --------------------- Vance Management; Sole Director of
James B. Hawkes Eaton Vance Inc., sole trustee of
Eaton Vance Management
/s/ William M. Steul Chief Financial Officer of Eaton March 27, 2002
- --------------------- Vance Management
William M. Steul
-49-
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3 Copy of Amended and Restated Operating Agreement of the Fund
dated February 6, 1998 and First Amendment thereto dated
November 24, 1998 filed as Exhibit 3 to the Fund's Initial
Registration Statement on Form 10 and incorporated herein by
reference. (Note: the Operating Agreement also defines the
rights of the holders of Shares of the Fund)
4 Copy of Loan and Security Agreement dated as of February 5,
1998, First Amendment thereto dated as of April 30, 1998;
Second Amendment thereto dated as of June 25, 1998; Third
Amendment thereto dated as of December 18, 1998; and Fourth
Amendment thereto dated as of February 23, 1999 filed as
Exhibit 4 to the Fund's Initial Registration Statement on
Form 10 and incorporated herein by reference.
4(1) Copy of Fifth Amendment to Loan and Security Agreement dated
July 28, 1999 and Sixth Amendment thereto dated March 17,
2000 filed as Exhibit 4(1) to the Fund's Form 10-K on March
30, 2000 and incorporated herein by reference.
4(2) Copy of Seventh Amendment to Loan and Security Agreement
dated June 29, 2000 and Eighth Amendment thereto dated
November 27, 2000 filed as Exhibit 4(2) to the Fund's Form
10-K on March 30, 2001 and incorporated herein by reference.
9 Not applicable and not filed.
10(1) Copy of Investment Advisory and Administration Agreement
between the Fund and Boston Management and Research dated
November 24, 1998 filed as Exhibit 10(1) to the Fund's
Initial Registration Statement on Form 10 and incorporated
herein by reference.
10(1)(a) Copy of Amendment to Investment Advisory and Administration
Agreement between the Fund and Boston Management and
Research dated as of January 2, 2001 filed as
Exhibit 10(1)(a) to the Fund's Form 10-Q filed for the
period ended September 30, 2001 and incorporated herein by
reference.
10(2) Copy of Management Agreement between Belair Real Estate
Corporation and Boston Management and Research dated
November 23, 1998 filed as Exhibit 10(2) to the Fund's
Initial Registration Statement on Form 10 and incorporated
herein by reference.
-50-
10(2)(a) Copy of Amendment No. 1 to Management Agreement between
Belair Real Estate Corporation and Boston Management and
Research dated as of December 28, 1999 filed as Exhibit
10(2)(a) to the Fund's Form 10-K on March 30, 2001 and
incorporated herein by reference.
10(3) Copy of Investor Servicing Agreement between the Fund and
Eaton Vance Distributors, Inc. dated October 28, 1997 filed
as Exhibit 10(3) to the Fund's Initial Registration
Statement on Form 10 and incorporated herein by reference.
10(4) Copy of Custody and Transfer Agency Agreement between the
Fund and Investors Bank & Trust Company dated October 28,
1997 filed as Exhibit 10(4) to the Fund's Initial
Registration Statement on Form 10 and incorporated herein by
reference.
11 Not applicable and not filed.
12 Not applicable and not filed.
13 Not applicable and not filed.
16 Not applicable and not filed.
18 Not applicable and not filed.
21 List of Subsidiaries of the Fund filed herewith.
22 Not applicable and not filed.
23 Not applicable and not filed.
24 Not applicable and not filed.
99 Form N-SAR of Eaton Vance Tax-Managed Growth Portfolio
(File No. 811-7409) for its fiscal year ended December 31,
2001 filed electronically with the Securities and Exchange
Commission under the Investment Company Act of 1940 on
February 27, 2002 (Accession No. 0000940394-02-000091)
(incorporated herein by reference pursuant to Rule 12b-32).
-51-