ITEM 1. BUSINESS - -----------------
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
ITEM 2. PROPERTIES. - --------------------
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.
ITEM 3. LEGAL PROCEEDINGS. - ---------------------------
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - -------------------------------------------------------------
No items were submitted to a vote of security holders during the fiscal year ended December 31, 2001.
PART II -------
ITEM 5.
ITEM 5. MARKET FOR THE FUND'S SHARES AND RELATED SHAREHOLDER MATTERS. - ----------------------------------------------------------------------
(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
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 ------------- ---- --- 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
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.
ITEM 6.
ITEM 6. FINANCIAL INFORMATION. - -------------------------------
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.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. - --------------------------------------------------------------------------------
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
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.
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.
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
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.
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.
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
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
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.
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.
----------------------------------------------------- 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
----------------------------------------------------- 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.
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.
PART III --------
ITEM 10.
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.
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
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.
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.
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.
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.
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
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.
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
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
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
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
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
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.
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.
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
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
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.
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.
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 2001 ================================================================================ FINANCIAL STATEMENTS CONT'D ================================================================================ SUPPLEMENTARY DATA
(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
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.
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
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.
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
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
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.
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).