<PAGE>
[LOGO OF Investing [PHOTO OF HEAD OF STATUE
EATON VANCE for the OF LIBERTY APPEARS HERE]
MUTUAL FUNDS 21st
APPEARS HERE] Century
Annual Report December 31, 1998
BELAIR CAPITAL
FUND LLC
[PHOTO OF STREET SIGN OF
WALL STREET APPEARS HERE]
Eaton Vance
Global Management-Global Distribution
[PHOTO OF CALCULATOR [PHOTO OF TAX FORM
APPEARS HERE] 1120 APPEARS HERE]
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Belair Capital Fund LLC as of December 31, 1998
LETTER TO SHAREHOLDERS
The Belair Capital Fund LLC (the "Fund") achieved a total return of 17.1% during
the period from its inception on February 6, 1998 until December 31, 1998. This
return reflects an increase in the Fund's net asset value per share from $100.00
to $116.66, and the payment of an income distribution of $0.43 per share at the
conclusion of the year. For comparison, the S&P 500, an unmanaged index commonly
used to measure the performance of U.S. stocks, had a total return of 24.3% over
the same period.*
This year, U.S. equity market leadership came principally from the very largest
capitalization stocks that dominate the S&P 500 and to a lesser extent, the
holdings of Tax-Managed Growth Portfolio (the "Portfolio"). During 1998, more
than half of the returns of the S&P 500 came from just 15 stocks - each of which
is a mega-cap stock with a market value of more than $60 billion. Of the 500
stocks in the Index, fewer than 145 stocks did as well as the Index itself and a
majority of Index stocks underperformed the Index by more than 20%. Rarely has
the leadership in the U.S. stock market been as narrow as it was in 1998.
After an impressive rally in the first half of 1998, the market posted heavy
losses from August to early October, then performed strongly in the fourth
quarter. Investor confidence, bolstered by the Federal Reserve Board's interest
rate cuts, modest economic growth, and low inflation, kept stock prices moving
upward. The four-year period ending in 1998 marked the first time in history
that the S&P 500 achieved four consecutive years of annual total returns of at
least 20%.
Volatility and narrow leadership were also characteristics of the fixed income
markets in 1998. The Fund participates in fixed income investments through its
portfolio of Partnership Preference Units issued by operating partnerships
affiliated with publicly-traded REITs. As described in the Fund's semi-annual
report and the third quarter investment update, the Fund's performance during
the year was negatively affected by markdowns in the valuation of its holdings
of Partnership Preference Units and the associated interest rate swap
agreements. On a combined basis, the Fund's Partnership Preference Units 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. Although still wider than normal, by the end of the year
credit spreads had begun to narrow after widening precipitously in the third
quarter in reaction to financial turmoil in Russia and other economic hot spots
around the globe.
During the fourth quarter of 1998, the Fund organized a subsidiary, Belair Real
Estate Corporation ("BREC"), to hold the Fund's investments in Partnership
Preference Units. BREC is a Delaware corporation that has been organized and
intends to operate in such a manner as to qualify for taxation as a REIT. The
Fund owns 100% of the common stock issued by BREC and intends to hold all of
BREC's common stock at all times. Holding its investments in Partnership
Preference Units through a REIT subsidiary offers two advantages to the Fund and
its Shareholders. First, BREC may be able to acquire Partnership Preference
Units from more issuers than the Fund could invest in directly. Second, the
state tax filing requirements and payments obligations for various states that
apply to Shareholders as a result of the Fund investing directly in Partnership
Preference Units can generally be avoided if the Fund's real estate investments
are held through BREC.
For BREC to qualify as a REIT, it must be beneficially owned in the aggregate by
100 or more persons. BREC has satisfied this requirement by issuing to the Fund
approximately 2,100 shares of 8% preferred stock with a liquidation preference
of $100 per share, and by the Fund in turn donating 20 shares of such preferred
stock to up to 105 (currently 103) charitable organizations. The donation of
approximately $210,000 of preferred stock is an expense of the Fund. Eaton Vance
believes that the costs of organizing BREC and of qualifying BREC as a REIT are
small in relation to the associated benefits, and that holding the Partnership
Preference Units through BREC will result in net cost savings over time for the
Fund and its Shareholders.
Looking ahead to 1999, the factors that precipitated the turbulence in 1998
remain present. While volatility in the markets can be troubling, Eaton Vance
believes that, as a normal and healthy part of the investment process, market
fluctuations present good opportunities for long-term investors. We continue to
believe that the Fund is well-positioned to achieve strong after-tax performance
over the long term.
Eaton Vance Management
February 9, 1998
*It is not possible to invest directly in an Index.
2
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Belair Capital Fund LLC as of December 31, 1998
MANAGEMENT DISCUSSION
An interview with Duncan W. Richardson, Vice President and Portfolio Manager of
Belair Capital Fund LLC and Tax-Managed Growth Portfolio
[PHOTO OF DUNCAN W. RICHARDSON, PORTFOLIO MANAGER APPEARS HERE]
Duncan W. Richardson
Portfolio Manager
Q: Duncan, what can you tell us about the extreme highs and lows of the stock
market over the past year?
A: The market volatility that began in 1997 was amplified in 1998. At this
time last year, we were concerned that the Asian economies would be
collapsing. That fear turned out to be well-founded, but the U.S. market
rallied dramatically between January and April. An already high valuation
range for stocks was stretched to historic levels. With higher valuation
levels comes higher risk. In this environment, any external shock can have
an amplified effect on the market.
We have seen overreactions to political developments, the economic
slowdowns overseas, the risk of currency devaluations, and the deflationary
threat. All have swung the market wildly in the last several months.
Q: How did Tax-Managed Growth Portfolio perform in this context?
A: Overall, we have continued to do quite well despite increasing volatility
in the marketplace. Year in and year out, our goal is to be in the top
quintile of pre-tax performance for all growth funds, and the top decile
for after-tax performance.
For the year, our performance was below that of the S&P 500 but still
better than that of most competitive funds. 1998 was a year in which market
leadership was concentrated in a handful of very large capitalization
stocks that have major weightings in the S&P 500 index. Portfolios such as
ours that had smaller weightings in the very largest companies had a hard
time keeping up with the S&P 500. No doubt our more diversified, more
valuation-sensitive approach hurt us in terms of relative performance in
1998. But we think our less risky approach is likely to continue working
very well over the long term.
Q: Is there one factor that drives the performance of this Portfolio?
A: The performance of the Portfolio can't be attributed to one particular
stock or one particular sector. How the Portfolio performs depends more on
our ability to correctly evaluate the earnings potential of scores of
quality growth companies. We have an extremely well-seasoned team of
analysts, averaging 16 years of experience in their areas of research.
Strong research is central to Eaton Vance's fundamental approach to growth
stock investing.
As a growth fund, we look for companies with a history of strong earnings
and future growth potential. We are disciplined and don't want to overpay
for earnings that might not be delivered. The turbulent economic
environment around the world puts corporate earnings at risk. Companies
have been lowering their guidance for earnings, and as a result there have
been some dramatic devaluations of individual stocks and sectors. We have
used this near-term fear and uncertainty to our advantage, taking the
opportunity to buy when our favored stocks were "on sale."
Q: How do you decide when to sell a stock?
A: Our "selling discipline" is a key factor in the success of our management
style. As a rule, we seek to avoid selling highly appreciated securities
that would result in capital gains. Generally, if the market price of a
purchased stock in the Portfolio has underperformed by 10% or more from our
tax cost, we will consider selling the stock and taking a loss. This is a
good investment practice to preserve capital.
Selling an underperforming stock gives us a better perspective from which
to reevaluate both our original investment case and the company's current
fundamentals. Often, with emotion-driven volatility, we've had
opportunities to buy back a stock at a lower price than where we sold it.
We generally want to own stocks for a minimum of five years, so we can
easily sit out of an investment for 30 days. Our selling discipline helps
keep the Portfolio in the right investments at the right prices and adds to
the tax efficiency of our results.
3
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Belair Capital Fund LLC as of December 31, 1998
MANAGEMENT DISCUSSION
Q: What about a selling discipline for your "winners"?
A: As I said, we try not to sell highly appreciated securities that would
result in capital gains. That said, if an individual stock grows to become
too large a portion of the Portfolio, or if there has been a deterioration
in the company's fundamentals, I will generally try to lower the exposure
of the Portfolio to that stock. We make every effort to ensure any gains
taken are from the most favorable tax lots. This is to minimize any annual
distributions to our shareholders.
Q: Earlier you referred to the Portfolio being more diversified than some of
its competitors. Would you elaborate?
A: Certainly. There are other funds that focus more on specific sectors and
have higher concentrations in individual stocks. However, we don't
radically overweight or underweight any particular sector, and our top
holdings have been less concentrated versus other funds. We view
diversification as a partial shock absorber. Equity investors must take
some market risk in order to participate in the higher returns equities can
offer, but my mantra for this Portfolio is "No unnecessary risks."We
attempt to minimize our stock-specific and sector-specific risks.
Another factor distinguishes this Portfolio from passively managed index
funds and other "momentum"-style funds. A passive fund "automatically" buys
securities based on market capitalizations, without regard to fundamentals
or prices. Our active management style allows us to try to take advantage
of market volatility, rather than become a victim of it.
Q: What can you tell us about one of the Portfolio's top holdings, Automatic
Data Processing, Inc.?
A: This is a great example of a growth stock. We believe that over the long
haul, stock prices follow earnings. ADP has one of the best track records
for double-digit earnings growth, and we believe that the earnings stream
will continue to grow. As a long-term investor, that's exactly what we're
looking for. In addition, as a tax-conscious investor, we love this company
because we can use a buy-and-hold forever strategy. As long as the
company's growth continues, we will remain as investors. While the stock
has done well, at less than 2% of the Portfolio, I'm not yet worried about
too much stock-specific risk in Automatic Data, especially since its
fundamentals have remained on track.
Q: What do you see happening in the year ahead?
A: Historically high valuations and the dominance of many passive and
short-term investors in the market should ensure continued volatility. We
continue to anticipate a levelling off of equity market returns to the
historic average of 10% per year. It's important to remember that stock
prices will reflect the earnings power of individual companies, and
evaluating these earnings, not predicting markets, is our main focus.
We expect that downside earnings surprises will continue to play a role
through 1999, especially in certain industries as companies spend an
increasing amount to fix the Year 2000 computer problem. There are a number
of other potentially negative influences on corporate earnings that will
require constant monitoring by our research staff. Overall, we will aim to
keep the Portfolio's volatility low through its diversified structure and
our buy and sell disciplines.
4
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Belair Capital Fund LLC as of December 31, 1998
PORTFOLIO OF INVESTMENTS
Investment in Belvedere Capital Fund
Company LLC -- 79.0%
Security Shares Value
- --------------------------------------------------------------------------------
Investment in Belvedere Capital Fund
Company LLC (Belvedere Capital) 13,523,464 $2,004,500,206
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Total Investment in Belvedere Capital
(identified cost $1,742,223,436) $2,004,500,206
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Partnership Preference Units -- 21.0%
Security Units Value
- --------------------------------------------------------------------------------
AMB Property II, L.P. (Delaware Limited
Partnership affiliate of AMB, Property
Corporation), 8.75% Series C Cumulative
Redeemable Preferred Units, Callable
from 11/24/03+ 1,720,000 $ 88,752,000
CP Limited Partnership (Maryland Limited
Partnership affiliate of Chateau Communities,
Inc.), 8.125% Series A Cumulative Redeemable
Preferred Units, Callable from 4/20/03+ 1,060,000 51,200,120
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+ 1,600,000 72,787,200
Essex Portfolio L.P. (California Limited
Partnership affiliate of Essex Property
Trust, Inc.), 9.125% Series C Cumulative
Redeemable Preferred Units, Callable from
11/24/03+ 80,000 4,148,800
Kilroy Realty, L.P. (Delaware Limited
Partnership affiliate of Kilroy Realty
Corporation), 8.075% Series A Cumulative
Redeemable Preferred Units, Callable from
2/6/03+ 1,500,000 68,049,000
Kilroy Realty, L.P. (Delaware Limited
Partnership affiliate of Kilroy Realty
Corporation), 9.375% Series C Cumulative
Redeemable Preferred Units, Callable from
11/24/03+ 225,000 11,664,000
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+ 1,030,000 46,292,320
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+ 1,375,000 65,656,250
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+ (1) 1,600,000 74,498,586
Spieker Properties, L.P. (California
Limited Partnership affiliate of Spieker
Properties, Inc.), 7.6875% Series D
Cumulative Redeemable Preferred Units,
Callable from 4/20/03+ 1,050,000 48,190,800
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Total Partnership Preference Units
(identified cost $562,000,000) $ 531,239,076
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Total Investments -- 100.0%
(identified cost $2,304,223,436) $2,535,739,282
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+ Security exempt from registration under the Securities Act of 1933. At
December 31, 1998, the value of these securities totaled $531,239,076, or 21%
of investments.
(1) Security valued at fair value using methods determined in good faith by the
Investment Adviser.
See notes to financial statements
5
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Belair Capital Fund LLC as of December 31, 1998
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Assets and Liabilities
As of December 31, 1998
Assets
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Investments, at value (identified cost $2,304,223,436) $2,535,739,282
Cash 2,711,580
Deferred organization expenses 508,884
Dividends receivable 1,008,985
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Total assets $2,539,968,731
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Liabilities
- --------------------------------------------------------------------------------
Loan payable $ 583,000,000
Payable for open swaps contracts 18,155,651
Other accrued expenses
Interest expense 4,926,762
Other accrued expenses 1,037,946
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Total liabilities $ 607,120,359
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Net Assets for 16,568,833 shares outstanding $1,932,848,372
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Sources of Net Assets
- --------------------------------------------------------------------------------
Paid-in capital $1,779,879,517
Accumulated net realized loss on investments
(computed on the basis of identified cost) (55,088,152)
Accumulated distributions in excess of net investment
income (5,303,188)
Net unrealized appreciation of investments (computed
on the basis of identified cost) 213,360,195
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Total $1,932,848,372
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Net Asset Value and Redemption
Price Per Share
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($1,932,848,372 / 16,568,833 shares outstanding) $ 116.66
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Consolidated Statement of Operations
For the Period Ended
December 31, 1998*
Investment Income
- --------------------------------------------------------------------------------
Dividends allocated from Belvedere Capital (net of
foreign taxes, $143,058) $ 12,990,583
Interest allocated from Belvedere Capital 3,092,488
Expenses allocated from Belvedere Capital (8,389,441)
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Net investment income allocated from Belvedere Capital $ 7,693,630
Dividends from partnership preference units 27,046,398
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Total investment income $ 34,740,028
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Expenses
- --------------------------------------------------------------------------------
Investment adviser fee $ 3,925,054
Service fees 550,623
Interest expense 24,793,685
Interest expense on swap contracts 2,271,157
Legal and accounting services 870,618
Amortization of organization expenses 116,907
Custodian and transfer agent fees 42,258
Printing and postage 17,866
Miscellaneous 345,359
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Total expenses $ 32,933,527
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Net investment income $ 1,806,501
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Realized and Unrealized
Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions from Belvedere Capital
(identified cost basis) $ (46,063,908)
Investment transactions in partnership
preference units (identified cost basis) (7,709,060)
Investment transactions in copper and aluminum (1,315,184)
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Net realized loss $ (55,088,152)
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Change in unrealized appreciation (depreciation) --
Investment in Belvedere Capital (identified
cost basis) $ 262,276,770
Investments in partnership preference units
(identified cost basis) (30,760,924)
Interest rate swap contracts (18,155,651)
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Net change in unrealized appreciation (depreciation) $ 213,360,195
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Net realized and unrealized gain $ 158,272,043
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Net increase in net assets from operations $ 160,078,544
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* For the period from the start of business, February 6, 1998, to December 31,
1998.
See notes to financial statements
6
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Belair Capital Fund LLC as of December 31, 1998
CONSOLIDATED FINANCIAL STATEMENTS CONT'D
Consolidated Statement of Changes in Net Assets Consolidated Statement of Cash
Flows
Increase (Decrease) Period Ended
in Net Assets December 31, 1998*
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Net investment income $ 1,806,501
Net realized loss (55,088,152)
Net change in unrealized appreciation 213,360,195
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Net increase in net assets from operations $ 160,078,544
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Transactions in Fund shares --
Investment securities and cash contributed $ 1,848,834,256
Less - Selling commissions (8,445,747)
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Net contributions $ 1,840,388,509
Net asset value of shares issued to shareholders
in payment of distributions declared 4,012,014
Net asset value of shares redeemed (64,531,106)
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Net increase in net assets from Fund
share transactions $ 1,779,869,417
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Distributions to shareholders $ (7,109,689)
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Net increase in net assets $ 1,932,838,272
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Net Assets
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At beginning of period $ 10,100
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At end of period $ 1,932,848,372
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Accumulated distributions in
excess of net investment income
included in net assets
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At end of period $ (5,303,188)
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* For the period from the start of business, February 6, 1998, to December 31,
1998.
Increase (Decrease) For the Period Ended
in Cash December 31, 1998*
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Cash Flows From (For) Operating Activities --
Net investment income $ 1,806,501
Adjustment to reconcile net investment income to net
cash flows from operations --
Amortization of organization expense 116,907
Net investment income allocated from Belvedere Capital (7,693,630)
Increase in dividends receivable (1,008,985)
Payment of organization expenses (106,125)
Increase in interest payable for open swap contracts 720,561
Increase in accrued interest and accrued
operating expenses 4,724,481
Purchase of partner preference units, copper and aluminum (704,785,863)
Sale of partner preference units, copper and aluminum
at proceeds 133,761,619
Net decrease in investment in Belvedere Capital 16,045,885
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Net cash flows used for operating activities $ (556,418,649)
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Cash Flows From (For) Financing Activities --
Proceeds of loan $ 583,000,000
Contribution from Manager 100,000
Payments on behalf of investors (selling commissions) (8,445,747)
Payments for Fund shares redeemed (12,436,449)
Distributions paid (3,097,675)
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Net cash flows from financing activities $ 559,120,129
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Net increase in cash $ 2,701,480
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Cash at Beginning of Period $ 10,100
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Cash at End of Period $ 2,711,580
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Supplemental Disclosure and Non-cash Investing
and Financing Activities
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Securities contributed by Shareholders, invested
in Belvedere Capital $ 1,848,734,256
Unrealized appreciation of investments and open
swap contracts $ 213,360,195
Interest paid for loan $ 20,587,484
Interest paid for swap contracts $ 1,550,596
Market value of securities distributed in payment
of redemptions $ 52,094,657
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* For the period from the start of business, February 6, 1998, to December 31,
1998.
See notes to financial statements
7
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Belair Capital Fund LLC as of December 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Significant Accounting Policies
------------------------------------------------------------------------------
Belair Capital Fund LLC (Belair Capital) is organized as a Massachusetts
limited liability company 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
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 are directly and substantially affected by the performance of the
Portfolio. Separate from its investment in the Portfolio through Belvedere
Capital, the Fund invests indirectly in income-producing, preferred equity
interests in real estate operating partnerships (partnership preference units)
affiliated with publicly-traded real estate investment trusts (REITs). Belair
Capital's investment in partnership preference units is achieved through its
investment in Belair Real Estate Corporation (BREC). BREC is a Delaware
corporation that has been organized and intends to operate in such a manner as
to qualify for taxation as a REIT under the Internal Revenue Code. At December
31, 1998, BREC was a wholly-owned subsidiary of the Fund.
The accompanying consolidated financial statements include the accounts of
Belair Capital and BREC (collectively, the Fund). All material intercompany
accounts and transactions have been eliminated. For informational purposes,
the Portfolio's audited schedule of investments as well as an unaudited
summary of its operations are included with these consolidated financial
statements (see Note 8).
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its consolidated financial
statements.
A Investment Security Costs -- The Fund's investment assets were principally
acquired on February 6, 1998, April 20, 1998 and June 25, 1998 through
contributions of common stock by Shareholders in exchange for Shares of the
Fund and in private purchases of partnership preference units, copper and
aluminum. The Fund 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 are
carried on the books and in the financial statements is the value of the
contributed securities as of the close of business on the day prior to their
contribution to the Fund and, in the case of purchased securities, the
acquisition price thereof. 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 basis of securities purchased by the Fund is the purchase cost. As
of December 31, 1998 the aggregate tax basis of the Fund's investments was
$615,960,955.
B Investment Valuations -- The Fund's investments consist of partnership
preference units and shares of Belvedere Capital. Belvedere Capital's
exclusive 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 (see Note 7). The valuation policy
that follows is applicable to the assets of the Fund, Belvedere Capital and
the Portfolio. 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
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. 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 the Investment Adviser. Interest rate swap
contracts are valued by obtaining dealer or counterparty quotes.
8
<PAGE>
Belair Capital Fund LLC as of December 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
C Income -- Dividend income is recorded on the ex-dividend date and interest
income is 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 generally accepted accounting
principles. 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 generally accepted
accounting principles.
D 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. BREC expects to qualify as a REIT under the Internal Revenue Code
of 1986, as amended. BREC will generally not be subject to federal income tax
to the extent that it distributes its earnings to its shareholders and
maintains its qualification as a REIT.
E Deferred Organization Expenses -- Costs incurred by Belair Capital in
connection with its organization are being amortized on a straight-line basis
over five years. Costs incurred in connection with the organization of BREC
are expensed as incurred.
F Interest Rate Swaps -- The Fund has entered into interest rate swap
agreements with respect to its borrowings and investments in fixed-rate
partnership preference units. Pursuant to these agreements, the Fund 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, based on notional values approximately equal to
the Fund's acquisition cost for the fixed-rate partnership preference units.
During the terms of the outstanding swap agreements, changes in the underlying
values of the swaps are recorded as unrealized gains or losses. The Fund is
exposed to credit loss in the event of non-performance by the swap
counterparty. However, the Fund does not anticipate non-performance by the
counterparty.
G 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 Statement of Assets and Liabilities 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 which expire are treated as
realized gains. Premiums received from writing options which 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.
H Purchased Options -- Upon the purchase of a put option, the premium paid by
the Portfolio or Fund is included in the Statement of Assets and Liabilities
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.
I Other -- Investment transactions are accounted for on a trade date basis.
J Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles 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.
9
<PAGE>
Belair Capital Fund LLC as of December 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
2 Distributions to Shareholders
------------------------------------------------------------------------------
The Fund Belair Capital 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 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 will be made. In addition,
whenever a distribution in respect of a precontribution gain is made, the Fund
intends to make a supplemental distribution to compensate shareholders
receiving such distributions for taxes that may be due in connection with the
precontribution gain and supplemental distributions.
3 Shareholder Transactions
------------------------------------------------------------------------------
The Fund may issue an unlimited number of full and fractional shares.
Transactions in Fund shares during the period from the start of business,
February 6, 1998, to December 31, 1998, including contributions of securities
and cash in exchange for shares of the Fund were as follows:
Period Ended
December 31, 1998*
------------------------------------------------------------------------------
Issued at fund closings 17,179,862
Reinvestments 34,610
Redemptions (645,740)
------------------------------------------------------------------------------
Net increase 16,568,732
------------------------------------------------------------------------------
* For the period from the start of business, February 6, 1998, to December 31,
1998.
Redemptions of shares held less than three years are generally subject to a
redemption fee of 1% of the net asset value of shares redeemed. The redemption
fee is paid to the Investment Adviser by the Fund on behalf of the redeeming
Shareholder. No charge is levied on redemptions of shares acquired through the
reinvestment of distributions, shares redeemed in connection with a Tender
Security or shares redeemed following the death of all of the initial holders
of the shares redeemed. In addition, no fee applies to redemptions by a
Shareholder, who, during any 12-month period, redeem less than 8% of the total
number of shares held by the Shareholder as of the beginning of the 12-month
period. For the period from the start of business, February 6, 1998, to
December 31, 1998, the Investment Adviser received $440,451 in redemption
fees. In connection with the offering of shares, Eaton Vance Distributors,
Inc. (EVD), the Placement Agent, received $8,445,747 in selling commissions
paid by the Fund on behalf of shareholders. EVD, in turn, paid this amount to
the applicable subagent on behalf of shareholder investing in the Fund through
such subagent. In addition, Boston Management and Research (BMR), the
investment adviser of the Fund and the Portfolio, made payments to subagents
from its own resources totaling $18,442,498, equal to 1.0% of the value of
investments in the Fund made through subagents.
4 Investment Transactions
------------------------------------------------------------------------------
Increases and decreases of the Fund's investment in Belvedere Capital for the
period from the start of business, February 6, 1998, to December 31, 1998
aggregated $1,875,207,010 and $102,953,409, respectively. Purchases and sales
of other investments (partnership preference units, copper and aluminum)
aggregated $704,785,863 and $133,761,619, respectively, during the period.
Sales of other investments during the period include the sale of partnership
preference units with a value on the date sold of $86,540,940 to Belcrest
Capital Fund LLC, a fund similar to the Fund that is sponsored by Eaton Vance
Management. In addition, investments were distributed in payment of Fund
shares redeemed resulting in realized capital gains of $4,147,939 for book
purposes.
5 Management Fee and Other Transactions With Affiliates
------------------------------------------------------------------------------
The Fund and the Portfolio have engaged Boston Management and Research (BMR),
a wholly-owned subsidiary of Eaton Vance Management (EVM) 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 period from the Fund's start of
business, February 6, 1998, to December 31, 1998 the advisory fee applicable
to the Portfolio was 0.478% of average net assets for such period. Belvedere
Capital's allocated portion of the advisory fee amounted to $11,018,954, of
which $5,878,535 was allocated to the Fund, for the period from the start of
business, February 6, 1998, to December 31, 1998. 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 investment assets of Belair Capital
10
<PAGE>
Belair Capital Fund LLC as of December 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
(including 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) and BREC pays BMR a monthly
management fee at a rate of 1/20th of 1% (equivalent to 0.60% annually) of its
average gross investment assets (including the value of all assets of BREC,
minus the sum of BREC's liabilities other than any liability with respect to
Belair Capital's Credit Facility). The advisory fee payable by the Portfolio
in respect of the Fund's indirect investment in the Portfolio is credited
toward the Fund's advisory and administrative fee payment. For the period from
the start of business, February 6, 1998, to December 31, 1998 the advisory and
administrative fee payable to BMR by the Fund, less the Fund's allocated share
of the Portfolio's advisory fee, totaled $3,925,054.
Eaton Vance Management (EVM) serves as manager of the Fund and receives no
separate compensation for services provided in such capacity.
Pursuant to a servicing agreement between Belvedere Capital and Eaton Vance
Distributors, Inc. (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 $3,540,070 for the period from the Fund's
start of business, February 6, 1998, to December 31, 1998, of which $1,954,668
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 the Belair Capital's allocated share of the servicing fee
payable by Belvedere Capital. For the period from the start of business,
February 6, 1998, to December 31, 1998 the servicing fee paid directly by
Belair Capital totaled $550,623. For shares sold through a subagent, EVD
intends to assign servicing responsibilities and fees to the applicable
subagent beginning twelve months after the issuance of Fund shares to such
persons.
6 Credit Facility
------------------------------------------------------------------------------
The Fund has obtained a $600,000,000 Credit Facility with a term of seven
years from Merrill Lynch International Bank Limited. The Fund's obligations
under the Credit Facility are secured by a pledge of its assets. Interest on
borrowed funds is based on the prevailing LIBOR rate for the respective
interest period plus a spread of 0.45% per annum. The Fund may borrow for
interest periods of one month to five years. In addition, the Fund pays a
commitment fee at a rate of 0.10% per annum on the unused amount of the loan
commitment. Initial borrowings have been used to purchase qualifying assets
(partnership preference units, copper and aluminum) to 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, 1998, amounts outstanding under
the Credit Facility totaled $583,000,000.
7 Interest Rate Swap Agreements
------------------------------------------------------------------------------
The Fund has entered into interest rate swap agreements with Merrill Lynch
Capital Services, Inc., with respect to each of its holdings of partnership
preference units and the associated borrowings. Under such agreements, the
Fund has agreed to pay a fixed rate of interest in exchange for a floating
rate of interest. The notional or contractual amounts of these instruments may
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these investments is meaningful only
when considered in conjunction with all related assets, liabilities and
agreements. The Fund has the right to terminate the interest rate swap
agreements beginning in the first half of 2003, at dates corresponding
approximately to the initial call dates of the partnership preference units
held by the Fund.
Notional Initial
Amount Optional
Effective (000's Fixed Floating Termination Maturity Unrealized
Date omitted) Rate Rate Date Date Depreciation
- --------------------------------------------------------------------------------
2/98 $ 60,000 6.72% Libor+.45% 2/03 2/05 $1,845,506
2/98 120,000 6.715% Libor+.45% 2/03 2/05 3,665,804
4/98 50,000 6.84% Libor+.45% 2/03 2/05 1,788,985
4/98 150,000 6.835% Libor+.45% 4/03 4/05 5,584,296
6/98 20,000 6.67% Libor+.45% 6/03 2/05 620,177
6/98 75,000 6.68% Libor+.45% 6/03 2/05 2,358,284
6/98 80,000 6.595% Libor+.45% 6/03 2/05 2,219,084
8 Indirect Investment in Portfolio
------------------------------------------------------------------------------
Belvedere Capital's interest in the Portfolio at December 31, 1998, was
$3,771,343,746, representing 43.3% of the Portfolio's net assets. The Fund's
investment in Belvedere Capital at December 31, 1998 was $2,004,500,206,
representing
11
<PAGE>
Belair Capital Fund LLC as of December 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
53.2% of Belvedere Capital's net assets. Investment income allocated to
Belvedere Capital from the Portfolio for the period from the Fund's start of
business, February 6, 1998, to December 31, 1998 totaled $29,675,606, of which
$16,083,071 was allocated to the Fund. Expenses allocated to Belvedere Capital
from the Portfolio for the period from the Fund's start of business, February
6, 1998, to December 31, 1998 totaled $11,539,531, of which $6,305,794 was
allocated to the Fund. Belvedere Capital allocated additional expenses to the
Fund of $2,083,647 for the period from the Fund's start of business, February
6, 1998, to December 31, 1998, representing $128,979 of operating expenses and
$1,954,668 of service fees (see Note 5).
A summary of the Portfolio's Statement of Assets and Liabilities, at December
31, 1998, and its operations for the period from the Fund's start of business,
February 6, 1998 to December 31, 1998 follows:
Investments, at value $ 8,713,317,160
Other Assets 7,040,200
----------------------------------------------------------------------------
Total Assets $ 8,720,357,360
Total Liabilities 15,498,025
----------------------------------------------------------------------------
Net Assets $ 8,704,859,335
----------------------------------------------------------------------------
Dividends and interest $ 70,963,640
----------------------------------------------------------------------------
Investment adviser fee (Note 5) 26,313,762
Other expenses 1,306,076
----------------------------------------------------------------------------
Total expenses $ 27,619,838
----------------------------------------------------------------------------
Net investment income $ 43,343,802
Net realized losses (69,097,723)
Net unrealized gains 1,226,948,293
----------------------------------------------------------------------------
Net increase in net assets from operations $ 1,201,194,372
----------------------------------------------------------------------------
12
<PAGE>
Tax-Managed Growth Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS
Common Stocks-- 94.7%
Security Shares Value
- --------------------------------------------------------------------------
Advertising and Marketing Services -- 2.6%
- --------------------------------------------------------------------------
ACNielsen Corp.(1) 45,668 $ 1,290,121
Advo, Inc.(1) 170,000 4,483,750
Harte-Hanks Communications, Inc. 144,604 4,121,214
Interpublic Group of Companies, Inc. 582,138 46,425,506
Omnicom Group, Inc. 2,298,418 133,308,243
R.H. Donelley Corp. 8,153 118,728
Snyder Communications, Inc.(1)(2) 442,500 14,929,397
Snyder Communications, Inc.(1)(2) 40,000 1,348,875
TMP Worldwide, Inc.(1) 43,000 1,806,000
True North Communications, Inc. 93,000 2,499,375
True North Communications, Inc.(2) 200,000 5,358,248
WPP Group PLC 488,000 2,969,626
Young and Rubicam, Inc.(1) 186,000 6,021,750
- --------------------------------------------------------------------------
$ 224,680,833
- --------------------------------------------------------------------------
Aerospace and Defense -- 0.2%
- --------------------------------------------------------------------------
Allied Signal, Inc. 25,000 $ 1,107,813
Boeing Company (The) 228,127 7,442,643
Raytheon Co., Class B 213,564 11,372,283
- --------------------------------------------------------------------------
$ 19,922,739
- --------------------------------------------------------------------------
Apparel & Textiles -- 0.0%
- --------------------------------------------------------------------------
Unifi, Inc. 50,000 $ 978,125
- --------------------------------------------------------------------------
$ 978,125
- --------------------------------------------------------------------------
Auto and Parts -- 0.9%
- --------------------------------------------------------------------------
Aftermarket Technology Corp.(1)(2) 46,000 $ 361,767
Borg-Warner Automotive, Inc. 225,000 12,557,813
DaimlerChrysler(1) 19,952 1,916,639
Ford Motor Co. 32,000 1,878,000
General Motors Corp. 3,969 284,032
Genuine Parts Co. 147,059 4,917,285
Harley-Davidson, Inc. 1,000 47,375
Magna International, Inc., Class A 875,000 54,250,000
Meritor Automotive, Inc. 61,133 1,295,255
SPX Corp.(1) 47,862 3,206,754
TRW, Inc. 2,000 112,375
- --------------------------------------------------------------------------
$ 80,827,295
- --------------------------------------------------------------------------
Banks - Money Center -- 0.1%
- --------------------------------------------------------------------------
Bank of Montreal 36,650 $ 1,470,581
Chase Manhattan Corp. 78,566 5,347,398
Morgan (J.P.) & Co., Inc. 1,000 105,063
National Westminster Bank PLC 8,753 1,037,231
- --------------------------------------------------------------------------
$ 7,960,273
- --------------------------------------------------------------------------
Banks - Regional -- 5.4%
- --------------------------------------------------------------------------
AmSouth Bancorporation 27,492 $ 1,254,323
Bank of Granite Corp. 22,500 621,563
Bank of New York Co., Inc. (The) 245,144 9,867,046
Bank One Corp. 839,254 42,854,407
Bank United Corp. 65,000 2,551,250
BankAmerica Corp. 611,569 36,770,586
BankBoston Corp. 1,502,000 58,484,125
BB&T Corp. 66,470 2,679,572
City National Corp. 100,000 4,162,500
Colonial Bancgroup, Inc. (The) 310,822 3,729,864
Comerica, Inc. 100,779 6,871,868
Community First Bancshares, Inc. 296,000 6,234,500
Community First Bancshares, Inc.(2) 72,000 1,514,604
Compass Bancshares, Inc. 171,112 6,512,951
Crestar Financial Corp. 83,348 6,001,056
Fifth Third Bancorp 126,710 9,036,007
First Citizens BancShares, Inc. 47,900 4,311,000
First Tennessee National Corp. 33,488 1,274,637
First Union Corp. 1,054,655 64,136,206
Fleet Financial Group, Inc. 114,972 5,137,811
Golden West Financial Corp. 7,000 641,813
Keycorp 422,594 13,523,008
Marshall and Ilsley Corp. 20,000 1,168,750
Mellon Bank Corp. 16,000 1,100,000
Mercantile Bancorporation, Inc. 168,462 7,770,310
National City Corp. 90,150 6,535,875
National Commerce Bancorporation(2) 159,632 3,002,076
Northern Trust Corp. 181,898 15,881,969
Old Kent Financial Corp. 33,000 1,534,500
PNC Bank Corp. 62,502 3,382,921
Regions Financial Corp. 49,300 1,987,406
Southwest Bancorporation of
Texas, Inc.(1) 7,688 137,423
Sovereign Bancorp., Inc. 366,000 5,215,500
Summit Bancorp. 21,000 917,438
SunTrust Banks, Inc. 480 36,720
See notes to financial statements
13
<PAGE>
Tax-Managed Growth Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------
Banks - Regional (continued)
- --------------------------------------------------------------------------
Synovus Financial 41,776 $ 1,018,290
U.S. Bancorp. 155,474 5,519,327
Union Planters Corp. 56,875 2,577,148
Valley National Bancorp. 230,863 6,507,451
Wachovia Corp. 37,199 3,252,588
Washington Mutual, Inc. 143,506 5,480,135
Wells Fargo & Co. 2,714,048 108,392,291
Westamerica Bancorporation 82,596 3,035,403
Zions Bancorporation 20,000 1,247,500
- --------------------------------------------------------------------------
$ 473,871,718
- --------------------------------------------------------------------------
Beverages -- 1.5%
- --------------------------------------------------------------------------
Anheuser-Busch Cos., Inc. 546,465 $ 35,861,766
Coca-Cola Company (The) 612,666 40,972,039
PepsiCo, Inc. 1,343,931 55,017,175
- --------------------------------------------------------------------------
$ 131,850,980
- --------------------------------------------------------------------------
Broadcasting and Cable -- 1.5%
- --------------------------------------------------------------------------
Clear Channel Communications, Inc.(1) 108,600 $ 5,918,700
Comcast Corp., Class A 62,500 3,667,969
Cox Communications, Inc., Class A(1) 193,319 13,363,176
Infinity Broadcasting Corp.(1) 34,500 944,438
Liberty Media Group, Class A(1) 91,828 4,229,827
MediaOne Group, Inc.(1) 1,259,024 59,174,128
Tele-Communications, Inc., Series
A(1) 546,073 30,204,663
Univision Communications, Inc.(1) 200,649 7,260,986
Univision Communications, Inc.(1)(2) 183,556 6,634,130
- --------------------------------------------------------------------------
$ 131,398,017
- --------------------------------------------------------------------------
Building Materials and Tools -- 0.5%
- --------------------------------------------------------------------------
American Standard Companies, Inc.(1) 172,899 $ 6,224,364
CRH PLC 258,294 4,443,380
Interface, Inc. 484,412 4,495,973
Masco Corp. 228,662 6,574,033
Sherwin-Williams Co. (The) 44,670 1,312,181
Snap-On, Inc. 44,444 1,547,207
Valspar Corp. 620,000 23,133,750
Walter Industries, Inc.(1) 1,000 15,313
- --------------------------------------------------------------------------
$ 47,746,201
- --------------------------------------------------------------------------
Business Services - Miscellaneous -- 1.0%
- --------------------------------------------------------------------------
Cintas Corp. 131,244 $ 9,244,499
Corrections Corporation of America(1) 97,310 1,715,089
Fair, Issac and Co., Inc. 88,828 4,102,743
Fair, Issac and Co., Inc.(2) 150,000 6,922,352
Half (Robert) International, Inc.(1) 1,800 80,438
Manpower, Inc. 110,000 2,770,625
Metzler Group, Inc. (The)(1) 314,880 15,330,720
Metzler Group, Inc. (The)(1)(2) 273,312 13,291,353
Navigant International, Inc.(1) 59,631 458,413
Romac International, Inc.(1)(2) 45,546 1,013,061
ServiceMaster Co. 515,201 11,366,622
Staff Leasing, Inc.(1) 78,125 908,203
Staff Leasing, Inc.(1)(2) 78,125 906,992
Sylvan Learning Systems, Inc.(1) 509,469 15,538,805
Viad Corp. 40,314 1,224,538
- --------------------------------------------------------------------------
$ 84,874,453
- --------------------------------------------------------------------------
Chemicals -- 0.8%
- --------------------------------------------------------------------------
Bayer AG ADR 40,000 $ 1,670,348
Dow Chemical Co. (The) 21,318 1,938,606
DuPont (E.I.) de Nemours & Co. 223,800 11,875,388
Eastman Chemical Co. 123 5,504
Monsanto Co. 1,142,240 54,256,400
Octel Corp.(1) 8,322 115,468
Solutia, Inc. 200,336 4,482,518
- --------------------------------------------------------------------------
$ 74,344,232
- --------------------------------------------------------------------------
Communications Equipment -- 2.0%
- --------------------------------------------------------------------------
3Com Corp.(1) 902,883 $ 40,460,444
Ascend Communications, Inc.(1) 11,000 723,250
Comverse Technology, Inc.(1) 100,000 7,100,000
Dialogic Corp.(1) 80,000 1,572,504
General Cable Corp. 3,000 61,500
General Motors Corp., Class H(1) 300,000 11,906,250
L.M. Ericsson Telephone Co., ADR 452,000 10,819,750
Lucent Technologies, Inc. 19,369 2,130,590
Nokia Corp., Class A ADR 644,720 77,648,464
Northern Telecom Ltd. ADR 138,263 6,930,433
PairGain Technologies, Inc.(1) 350,581 2,695,091
Salient 3 Communications, Inc.,
Class A 78,125 712,891
Tellabs, Inc.(1) 151,623 10,395,652
- --------------------------------------------------------------------------
$ 173,156,819
- --------------------------------------------------------------------------
See notes to financial statements
14
<PAGE>
Tax-Managed Growth Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------
Communications Services -- 1.9%
- --------------------------------------------------------------------------
Airtouch Communications, Inc.(1) 1,420 $ 102,418
Aliant Communications, Inc. 86,322 3,528,412
Alltel Corp. 54,746 3,274,520
American Tower Corp., Class A(1) 149,451 4,418,145
Ameritech Corp. 28,968 1,835,847
AT&T Corp. 71,617 5,389,179
Bell Atlantic Corp. 8,448 447,744
BellSouth Corp. 43,912 2,190,111
Citizens Utilities Corp., Class B(1) 45,311 368,154
Frontier Corp. 32,129 1,092,386
GTE Corp. 12,176 791,440
GTE Corp.(2) 17,500 1,128,021
Intermedia Communications, Inc.(1) 113,637 1,960,238
ITC Deltacom, Inc.(1)(2) 628,773 9,536,050
IXC Communications, Inc.(1) 135,000 4,539,375
MCI Worldcom, Inc.(1) 1,422,741 102,081,666
McLeodUSA, Inc.(1) 57,143 1,785,719
McLeodUSA, Inc.(1)(2) 36,000 1,124,625
Nextel Communications, Inc.,
Class A(1) 75,830 1,791,484
Premiere Technologies, Inc.(1) 28,000 206,500
SBC Communications, Inc. 10,437 559,684
Sprint Corp. 1,885 158,576
Sprint Corp. (PCS Group)(1) 942 21,784
Tel-Save Holdings, Inc.(1) 247,376 4,143,548
Telecom Corp. of New Zealand Ltd. ADR 8,000 285,500
Teleglobe, Inc. 88,500 3,186,000
Telephone & Data Systems, Inc. 131,756 5,920,785
US West, Inc. 26,551 1,715,858
Winstar Communications, Inc.(1) 11,424 445,536
- --------------------------------------------------------------------------
$ 164,029,305
- --------------------------------------------------------------------------
Computer Software -- 2.9%
- --------------------------------------------------------------------------
Aspect Development, Inc.(1)(2) 100,000 $ 4,417,439
Baan Co., NV ADR(1) 223,926 2,351,223
BMC Software, Inc.(1) 8,000 356,500
Boole and Babbage, Inc.(1) 40,000 1,177,500
Cadence Design Systems, Inc.(1) 506,000 15,053,500
Computer Associates
International, Inc. 854,500 36,423,063
Compuware Corp.(1) 1,400 109,375
CSG Systems International, Inc.(1) 20,558 1,624,082
HNC Software, Inc.(1) 329,814 13,336,854
HNC Software, Inc.(1)(2) 147,980 5,981,448
Intuit, Inc.(1) 285,917 20,728,983
Microsoft Corp.(1) 281,755 39,075,897
Oracle Corp.(1) 1,262,500 54,445,313
Parametric Technology Corp.(1) 94,600 1,537,250
PeopleSoft, Inc.(1) 354,174 6,707,170
Platinum Technology, Inc.(1) 155,000 2,964,375
Sapient Corp.(1) 323,876 18,137,056
Security Dynamics Technologies,
Inc.(1) 40,000 920,000
Siebel Systems, Inc.(1) 118,000 4,004,625
Siebel Systems, Inc.(1)(2) 300,000 10,149,518
Sterling Commerce, Inc.(1) 2,388 107,460
Structural Dynamics Research
Corp.(1) 675,000 13,415,625
Wind River Systems, Inc.(1) 21,622 1,016,234
Wind River Systems, Inc.(1)(2) 13,000 610,796
- --------------------------------------------------------------------------
$ 254,651,286
- --------------------------------------------------------------------------
Computers and Business Equipment -- 7.6%
- --------------------------------------------------------------------------
Cabletron Systems, Inc.(1) 33,715 $ 282,363
Cisco Systems, Inc.(1) 1,026,251 95,248,920
Compaq Computer Corp. 38,490 1,614,174
Dell Computer Corp.(1) 3,800 278,113
Dell Computer Corp.(1)(2) 1,500,000 109,744,655
Dell Computer Corp.(1)(2) 150,512 10,999,533
EMC Corp.(1) 22,162 1,883,770
Fore Systems, Inc.(1) 222,250 4,069,953
Fore Systems, Inc.(1)(2) 38,466 703,528
Gateway 2000, Inc.(1)(2) 200,000 10,224,703
Gateway 2000, Inc.(1)(2) 200,000 10,190,578
Hewlett-Packard Co. 588,680 40,214,203
International Business Machines Corp. 154,198 28,488,081
Lexmark International Group,
Inc.(1) 1,841,746 185,095,472
Seagate Technology, Inc.(1) 40,000 1,210,000
Sun Microsystems, Inc.(1) 3,500 299,688
Xerox Corp. 1,334,000 157,411,999
- --------------------------------------------------------------------------
$ 657,959,733
- --------------------------------------------------------------------------
Conglomerates -- 1.4%
- --------------------------------------------------------------------------
General Electric Co. 1,066,342 $ 108,833,529
General Electric Co.(2) 21,155 2,157,675
United Technologies Corp. 86,242 9,378,818
- --------------------------------------------------------------------------
$ 120,370,022
- --------------------------------------------------------------------------
See notes to financial statements
15
<PAGE>
Tax-Managed Growth Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------
Consumer Services-- 0.3%
- --------------------------------------------------------------------------
Block (H&R), Inc. 366,177 $ 16,477,965
Cendant Corp.(1) 187,999 3,583,731
Service Corp. International 130,389 4,962,931
Stewart Enterprises, Inc. 153,992 3,426,322
- --------------------------------------------------------------------------
$ 28,450,949
- --------------------------------------------------------------------------
Containers and Packaging -- 0.2%
- --------------------------------------------------------------------------
Sealed Air Corp.(1) 325,000 $ 16,595,313
Sonoco Products Co. 78,571 2,327,666
- --------------------------------------------------------------------------
$ 18,922,979
- --------------------------------------------------------------------------
Distribution Services -- 1.6%
- --------------------------------------------------------------------------
Airgas, Inc.(1) 536,219 $ 4,792,457
Cardinal Health, Inc. 747,356 56,705,637
School Specialty, Inc.(1) 66,257 1,416,234
Sysco Corp. 1,766,922 48,479,922
U.S. Foodservice, Inc.(1) 505,489 24,768,961
U.S. Foodservice, Inc.(1)(2) 66,438 3,252,749
US Office Products Co.(1) 149,077 577,674
Wilmar Industries, Inc.(1) 50,000 1,015,625
- --------------------------------------------------------------------------
$ 141,009,259
- --------------------------------------------------------------------------
Drugs -- 9.3%
- --------------------------------------------------------------------------
Abbott Laboratories 1,208,935 $ 59,237,814
Agouron Pharmaceuticals, Inc.(1) 355,077 20,860,774
Allergan, Inc. 50,000 3,237,500
American Home Products Corp. 4,600 259,038
Amgen, Inc.(1) 405,532 42,403,440
Astra AB, Class A 1,074,400 21,937,207
Astra AB, Class B ADR 160,000 3,310,000
Bristol-Myers Squibb Co. 383,255 51,284,310
Covance, Inc.(1) 81,250 2,366,406
Elan Corp., PLC ADR(1) 339,630 23,625,512
Genentech, Inc.(1) 80,000 6,375,000
Genzyme Corp., Class A(1) 970,000 48,257,500
Incyte Pharmaceuticals, Inc.(1)(2) 577,571 21,582,639
Incyte Pharmaceuticals, Inc.(1) 150,856 5,638,243
Incyte Pharmaceuticals, Inc.(1)(2) 328,053 12,257,303
Lilly (Eli) & Co. 825,448 73,361,690
Merck & Co., Inc. 597,415 88,230,727
Parexel International Corp.(1) 35,000 875,000
Pfizer, Inc. 881,021 110,513,071
Quintiles Transnational Corp.(1) 195,420 10,430,543
Schering-Plough Corp. 643,784 35,569,066
Sepracor, Inc.(1) 440,000 38,775,000
SmithKline Beecham PLC ADR 301,940 20,984,830
Teva Pharmaceutical Industries
Ltd. ADR(2) 100,000 4,065,834
Vertex Pharmaceuticals, Inc.(1) 35,000 1,041,250
Warner-Lambert Co. 716,032 53,836,656
Watson Pharmaceuticals, Inc.(1) 599,550 37,696,706
Watson Pharmaceuticals, Inc.(1)(2) 122,888 7,720,144
- --------------------------------------------------------------------------
$ 805,733,203
- --------------------------------------------------------------------------
Electric Utilities -- 0.2%
- --------------------------------------------------------------------------
Central and South West Corp. 1,600 $ 43,900
Dominion Resources, Inc. 28,938 1,352,852
Duke Energy Corp. 1,800 115,313
New England Electric System 2,700 129,938
Teco Energy, Inc. 40,000 1,127,500
Texas Utilities Co. 250,196 11,681,026
- --------------------------------------------------------------------------
$ 14,450,529
- --------------------------------------------------------------------------
Electrical Equipment -- 0.5%
- --------------------------------------------------------------------------
American Power Conversion Corp.(1) 200,000 $ 9,687,500
AMP, Inc. 112,340 5,848,701
Emerson Electric Co. 159,148 9,628,454
Molex, Inc., Class A 90,066 2,870,854
Rockwell International Corp. 183,400 8,906,363
Sanmina Corp.(1)(2) 150,000 9,363,281
Thomas and Betts Corp. 22,963 994,585
- --------------------------------------------------------------------------
$ 47,299,738
- --------------------------------------------------------------------------
Electronics - Instruments -- 0.2%
- --------------------------------------------------------------------------
Dionex Corp.(1) 362,140 $ 13,263,378
Dionex Corp.(1)(2) 40,000 1,460,434
Waters Corp.(1) 29,580 2,580,855
X-Rite, Inc. 310,000 2,402,500
X-Rite, Inc.(2) 118,000 914,195
- --------------------------------------------------------------------------
$ 20,621,362
- --------------------------------------------------------------------------
See notes to financial statements
16
<PAGE>
Tax-Managed Growth Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------
Electronics - Semiconductors -- 2.6%
- --------------------------------------------------------------------------
Altera Corp.(1) 3,600 $ 219,150
Analog Devices, Inc.(1) 1,630,000 51,141,250
Burr-Brown Corp.(1) 600,000 14,062,500
Intel Corp. 857,173 101,628,573
KLA-Tencor Corp.(1) 36,000 1,561,500
Lam Research Corp.(1) 106,000 1,888,125
Level One Communications, Inc.(1) 31,129 1,105,080
Linear Technologies Corp. 66,000 5,911,125
Maxim Integrated Products Co.(1)(2) 20,664 895,311
Maxim Intergrated Products Co.(1) 40,000 1,747,500
Motorola, Inc. 137,188 8,377,042
National Semiconductor Corp.(1) 79,368 1,071,468
Smart Modular Technologies, Inc.(1) 60,000 1,665,000
Speedfam International, Inc.(1) 221,000 3,784,625
Texas Instruments, Inc. 337,948 28,915,676
Ultratech Stepper, Inc.(1) 245,129 3,922,064
Uniphase Corp.(1)(2) 25,932 1,798,433
- --------------------------------------------------------------------------
$ 229,694,422
- --------------------------------------------------------------------------
Engineering and Construction -- 0.1%
- --------------------------------------------------------------------------
Jacobs Engineering Group, Inc.(1) 162,455 $ 6,620,041
- --------------------------------------------------------------------------
$ 6,620,041
- --------------------------------------------------------------------------
Entertainment -- 0.6%
- --------------------------------------------------------------------------
Callaway Golf Co.(2) 35,715 $ 365,932
Disney (Walt) Co. 79,800 2,394,000
Fox Entertainment Group, Inc.(1) 275,500 6,939,156
Mattel, Inc. 20,995 478,948
Time Warner Inc.(2) 62,418 3,866,069
Time Warner Inc. 501,368 31,116,152
Viacom, Inc., Class A(1) 10,727 789,105
Viacom, Inc., Class B(1) 80,105 5,927,770
Westwood One(1)(2) 61,200 1,860,782
- --------------------------------------------------------------------------
$ 53,737,914
- --------------------------------------------------------------------------
Environmental Services -- 0.7%
- --------------------------------------------------------------------------
Allied Waste Industries, Inc.(1) 375,000 $ 8,859,375
Browning-Ferris Industries, Inc. 423,906 12,054,827
Eastern Environmental Services(1) 83,552 2,475,228
U.S. Filter Corp.(1) 160,412 3,669,425
Waste Management, Inc. 741,981 34,594,864
- --------------------------------------------------------------------------
$ 61,653,719
- --------------------------------------------------------------------------
Financial Services - Miscellaneous -- 3.4%
- --------------------------------------------------------------------------
American Express Co. 616,648 $ 63,052,257
Associates First Capital Corp. 600,000 25,425,000
Capital One Financial Corp. 73,411 8,442,265
Citigroup 1,395,960 69,100,019
Fannie Mae 940,805 69,619,569
FirstPlus Financial Group, Inc.(1) 120,000 330,000
Freddie Mac 352,900 22,739,994
Household International, Inc. 339,293 13,444,485
Providian Financial Corp. 266,261 19,969,538
- --------------------------------------------------------------------------
$ 292,123,127
- --------------------------------------------------------------------------
Foods -- 3.4%
- --------------------------------------------------------------------------
Archer-Daniels-Midland Co. 143,775 $ 2,471,133
Bestfoods 22,400 1,192,800
Conagra, Inc. 326,199 10,275,269
Dean Foods Co. 150,944 6,160,402
Flowers Industries, Inc. 435,781 10,431,508
General Mills, Inc. 24,850 1,932,088
Keebler Food Products Co.(1) 40,000 1,505,000
Keebler Food Products Co.(1)(2) 31,480 1,180,744
Kellogg Co. 69,714 2,378,990
McCormick & Co., Inc. 623,058 21,067,149
Nabisco Holdings Corp., Class A 100,000 4,150,000
Pioneer Hi-Bred International, Inc. 952,171 25,708,617
Quaker Oats Co. (The) 39,942 2,376,549
Ralston Purina Group 74,659 2,417,085
Riviana Foods, Inc. 150,000 3,703,125
Riviana Foods, Inc.(2) 100,000 2,465,664
Sara Lee Corp. 1,155,944 32,583,172
Tyson Food, Inc. 870,276 18,493,365
Unilever ADR 1,652,000 137,012,749
Wrigley (Wm.) Jr. Co. 113,180 10,136,684
- --------------------------------------------------------------------------
$ 297,642,093
- --------------------------------------------------------------------------
See notes to financial statements
17
<PAGE>
Tax-Managed Growth Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------
Furniture and Appliances -- 0.5%
- --------------------------------------------------------------------------
HON Industries, Inc. 1,135,488 $ 27,180,744
HON Industries, Inc.(2) 134,930 3,228,810
Leggett & Platt, Inc. 298,328 6,563,216
Miller (Herman), Inc. 120,000 3,225,000
- --------------------------------------------------------------------------
$ 40,197,770
- --------------------------------------------------------------------------
Health Services -- 0.7%
- --------------------------------------------------------------------------
Aetna, Inc. 59,821 $ 4,703,426
Beverly Enterprises, Inc.(1) 357,143 2,410,715
Concentra Managed Care, Inc.(1) 410,257 4,384,622
FPA Medical Management, Inc.(1)(3) 315,000 3,150
Genesis Health Ventures, Inc.(1) 4,000 35,000
Health Management Associates,
Inc., Class A(1) 361,170 7,810,301
HealthSouth Corp.(1) 146,000 2,253,875
Integrated Health Services, Inc. 50,000 706,250
Magellan Health Services, Inc.(1) 50,000 418,750
MedPartners, Inc.(1) 17,696 92,904
Omnicare, Inc. 25,650 891,338
Orthodontic Centers of America,
Inc.(1) 100,000 1,943,750
Pacificare Health Systems, Inc.,
Class B(1) 19,500 1,550,250
PhyCor, Inc.(1) 312,500 2,128,906
Quest Diagnostics, Inc.(1) 15,625 278,320
Quorum Health Group, Inc.(1) 55,733 721,046
Renal Care Group, Inc.(1) 175,282 5,050,313
Renal Care Group, Inc.(1)(2) 196,225 5,646,195
Response Oncology, Inc.(1) 44,761 181,842
Sunrise Assisted Living, Inc.(1) 210,000 10,893,750
Sunrise Assisted Living, Inc.(1)(2) 140,000 7,259,232
United HealthCare Corp. 20,000 861,250
Vencor, Inc.(1) 25,600 115,200
- --------------------------------------------------------------------------
$ 60,340,385
- --------------------------------------------------------------------------
Household Products -- 2.7%
- --------------------------------------------------------------------------
Avon Products, Inc. 8,700 $ 384,975
Blyth Industries, Inc.(1) 522,000 16,312,500
Blyth Industries, Inc.(1)(2) 40,000 1,249,583
Blyth Industries, Inc.(1)(2) 20,000 624,167
Colgate-Palmolive Co. 54,337 5,046,549
Fortune Brands, Inc. 67,500 2,134,688
Gillette Co. 2,632,556 127,185,361
Helen of Troy Ltd.(1) 65,000 954,688
Kimberly-Clark Corp. 551,168 30,038,656
Procter & Gamble Co. 410,462 37,480,311
Rubbermaid, Inc. 463,920 14,584,485
- --------------------------------------------------------------------------
$ 235,995,963
- --------------------------------------------------------------------------
Industrial Equipment -- 0.7%
- --------------------------------------------------------------------------
Dover Corp. 355,445 $ 13,018,173
DT Industries, Inc. 37,728 594,216
Federal Signal Corp. 283,471 7,760,019
Illinois Tool Works, Inc. 169,010 9,802,580
Parker-Hannifin Corp. 150,898 4,941,910
Regal Beloit Corp. 265,000 6,095,000
Tecumseh Products Co., Class A 156,420 7,293,083
Tyco International Ltd. 98,730 7,447,944
- --------------------------------------------------------------------------
$ 56,952,925
- --------------------------------------------------------------------------
Information Services -- 4.7%
- --------------------------------------------------------------------------
Acxiom Corp.(1) 407,088 $ 12,619,728
America Online, Inc.(1) 21,600 3,456,000
At Home Corp., Series A(1)(2) 20,291 1,478,584
At Home Corp., Series A(1)(2) 100,000 7,373,953
Automatic Data Processing, Inc. 1,856,243 148,847,485
Aztec Technology Partners(1) 119,262 432,324
Bell and Howell Co.(1) 115,000 4,348,438
BISYS Group, Inc. (The)(1) 53,873 2,781,194
Ceridian Corp.(1) 90,500 6,318,031
Computer Sciences Corp. 650,202 41,897,391
DST Systems, Inc.(1)(2) 93,000 5,302,390
Dun and Bradstreet Corp. (The) 40,768 1,286,740
Electronic Data Systems Corp. 155,000 7,788,750
Equifax, Inc. 40,000 1,367,500
First Data Corp. 282,761 8,959,989
HBO and Co. 27,599 791,746
IDX Systems Corp.(1)(2) 35,000 1,538,717
IDX Systems Corp.(1)(2) 25,000 1,096,572
IMS Health, Inc. 249,006 18,784,390
Lason, Inc.(1)(2) 165,000 9,597,737
Lason, Inc.(1)(2) 190,000 11,040,884
National Data Corp. 81,333 3,959,900
Nielsen Media Research 83,002 1,494,036
Nova Corp.(1) 75,758 2,627,856
Paychex, Inc. 87,976 4,525,266
See notes to financial statements
18
<PAGE>
Tax-Managed Growth Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------
Information Services (continued)
- --------------------------------------------------------------------------
Reuters Holdings PLC ADR 273,945 $ 17,361,264
Reynolds & Reynolds, Inc., Class A 235,989 5,412,998
Saville Systems PLC ADR(1) 320,000 6,080,000
Saville Systems PLC ADR(1)(2) 99,197 1,882,387
Saville Systems PLC ADR(1)(2) 297 5,635
SunGard Data Systems, Inc.(1) 1,732,319 68,751,409
- --------------------------------------------------------------------------
$ 409,209,294
- --------------------------------------------------------------------------
Insurance -- 6.6%
- --------------------------------------------------------------------------
20th Century Industries 70,700 $ 1,639,356
Aegon, N.V. ADR 96,504 11,797,614
Allmerica Financial Corp. 1,500 86,813
Allstate Corp. (The) 170,416 6,582,318
American General Corp. 91,153 7,109,934
American International Group, Inc. 427,911 41,346,901
AON Corp. 78,949 4,371,801
Berkshire Hathaway, Inc., Class A(1) 80 5,600,000
Berkshire Hathaway, Inc., Class B(1) 38,078 89,482,900
Chubb Corp. 101,050 6,555,619
Conseco, Inc.(2) 100,000 3,052,175
Delphi Financial Group, Inc.(1) 40,800 2,139,450
Gallagher (A.J.) and Co. 35,000 1,544,375
HSB Group, Inc. 75,000 3,079,688
Jefferson-Pilot Corp. 38,267 2,870,025
Kansas City Life Insurance Co. 35,400 2,893,950
Lab Holdings, Inc. 35,960 629,300
Marsh & McLennan Cos., Inc. 2,138,866 124,989,981
Mercury General Corp. 2,000 87,625
Mutual Risk Management Ltd. 1,043,500 40,826,938
Progressive Corp. 190,000 32,181,250
Protective Life Corp. 64,346 2,561,775
Safeco Corp. 12,122 520,488
St. Paul Cos., Inc. (The) 275,532 9,574,737
SunAmerica, Inc. 1,810,644 146,888,494
Torchmark Corp. 222,850 7,869,391
Transamerica Corp. 52,304 6,041,112
UICI(1) 57,257 1,402,797
UICI(1) 180,000 4,410,000
UNUM Corp. 152,200 8,884,675
- --------------------------------------------------------------------------
$ 577,021,482
- --------------------------------------------------------------------------
Investment Services -- 0.7%
- --------------------------------------------------------------------------
E*Trade Group, Inc.(1)(2) 100,000 $ 4,634,268
Merrill Lynch & Co., Inc. 349,756 23,346,213
Morgan Stanley Dean Witter & Co. 300,431 21,330,601
Morgan Stanley Dean Witter & Co.(2) 52,000 3,687,385
Price (T. Rowe) Associates, Inc. 86,716 2,970,023
Schwab (Charles) and Co., Inc. 66,750 3,750,516
Waddell & Reed Financial, Inc.,
Class A 12,680 300,358
Waddell & Reed Financial, Inc.,
Class B 54,575 1,268,869
- --------------------------------------------------------------------------
$ 61,288,233
- --------------------------------------------------------------------------
Lodging and Gaming -- 0.2%
- --------------------------------------------------------------------------
Royal Caribbean Cruises Ltd.(2) 500,000 $ 18,433,400
Sunterra Corp.(1)(2) 50,000 749,188
- --------------------------------------------------------------------------
$ 19,182,588
- --------------------------------------------------------------------------
Medical Products -- 5.8%
- --------------------------------------------------------------------------
Allegiance Corp. 45,322 $ 2,113,138
Ballard Medical Products 519,966 12,641,673
Bausch & Lomb, Inc. 115,804 6,948,240
Baxter International, Inc. 1,266,028 81,421,425
Becton, Dickinson and Co. 7,265 310,125
Becton, Dickinson and Co.(2) 28,980 1,236,589
Boston Scientific Corp.(1) 1,979,700 53,080,706
Dentsply International, Inc. 42,000 1,081,500
ESC Medical Systems Ltd.(1) 30,000 315,000
ESC Medical Systems Ltd.(1)(2) 150,000 1,571,063
Guidant Corp. 100,000 11,025,000
Heartport, Inc.(1) 41,026 241,028
Hillenbrand Industries, Inc. 647,898 36,849,199
Johnson & Johnson Co. 1,575,542 132,148,584
Medtronics, Inc. 1,086,048 80,639,063
Schein (Henry), Corp.(1)(2) 271,494 12,100,759
Schein (Henry), Corp.(1) 555,700 24,867,575
Schein (Henry), Corp.(1)(2) 17,000 759,799
Schein (Henry), Corp.(1)(2) 281,000 12,557,984
Sofamor Danek Group, Inc.(1) 223,000 27,150,250
St. Jude Medical, Inc.(1) 42,144 1,166,862
Steris Corp.(1) 78,394 2,229,329
- --------------------------------------------------------------------------
$ 502,454,891
- --------------------------------------------------------------------------
See notes to financial statements
19
<PAGE>
Tax-Managed Growth Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------
Metals - Gold -- 0.0%
- --------------------------------------------------------------------------
Freeport-McMoran Copper & Gold, Inc. 6,000 $ 62,625
- --------------------------------------------------------------------------
$ 62,625
- --------------------------------------------------------------------------
Metals - Industrial -- 0.0%
- --------------------------------------------------------------------------
Cyprus Amax Minerals Co. 20,950 $ 209,500
Nucor Corp.(2) 22,648 979,199
- --------------------------------------------------------------------------
$ 1,188,699
- --------------------------------------------------------------------------
Minerals and Fertilizer -- 0.0%
- --------------------------------------------------------------------------
Mississippi Chemical Corp. 272,180 $ 3,810,520
- --------------------------------------------------------------------------
$ 3,810,520
- --------------------------------------------------------------------------
Natural Gas Distribution -- 0.1%
- --------------------------------------------------------------------------
Columbia Energy Group 1 $ 29
Dynegy, Inc. 290,000 3,171,875
KN Energy, Inc. 20,000 727,500
National Fuel Gas Co. 2,000 90,375
Sonat, Inc. 107,200 2,901,100
- --------------------------------------------------------------------------
$ 6,890,879
- --------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 1.1%
- --------------------------------------------------------------------------
Baker Hughes, Inc. 739,234 $ 13,075,201
Core Laboratories(1)(2) 560,000 10,668,767
Halliburton Co. 1,501,550 44,483,419
National-Oilwell, Inc.(1) 50,000 559,375
National-Oilwell, Inc.(1)(2) 416,400 4,652,264
Newpark Resources, Inc.(1) 110,000 749,375
Noble Drilling, Inc.(1) 170,000 2,199,375
Patterson Energy, Inc.(1) 200,000 812,500
Schlumberger Ltd. 367,470 16,949,554
Syntroleum Corp.(1) 2,735 16,923
Weatherford International(1) 56,750 1,099,531
- --------------------------------------------------------------------------
$ 95,266,284
- --------------------------------------------------------------------------
Oil and Gas - Exploration
and Production -- 1.0%
- --------------------------------------------------------------------------
Anadarko Petroleum Corp. 2,204,000 $ 68,048,499
Apache Corp. 127,003 3,214,763
Burlington Resources, Inc. 119,335 4,273,685
El Paso Energy Corp. 45,000 1,566,563
Oryx Energy Co.(1) 369,103 4,959,822
Triton Energy, Ltd.(1) 700 5,556
Union Pacific Resources Group, Inc. 79,795 723,142
USX-Marathon Group 50,005 1,506,401
- --------------------------------------------------------------------------
$ 84,298,431
- --------------------------------------------------------------------------
Oil and Gas - Integrated -- 1.2%
- --------------------------------------------------------------------------
Amoco Corp. 299,345 $ 17,661,355
Atlantic Richfield Co. 41,766 2,725,232
British Petroleum Co. PLC ADR 512 48,640
Chevron Corp. 55,600 4,611,325
Exxon Corp. 222,963 16,304,169
Mobil Corp. 450,645 39,262,446
Murphy Oil Corp. 29,700 1,225,125
Pennzoil-Quaker State Co. 74,458 1,102,907
Royal Dutch Petroleum Co. 33,417 1,599,839
Texaco, Inc. 700 37,013
Tosco Corp.(2) 314,619 8,138,053
Tosco Corp.(2) 300,000 7,738,307
- --------------------------------------------------------------------------
$ 100,454,411
- --------------------------------------------------------------------------
Paper and Forest Products -- 0.6%
- --------------------------------------------------------------------------
Caraustar Industries, Inc. 224,961 $ 6,425,449
Champion International Corp. 20,203 818,222
Fort James Corp. 56,401 2,256,040
Georgia-Pacific Corp. - G-P Group 305,098 17,867,302
Georgia-Pacific Corp. - G-P
Group(2) 14,133 826,974
Georgia-Pacific Corp. - Timber
Group 305,098 7,265,146
Louisiana Pacific Corp. 55,364 1,013,853
Mead Corporation (The) 38,768 1,136,387
Union Camp Corp. 80,309 5,420,858
Weyerhaeuser Co. 101,205 5,142,479
Willamette Industries, Inc. 53,000 1,775,500
- --------------------------------------------------------------------------
$ 49,948,210
- --------------------------------------------------------------------------
Photography -- 0.1%
- --------------------------------------------------------------------------
Eastman Kodak Co. 64,225 $ 4,624,200
- --------------------------------------------------------------------------
$ 4,624,200
- --------------------------------------------------------------------------
See notes to financial statements
20
<PAGE>
Tax-Managed Growth Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------
Printing and Business Products -- 0.7%
- --------------------------------------------------------------------------
American Business Products, Inc. 261,355 $ 6,141,843
Avery Dennison Corp. 803,004 36,185,368
Bowne & Co., Inc. 172,640 3,085,940
Consolidated Graphics, Inc.(1) 35,064 2,369,012
Consolidated Graphics, Inc.(1)(2) 35,151 2,367,488
Consolidated Graphics, Inc.(1)(2) 35,977 2,424,571
Corporate Express, Inc.(1) 92,486 479,771
Danka Business Systems, PLC ADR 1,000 4,188
Deluxe Corp. 80,675 2,949,680
Donnelley (R.R.) & Sons Co. 32,896 1,441,256
Harland (John H.) Co. 51,540 814,976
Ikon Office Solutions, Inc. 115,500 988,969
Workflow Management, Inc.(1) 79,508 526,740
- --------------------------------------------------------------------------
$ 59,779,802
- --------------------------------------------------------------------------
Publishing -- 1.2%
- --------------------------------------------------------------------------
Belo (A.H.) Corp. 110,220 $ 2,197,511
Dow Jones & Co., Inc. 376,300 18,109,438
Gannett Co., Inc. 280,900 18,118,050
Houghton Mifflin Co. 97,400 4,602,150
McGraw-Hill Companies, Inc. (The) 455,608 46,415,065
Meredith Corp. 190,000 7,196,250
The MacClatchy Co., Class A 48,066 1,700,335
Times Mirror Co., Class A 151,670 8,493,520
- --------------------------------------------------------------------------
$ 106,832,319
- --------------------------------------------------------------------------
Real Estate -- 0.5%
- --------------------------------------------------------------------------
Avalonbay Communities, Inc. 55,000 $ 1,883,750
Catellus Development Corp.(1) 290,000 4,150,625
Equity Office Properties Trust 2,812 67,488
Grubb and Ellis Co.(1)(2) 100,000 805,242
LaSalle Partners, Inc.(1)(2) 213,193 6,273,777
Patriot America Hospitality, Inc. 132,212 793,272
Redwood Trust, Inc. 71,710 1,003,940
Rouse Co. (The) 127,700 3,511,750
Trammell Crow Co.(1)(2) 876,098 24,500,081
Ventas, Inc.(1) 25,600 312,000
- --------------------------------------------------------------------------
$ 43,301,925
- --------------------------------------------------------------------------
Restaurants -- 1.1%
- --------------------------------------------------------------------------
Bob Evans Farms, Inc. 48,193 $ 1,256,030
Boston Chicken, Inc.(1)(3) 38,500 385
Brinker International, Inc.(1) 435,034 12,561,607
CKE Restaurants, Inc.(2) 110,000 3,237,046
CKE Restaurants, Inc.(2) 11,000 323,381
Lone Star Steakhouse and Saloon,
Inc.(1) 145,981 1,341,200
Lone Star Steakhouse and Saloon,
Inc.(1)(2) 200,000 1,835,203
McDonald's Corp. 270,607 20,735,261
Outback Steakhouse, Inc.(1) 77,101 3,074,402
Outback Steakhouse, Inc.(1)(2) 130,181 5,184,479
Outback Steakhouse, Inc.(1)(2) 250,000 9,955,458
Papa John's International, Inc.(1) 25,807 1,138,734
Papa John's International,
Inc.(1)(2) 51,744 2,280,350
Sonic Corp.(1)(2) 47,338 1,176,061
Starbucks Corp.(1) 342,000 19,194,750
Tricon Global Restaurants, Inc.(1) 175,767 8,810,321
- --------------------------------------------------------------------------
$ 92,104,668
- --------------------------------------------------------------------------
Retail - Food and Drug -- 4.6%
- --------------------------------------------------------------------------
Albertson's, Inc. 2,340,219 $ 149,042,697
Albertson's, Inc.(2) 10,000 634,890
CVS Corp. 2,176,571 119,711,404
General Nutrition Companies,
Inc.(1) 44,460 722,475
Hannaford Brothers Co. 30,849 1,634,997
Kroger Co. (The)(1) 22,800 1,379,400
Rite Aid Corp. 6,000 297,375
Safeway, Inc.(1) 1,777,501 108,316,466
Walgreen Co. 13,750 805,234
Whole Foods Market, Inc.(1) 90,000 4,353,750
Winn-Dixie Stores, Inc. 320,221 14,369,917
- --------------------------------------------------------------------------
$ 401,268,605
- --------------------------------------------------------------------------
Retail - General -- 1.8%
- --------------------------------------------------------------------------
99 Cents Only Stores(1)(2) 428,337 $ 21,033,989
Casey's General Stores, Inc.(2) 75,000 976,529
Department 56, Inc.(1) 190,000 7,136,875
Department 56, Inc.(1)(2) 29,404 1,101,045
Dollar General Corp. 25,625 605,391
Dollar Tree Stores, Inc.(1) 292,500 12,778,594
Dollar Tree Stores, Inc.(1)(2) 247,792 10,821,805
Harcourt General, Inc. 216,416 11,510,626
May Department Stores Co. (The) 104,258 6,294,577
Nordstrom, Inc. 27,610 957,722
See notes to financial statements
21
<PAGE>
Tax-Managed Growth Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------
Retail - General (continued)
- --------------------------------------------------------------------------
Penney (J.C.) Company, Inc. 1,117,673 $ 52,390,922
Wal-Mart Stores, Inc. 428,060 34,860,136
- --------------------------------------------------------------------------
$ 160,468,211
- --------------------------------------------------------------------------
Retail - Specialty and Apparel -- 2.8%
- --------------------------------------------------------------------------
Abercrombie and Fitch Co., Class
A(1) 2,802 $ 198,242
Burlington Coat Factory Warehouse
Corp. 543,600 8,867,475
Home Depot, Inc. (The) 2,517,746 154,054,582
Limited, Inc. (The) 205,000 5,970,625
Lowe's Companies 60,000 3,071,250
Office Depot, Inc.(1) 140,000 5,171,250
OfficeMax, Inc.(1) 672,867 8,242,621
Pep Boys - Manny, Moe & Jack (The) 35,476 556,530
Pep Boys - Manny, Moe & Jack
(The)(2) 62,500 980,142
Pier 1 Imports, Inc.(2) 150,000 1,451,914
Pier 1 Imports, Inc.(2) 75,000 725,654
Pier 1 Imports, Inc.(2) 125,000 1,207,163
Republic Industries, Inc.(1) 2,719,023 40,105,589
Staples, Inc.(1) 150,000 6,553,125
Tandy Corp. 60,000 2,471,250
Tiffany and Co. 22,000 1,141,250
TJX Companies, Inc. (The) 50,000 1,450,000
Toys "R" Us, Inc.(1) 73,255 1,236,178
- --------------------------------------------------------------------------
$ 243,454,840
- --------------------------------------------------------------------------
Specialty Chemicals and Materials -- 1.3%
- --------------------------------------------------------------------------
Corning, Inc. 130,000 $ 5,850,000
Dexter Corp. (The) 36,139 1,136,120
Ecolab, Inc. 2,063,536 74,674,208
International Flavors &
Fragrances, Inc. 148,101 6,544,213
International Specialty Products,
Inc.(1) 59,000 800,188
MacDermid, Inc. 30,000 1,173,750
Millipore Corp. 101,440 2,884,700
Minnesota Mining & Manufacturing
Co. 42,731 3,039,242
Morton International, Inc. 34,000 833,000
Nalco Chemical Co. 224,852 6,970,412
Pall Corp. 216,000 5,467,500
RPM, Inc. 70,138 1,122,208
- --------------------------------------------------------------------------
$ 110,495,541
- --------------------------------------------------------------------------
Tobacco -- 0.2%
- --------------------------------------------------------------------------
Philip Morris Cos., Inc. 249,706 $ 13,359,271
- --------------------------------------------------------------------------
$ 13,359,271
- --------------------------------------------------------------------------
Transportation -- 0.4%
- --------------------------------------------------------------------------
Arnold Industries, Inc. 148,543 $ 2,395,256
Burlington Northern Santa Fe Corp. 188,799 6,371,966
Coach USA, Inc.(1) 168,889 5,858,337
Coach USA, Inc.(1)(2) 185,676 6,438,704
FDX Corp.(1) 93,723 8,341,347
Heartland Express, Inc.(1) 250,000 4,375,000
Union Pacific Corp. 92,081 4,149,400
- --------------------------------------------------------------------------
$ 37,930,010
- --------------------------------------------------------------------------
Trucks and Parts -- 0.0%
- --------------------------------------------------------------------------
Paccar, Inc. 46,602 $ 1,916,507
- --------------------------------------------------------------------------
$ 1,916,507
- --------------------------------------------------------------------------
Total Common Stocks
(identified cost $5,715,068,624) $8,246,680,855
Put Options Purchased -- 0.0%
Security Shares Value
- --------------------------------------------------------------------------
Computers and Business Equipment -- 0.0%
- --------------------------------------------------------------------------
Dell Computer, Expires 1/16/99,
Strike Price 45 250,000 $ 31,250
Dell Computer, Expires 1/16/99,
Strike Price 50 250,000 15,625
Dell Computer, Expires 2/20/99,
Strike Price 50 250,000 195,313
Dell Computer, Expires 2/20/99,
Strike Price 55 500,000 562,500
- --------------------------------------------------------------------------
$ 804,688
- --------------------------------------------------------------------------
Total Put Options Purchased
(identified cost $5,771,939) $ 804,688
- --------------------------------------------------------------------------
See notes to financial statements
22
<PAGE>
Tax-Managed Growth Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Rights--0.0%
Security Shares Value
- --------------------------------------------------------------------------
Oil and Gas - Exploration
and Production -- 0.0%
- --------------------------------------------------------------------------
Triton Energy, Ltd.(1) 51 $ 0
- --------------------------------------------------------------------------
$ 0
- --------------------------------------------------------------------------
Total Rights
(identified cost $0) $ 0
- --------------------------------------------------------------------------
Convertible Preferred Stocks -- 0.4%
Security Shares Value
- --------------------------------------------------------------------------
Entertainment -- 0.4%
- --------------------------------------------------------------------------
Time Warner Inc., Series J(3) 100,187 $ 26,526,391
Time Warner Inc., Series J(2)(3) 21,410 5,657,362
- --------------------------------------------------------------------------
$ 32,183,753
- --------------------------------------------------------------------------
Financial - Miscellaneous -- 0.0%
- --------------------------------------------------------------------------
American General Corp., Series D 21,474 $ 1,406,547
- --------------------------------------------------------------------------
$ 1,406,547
- --------------------------------------------------------------------------
Insurance -- 0.0%
- --------------------------------------------------------------------------
Aetna, Inc., Series C 449 $ 34,152
- --------------------------------------------------------------------------
$ 34,152
- --------------------------------------------------------------------------
Total Convertible Preferred Stocks
(identified cost $14,428,021) $ 33,624,452
- --------------------------------------------------------------------------
Commercial Paper -- 4.3%
Face Amount
Name of Company (000's omitted) Value
- --------------------------------------------------------------------------
American Express Credit Corp.,
6.00%, 1/8/99 $ 76,827 $ 76,737,368
Associates Corp. of North
America,
5.25%, 1/4/99 37,141 37,124,751
Corporate Receivables Corp.,
5.50%, 1/8/99 30,000 29,967,917
Ford Motor Credit Co., 5.53%,
1/8/99 77,696 77,612,455
General Electric Capital Co.,
5.50%, 1/4/99 56,607 56,581,055
Prudential Funding Corp., 5.80%,
1/8/99 95,000 94,892,861
- --------------------------------------------------------------------------
Total Commercial Paper
(identified cost $372,916,407) $ 372,916,407
- --------------------------------------------------------------------------
Short-Term Investments -- 0.7%
Face Amount
Name of Company (000's omitted) Value
- --------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
4.50%, 1/4/99 $ 59,313 $ 59,290,758
- --------------------------------------------------------------------------
Total Short-Term Investments
(identified cost $59,290,758) $ 59,290,758
- --------------------------------------------------------------------------
Total Investments -- 100.1%
(identified cost $6,167,475,749) $8,713,317,160
- --------------------------------------------------------------------------
Other Assets, Less Liabilities -- (0.1)% $ (8,457,825)
- --------------------------------------------------------------------------
Net Assets -- 100.0% $8,704,859,335
- --------------------------------------------------------------------------
ADR-American Depositary Receipt
(1) Non-income producing security.
(2) Security restricted from resale for a period not exceeding one year. At
December 31, 1998, the value of these securities totaled $565,804,292 or
6.5% of net assets.
(3) Security valued at fair value using methods determined in good faith by or
at the direction of the Trustees.
See notes to financial statements
23
<PAGE>
Belair Capital Fund LLC as of December 31, 1998
INDEPENDENT AUDITORS' REPORT
To the Shareholders
of Belair Capital Fund LLC
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Belair Capital Fund LLC, as of December 31,
1998, and the related statements of operations, statement of changes in net
assets and cash flows for the period from the start of business, February 6,
1998, to December 31, 1998. These financial statements are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 of securities owned as of December 31, 1998 by
correspondence with the custodian; for certain securities that were out for
registration, we confirmed such securities with the agent processing the
registration. An audit also includes assessing the accounting principals used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Belair Capital Fund LLC as of
December 31, 1998, the results of its operations, the changes in its net assets
and its cash flows for the period from the start of business, February 6, 1998,
to December 31, 1998, in conformity with generally accepted accounting
principals.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 12, 1999
24
<PAGE>
Belair Capital Fund LLC as of December 31, 1998
INVESTMENT MANAGEMENT
Investment Adviser of
Tax-Managed Growth Portfolio
and Belair Capital Fund LLC
Boston Management and Research
24 Federal Street
Boston, MA 02110
Manager of Belair
Capital Fund LLC
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Custodian and Transfer Agent
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, MA 02110
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
25
<PAGE>
This Page Intentionally Left Blank
<PAGE>
This Page Intentionally Left Blank
<PAGE>
Belair Capital Fund LLC
24 Federal Street
Boston, MA 02110
- --------------------------------------------------------------------------------
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund.
- --------------------------------------------------------------------------------
BLASCR 3/99
