UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
Commission File No. 000-25767
BELAIR CAPITAL FUND LLC
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3404037
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(State of organization) (I.R.S. Employer Identification No.)
The Eaton Vance Building
255 STATE STREET, BOSTON, MASSACHUSETTS 02109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 617-482-8260
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
LIMITED LIABILITY COMPANY INTERESTS IN THE FUND ("SHARES")
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of the Shares held by non-affiliates of Registrant,
based on the closing net asset value on February 29, 2000 was $2,066,914,082.
Calculation of holdings by non-affiliates is based upon the assumption, for
these purposes only, that the Registrant's manager, its executive officers and
directors and persons holding 5% or more of the Registrant's Shares are
affiliates.
The financial statements contained in Registrant's Form 10 filed with the
Securities and Exchange Commission on April 23, 1999 (Accession No.
0000940394-99-000168) have been incorporated into the following Parts of this
report: Part II and Part III.
The Exhibit Index is located on page 45.
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PART I
ITEM 1. BUSINESS
Belair Capital Fund LLC (the "Fund") is a Massachusetts limited liability
company organized in 1997 to provide diversification and tax-sensitive
investment management to investors who are "qualified purchasers" as defined in
Section 2(a)(51)(A) of the Investment Company Act of 1940, as amended (the "1940
Act"), and the rules thereunder. The Fund commenced its investment operations on
February 6, 1998. The Fund conducted no operations prior to that date.
The Fund seeks to achieve long-term, after-tax returns for qualified
purchasers who have invested in the Fund ("Shareholders") by acquiring limited
liability company interests ("Shares") in the Fund. The Fund pursues its
investment objective primarily by investing indirectly in Tax-Managed Growth
Portfolio (the "Portfolio"), a diversified, open-end management investment
company registered under the 1940 Act, with net assets of approximately $15.1
billion as of December 31, 1999. The Portfolio was organized in 1995 as
successor to the investment operations of Capital Exchange Fund, a mutual fund
established in 1966 and managed from inception for long-term, after-tax returns.
The Fund maintains its indirect investment in the Portfolio by investing in
Belvedere Capital Fund Company LLC (the "Company"), a separate Massachusetts
limited liability company that invests exclusively in the Portfolio. As of
December 31, 1999, the investment assets of the Company consisted exclusively of
an interest in the Portfolio with a value of $7.7 billion. As of such date,
assets of the Fund invested in the Company totaled $2.7 billion.
The investment objective of the Portfolio is to achieve long-term,
after-tax returns for its investors by investing in a diversified portfolio of
equity securities. The Portfolio emphasizes investments in common stocks of
domestic and foreign growth companies that are considered to be high in quality
and attractive in their long-term investment prospects. Under normal market
conditions, the Portfolio will invest at least 65% of its assets in common
stocks. Although the Portfolio may also invest in investment-grade preferred
stocks and debt securities, purchases of such securities are normally limited to
securities convertible into common stocks and temporary investments in
short-term notes and government obligations. During periods in which the
investment adviser to the Portfolio believes that returns on common stock
investments may be unfavorable, the Portfolio may invest a portion of its assets
in U.S. government obligations and high quality short-term notes. The
Portfolio's holdings represent a number of different industries. Not more than
25% of the Portfolio's assets may be invested in the securities of issuers
having their principal business activity in the same industry, determined as of
the time of acquisition of any such securities.
In its operations, the Portfolio seeks to achieve long-term, after-tax
returns in part by minimizing the taxes incurred by investors in the Portfolio
in connection with the Portfolio's investment income and realized capital gains.
Taxes on investment income are minimized by investing primarily in
lower-yielding securities. Taxes on realized capital gains are minimized by
avoiding or minimizing the sale of securities holdings with large accumulated
capital gains. The Portfolio seeks to invest in a broadly diversified portfolio
of stocks and to invest primarily in established companies with characteristics
of above-average growth, predictability and stability that are acquired with the
expectation of being held for a period of years. The Portfolio generally seeks
to avoid realizing short-term capital gains. When a decision is made to sell a
particular appreciated security, the Portfolio will select for sale the share
lots resulting in the most favorable tax treatment, generally those with holding
periods sufficient to qualify for long-term capital gains treatment that have
the highest cost basis. The Portfolio may, when deemed prudent by its investment
adviser, sell securities to realize capital losses that can be used to offset
realized gains.
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To protect against price declines in securities holdings with large
accumulated capital gains, the Portfolio may use various investment techniques,
including, but not limited to, the purchase of put options on securities held,
equity collars (combining the purchase of a put option and the sale of a call
option), equity swaps, covered short sales, and the sale of stock index futures
contracts. By using these techniques rather than selling such securities, the
Portfolio can reduce its exposure to price declines in the securities without
realizing substantial capital gains under current tax law. The Portfolio's
ability to utilize covered short sales, certain equity swaps and certain equity
collar strategies as a tax-efficient management technique with respect to
holdings of appreciated securities is limited to circumstances in which the
hedging transaction is closed out within thirty days after the end of the
Portfolio's taxable year and the underlying appreciated securities position is
held unhedged for at least the next sixty days after such hedging transaction is
closed. The use of these investment techniques may require the Portfolio to
commit or make available cash and, therefore, may not be available at such times
as the Portfolio has limited holdings of cash.
Separate from its investment in the Portfolio through the Company, the Fund
invests through its subsidiary, Belair Real Estate Corporation ("BREC"), in a
portfolio of income-producing preferred equity interests in real estate
operating partnerships ("Partnership Preference Units") affiliated with real
estate investment trusts ("REITs") that are publicly traded. Each issue of
Partnership Preference Units held by BREC pays, or is expected to pay, regular
quarterly dividends at fixed rates. None of the issues of Partnership Preference
Units is or will be registered under the Securities Act of 1933, as amended (the
"Securities Act"), and each issue is thus subject to restrictions on transfer.
BREC invests in Partnership Preference Units of issuers whose preferred equity
or senior debt securities are deemed by its investment adviser to be of
investment-grade quality. BREC may make other types of real estate investments,
such as interests in real properties subject to triple net leases and equity
interests in other types of entities (such as partnerships and REITs) holding
income-producing real properties.
BREC is a Delaware corporation that intends to operate in such a manner as
to qualify for taxation as a REIT under the Internal Revenue Code (the "Code").
As a REIT, BREC will not be subject to federal income tax to the extent that it
distributes all of its earnings to its stockholders each year. The Fund owns
100% of the common stock issued by BREC, and intends to hold all of BREC's
common stock at all times. On November 24, 1998 (the date BREC commenced
operations), the Fund acquired 2,100 shares of Class A preferred stock (the
"preferred stock") issued by 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 as a result of the Fund donating 20 shares of BREC preferred
stock to each of approximately 105 (104 at December 31, 1999) charitable
organizations. As at December 31, 1999, assets of the Fund invested in BREC
totaled $506.2 million.
In addition to its investment in the Portfolio through the Company and its
investment in BREC, the Fund may invest directly in traded physical commodities
(other than precious metals) and certain other types of assets that are not
securities. The Fund also held investments in Partnership Preference Units prior
to the transfer of such investments to BREC in exchange for BREC stock upon the
formation of BREC in November 1998 and thereafter. As of December 31, 1999, the
Fund did not hold any of such investments directly.
The Fund's investments through BREC in Partnership Preference Units are
financed using borrowings under a seven-year revolving credit facility (the
"Credit Facility") established with Merrill Lynch International Bank Limited.
The Fund's obligations under the Credit Facility are secured by a pledge of its
assets, including BREC common stock and shares of the Company. Borrowings under
the Credit Facility are at an annual rate of LIBOR plus 0.45%, based on interest
periods of one month to five years as selected by the Fund. Interest on
outstanding borrowings is payable at the end of each interest period, but not
less frequently than semi-annually. The Fund also pays a commitment fee of 0.10%
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on the unused loan commitment amount. As of December 31, 1999, outstanding
borrowings under the Credit Facility totaled $655 million, and there was no
unused loan commitment available.
The Fund has entered into interest rate swap agreements with Merrill Lynch
Capital Services, Inc. ("MLCS"), to lock in a positive spread between the
distributions payable on BREC's current holdings of Partnership Preference Units
and the interest cost of the associated Fund borrowings under the Credit
Facility. The interest rate swap agreements are valued on an ongoing basis by
the Fund's investment adviser. Fluctuations in value of the interest rate swap
agreements partly offset fluctuations in value of the Partnership Preference
Units derived from changes in general interest rates. Fluctuations in the value
of the Partnership Preference Units derived from other factors besides general
interest rate movements (including issuer-specific and sector-specific credit
concerns and changes in interest rate spread relationships) are not offset by
changes in the value of the interest rate swap agreements. The Fund has the
right to terminate the interest rate swap agreements beginning in 2003, at dates
corresponding approximately to the initial call dates of the Partnership
Preference Units held by BREC. MLCS is a secured party under the Credit
Facility. The obligations of MLCS under the arrangements are supported by the
guarantee of Merrill Lynch & Co., Inc.
The Fund issued Shares to Shareholders at closings taking place on February
6, April 20, and June 25, 1998. At the three closings, an aggregate of
17,179,862 Shares were issued in exchange for Shareholder contributions totaling
$1,848.8 million. All Shareholder contributions (other than contributions by the
Fund's Manager) were made in the form of securities. At each closing, all of the
securities contributed by Shareholders were exchanged by the Fund into the
Company for shares of the Company. Immediately thereafter, all of such
securities were exchanged by the Company into the Portfolio for an interest in
the Portfolio.
Shares of the Fund were privately offered and sold only to "accredited
investors" as defined in Rule 501(a) under the Securities Act who were
"qualified purchasers" (as defined in Section 2(a)(51)(A) of the 1940 Act). The
offering was conducted by Eaton Vance Distributors, Inc. ("EVD") as placement
agent and by certain subagents appointed by EVD in reliance upon the exemption
from registration provided by Rule 506 under the Securities Act.
The Fund discontinued its private offering on June 25, 1998.
The Fund has no officers or employees, inasmuch as its business affairs
are conducted by its Manager, Eaton Vance Management ("EVM"), a Massachusetts
business trust with offices at The Eaton Vance Building, 255 State Street,
Boston, Massachusetts 02109, and its investment operations are conducted by its
investment adviser, Boston Management and Research, a wholly-owned subsidiary of
EVM.
ITEM 2. PROPERTIES.
The Fund does not own any physical properties, other than indirectly as a
result of BREC's investments in Partnership Preference Units.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Fund or BREC
is a party or of which any of their property is the subject.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No items were submitted to a vote of security holders during the fiscal
year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE FUND'S SHARES AND RELATED SHAREHOLDER MATTERS.
(a) Market Information, Restrictions on Transfer of Shares and Redemption
of Shares.
There is no established public trading market for the Shares of the Fund,
and the transfer of Shares is severely restricted by the Operating Agreement of
the Fund.
Other than transfer to the Fund in a redemption, transfers of Shares are
expressly prohibited without the consent of EVM, which consent may be withheld
in its sole discretion for any reason or for no reason. The Shares have not been
and will not be registered under the Securities Act, and may not be resold
unless an exemption from such registration is available. Shareholders have no
right to require registration of the Shares and the Fund does not intend to
register the Shares under the Securities Act or take any action to cause an
exemption (whether pursuant to Rule 144 of the Securities Act or otherwise) to
be available. The Fund is not and will not be registered under the 1940 Act, and
no transfer of Shares may be made that would, in the opinion of counsel to the
Fund, result in the Fund being required to be registered under the 1940 Act. In
addition, no transfer of Shares may be made unless, in the opinion of counsel
for the Fund, such transfer would not result in termination of the Fund for
purposes of Section 708 of the Code or result in the classification of the Fund
as an association or a publicly traded partnership taxable as a corporation
under the Code. In no event shall all or any part of a Shareholder's Shares be
assigned to a minor or an incompetent, unless in trust for the benefit of such
person. Shares may be sold, transferred, assigned or otherwise disposed of by a
Shareholder only if, in the opinion of counsel, such transfer, assignment or
disposition would not violate federal securities or state securities or "blue
sky" laws (including investor qualification standards).
Shares of the Fund may be redeemed on any business day. Redemptions of
Shares held for at least three years will be met at net asset value. Shares
redeemed within three years of issuance are generally subject to a redemption
fee equal to 1% of the net asset value of the Shares redeemed. See Item 13
below. The Fund plans to meet redemption requests principally by distributing
securities drawn from the Portfolio, but may also distribute cash. If requested
by a redeeming Shareholder, the Fund will meet a redemption request by
distributing securities that were contributed by the redeeming Shareholder,
provided that such securities are held in the Portfolio at the time of
redemption. The securities contributed by a Shareholder will not be distributed
to any other Shareholder in the Fund (or to any other investor in the Company or
the Portfolio) during the first seven years following their contribution. A
shareholder redemption request within seven years of a contribution of
securities by such Shareholder will ordinarily be met by distributing securities
that were contributed by such Shareholder, prior to distributing to such
Shareholder any other securities held in the Portfolio. Securities contributed
by a Shareholder may be distributed to other Shareholders in the Fund (or to
other investors in the Company or the Portfolio) after a holding period of at
least seven years and, if so distributed, would not be available to meet
subsequent redemption requests made by the contributing Shareholder. If
requested by a redeeming Shareholder making a redemption of at least $1 million
occurring more than seven years after such Shareholder's admission to the Fund,
the Fund will generally distribute to the redeeming Shareholder a diversified
basket of securities representing a range of industry groups that is drawn from
the Portfolio, but the selection of individual securities would be made by BMR
in its sole discretion. No Partnership Preference Units or real estate
investments held by BREC will be distributed to meet a redemption request, and
"restricted securities" will be distributed only to the Shareholder who
contributed such securities or such Shareholder's successor in interest. Other
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<PAGE>
than as set forth above, the allocation of each redemption between securities
and cash and the selection of securities to the distributed will be at the sole
discretion of BMR. Distributed securities may include securities contributed by
Shareholders as well as other readily marketable securities held in the
Portfolio. The value of securities and cash distributed to meet a redemption
will equal the net asset value of the number of Shares being redeemed less the
applicable redemption fee, if any. The Fund's Credit Facility prohibits the Fund
from honoring redemption requests while there is outstanding an event of default
under the Credit Facility.
The Fund may compulsorily redeem all or a portion of the Shares of a
Shareholder if the Fund has determined that such redemption is necessary or
appropriate to avoid registration of the Fund or the Company under the 1940 Act,
to avoid adverse tax or other consequences to the Portfolio, the Company, the
Fund or the Shareholders, or to discharge such Shareholder's obligation to
reimburse the Fund for state taxes paid by the Fund on behalf of the Shareholder
and accrued interest thereon. No redemption fee is payable in the event of a
compulsory redemption.
The high and low net asset values per Share of the Fund during each full
quarterly period within the Fund's fiscal years ended December 31, 1998 and 1999
are as follows:
QUARTER ENDED HIGH LOW
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12/31/99 $131.72 $110.75
9/30/99 130.71 115.96
6/30/99 127.49 119.79
3/31/99 123.32 113.88
12/31/98 116.69 86.89
9/30/98 115.53 90.36
6/30/98 112.91 105.06
There are no outstanding options or warrants to purchase, or securities
convertible into, Shares of the Fund. Shares of the Fund cannot be sold pursuant
to Rule 144 under the Securities Act, and the Fund does not propose to publicly
offer any of its Shares at any time.
(b) Record Holders of Shares of the Fund.
As of March 15, 2000, there were 635 record holders of Shares of the Fund.
(c) Distributions.
Except as provided in the next paragraph, the Fund intends to make annual
income distributions approximately equal to the amount of its net investment
income, if any, and annual capital gains distributions equal to approximately
22% of the amount of its net realized capital gains, if any, other than
precontribution gain allocated to a Shareholder in connection with a tender
offer or other extraordinary corporate event involving a security contributed by
such Shareholder. In addition, whenever a distribution in respect of a
precontribution gain is made, the Fund intends to make a supplemental
distribution generally equal to approximately 6% of the allocated
precontribution gain or such other percentage as deemed appropriate to
compensate Shareholders receiving such distributions for taxes that may be due
in connection with the precontribution gain and supplemental distributions. The
Fund's distribution rates with respect to realized gains may be adjusted at a
future time to reflect changes in the effective maximum marginal individual
federal tax rate applicable to long-term capital gains. Shareholder
distributions with respect to net investment income and realized
post-contribution gains will be made pro rata in proportion to the number of
Shares held as of the record date of the distribution. Distributions that are
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made in respect of realized precontribution gains and the associated
supplemental distributions will be made solely to the Shareholders to whom such
gain is allocated. The Fund's net investment income and net realized gains
include the Fund's allocated share of the net investment income and net realized
gains of BREC, the Company and, indirectly, the Portfolio. The Fund's Credit
Facility prohibits the Fund from making any distribution to Shareholders while
there is outstanding an event of default under the Credit Facility.
The Fund may make state tax payments on behalf of eligible Shareholders
through a composite or similar filing. Distributions to a Shareholder on whose
behalf the Fund has made state tax payments will be reduced by the outstanding
balance of unreimbursed state tax payments and accrued interest thereon until
repaid in full.
On December 30, 1998 the Fund made an income distribution of 43 cents per
Share from its net investment income to Shareholders of record on December 29,
1998. On December 17, 1999, the Fund made an income distribution of $1.27 cents
per Share from its net investment income to Shareholders of record on December
17, 1999.
(d) Recent Sales of Unregistered Securities.
The Fund held its initial closing of February 6, 1998, at which time
qualified purchasers contributed cash of $100,000* and equity securities with an
aggregate exchange value of $600,662,712 in exchange for an aggregate of
5,982,693.481 Shares of the Fund. Shares of the Fund were privately offered and
sold only to "accredited investors" as defined in Rule 501(a) under the
Securities Act who were "qualified purchasers" (as defined in Section
2(a)(51)(A) of the 1940 Act) in certain states through EVD, the placement agent,
and certain subagents appointed by EVD in reliance upon the exemption from
registration provided by Rule 506 under the Securities Act.
The Fund held a second closing on April 20, 1998, at which time qualified
purchasers contributed equity securities with an aggregate exchange value of
$631,286,477 in exchange for an aggregate of 5,609,299.634 Shares of the Fund.
The Fund held a third and final closing on June 25, 1998, at which time
qualified purchasers contributed equity securities with an aggregate exchange
value of $616,885,067 in exchange for an aggregate of 5,587,868.885 Shares of
the Fund. In connection with the second and third closings, Shares of the Fund
were privately offered and sold only to accredited investors who were qualified
purchasers in the manner described above.
ITEM 6. FINANCIAL INFORMATION.
<TABLE>
TABLE OF SELECTED FINANCIAL DATA FISCAL YEAR ENDED DECEMBER 31
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1999 1998(1)
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<S> <C> <C>
Total investment income $59,436,107 $34,740,028
Interest expense $36,722,400 $24,793,685
Total expenses (including interest expense) $50,382,824 $32,933,527
</TABLE>
* Contributed by EVM in exchange for 1,000 Shares of the Fund. No selling
commission applied to such 1,000 Shares.
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<TABLE>
<S> <C> <C>
Net investment income $9,053,283 $1,806,501
Net realized loss $38,647,548 $55,088,152
Net change in unrealized appreciation $293,174,886 $213,360,195
Net increase in net assets from operations $263,580,621 $160,078,544
Total assets $2,759,005,507 $2,539,968,731
Loan payable $655,000,000 $583,000,000
Net assets $2,094,369,753 $1,932,848,372
Shares outstanding 15,900,744 16,568,833
Net Asset Value and Redemption Price per Share $131.72 $116.66
Distribution paid per Share $1.27 $0.43
</TABLE>
(1)For the period from February 6, 1998 (start of business) to December 31, 1998
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Increases and decreases in the Fund's net asset value per Share are derived
from net investment income, and realized and unrealized gains and losses on
investments, including securities investments held through the Fund's indirect
interest (through the Company) in the Portfolio, real estate investments held
through BREC and any direct investments of the Fund. Expenses of the Fund
include its pro-rata share of the expenses of BREC, the Company, and indirectly
the Portfolio, as well as the actual and accrued expenses of the Fund. The
Fund's most significant expense is interest incurred on borrowings under the
Credit Facility. Fund borrowings are used primarily to finance the purchase of
Partnership Preference Units through BREC. The interest paid on Fund borrowings
is offset by the dividends earned from the Fund's indirect investment in
Partnership Preference Units. The Fund's realized and unrealized gains and
losses on investments are based on its allocated share of the realized and
unrealized gains and losses of the Company, and indirectly the Portfolio, as
well as realized and unrealized gains and losses on investments in Partnership
Preference Units through BREC. The realized and unrealized gains and losses on
investments have the most significant impact on the Fund's net asset value per
Share and result from sales of such investments and changes in their underlying
value. The investments of the Portfolio consist primarily of common stocks of
domestic and foreign growth companies that are considered to be high in quality
and attractive in their long-term investment prospects. Because the securities
holdings of the Portfolio are broadly diversified, the performance of the
Portfolio cannot be attributed to one particular stock or one particular
industry or market sector. The performance of the Portfolio and the Fund are
substantially influenced by the overall performance of the United States stock
market, as well as by the relative performance versus the overall market of
specific stocks and classes of stocks in which the Portfolio maintains large
positions. Through the impact of interest rates on the valuation of the Fund's
investments in Partnership Preference Units through BREC and its positions in
interest rate swap agreements, the performance of the Fund is also affected by
movements in interest rates and, particularly, changes in credit spread
relationships. On a combined basis, the Fund's Partnership Preference Units and
interest rate swaps generally decline in value when credit spreads widen (as
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fixed income markets grow more risk-averse) and generally increase in value when
credit spreads tighten.
For the period from its inception on February 6, 1998 until December 31,
1998, the Fund achieved a total return of 17.1%. 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.
For the fiscal year ended December 31, 1999, the Fund achieved a total
return of 14.07%. This return reflects an increase in the Fund's net asset value
per Share from $116.66 to $131.72, and the payment of an income distribution of
$1.27 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 21.03% over the same period.
The stock market's 1999 performance was similar to its performance for
1998. 1999 marked an unprecedented fifth consecutive year of 20%-plus returns
for the S&P 500. Similar to 1998, though, the Index's returns came from a very
narrow group of stocks, with only 31 stocks accounting for all the appreciation
in the S&P 500. The other 469 stocks included in the Index were, on balance,
flat. Of the 31 top-contributing stocks in the Index, over two-thirds were drawn
from the technology, media, and communications industries.
The fixed income markets experienced a very volatile 1999, as the Federal
Reserve Board's actions and economic strength kept the bond markets on the
defensive for much of the year. Rates on the benchmark 30-year Treasury bond
rose nearly 1.90% in 1999, one of the biggest annual increases in recent
history.
The Fund participates in fixed income markets through its portfolio of
Partnership Preference Units, issued by operating partnerships affiliated with
publicly-traded REITs. The Fund's performance during the year was negatively
affected by markdowns in the value of its holds of Partnership Preference Units,
particularly in the last few weeks of 1999. At year-end, the REIT preferred
stock universe that the Fund uses as a primary valuation benchmark was quite
weak, largely as a result of tax-loss selling pressures and other short-term
technical factors. The U.S. real estate market remains fundamentally strong. All
of the Fund's holdings of Partnership Preference Units are current in their
distribution payments and none of their issuers have experienced credit rating
downgrades.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Fund had outstanding borrowings of $655.0
million (with no unused loan commitment amounts) under the Credit Facility
established with Merrill Lynch International Bank Limited, the term of which
extends until February 6, 2005. As of December 31, 1998, the Fund had
outstanding borrowings under the Credit Facility of $583.0 million and unused
loan commitments of $17.0 million. The Credit Facility is being used primarily
to finance the Fund's investments in Partnership Preference Units and will
continue to be used for such purposes in the future, as well as to provide for
any short-term liquidity needs of the Fund. In the future, the Fund may increase
the size of the Credit Facility (subject to lender consent) and the amount of
outstanding borrowings thereunder for these purposes.
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The Fund may redeem shares of the Company at any time. Both the Company and
the Portfolio follow the practice of normally meeting redemptions by
distributing securities, consisting, in the case of the Company, of securities
drawn from the Portfolio. The Company and the Portfolio may also meet
redemptions by distributing cash. As of December 31, 1999, the Portfolio had
cash and short-term investments totaling $642.7 million, compared to $432.4
million as of December 31, 1998. The Portfolio participates in a $150 million
multi-fund unsecured line of credit agreement with a group of banks. The
Portfolio may temporarily borrow from the line of credit to satisfy redemption
requests in cash or to settle investment transactions. The Portfolio had no
outstanding borrowings at December 31, 1999 or December 31, 1998. As of December
31, 1999, the net assets of the Portfolio totaled $15.1 billion, compared to
$8.7 billion as of December 31, 1998. To ensure liquidity for investors in the
Portfolio, the Portfolio may not invest more than 15% of its net assets in
illiquid assets. As of December 31, 1999, restricted securities, which are
considered illiquid, constituted 5.0% of the net assets of the Portfolio,
compared to 6.5% as of December 31, 1998.
The Partnership Preference Units held by BREC are not registered under the
Securities Act and are subject to substantial restrictions on transfer. As such,
they are considered illiquid.
Redemptions of Fund Shares are met primarily by distributing securities
drawn from the Portfolio, although cash may also be distributed. Shareholders
generally do not have the right to receive the proceeds of Fund redemptions in
cash.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The value of Fund Shares may not increase or may decline. The performance
of the Fund fluctuates. There can be no assurance that the performance of the
Fund will match that of the United States stock market or that of other equity
funds. In managing the Portfolio for long-term, after-tax returns, the
Portfolio's investment adviser generally seeks to avoid or minimize sales of
securities with large accumulated capital gains, including contributed
securities. Such securities constitute a substantial portion of the assets of
the Portfolio. Although the Portfolio may utilize certain management strategies
in lieu of selling appreciated securities, the Portfolio's, and hence the
Fund's, exposure to losses during stock market declines may nonetheless be
higher than that of funds that do not follow a general policy of avoiding sales
of highly-appreciated securities.
The Portfolio invests in securities issued by foreign companies and the
Fund may acquire foreign investments. Foreign investments involve considerations
and possible risks not typically associated with investing in the United States.
The value of foreign investments to U.S. investors may be adversely affected by
changes in currency rates. Foreign brokerage commissions, custody fees and other
costs of investing are generally higher than in the United States, and foreign
investments may be less liquid, more volatile and more subject to government
regulation than in the United States. Foreign investments could be adversely
affected by other factors not present in the United States, including
expropriation, confiscatory taxation, lack of uniform accounting and auditing
standards, armed conflict, and potential difficulty in enforcing contractual
obligations.
In managing the Portfolio, the investment adviser may purchase or sell
derivative instruments (which derive their value by reference to other
securities, indices, instruments, or currencies) to hedge against securities
price declines and currency movements and to enhance returns. Such transactions
may include, without limitation, the purchase and sale of stock index futures
contracts and options on stock index futures; the purchase of put options and
the sale of call options on securities held; equity swaps; and the purchase and
sale of forward currency exchange contracts and currency futures. The Portfolio
9
<PAGE>
may make short sales of securities provided that an equal amount is held of the
security sold short (a covered short sale) and may also lend portfolio
securities. The Fund utilizes interest rate swap agreements to fix the cost of
its borrowings over the term of the Credit Facility. In the future, the Fund may
use other interest rate hedging arrangements (such as caps, floors and collars)
to fix or limit borrowing costs. The use of these investment techniques is a
specialized activity that may be considered speculative and which can expose the
Fund and the Portfolio to significant risk of loss. Successful use of these
investment techniques is subject to the ability and performance of the
investment adviser. The Fund's and the Portfolio's ability to meet their
investment objectives may be adversely affected by the use of these techniques.
The writer of an option or a party to an equity swap may incur losses that
substantially exceed the payments, if any, received from a counterparty. Swaps,
caps, floors, collars and over-the-counter options are private contracts in
which there is also a risk of loss in the event of a default on an obligation to
pay by the counterparty. Such instruments may be difficult to value, may be
illiquid and may be subject to wide swings in valuation caused by changes in the
price of the underlying security, index, instrument or currency. In addition, if
the Fund or the Portfolio has insufficient cash to meet margin, collateral or
settlement requirements, it may have to sell assets to meet such requirements.
Alternatively, should the Fund or the Portfolio fail to meet these requirements,
the counterparty or broker may liquidate positions of the Fund or the Portfolio.
The Portfolio may also have to sell or deliver securities holdings in the event
that it is not able to purchase securities on the open market to cover its short
positions or to close out or satisfy an exercise notice with respect to options
positions it has sold. In any of these cases, such sales may be made at prices
or in circumstances that the investment adviser considers unfavorable.
The Portfolio's ability to utilize covered short sales, certain equity
swaps and certain equity collar strategies (combining the purchase of a put
option and the sale of a call option) as a tax-efficient management technique
with respect to holdings of appreciated securities is limited to circumstances
in which the hedging transaction is closed out within thirty days of the end of
the Portfolio's taxable year and the underlying appreciated securities position
is held unhedged for at least the next sixty days after such hedging transaction
is closed. There can be no assurance that counterparties will at all times be
willing to enter into covered short sales, interest rate hedges, equity swaps
and other derivative instrument transactions on terms satisfactory to the Fund
or the Portfolio. The Fund's and the Portfolio's ability to enter into such
transactions may also be limited by covenants under the Credit Facility, the
federal margin regulations and other laws and regulations. The Portfolio's use
of certain investment techniques may be constrained because the Portfolio is a
diversified, open-end management investment company registered under the 1940
Act and because other investors in the Portfolio are regulated investment
companies under Subchapter M of the Code. Moreover, the Fund and the Portfolio
are subject to restrictions under the federal securities laws on their ability
to enter into transactions in respect of securities that are subject to
restrictions on transfer pursuant to the Securities Act.
Although intended to add to returns, the borrowing of funds to purchase
Partnership Preference Units through BREC exposes the Fund to the risk that the
returns achieved on the Partnership Preference Units will be lower than the cost
of borrowing to purchase such assets and that the leveraging of the Fund to buy
such assets will therefore diminish the returns to be achieved by the Fund as a
whole. In addition, there is a risk that the availability of financing will be
interrupted at some future time, requiring the Fund to sell assets to repay
outstanding borrowings or a portion thereof. It may be necessary to make such
sales at unfavorable prices. The Fund's obligations under the Credit Facility
are secured by a pledge of its assets. In the event of default, the lender could
elect to sell assets of the Fund without regard to consequences of such action
for Shareholders. The rights of the lender to receive payments of interest on
and repayments of principal of borrowings is senior to the rights of the
Shareholders. Under the terms of the Credit Facility, the Fund is not permitted
to make distributions of cash or securities while there is outstanding an event
of default under the Credit Facility. During such periods, the Fund would not be
able to honor redemption requests or make cash distributions.
10
<PAGE>
The Partnership Preference Units held by the Fund through its investment in
BREC are subject to restrictions on transfer, including, among other
restrictions, limitations on the manner of resale and the requirement that the
general partner of the issuer consent to transfers. In addition, there is no
active secondary market for any Partnership Preference Units that BREC holds.
Accordingly, BREC's investments in Partnership Preference Units are illiquid.
The success of BREC's investments in Partnership Preference Units depends in
part on many factors related to the real estate market and to the issuing
partnerships that may affect such partnerships' profitability and their ability
to make distributions to holders of Partnership Preference Units. These factors
include, without limitation, general economic conditions, the supply and demand
for different types of real properties, the financial health of tenants, the
timing of lease expirations and terminations, fluctuations in rental rates and
operating costs, exposure to adverse environmental conditions and losses from
casualty or condemnation, interest rates, availability of financing, managerial
performance, government rules and regulations, and acts of God. Although BREC's
investments in Partnership Preference Units are, to some degree, insulated from
risk by virtue of their senior position relative to other equity interests in
the issuing partnerships and by their diversification across a range of property
types and geographic regions, the above-referenced factors can substantially
affect the value and marketability of such investments over time. There can be
no assurance that the investments in Partnership Preference Units will be an
economic success.
The valuations of Partnership Preference Units held by the Fund through its
investment in BREC fluctuate over time to reflect, among other factors, changes
in interest rates, changes in the perceived riskiness of such units (including
call risk), changes in the perceived riskiness of comparable or similar
securities trading in the public market and the relationship between supply and
demand for comparable or similar securities trading in the public market.
Increases in interest rates and increases in the perceived riskiness of such
units or comparable or similar securities will adversely affect the valuation of
the Partnership Preference Units. Fluctuations in the value of Partnership
Preference Units derived from changes in general interest rates can be expected
to be offset in part (but not entirely) by changes in the value of interest rate
swap agreements or other interest rate hedges entered into by the Fund with
respect to its borrowings under the Credit Facility. Fluctuations in the value
of Partnership Preference Units derived from other factors besides general
interest rate movements (including issuer-specific and sector-specific credit
concerns and changes in interest rate spread relationships) will not be offset
by changes in the value of interest rate swap agreements or other interest rate
hedges entered into by the Fund. Changes in the valuation of the Partnership
Preference Units not offset by changes in the valuation of interest rate swap
agreements or other interest rate hedges entered into by the Fund will cause the
performance of the Fund to deviate from the performance of the Portfolio. Over
time, the performance of the Fund can be expected to be more volatile than the
performance of the Portfolio.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Fund's financial statements and auditor's report thereon for the fiscal
year ended December 31, 1998, appearing on page 19 through 38 of the Fund's Form
10 filed with the Securities and Exchange Commission on April 23, 1999, are
incorporated herein by reference. The Fund's financial statements for the fiscal
year ended December 31, 1999, together with the auditors' report thereon,
appearing on pages 19 through 44 hereof, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
There have been no changes in, or disagreements with, accountants on
accounting and financial disclosures.
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
The Fund has no individual directors or executive officers. The Fund is
managed by EVM. Each of the Fund, BREC and the Portfolio engage Boston
Management and Research ("BMR"), a wholly-owned subsidiary of EVM, as investment
adviser. EVM, its affiliates and predecessor companies have been investment
advisers to individuals and institutions since 1924 and have been advising
investment companies since 1931. BMR and EVM currently have assets under
investment management of approximately $45 billion. EVM is a wholly-owned
subsidiary of Eaton Vance Corp. ("EVC"), a publicly-held holding company which,
through its subsidiaries and affiliates, engages primarily in investment
management, administration and marketing activities. The non-voting common stock
of EVC is listed and traded on the New York Stock Exchange. All shares of the
voting common stock of EVC are held in a voting trust, the voting trustees of
which are senior officers of the Eaton Vance organization. Eaton Vance, Inc.
("EV"), a wholly-owned subsidiary of EVC, is the sole trustee of EVM and of BMR,
each of which is a Massachusetts business trust. The names of the executive
officers and the directors of EV and their ages and principal occupations are
set forth below:
DIRECTORS AND EXECUTIVE OFFICERS OF EATON VANCE, INC.
James B. Hawkes, (58), is Chairman, President and Chief Executive Officer
of EVM, BMR, EVC and EV and a Director of EVC and EV. He is also Director or
Trustee and an officer of various investment companies managed by EVM or BMR and
has been employed by the Eaton Vance organization for 29 years.
Alan R. Dynner, (59), is a Vice President and Chief Legal Officer of EVM,
BMR, EVC and EV and an officer of various investment companies managed by EVM or
BMR. He joined Eaton Vance on November 1, 1996. Prior to joining Eaton Vance,
Mr. Dynner was a partner in the New York and Washington offices of the law firm
of Kirkpatrick & Lockhart LLP. Mr. Dynner was Executive Vice President of
Neuberger & Berman Management, Inc. from 1994 to 1995.
William M. Steul, (57), is a Vice President and Chief Financial Officer of
EVM, BMR, EVC and EV. He joined Eaton Vance in December 1994.
Eric G. Woodbury (42), is a Vice President of EVM, BMR and EVC, and
is Assistant Secretary and EV. He joined Eaton Vance in February 1993.
ITEM 11. EXECUTIVE COMPENSATION.
Under the terms of the Fund's investment advisory and administrative
agreement with BMR, BMR receives a monthly advisory and administrative fee at
the rate of 1/20th of 1% (equivalent to 0.60% annually) of the average daily
gross investment assets of the Fund reduced by that portion of the monthly
advisory fee for such month payable by the Portfolio which is attributable to
value of the Fund's investment in the Company. The term gross investment assets
of the Fund is defined in the agreement to include the value of all assets of
the Fund other than the Fund's investments in BREC, minus the sum of the Fund's
liabilities other than the principal amount of money borrowed. The advisory fee
payable for such month to BMR 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 commencing with the start of the
Fund's business, February 6, 1998, through December 31, 1998 and for the fiscal
year ended December 31, 1999 the advisory and administrative fees paid by the
Fund to BMR, less the Fund's allocated share of the Portfolio's advisory fee,
totaled $3,620,842 and $3,132,712, respectively.
12
<PAGE>
Under the terms of BREC's management agreement with BMR, BMR receives a
monthly management fee at the rate of 1/20th of 1% (equivalent to 0.60%
annually) of the average daily gross investment assets of BREC. The term gross
investment assets of BREC is defined in the agreement to include the value of
all assets of BREC, minus the sum of BREC's liabilities (other than any BREC
liability with respect to the Fund's Credit Facility). For the period commencing
with the start of BREC's business, November 24, 1998, through December 31, 1998
and for the fiscal year ended December 31, 1999, BREC paid BMR management fees
of $304,212 and $3,366,516, respectively.
Under the terms of the Portfolio's investment advisory agreement with BMR,
BMR receives a monthly advisory fee at a base rate of 5/96 of 1% (equivalent to
0.625% annually) of the average daily net assets of the Portfolio up to $500
million. On net assets of $500 million or more the monthly fee is reduced and is
computed as follows: 9/192 of 1% (equivalent to 0.5625% annually) of the average
daily net assets of the Portfolio of $500 million but less than $1 billion; 1/24
of 1% (equivalent to 0.50% annually) of the average daily net assets of the
Portfolio of $1 billion but less than $1.5 billion; 7/192 of 1% (equivalent to
0.4375% annually) of the average daily net assets of the Portfolio of $1.5
billion but less than $7 billion; 17/480 of 1% (equivalent to 0.425% annually)
of the average daily net assets of the Portfolio of $7 billion but less than $10
billion; 11/320 of 1% (equivalent to 0.4125% annually) of the average daily net
assets of the Portfolio of $10 billion and above. As of December 31, 1999, net
assets of the Portfolio totaled $15.1 billion. For the fiscal year ended
December 31, 1999, the investment advisory fee applicable to the Portfolio was
at a rate of 0.45% of average daily net assets. Effective February 23, 2000, the
monthly advisory fee on average daily net assets of the Portfolio of $15 billion
and above is computed at the rate of 1/30 of 1% (equivalent to 0.40% annually).
As indicated above, the Fund's allocated share of the monthly advisory fee paid
by the Portfolio to BMR is credited toward the Fund's advisory and
administrative fee payments. For the period commencing with the start of the
Fund's business, February 6, 1998, through December 31, 1998 and for the fiscal
year ended December 31, 1999, the advisory fee applicable to the Portfolio was
0.478% and 0.45% of average daily net assets for such periods, and the Fund's
allocated portion of the fee amounted to $5,878,535 and $9,165,212,
respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners.
To the knowledge of the Fund, no person beneficially owns more than five
percent of the Shares of the Fund.
(b) Security Ownership of Management.
EVM, the Manager of the Fund, beneficially owned 1,115.404 Shares of the
Fund as of March 15, 2000. None of the other entities or individuals named in
response to Item 10 above beneficially owned Shares of the Fund as of March 15,
2000.
(c) Changes in Control.
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information set forth under Item 11 above.
13
<PAGE>
Pursuant to a servicing agreement between the Company and EVD, the Company
pays a servicing fee to EVD for providing certain services and information to
direct and indirect investors in the Company. The servicing fee is paid on a
quarterly basis, at an annual rate of 0.15% of the Company's average daily net
assets. With respect to investors in the Company and Shareholders of the Fund
who subscribed through a subagent, EVD will assign servicing responsibilities
and fees to the applicable subagent, beginning twelve months after the issuance
of shares of the Company or Shares of the Fund to such persons. The Fund will
assume its allocated share of the Company's servicing fee. The servicing fee
payable in respect of the Fund's investment in the Company is credited toward
the Fund servicing fee described below. During the Fund's fiscal year ended
December 31, 1999, the Company paid servicing fees aggregating $3,073,561 which
were attributable to the Fund's investments in the Company.
Pursuant to a servicing agreement between the Fund and EVD, the Fund pays a
servicing fee to EVD for providing certain services and information to the
Shareholders of the Fund. The servicing fee is paid on a quarterly basis, at an
annual rate of 0.20% of the Fund's average daily net assets. With respect to
Shareholders who subscribed through a subagent, EVD will assign servicing
responsibilities and fees to the applicable subagent, beginning twelve months
after the issuance of Shares of the Fund to such persons. The Fund's allocated
share of the servicing fee paid by the Company is credited toward the Fund's
servicing fee payment, thereby reducing the amount of the servicing fee paid by
the Fund. During the Fund's fiscal year ended December 31, 1999, the Fund paid
servicing fees aggregating $894,432.
Of the foregoing service fee amounts allocated to and incurred by the Fund,
$2,815,175 was paid to sub-agents based on the value of Shares sold by them. The
balance of such amounts was retained by EVD.
Shares of the Fund redeemed within three years of issuance are generally
subject to a redemption fee equal to 1% of the net asset value of the Shares
redeemed. The redemption fee is payable to BMR in cash by the Fund on behalf of
the redeeming Shareholder. No redemption fee is imposed on Shares of the Fund
held for at least three years, Shares acquired through the reinvestment of Fund
distributions, Shares redeemed in connection with a tender offer or other
extraordinary corporate event involving securities contributed by the redeeming
Shareholder, or Shares redeemed following the death of all of the initial owners
of the Shares redeemed. No redemption fee applies to redemptions by a
Shareholder who, during any 12 month period, redeems less than 8% of the total
number of Shares held by the Shareholder as of the beginning of such period.
During the Fund's fiscal year ended December 31, 1999, BMR received redemption
fees of $528,988 from the Fund on behalf of redeeming Shareholders.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) Financial Statements.
(1)(i) The following is a list of all financial statements incorporated
by reference from the Fund's Form 10 dated April 23, 1999 into
this report:
Portfolio of Investments as of December 31, 1998
Consolidated Statement of Assets and Liabilities as of December
31, 1998
Consolidated Statement of Operations for the period from the
start of business, February 6, 1998, to December 31, 1998
14
<PAGE>
Consolidated Statement of Changes in Net Assets for the period
from the start of business, February 6, 1998, to December 31,
1998
Consolidated Statement of Cash Flows for the period from the
start of business, February 6, 1998, to December 31, 1998
Notes to Consolidated Financial Statements
Portfolio of Investments of Tax-Managed Growth Portfolio as of
December 31, 1998
Independent Auditors' Report dated February 12, 1999
(ii) The following is a list of all financial statements filed as
a part of this report:
Portfolio of Investments as of December 31, 1999
Consolidated Statement of Assets and Liabilities as of December
31, 1999
Consolidated Statement of Operations for the fiscal year ended
December 31, 1999
Consolidated Statement of Changes in Net Assets for the fiscal
year ended December 31, 1999
Consolidated Statement of Cash Flows for the fiscal year ended
December 31, 1999
Notes to Consolidated Financial Statements
Portfolio of Investments of Tax-Managed Growth Portfolio as of
December 31, 1999
Independent Auditors' Report dated February 11, 2000
(b) The following is a list of all exhibits filed as part of this report:
3 Copy of Amended and Restated Operating Agreement of the Fund
dated February 6, 1998 and First Amendment thereto dated
November 24, 1998 filed as Exhibit 3 to the Fund's Initial
Registration Statement on Form 10 and incorporated herein by
reference. (Note: the Operating Agreement also defines the
rights of the holders of Shares of the Fund)
4 Copy of Loan and Security Agreement dated as of February 5,
1998, First Amendment thereto dated as of April 30, 1998;
Second Amendment thereto dated as of June 25, 1998; Third
Amendment thereto dated as of December 18, 1998; and Fourth
Amendment thereto dated as of February 23, 1999 filed as
Exhibit 4 to the Fund's Initial Registration Statement on
Form 10 and incorporated herein by reference.
4(1) Copy of Fifth Amendment to Loan and Security Agreement dated
July 28, 1999 and Sixth Amendment thereto dated March 17,
2000 filed herewith.
9 Not applicable and not filed.
15
<PAGE>
10(1) Copy of Investment Advisory and Administration Agreement
between the Fund and Boston Management and Research dated
November 24, 1998 filed as Exhibit 10(1) to the Fund's
Initial Registration Statement on Form 10 and incorporated
herein by reference.
10(2) Copy of Management Agreement between Belair Real Estate
Corporation and Boston Management and Research dated
November 23, 1998 filed as Exhibit 10(2) to the Fund's
Initial Registration Statement on Form 10 and incorporated
herein by reference.
10(3) Copy of Investor Servicing Agreement between the Fund and
Eaton Vance Distributors, Inc. dated October 28, 1997 filed
as Exhibit 10(3) to the Fund's Initial Registration
Statement on Form 10 and incorporated herein by reference.
10(4) Copy of Custody and Transfer Agency Agreement between the
Fund and Investors Bank & Trust Company dated October 28,
1997 filed as Exhibit 10(4) to the Fund's Initial
Registration Statement on Form 10 and incorporated herein by
reference.
11 Not applicable and not filed.
12 Not applicable and not filed.
13 Not applicable and not filed.
16 Not applicable and not filed.
18 Not applicable and not filed.
21 List of Subsidiaries of the Fund filed herewith.
22 Not applicable and not filed.
23 Not applicable and not filed.
24 Not applicable and not filed.
27 Financial Data Schedule
16
<PAGE>
99 Form N-SAR of Eaton Vance Tax-Managed Growth Portfolio (File
No. 811-7409) for its fiscal year ended December 31, 1999
filed electronically with the Securities and Exchange
Commission under the Investment Company Act of 1940 on
February 17, 2000 (Accession No. 0000940394-00-000073)
(incorporated herein by reference pursuant to Rule 12b-32).
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 29th day of March, 2000.
BELAIR CAPITAL FUND LLC
(Registrant)
By: EATON VANCE MANAGEMENT,
Its Manager
By: /s/ William M. Steul
---------------------------------------
William M. Steul
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ James B. Hawkes Principal Executive Officer March 29, 2000
- ------------------------- of Eaton Vance Management;
James B. Hawkes Sole Director of Eaton Vance,
Inc., sole trustee of Eaton
Vance Management
/s/ William M. Steul Chief Financial Officer of March 29, 2000
- ------------------------- Eaton Vance Management
18
<PAGE>
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS
INVESTMENT IN BELVEDERE CAPITAL FUND
COMPANY LLC -- 81.6%
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Investment in Belvedere Capital Fund
Company LLC (Belvedere Capital) 12,895,319 $2,228,073,699
- ---------------------------------------------------------------------
Total Investment in Belvedere Capital
(identified cost $1,627,361,259) $2,228,073,699
- ---------------------------------------------------------------------
</TABLE>
PARTNERSHIP PREFERENCE UNITS -- 18.4%
<TABLE>
<CAPTION>
SECURITY UNITS VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
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+ 800,000 $ 35,472,000
Bradley Operating Limited Partnership
(Delaware Limited Partnership affiliate
of Bradley Real Estate, Inc.), 8.875%
Series B Cumulative Redeemable Perpetual
Preferred Units, Callable from 2/23/04+ 273,392 5,672,884
Cabot Industrial Properties, L.P.
(Delaware Limited Partnership affiliate
of Cabot Industrial Trust), 8.625%
Series B Cumulative Redeemable Preferred
Units, Callable from 4/29/04+ 560,000 23,514,960
Camden Operating, L.P. (Delaware Limited
Partnership affiliate of Camden Property
Trust), 8.50% Series B Cumulative
Redeemable Perpetual Preferred Units,
Callable from 2/23/04+ 1,145,000 23,988,895
CP Limited Partnership (Maryland Limited
Partnership affiliate of Chateau
Communities, Inc.), 8.125% Series A
Cumulative Redeemable Preferred Units,
Callable from 4/20/03+ 570,000 22,381,620
Colonial Realty Limited Partnership
(Delaware Limited Partnership affiliate
of Colonial Properties Trust), 8.875%
Series B Cumulative Redeemable Perpetual
Preferred Units, Callable from 2/23/04+ 570,000 23,654,430
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+ 977,000 36,017,105
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 3,411,360
Essex Portfolio, L.P.(California Limited
Partnership affiliate of Essex Property
Trust, Inc.), 9.30% Series D Cumulative
Redeemable Preferred Units, Callable
from 7/28/04+ 308,000 6,711,628
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+ 876,000 32,860,512
Liberty Property L.P. (Pennsylvania
Limited Partnership affiliate of Liberty
Property Trust), 9.25% Series B
Cumulative Redeemable Preferred Units,
Callable from 7/28/04+ 1,235,000 27,114,425
MHC Operating Limited Partnership
(Illinois Limited Partnership affiliate
of Manufactured Home
Communities, Inc.), 9% Series D
Cumulative Redeemable Perpetual
Preference Units, Callable
from 9/29/04+ 2,000,000 41,860,000
<CAPTION>
SECURITY UNITS VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
National Golf Operating Partnership,
L.P. (Delaware Limited Partnership
affiliate of National Golf
Properties, Inc.), 8% Series A
Cumulative Redeemable Preferred Units,
Callable from 3/4/03+ 740,000 $ 27,397,760
National Golf Operating Partnership,
L.P. (Delaware Limited Partnership
affiliate of National Golf
Properties, Inc.), 9.30% Series B
Cumulative Redeemable Preferred Units,
Callable from 7/28/04+ 200,000 4,308,200
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+ 685,000 25,960,815
Prentiss Properties Acquisition
Partners, L.P. (Delaware Limited
Partnership affiliate of Prentiss
Properties Trust), 9.45% Series C
Cumulative Redeemable Perpetual
Preferred Units, Callable from 9/17/04+ 600,000 13,094,400
Price Development Company, L.P.
(Maryland Limited Partnership affiliate
of J.P. Realty, Inc.), 8.95% Series B
Cumulative Redeemable Preferred
Partnership Interests, Callable
from 7/28/04+ 1,225,000 26,629,050
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+ 1,153,000 44,456,221
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+ 510,000 19,475,880
Summit Properties Partnership, L.P.
(Delaware Limited Partnership affiliate
of Summit Properties, Inc.), 8.95%
Series B Cumulative Redeemable Perpetual
Preferred Units, Callable from 4/29/04+ 1,185,000 24,797,310
Sun Communities Operating L.P. (Michigan
Limited Partnership affiliate of Sun
Communities, Inc.), 9.125% Series A
Cumulative Redeemable Perpetual
Preferred Units, Callable from 9/29/04+ 600,000 13,114,800
Urban Shopping Centers, L.P. (Illinois
Limited Partnership affiliate of Urban
Shopping Centers, Inc.), 9.45% Series D
Cumulative Redeemable Perpetual
Preferred Units, Callable from 10/1/04+ 1,000,000 21,105,000
- ---------------------------------------------------------------------
Total Partnership Preference Units
(identified cost $620,334,800) $ 502,999,255
- ---------------------------------------------------------------------
Total Investments -- 100.0%
(identified cost $2,247,696,059) $2,731,072,954
- ---------------------------------------------------------------------
</TABLE>
+ Security exempt from registration under the Securities Act of 1933. At
December 31, 1999, the value of these securities totaled $502,999,255 or
24.0% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 1999
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
<S> <C>
Assets
- --------------------------------------------------------
Investments, at value
(identified cost $2,247,696,059) $2,731,072,954
Cash 3,802,594
Receivable for open swap contracts 23,158,186
Dividends receivable 608,281
Deferred organization expenses 338,678
Swap interest receivable 24,814
- --------------------------------------------------------
TOTAL ASSETS $2,759,005,507
- --------------------------------------------------------
Liabilities
- --------------------------------------------------------
Loan payable $ 655,000,000
Payable for Fund shares redeemed 1,072,380
Other accrued expenses
Interest expense 8,156,260
Other accrued expenses 199,114
Minority interest 208,000
- --------------------------------------------------------
TOTAL LIABILITIES $ 664,635,754
- --------------------------------------------------------
NET ASSETS FOR 15,900,744 SHARES
OUTSTANDING $2,094,369,753
- --------------------------------------------------------
Shareholders' Capital
- --------------------------------------------------------
SHAREHOLDERS' CAPITAL $2,094,369,753
- --------------------------------------------------------
Net Asset Value and Redemption Price Per Share
- --------------------------------------------------------
($2,094,369,753 DIVIDED BY 15,900,744
SHARES OUTSTANDING) $ 131.72
- --------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
<S> <C>
Investment Income
- ------------------------------------------------------
Dividends allocated from Belvedere Capital
(net of foreign taxes, $154,979) $ 18,616,366
Interest allocated from Belvedere
Capital 5,524,988
Expenses allocated from Belvedere
Capital (12,675,464)
- ------------------------------------------------------
Net investment income allocated from
Belvedere Capital $ 11,465,890
Dividends from partnership preference
units 47,602,252
Interest 367,965
- ------------------------------------------------------
TOTAL INVESTMENT INCOME $ 59,436,107
- ------------------------------------------------------
Expenses
- ------------------------------------------------------
Investment adviser fee $ 6,499,228
Service fees 894,432
Interest expense 36,722,400
Interest expense on swap contracts 5,350,662
Legal and accounting services 712,702
Amortization of organization expenses 94,100
Custodian and transfer agent fees 69,259
Printing and postage 5,615
Miscellaneous 34,426
- ------------------------------------------------------
TOTAL EXPENSES $ 50,382,824
- ------------------------------------------------------
NET INVESTMENT INCOME $ 9,053,283
- ------------------------------------------------------
Realized and Unrealized Gain (Loss)
- ------------------------------------------------------
Net realized gain (loss) --
Investment transactions from
Belvedere Capital
(identified cost basis) $(21,468,400)
Investment transactions in
partnership preference units
(identified cost basis) (17,179,148)
- ------------------------------------------------------
NET REALIZED LOSS $(38,647,548)
- ------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investment in Belvedere Capital
(identified cost basis) $338,435,670
Investments in partnership preference
units (identified cost basis) (86,574,621)
Interest rate swap contracts 41,313,837
- ------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $293,174,886
- ------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $254,527,338
- ------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $263,580,621
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 1999
CONSOLIDATED FINANCIAL STATEMENTS CONT'D
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INCREASE (DECREASE) YEAR ENDED PERIOD ENDED
IN NET ASSETS DECEMBER 31, 1999 DECEMBER 31, 1998*
<S> <C> <C>
- -------------------------------------------------------------------------------------
Net investment income $ 9,053,283 $ 1,806,501
Net realized loss (38,647,548) (55,088,152)
Net change in unrealized appreciation 293,174,886 213,360,195
- -------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 263,580,621 $ 160,078,544
- -------------------------------------------------------------------------------------
Transactions in Fund shares --
Investment securities and
cash contributed $ -- $ 1,848,834,256
Less -- Selling commissions -- (8,445,747)
- -------------------------------------------------------------------------------------
Net contributions $ -- $ 1,840,388,509
Net asset value of shares issued to
Shareholders in payment of
distributions declared 10,588,705 4,012,014
Net asset value of shares redeemed (92,513,365) (64,531,106)
- -------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS $ (81,924,660) $ 1,779,869,417
- -------------------------------------------------------------------------------------
Distributions to Shareholders
Belair Capital Fund $ (20,117,940) $ (7,109,689)
Preferred Shareholders of BREC (16,640) --
- -------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (20,134,580) $ (7,109,689)
- -------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 161,521,381 $ 1,932,838,272
- -------------------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------------------
At beginning of year $ 1,932,848,372 $ 10,100
- -------------------------------------------------------------------------------------
AT END OF YEAR $ 2,094,369,753 $ 1,932,848,372
- -------------------------------------------------------------------------------------
</TABLE>
* For the period from the start of business, February 6, 1998, to
December 31, 1998.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
INCREASE (DECREASE) IN CASH DECEMBER 31, 1999
<S> <C>
- -----------------------------------------------------------
Cash Flows From (For) Operating
Activities --
Net investment income $ 9,036,643
Adjustment to reconcile net investment
income to net cash flows used for
operating activities--
Amortization of organization expense 94,100
Net investment income allocated from
Belvedere Capital (11,465,890)
Decrease in dividends receivable 400,704
Payment of organization expenses (443,560)
Decrease in interest payable for open
swap contracts (745,375)
Increase in accrued interest and
accrued operating expenses 3,838,893
Purchase of partnership preference
units (434,000,000)
Sale of partnership preference units 358,486,052
Net decrease in investment in
Belvedere Capital 38,477,708
- -----------------------------------------------------------
NET CASH FLOWS USED FOR OPERATING
ACTIVITIES $ (36,320,725)
- -----------------------------------------------------------
Cash Flows From (For) Financing
Activities --
Proceeds of loan $ 72,000,000
Payments for Fund shares redeemed (25,059,026)
Distributions paid (9,529,235)
- -----------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES $ 37,411,739
- -----------------------------------------------------------
NET INCREASE IN CASH $ 1,091,014
- -----------------------------------------------------------
CASH AT BEGINNING OF YEAR $ 2,711,580
- -----------------------------------------------------------
CASH AT END OF YEAR $ 3,802,594
- -----------------------------------------------------------
Supplemental Disclosure and Non-cash Investing
and Financing Activities
- -----------------------------------------------------------
Unrealized appreciation of investments
and open swap contracts $ 506,535,081
Interest paid for loan $ 32,772,341
Interest paid for swap contracts $ 6,096,037
Market value of securities distributed
in payment of redemptions $ 66,381,959
- -----------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Significant Accounting Policies
- -------------------------------------------
Belair Capital Fund LLC (Belair Capital) is a Massachusetts limited liability
company established to offer diversification and tax-sensitive investment
management to persons holding large and concentrated positions in equity
securities of selected publicly-traded companies. The investment objective of
Belair Capital is to achieve long-term, after-tax returns for shareholders.
Belair Capital pursues this objective primarily by investing indirectly in
Tax-Managed Growth Portfolio (the Portfolio), a diversified, open-end
management investment company registered under the Investment Company Act of
1940, as amended. The Portfolio is organized as a trust under the laws of the
state of New York. Belair Capital maintains its investment in the Portfolio
by investing in Belvedere Capital Fund Company LLC (Belvedere Capital), a
separate Massachusetts limited liability company that invests exclusively in
the Portfolio. The performance of Belair Capital and Belvedere Capital is
directly and substantially affected by the performance of the Portfolio.
Separate from its investment in the Portfolio through Belvedere Capital,
Belair Capital invests 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, 1999, Belair Capital owned 100% of the common stock issued by
BREC and intends to hold all of BREC's common stock at all times.
On November 24, 1998 (the date BREC commenced operations), Belair Capital
acquired 2,100 shares of Class A preferred stock (the "preferred stock")
issued by 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
as a result of Belair Capital donating 20 shares of BREC preferred stock to
each of approximately 105 (currently 104) charitable organizations. The
charitable organizations' interest in the preferred stock has been recorded
as a minority interest on the Statement of Assets and Liabilities.
The preferred stock has a par value of $.01 per share and is redeemable by
BREC at a redemption price of $100 after the occurrence of certain tax events
or after December 31, 2004. Dividends on the preferred stock will be
cumulative and will be payable annually in arrears on December 30 of each
year (or the immediately preceding business day) equal to $8 per share per
annum (representing an annual dividend yield of 8%).
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.
Financial statements of the Portfolio, including the portfolio of
investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
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 purchases of partnership preference units, copper and aluminum
(held as temporary assets until replaced by additional purchases of
partnership preference units). 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, 1999, the aggregate tax basis of the Fund's
investments was $610,155,648.
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.
22
<PAGE>
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
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.
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's policy is to comply with the Internal Revenue Code
applicable to REITs. 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
have been 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
23
<PAGE>
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
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.
2 Distributions to Shareholders
- -------------------------------------------
The Fund intends to distribute at the end of each year all of its net
investment income for the year, if any, and approximately 22% of its net
realized capital gains for such year, if any, other than precontribution
gains allocated to a shareholder in connection with a tender offer or other
extraordinary corporate event with respect to a security contributed by such
shareholder, for which no capital gain distribution is made. In addition,
whenever a distribution with respect to a precontribution gain is made, the
Fund makes 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, including contributions of securities and cash
in exchange for shares of the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998*
<S> <C> <C>
-------------------------------------------------------------------------------
Issued at fund closings -- 17,179,862
Reinvestments 85,402 34,610
Redemptions (753,491) (645,740)
-------------------------------------------------------------------------------
NET INCREASE (DECREASE) (668,089) 16,568,732
-------------------------------------------------------------------------------
</TABLE>
* 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 shareholders, who, during any 12-month period, redeems less
than 8% of the total number of shares held by the shareholder as of the
beginning of the 12-month period. For the year ended December 31, 1999, the
Investment Adviser received $528,988 in redemption fees.
4 Investment Transactions
- -------------------------------------------
Increases and decreases of the Fund's investment in Belvedere Capital for the
year ended December 31, 1999 aggregated $55,028,500 and $159,888,167,
respectively. Purchases and sales of other investments (partnership
preference units) aggregated $434,000,000 and $358,486,052, respectively,
during the period.
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 year ended December 31, 1999 the
advisory fee applicable to the Portfolio was 0.45% of average daily net
assets. Belvedere Capital's allocated portion of the advisory fee totaled
$24,247,975, of which $9,165,212 was allocated to the Fund, for the year
ended December 31, 1999. 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(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 Belair
Capital's indirect investment in the Portfolio is credited toward Belair
Capital's advisory and administrative fee payment. For the year ended
December 31, 1999, the
24
<PAGE>
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
advisory and administrative fee payable to BMR by the Fund, less the Fund's
allocated share of the Portfolio's advisory fee, totaled $6,499,228.
Eaton Vance Management (EVM) serves as manager of Belair Capital and receives
no separate compensation for services provided in such capacity.
Pursuant to a servicing agreement between Belvedere Capital and 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 $8,158,220 for the year ended
December 31, 1999, of which $3,073,561 was allocated to Belair Capital.
Pursuant to a servicing agreement between Belair Capital and EVD, Belair
Capital pays a servicing fee to EVD on a quarterly basis at an annual rate of
0.20% of Belair Capital's average daily net assets, less Belair Capital's
allocated share of the servicing fee payable by Belvedere Capital. For the
year ended December 31, 1999, the servicing fee paid directly by Belair
Capital totaled $894,432. Of the amounts allocated to and incurred by the
Fund, $2,815,175 was paid to subagents.
6 Credit Facility
- -------------------------------------------
The Fund has obtained a $655,000,000 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, 1999, amounts
outstanding under the Credit Facility totaled $655,000,000.
7 Cancelable Interest Rate Swap Agreements
- -------------------------------------------
The Fund has entered into cancelable 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 make periodic payments at fixed rates in
exchange for payments at floating rates. The notional or contractual amounts
of these instruments may not necessarily represent the amounts potentially
subject to risk. The measurement of the risks associated with these
investments is meaningful only when considered in conjunction with all
related assets, liabilities and agreements. 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.
<TABLE>
<CAPTION>
NOTIONAL INITIAL
AMOUNT OPTIONAL
EFFECTIVE (000'S FIXED TERMINATION MATURITY UNREALIZED
DATE OMITTED) RATE FLOATING RATE DATE DATE APPRECIATION
<C> <C> <C> <S> <C> <C> <C>
-----------------------------------------------------------------------------------
2/98 $ 60,000 6.72% Libor + .45% 2/03 2/05 $ 2,190,325
2/98 120,000 6.715% Libor + .45% 2/03 2/05 4,404,500
4/98 50,000 6.84% Libor + .45% 2/03 2/05 1,579,937
4/98 150,000 6.835% Libor + .45% 4/03 4/05 4,983,531
6/98 20,000 6.67% Libor + .45% 6/03 2/05 747,192
6/98 75,000 6.68% Libor + .45% 6/03 2/05 2,768,906
6/98 80,000 6.595% Libor + .45% 6/03 2/05 3,236,267
11/98 14,709 6.13% Libor + .45% 11/03 2/05 871,658
2/99 34,951 6.34% Libor + .45% 2/04 2/05 1,732,927
4/99 5,191 6.49% Libor + .45% 2/04 2/05 223,114
7/99 24,902 7.077% Libor + .45% 7/04 2/05 396,636
9/99 10,471 7.37% Libor + .45% 9/04 2/05 23,193
-----------------------------------------------------------------------------------
TOTAL $ 23,158,186
-----------------------------------------------------------------------------------
</TABLE>
8 Indirect Investment in Portfolio
- -------------------------------------------
Belvedere Capital's interest in the Portfolio at December 31, 1999, was
$7,695,912,318, representing 50.9% of the Portfolio's net assets. The Fund's
investment in Belvedere Capital at December 31, 1999 was $2,228,073,699,
representing 29.0% of Belvedere Capital's net assets. Investment income
allocated to Belvedere Capital from the Portfolio for the year ended
December 31, 1999, totaled $64,529,911, of which $24,141,354 was allocated to
the Fund. Expenses allocated to Belvedere Capital from the Portfolio for the
year ended December 31, 1999, totaled $25,044,679, of which $9,464,520 was
allocated to the Fund. Belvedere Capital allocated additional expenses to the
Fund of $3,210,944 for the year ended December 31, 1999, representing
$137,383 of operating expenses and $3,073,561 of service fees (see Note 5).
25
<PAGE>
BELAIR CAPITAL FUND LLC AS OF DECEMBER 31, 1999
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF BELAIR CAPITAL FUND LLC:
- ---------------------------------------------
We have audited the accompanying consolidated statement of assets and
liabilities, including the portfolio of investments, of Belair Capital Fund LLC
and Belair Real Estate Corporation (collectively, the Fund), as of December 31,
1999, and the related consolidated statements of operations and cash flows for
the year then ended, and the consolidated statement of changes in net assets for
the year then ended and 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 based on our audits.
We conducted our audits 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, 1999 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Fund as of
December 31, 1999, the results of its consolidated operations and its
consolidated cash flows for the year then ended, and the consolidated changes in
its net assets for the year then ended and for the period from the start of
business, February 6, 1998, to December 31, 1998, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 11, 2000
26
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS
COMMON STOCKS -- 95.4%
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Advertising and Marketing Services -- 4.0%
- ---------------------------------------------------------------------
ACNielsen Corp.(1) 45,668 $ 1,124,573
Advo, Inc.(1) 170,000 4,037,500
Catalina Marketing Corp.(1) 20,000 2,315,000
Harte-Hanks Communications, Inc. 135,487 2,946,842
IMS Health, Inc. 498,012 13,539,701
Interpublic Group of Companies, Inc. 2,397,899 138,328,799
Lamar Advertising Co.(1) 100,000 6,056,250
Lamar Advertising Co.(1)(2)(3) 400,000 24,216,521
Lamar Advertising Co.(1)(2)(3) 250,000 15,126,998
Navigant Consulting, Inc.(1) 496,795 5,402,646
Navigant International, Inc.(1) 59,630 696,926
Omnicom Group, Inc. 2,899,018 289,901,800
R.H. Donelley Corp.(1) 8,153 153,888
Snyder Communications, Inc.(1) 482,500 9,288,125
TMP Worldwide, Inc.(1) 59,790 8,490,180
True North Communications, Inc. 513,715 22,956,639
Valassis Communications, Inc.(1) 975,000 41,193,750
Ventiv Health, Inc.(1) 160,833 1,477,653
WPP Group PLC 488,000 7,715,670
Young and Rubicam, Inc. 186,000 13,159,500
- ---------------------------------------------------------------------
$ 608,128,961
- ---------------------------------------------------------------------
Aerospace and Defense -- 0.2%
- ---------------------------------------------------------------------
Boeing Company (The) 284,081 $ 11,807,117
Honeywell International, Inc. 119,536 6,895,733
Raytheon Co., Class B 213,564 5,672,794
Teledyne Technologies, Inc.(1) 16,830 158,833
- ---------------------------------------------------------------------
$ 24,534,477
- ---------------------------------------------------------------------
Apparel and Textiles -- 0.0%
- ---------------------------------------------------------------------
Shaw Industries, Inc.(2)(3) 325,000 $ 5,014,261
Unifi, Inc.(1) 50,000 615,625
- ---------------------------------------------------------------------
$ 5,629,886
- ---------------------------------------------------------------------
Auto and Parts -- 0.4%
- ---------------------------------------------------------------------
Aftermarket Technology Corp.(1) 46,000 $ 549,125
Borg-Warner Automotive, Inc. 230,270 9,325,935
DaimlerChrysler 19,952 1,561,244
Dana Corp. 46,137 1,381,226
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Auto and Parts (continued)
- ---------------------------------------------------------------------
Delphi Automotive Systems 5,290 $ 83,318
Ford Motor Co. 152,609 8,155,043
General Motors Corp. 10,996 799,272
Genuine Parts Co. 147,059 3,648,901
Harley-Davidson, Inc. 21,000 1,345,312
Honda Motor Co. Ltd. ADR 5,000 382,500
Magna International, Inc., Class A 815,000 34,535,625
Meritor Automotive, Inc. 71,799 1,391,106
SPX Corp.(1) 47,862 3,867,848
TRW, Inc. 2,000 103,875
- ---------------------------------------------------------------------
$ 67,130,330
- ---------------------------------------------------------------------
Banks - Money Center -- 0.1%
- ---------------------------------------------------------------------
Bank of Montreal 73,412 $ 2,496,008
Chase Manhattan Corp. 123,458 9,591,143
Morgan (J.P.) & Co., Inc. 18,780 2,378,018
National Westminster Bank PLC 8,753 1,131,325
- ---------------------------------------------------------------------
$ 15,596,494
- ---------------------------------------------------------------------
Banks - Regional -- 5.5%
- ---------------------------------------------------------------------
AmSouth Bancorporation 609,824 $ 11,777,226
Associated Banc-Corp. 568,111 19,457,802
Bank of America Corp. 1,157,235 58,078,732
Bank of Granite Corp. 22,500 483,750
Bank of New York Co., Inc. (The) 313,144 12,525,760
Bank One Corp. 1,146,258 36,751,897
Bank One Corp.(2)(3) 51,299 1,643,815
Bank United Corp. 102,072 2,781,462
BB&T Corp. 362,198 9,915,170
City National Corp. 100,000 3,293,750
Colonial Bancgroup, Inc. (The) 449,424 4,662,774
Comerica, Inc. 155,041 7,238,477
Commerce Bancshares, Inc. 70,356 2,383,309
Community First Bancshares, Inc. 418,000 6,583,500
Compass Bancshares, Inc. 306,668 6,842,530
Fifth Third Bancorp 244,512 17,941,068
First Citizens BancShares, Inc. 65,900 4,596,525
First Financial Bancorp. 54,529 1,165,557
First Midwest Bancorp, Inc. 225,353 5,971,841
First Security Corp. 39,200 1,000,827
First Tennessee National Corp. 33,488 954,408
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Banks - Regional (continued)
- ---------------------------------------------------------------------
First Union Corp. 1,216,405 $ 39,913,289
Firstar Corp. 1,550,874 32,762,213
FleetBoston Financial Corp. 3,395,973 118,222,310
Golden West Financial Corp. 55,467 1,858,144
Keycorp 500,764 11,079,404
M&T Bank Corp. 2,000 828,500
Marshall and Ilsley Corp. 70,410 4,422,628
Mellon Financial Corp. 206,912 7,047,940
National City Corp. 444,035 10,518,079
National Commerce Bancorporation 252,894 5,737,533
National Commerce Bancorporation(2)(3) 670,000 15,191,758
National Commerce Bancorporation(2)(3) 150,000 3,397,808
Northern Trust Corp. 1,363,796 72,281,188
Old Kent Financial Corp. 103,786 3,671,430
Peoples Heritage Financial Group, Inc. 55,720 839,282
PNC Bank Corp. 141,615 6,301,867
Popular, Inc. 716 20,003
Regions Financial Corp. 1,276,273 32,066,359
S&T Bancorp, Inc. 100,000 2,318,750
SouthTrust Corp. 476,101 18,002,569
Southwest Bancorporation of Texas,
Inc.(1) 7,688 152,318
Sovereign Bancorporation, Inc. 442,584 3,298,623
State Street Corp. 64,000 4,676,000
Summit Bancorp. 177,812 5,445,492
SunTrust Banks, Inc. 178,600 12,289,913
Synovus Financial 634,329 12,607,289
U.S. Bancorp. 411,190 9,791,462
Union Planters Corp. 87,070 3,433,823
Valley National Bancorp. 290,706 8,139,768
Wachovia Corp. 118,714 8,072,552
Washington Mutual, Inc. 163,506 4,251,156
Wells Fargo & Co. 3,349,981 135,464,857
Westamerica Bancorporation 266,506 7,445,511
Whitney Holding Corp. 145,180 5,380,734
Whitney Holding Corp.(2)(3) 89,741 3,324,862
Whitney Holding Corp.(2)(3) 30,011 1,110,948
Zions Bancorporation 20,000 1,183,750
- ---------------------------------------------------------------------
$ 828,600,292
- ---------------------------------------------------------------------
Beverages -- 2.1%
- ---------------------------------------------------------------------
Anheuser-Busch Cos., Inc. 1,364,418 $ 96,703,126
Coca-Cola Company (The) 2,126,331 123,858,781
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Beverages (continued)
- ---------------------------------------------------------------------
Coca-Cola Company (The)(2)(3) 264,724 $ 5,327,198
Panamerican Beverages, Inc., Class A 80,000 1,645,000
PepsiCo, Inc. 2,476,847 87,308,857
- ---------------------------------------------------------------------
$ 314,842,962
- ---------------------------------------------------------------------
Broadcasting and Cable -- 2.1%
- ---------------------------------------------------------------------
AMFM, Inc.(1) 200,000 $ 15,650,000
AT&T Corp. - Liberty Media Group(1) 484,974 27,522,274
AT&T Corp. - Liberty Media Group,
Class B(1) 16,438 1,130,112
CBS Corp.(1) 117,340 7,502,426
Clear Channel Communications, Inc.(1) 10,000 891,429
Clear Channel Communications,
Inc.(1)(2)(3) 340,609 30,399,353
Comcast Corp., Class A 175,000 8,848,437
Cox Communications, Inc., Class A(1) 508,036 26,163,854
Gaylord Entertainment Co. 315,332 9,440,252
General Motors Corp., Class H(1) 391,754 37,608,384
Infinity Broadcasting Corp.(1) 34,500 1,248,469
MediaOne Group, Inc.(1) 1,461,694 112,276,370
Univision Communications, Inc.(1) 384,205 39,260,948
Westwood One, Inc.(1) 61,200 4,651,200
- ---------------------------------------------------------------------
$ 322,593,508
- ---------------------------------------------------------------------
Building Materials and Tools -- 0.4%
- ---------------------------------------------------------------------
American Standard Companies, Inc.(1) 172,899 $ 7,931,742
CRH PLC 261,114 5,574,523
Interface, Inc. 434,412 2,497,869
Masco Corp. 253,662 6,436,673
Sherwin-Williams Co. (The) 80,069 1,681,449
Snap-On, Inc. 71,795 1,907,055
Valspar Corp. 620,000 25,962,500
Vulcan Materials Co. 26,500 1,058,344
- ---------------------------------------------------------------------
$ 53,050,155
- ---------------------------------------------------------------------
Business Services - Miscellaneous -- 0.6%
- ---------------------------------------------------------------------
Century Business Services, Inc.(1) 400,000 $ 3,375,000
Cintas Corp. 665,716 35,366,163
Concord EFS, Inc.(1) 113,905 2,933,041
Fair, Issac and Co., Inc. 238,828 12,657,884
Gartner Group, Inc.(1) 31,000 472,750
Gartner Group, Inc., Class B(1) 64,841 895,616
Half (Robert) International, Inc.(1) 1,800 51,412
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Business Services - Miscellaneous (continued)
- ---------------------------------------------------------------------
Interim Services, Inc.(1) 90,000 $ 2,227,500
Manpower, Inc. 110,000 4,138,750
National Data Corp. 81,333 2,760,239
NFO Worldwide, Inc.(1) 18,000 402,750
ServiceMaster Co. 695,430 8,562,482
Staff Leasing, Inc.(1) 156,250 1,484,375
Sylvan Learning Systems, Inc.(1) 815,396 10,600,148
United Rentals, Inc.(1) 453,283 7,762,471
Viad Corp. 40,314 1,123,753
- ---------------------------------------------------------------------
$ 94,814,334
- ---------------------------------------------------------------------
Chemicals -- 1.1%
- ---------------------------------------------------------------------
Ashland, Inc. 46,784 $ 1,540,948
Ashland, Inc.(2)(3) 59,890 1,971,894
Bayer AG ADR 40,000 1,884,332
Dow Chemical Co. (The) 27,517 3,676,959
DuPont (E.I.) de Nemours & Co. 1,119,502 73,747,194
Eastman Chemical Co. 148 7,058
Monsanto Co. 2,331,780 83,069,662
Octel Corp.(1) 3,322 34,466
Rohm and Haas Co. 9,083 369,565
Solutia, Inc. 220,629 3,405,960
- ---------------------------------------------------------------------
$ 169,708,038
- ---------------------------------------------------------------------
Communications Equipment -- 4.4%
- ---------------------------------------------------------------------
3Com Corp.(1) 870,186 $ 40,898,742
ADC Telecommunications, Inc.(1) 150,178 10,897,291
CIENA Corp.(1) 351,013 20,183,247
Comverse Technology, Inc.(1) 150,000 21,712,500
JDS Uniphase Corp.(1) 133,040 21,461,015
L.M. Ericsson Telephone Co., ADR 454,000 29,822,125
Lucent Technologies, Inc. 685,475 51,282,098
Motorola, Inc. 559,130 82,331,892
Nokia Corp., Class A, ADR 1,273,935 242,047,650
Nortel Networks Corp. 523,526 52,876,126
Nortel Networks Corp.(2)(3) 10,000 1,009,499
PairGain Technologies, Inc.(1) 241,198 3,421,997
Qualcomm, Inc.(1) 182,112 32,074,476
Qualcomm, Inc.(1)(2)(3) 162,000 28,515,606
Salient 3 Communications, Inc., Class
A(1) 78,125 546,875
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Communications Equipment (continued)
- ---------------------------------------------------------------------
Tellabs, Inc.(1) 314,454 $ 20,184,016
- ---------------------------------------------------------------------
$ 659,265,155
- ---------------------------------------------------------------------
Communications Services -- 5.6%
- ---------------------------------------------------------------------
Alltel Corp. 885,395 $ 73,211,099
Alltel Corp.(2)(3) 164,000 13,559,801
Alltel Corp.(2)(3) 96,978 8,006,840
American Tower Corp., Class A(1) 149,451 4,567,596
AT&T Corp. 1,346,252 68,322,289
Bell Atlantic Corp. 269,848 16,612,518
BellSouth Corp. 216,429 10,131,583
Broadwing, Inc. 326,991 12,057,781
CapRock Communications Corp.(1)(2)(3) 207,590 6,725,620
Citizens Utilities Corp., Class B(1) 45,311 642,850
Global Crossing Ltd.(1) 124,289 6,214,450
GTE Corp. 1,683,801 118,813,208
Intermedia Communications, Inc.(1) 153,275 5,948,986
ITC Deltacom, Inc.(1) 628,773 17,369,854
ITC Deltacom, Inc.(1)(2)(3) 50,416 1,391,535
ITC Deltacom, Inc.(1)(2)(3) 438,852 12,116,215
MCI Worldcom, Inc.(1) 2,930,489 155,499,046
McLeodUSA, Inc.(1) 383,918 22,603,172
McLeodUSA, Inc.(1)(2)(3) 60,000 3,530,439
Nextel Communications, Inc., Class A(1) 110,891 11,435,634
NTL, Inc.(1)(2)(3) 156,250 19,428,229
NTL, Inc.(1)(2)(3) 164,063 20,397,350
Premiere Technologies, Inc.(1) 28,000 196,000
RSL Communications Ltd., Class
A(1)(2)(3) 247,161 4,230,163
RSL Communications Ltd., Class
A(1)(2)(3) 500,000 8,549,121
SBC Communications, Inc. 2,121,704 103,433,070
Sprint Corp. 1,253,920 84,404,490
Sprint Corp. (PCS Group)(1) 7,877 807,392
Talk.com, Inc.(1) 247,376 4,390,924
Telecom Corp. of New Zealand Ltd. ADR 8,000 308,000
Teleglobe, Inc. 88,500 2,007,844
Telephone & Data Systems, Inc. 131,756 16,601,256
US West, Inc. 33,935 2,443,320
Vodafone AirTouch PLC ADR 58,345 2,888,077
Winstar Communications, Inc.(1) 11,424 859,656
- ---------------------------------------------------------------------
$ 839,705,408
- ---------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Computer Software -- 5.3%
- ---------------------------------------------------------------------
Adobe Systems, Inc. 114,368 $ 7,691,248
Aspect Development, Inc.(1) 100,000 6,850,000
Baan Co., NV ADR(1) 223,926 3,162,955
BMC Software, Inc.(1) 35,000 2,797,812
Cadence Design Systems, Inc.(1) 956,000 22,944,000
Cognos, Inc.(1) 38,500 1,775,812
Computer Associates International, Inc. 522,500 36,542,344
Compuware Corp.(1) 2,800 104,300
CSG Systems International, Inc.(1) 41,116 1,639,500
HNC Software, Inc.(1) 477,794 50,526,715
I2 Technologies, Inc.(1) 35,795 6,980,025
Intuit, Inc.(1) 857,751 51,411,451
J.D. Edwards & Co.(1) 592,758 17,708,645
J.D. Edwards & Co.(1)(2)(3) 299,086 8,924,472
Microsoft Corp.(1) 921,005 107,527,334
Oracle Corp.(1) 1,985,822 222,536,178
Parametric Technology Corp.(1) 94,600 2,560,112
PeopleSoft, Inc.(1) 448,770 9,564,411
Sapient Corp.(1) 991,752 139,775,047
Sapient Corp.(1)(2)(3) 33,162 4,619,242
Siebel Systems, Inc.(1) 1,146,640 96,317,760
Siebel Systems, Inc.(1)(2)(3) 30,000 2,516,976
Sterling Commerce, Inc.(1) 2,388 81,341
Structural Dynamics Research Corp.(1) 55,882 712,495
Wind River Systems, Inc.(1) 51,933 1,902,046
- ---------------------------------------------------------------------
$ 807,172,221
- ---------------------------------------------------------------------
Computers and Business Equipment -- 7.6%
- ---------------------------------------------------------------------
Cabletron Systems, Inc.(1) 89,660 $ 2,331,160
Cisco Systems, Inc.(1) 2,357,101 252,504,445
Compaq Computer Corp. 74,841 2,025,385
Dell Computer Corp.(1) 3,308,624 168,739,824
Dell Computer Corp.(1)(2)(3) 202,519 10,319,173
EMC Corp.(1) 187,265 20,458,701
Gateway, Inc.(1) 800,000 57,650,000
Gateway, Inc.(1)(2)(3) 250,000 18,009,320
Hewlett-Packard Co. 558,461 63,629,650
IDX Systems Corp.(1) 60,000 1,875,000
International Business Machines Corp. 839,117 90,624,636
Jabil Circuit, Inc.(1)(2)(3) 22,979 1,676,488
Lexmark International Group, Inc.(1) 3,760,641 340,338,010
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Computers and Business Equipment (continued)
- ---------------------------------------------------------------------
Network Appliance, Inc.(1) 244,000 $ 20,267,250
Pitney Bowes, Inc. 19,486 941,417
Seagate Technology, Inc.(1) 168,215 7,832,511
Solectron Corp.(1) 75,950 7,224,744
Sun Microsystems, Inc.(1) 119,000 9,215,062
Xerox Corp. 3,080,142 69,880,722
Zebra Technologies Corp.(1) 6,000 351,000
- ---------------------------------------------------------------------
$ 1,145,894,498
- ---------------------------------------------------------------------
Conglomerates -- 1.9%
- ---------------------------------------------------------------------
General Electric Co. 1,527,079 $ 236,315,475
Tyco International Ltd. 1,166,995 45,366,931
United Technologies Corp. 191,354 12,438,010
- ---------------------------------------------------------------------
$ 294,120,416
- ---------------------------------------------------------------------
Consumer Services -- 0.1%
- ---------------------------------------------------------------------
Block (H&R), Inc. 366,177 $ 16,020,244
Cendant Corp.(1) 187,999 4,993,723
Service Corp. International 145,389 1,008,636
Stewart Enterprises, Inc. 153,992 731,462
- ---------------------------------------------------------------------
$ 22,754,065
- ---------------------------------------------------------------------
Containers and Packaging -- 0.2%
- ---------------------------------------------------------------------
Sealed Air Corp.(1) 440,750 $ 22,836,359
Sonoco Products Co. 122,135 2,778,571
- ---------------------------------------------------------------------
$ 25,614,930
- ---------------------------------------------------------------------
Distribution Services -- 1.0%
- ---------------------------------------------------------------------
Airgas, Inc.(1) 536,219 $ 5,094,080
Arrow Electronics, Inc.(1) 8,750 222,031
Cardinal Health, Inc. 550,151 26,338,479
McKesson HBOC, Inc. 105,734 2,385,623
MSC Industrial Direct Co.(1) 5,000 66,250
School Specialty, Inc.(1) 66,255 1,002,107
Sysco Corp. 2,236,922 88,498,227
U.S. Foodservice, Inc.(1) 1,143,854 19,159,554
US Office Products Co.(1) 149,077 465,866
Wilmar Industries, Inc.(1) 50,000 868,750
- ---------------------------------------------------------------------
$ 144,100,967
- ---------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Drugs -- 6.5%
- ---------------------------------------------------------------------
Abbott Laboratories 2,920,381 $ 106,046,335
Allergan, Inc. 840 41,790
American Home Products Corp. 498,733 19,668,783
Amgen, Inc.(1) 1,723,928 103,543,426
AstraZeneca PLC 542,035 22,841,138
AstraZeneca PLC ADR 80,720 3,370,060
Bristol-Myers Squibb Co. 1,151,622 73,919,737
Covance, Inc.(1) 81,250 878,516
Elan Corp., PLC ADR(1) 539,036 15,901,562
Genzyme Corp., Class A(1) 800,000 36,000,000
Gilead Sciences, Inc.(1) 34,043 1,842,577
Incyte Pharmaceuticals, Inc.(1) 1,012,257 60,735,420
Incyte Pharmaceuticals, Inc.(1)(2)(3) 365,570 21,926,523
Lilly (Eli) & Co. 1,009,301 67,118,516
Merck & Co., Inc. 1,331,598 89,300,291
Novo Nordisk ADR 116,911 7,555,373
Parexel International Corp.(1) 35,000 413,437
Pfizer, Inc. 3,205,678 103,984,180
Pharmacia & Upjohn, Inc. 22,617 1,017,765
Quintiles Transnational Corp.(1) 517,372 9,668,389
Quintiles Transnational Corp.(1)(2)(3) 23,400 437,134
Schering-Plough Corp. 867,580 36,601,031
Schering-Plough Corp.(2)(3) 126,720 5,342,881
Sepracor, Inc.(1) 442,000 43,840,875
SmithKline Beecham PLC ADR 520,254 33,523,867
Teva Pharmaceutical Industries Ltd. ADR 100,000 7,168,750
Teva Pharmaceutical Industries Ltd.
ADR(2)(3) 50,000 3,581,567
Vertex Pharmaceuticals, Inc.(1) 35,000 1,225,000
Warner-Lambert Co. 906,711 74,293,633
Watson Pharmaceuticals, Inc.(1) 981,781 35,160,032
- ---------------------------------------------------------------------
$ 986,948,588
- ---------------------------------------------------------------------
Electric Power -- 0.1%
- ---------------------------------------------------------------------
AES Corp.(1) 11,542 $ 862,764
Ameren Corp. 5,000 163,750
Central and South West Corp. 1,600 32,000
Dominion Resources, Inc. 28,938 1,135,816
Duke Energy Corp. 1,800 90,225
P G & E Corp. 47,705 977,952
Teco Energy, Inc. 40,000 742,500
Texas Utilities Co. 250,196 8,897,595
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Electric Power (continued)
- ---------------------------------------------------------------------
Wisconsin Energy Corp. 9,576 $ 184,338
- ---------------------------------------------------------------------
$ 13,086,940
- ---------------------------------------------------------------------
Electrical Equipment -- 0.6%
- ---------------------------------------------------------------------
American Power Conversion Corp.(1) 400,000 $ 10,550,000
Baldor Electric Co. 149,060 2,701,713
Emerson Electric Co. 337,467 19,362,169
Molex, Inc., Class A 90,066 4,075,486
Rockwell International Corp. 203,032 9,720,157
Sanmina Corp.(1) 222,860 22,258,142
Sanmina Corp.(1)(2)(3) 130,609 13,028,920
Thomas and Betts Corp. 110,263 3,514,633
- ---------------------------------------------------------------------
$ 85,211,220
- ---------------------------------------------------------------------
Electronics - Instruments -- 0.3%
- ---------------------------------------------------------------------
Dionex Corp.(1) 402,140 $ 16,563,141
National Instruments Corp.(1)(2)(3) 466,603 17,837,154
PerkinElmer, Inc. 100,000 4,168,750
Waters Corp.(1) 99,160 5,255,480
X-Rite, Inc. 428,000 2,675,000
- ---------------------------------------------------------------------
$ 46,499,525
- ---------------------------------------------------------------------
Electronics - Semiconductors and Related -- 4.2%
- ---------------------------------------------------------------------
Altera Corp.(1) 40,258 $ 1,995,287
Analog Devices, Inc.(1) 2,034,150 189,175,950
Applied Materials, Inc.(1) 1,000 126,687
Applied Materials, Inc.(1)(2)(3) 28,106 3,556,406
Broadcom Corp., Class A(1)(2)(3) 117,000 31,839,194
Burr-Brown Corp.(1) 900,000 32,512,500
Conexant Systems(1) 317,574 21,078,974
Intel Corp. 2,386,485 196,437,547
Intel Corp.(2)(3) 430,000 35,366,649
KLA-Tencor Corp.(1) 50,749 5,652,170
Lam Research Corp.(1) 106,000 11,825,625
Linear Technologies Corp. 132,000 9,446,250
Maxim Integrated Products Co.(1) 161,328 7,612,665
Maxim Integrated Products Co.(1)(2)(3) 80,000 3,772,169
National Semiconductor Corp.(1) 79,368 3,397,942
SpeedFam-IPEC, Inc.(1) 221,000 2,859,187
Teradyne, Inc.(1) 25,400 1,676,400
Texas Instruments, Inc. 706,204 68,413,512
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Electronics - Semiconductors and Related (continued)
- ---------------------------------------------------------------------
Ultratech Stepper, Inc.(1) 245,129 $ 3,952,705
Xilinx, Inc.(1) 48,856 2,221,424
- ---------------------------------------------------------------------
$ 632,919,243
- ---------------------------------------------------------------------
Engineering and Construction -- 0.0%
- ---------------------------------------------------------------------
Dycom Industries(1) 50,000 $ 2,203,125
Jacobs Engineering Group, Inc.(1) 162,455 5,279,787
- ---------------------------------------------------------------------
$ 7,482,912
- ---------------------------------------------------------------------
Entertainment -- 0.6%
- ---------------------------------------------------------------------
Callaway Golf Co. 35,715 $ 631,709
Disney (Walt) Co. 419,395 12,267,304
Fox Entertainment Group, Inc.(1) 275,500 6,870,281
Mattel, Inc. 22,091 289,944
Time Warner Inc. 873,162 63,249,672
Viacom, Inc., Class A(1) 21,774 1,315,966
Viacom, Inc., Class B(1) 162,724 9,834,632
- ---------------------------------------------------------------------
$ 94,459,508
- ---------------------------------------------------------------------
Environmental Services -- 0.2%
- ---------------------------------------------------------------------
Allied Waste Industries, Inc.(1) 1,075,000 $ 9,473,437
Waste Management, Inc. 1,342,447 23,073,308
- ---------------------------------------------------------------------
$ 32,546,745
- ---------------------------------------------------------------------
Financial Services - Miscellaneous -- 3.2%
- ---------------------------------------------------------------------
American Express Co. 641,762 $ 106,692,932
Associates First Capital Corp. 2,093,830 57,449,461
Capital One Financial Corp. 364,830 17,580,246
Citigroup 2,409,208 133,861,620
Fannie Mae 944,640 58,980,960
Finova Group, Inc. 175,587 6,233,338
FirstPlus Financial Group, Inc.(1) 120,000 9,000
Freddie Mac 364,900 17,173,106
GreenPoint Financial Corp. 100,000 2,381,250
Household International, Inc. 1,147,679 42,751,043
ING Groep NV ADR 102,622 6,259,942
MGIC Investment Corp. 80,000 4,815,000
Providian Financial Corp. 370,378 33,727,547
- ---------------------------------------------------------------------
$ 487,915,445
- ---------------------------------------------------------------------
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Foods -- 1.8%
- ---------------------------------------------------------------------
Archer-Daniels-Midland Co. 385,946 $ 4,703,717
Bestfoods 19,370 1,018,136
Campbell Soup Co. 336 12,999
Conagra, Inc. 748,125 16,879,570
Dean Foods Co. 150,944 6,000,024
Flowers Industries, Inc. 708,601 11,293,328
General Mills, Inc. 125,784 4,496,778
H J Heinz Co. 80,713 3,213,386
Hershey Foods Corp. 1,615,406 76,731,785
Keebler Food Products Co.(1) 121,798 3,425,569
Kellogg Co. 97,974 3,018,824
McCormick & Co., Inc. 458,058 13,627,225
Nabisco Holdings Corp., Class A 100,000 3,162,500
Quaker Oats Co. (The) 113,114 7,423,106
Ralston Purina Group 277,878 7,745,849
Riviana Foods, Inc. 250,000 4,437,500
Sara Lee Corp. 1,571,388 34,668,748
Smithfield Foods, Inc.(1)(2)(3) 490,191 11,758,702
Tyson Food, Inc. 1,127,235 18,317,569
Unilever ADR 400,000 21,775,000
Wrigley (Wm.) Jr. Co. 171,469 14,221,210
- ---------------------------------------------------------------------
$ 267,931,525
- ---------------------------------------------------------------------
Furniture and Appliances -- 0.3%
- ---------------------------------------------------------------------
HON Industries, Inc. 1,270,418 $ 27,869,795
Leggett & Platt, Inc. 593,654 12,726,458
Miller (Herman), Inc. 420,000 9,660,000
Steelcase, Inc., Class A 123,000 1,476,000
- ---------------------------------------------------------------------
$ 51,732,253
- ---------------------------------------------------------------------
Health Services -- 0.2%
- ---------------------------------------------------------------------
Aetna, Inc. 60,189 $ 3,359,299
Beverly Enterprises, Inc.(1) 357,143 1,562,501
Caremark Rx, Inc.(1) 17,696 89,586
FPA Medical Management, Inc.(1)(3) 315,000 3,150
Health Management Associates, Inc.,
Class A(1) 161,170 2,155,649
HealthSouth Corp.(1) 122,699 659,507
Integrated Health Services, Inc.(1)(3) 50,000 500
LabOne, Inc. 53,940 370,837
Magellan Health Services, Inc.(1) 50,000 315,625
Orthodontic Centers of America, Inc.(1) 100,000 1,193,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Health Services (continued)
- ---------------------------------------------------------------------
Pacificare Health Systems, Inc., Class
A(1) 19,500 $ 1,033,500
PhyCor, Inc.(1) 312,500 585,937
Quest Diagnostics, Inc.(1) 15,625 477,539
Quorum Health Group, Inc.(1) 6,893 64,191
Renal Care Group, Inc.(1) 371,507 8,683,976
Response Oncology, Inc.(1) 44,761 50,356
Sunrise Assisted Living, Inc.(1) 354,000 4,867,500
United HealthCare Corp. 52,286 2,777,694
- ---------------------------------------------------------------------
$ 28,251,097
- ---------------------------------------------------------------------
Household Products -- 2.7%
- ---------------------------------------------------------------------
Avon Products, Inc. 34,700 $ 1,145,100
Blyth Industries, Inc.(1) 824,000 20,239,500
Blyth Industries, Inc.(1)(2)(3) 50,000 1,227,695
Blyth Industries, Inc.(1)(2)(3) 35,068 860,324
Clorox Co. 1,021,344 51,450,204
Colgate-Palmolive Co. 348,851 22,675,315
Estee Lauder Co.(2)(3) 1,563,248 78,806,898
Estee Lauder Co.(2)(3) 529,064 26,661,539
Fortune Brands, Inc. 69,838 2,309,019
Gillette Co. 1,450,706 59,750,953
Helen of Troy Ltd.(1) 20,000 145,000
Kimberly-Clark Corp. 975,191 63,631,213
Newell Rubbermaid, Inc. 367,678 10,662,662
Procter & Gamble Co. 635,352 69,610,754
Water Pik Technologies, Inc.(1) 5,890 56,323
- ---------------------------------------------------------------------
$ 409,232,499
- ---------------------------------------------------------------------
Industrial Equipment -- 0.5%
- ---------------------------------------------------------------------
Dover Corp. 385,445 $ 17,489,567
DT Industries, Inc. 37,728 297,108
Federal Signal Corp. 283,471 4,553,253
Illinois Tool Works, Inc. 353,210 23,863,751
Johnson Controls 13,571 771,851
Nordson Corp. 50,000 2,412,500
Parker-Hannifin Corp. 150,898 7,742,954
PPG Industries, Inc. 21,680 1,356,355
Regal Beloit Corp. 265,000 5,465,625
Tecumseh Products Co., Class A 156,420 7,381,069
Westinghouse Air Brake Co. 250,000 4,437,500
- ---------------------------------------------------------------------
$ 75,771,533
- ---------------------------------------------------------------------
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Information Services -- 3.9%
- ---------------------------------------------------------------------
Acxiom Corp.(1) 829,019 $ 19,896,456
America Online, Inc.(1) 196,852 14,850,023
At Home Corp., Series A(1) 248,582 10,657,953
Automatic Data Processing, Inc. 4,497,232 242,288,374
Aztec Technology Partners(1) 119,261 544,128
Bell and Howell Co.(1) 115,000 3,658,438
BISYS Group, Inc. (The)(1) 53,873 3,515,213
CareInsite, Inc.(1) 50,000 4,025,000
Ceridian Corp.(1) 181,000 3,902,813
Check Point Software Technology(1) 26,000 5,167,500
Circle.com(1) 120,625 1,485,195
Computer Sciences Corp.(1) 1,400,202 132,494,114
DST Systems, Inc.(1) 93,000 7,097,063
DST Systems, Inc.(1)(2)(3) 91,517 6,981,447
Dun and Bradstreet Corp. (The) 15,503 457,339
Electronic Data Systems Corp. 157,612 10,550,153
Equifax, Inc. 80,000 1,885,000
First Data Corp. 780,662 38,496,395
Keane, Inc.(1) 200,000 6,350,000
Lason, Inc.(1) 355,000 3,905,000
Momentum Business Applications(1) 7,083 55,779
NOVA Corp.(1) 104,965 3,312,958
Paychex, Inc. 131,964 5,278,560
Perot Systems Corp., Class A(1) 275,000 5,225,000
Reuters Holdings PLC ADR 275,331 22,250,186
Reynolds & Reynolds, Inc., Class A 451,043 10,148,468
RSA Security, Inc.(1) 40,000 3,100,000
SunGard Data Systems, Inc.(1) 1,058,119 25,130,326
- ---------------------------------------------------------------------
$ 592,708,881
- ---------------------------------------------------------------------
Insurance -- 6.0%
- ---------------------------------------------------------------------
20th Century Industries 70,700 $ 1,365,394
Aegon, NV ADR 1,315,749 125,654,030
Aflac Corp. 117,990 5,567,653
Allmerica Financial Corp. 1,500 83,438
Allstate Corp. (The) 40,426 970,224
American General Corp. 96,733 7,339,616
American International Group, Inc. 3,258,756 352,352,993
AON Corp. 644,100 25,764,000
Berkshire Hathaway, Inc.(1) 127 7,124,700
Berkshire Hathaway, Inc., Class B(1) 39,077 71,510,910
Chubb Corp. 101,050 5,690,378
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Insurance (continued)
- ---------------------------------------------------------------------
Commerce Group, Inc. 120,000 $ 3,135,000
Conseco, Inc. 100,000 1,787,500
Delphi Financial Group, Inc.(1) 6,448 193,450
Enhance Finance Service Group,
Inc.(2)(3) 70,000 1,137,045
Gallagher (A.J.) and Co. 115,000 7,446,250
Hartford Financial Services Group 304 14,402
HSB Group, Inc. 75,000 2,535,938
Jefferson-Pilot Corp. 80,726 5,509,550
Kansas City Life Insurance Co. 70,800 2,389,500
Marsh & McLennan Cos., Inc. 2,439,897 233,467,644
Mercury General Corp. 2,000 44,500
Mutual Risk Management Ltd. 406,500 6,834,281
Progressive Corp. 181,111 13,243,742
Protective Life Corp. 43,381 1,380,058
Reliastar Financial Corp. 87,000 3,409,313
Safeco Corp. 28,255 702,843
St. Paul Cos., Inc. (The) 305,212 10,281,829
Torchmark Corp. 222,850 6,476,578
UICI(1) 280,854 2,966,520
UnumProvident Corp. 2,200 70,538
- ---------------------------------------------------------------------
$ 906,449,817
- ---------------------------------------------------------------------
Investment Services -- 2.5%
- ---------------------------------------------------------------------
E*Trade Group, Inc.(1) 688,290 $ 17,981,576
E*Trade Group, Inc.(1)(2)(3) 82,958 2,164,713
Federated Investors, Inc. 318,085 6,381,580
Federated Investors, Inc., Class B(2)(3) 267,880 5,369,506
Franklin Resources, Inc. 755,539 24,224,469
John Nuveen Co., Class A (The) 50,000 1,803,125
Merrill Lynch & Co., Inc. 1,167,161 97,457,944
Morgan Stanley Dean Witter & Co. 764,905 109,190,189
Morgan Stanley Dean Witter & Co.(2)(3) 75,000 10,702,503
Morgan Stanley Dean Witter & Co.(2)(3) 28,750 4,102,421
Morgan Stanley Dean Witter & Co.(2)(3) 519,327 74,090,684
Morgan Stanley Dean Witter & Co.(2)(3) 21,000 2,994,153
Price (T. Rowe) Associates, Inc. 86,716 3,203,072
Schwab (Charles) and Co., Inc. 387,500 14,870,313
Waddell & Reed Financial, Inc., Class A 12,680 343,945
Waddell & Reed Financial, Inc., Class B 54,575 1,371,197
- ---------------------------------------------------------------------
$ 376,251,390
- ---------------------------------------------------------------------
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Lodging and Gaming -- 0.2%
- ---------------------------------------------------------------------
Interstate Hotels Corp.(1) 4,407 $ 14,323
Marriott International, Inc., Class A 29,245 923,045
Marriott International, Inc., Class
A(2)(3) 26,685 842,034
Marriott International, Inc., Class
A(2)(3) 31,276 986,754
Royal Caribbean Cruises Ltd. 500,000 24,656,250
Sunterra Corp.(1) 50,000 575,000
Wyndham International, Class A(1) 132,212 388,373
- ---------------------------------------------------------------------
$ 28,385,779
- ---------------------------------------------------------------------
Medical Products -- 3.3%
- ---------------------------------------------------------------------
Bausch & Lomb, Inc. 145,054 $ 9,927,133
Baxter International, Inc. 1,328,572 83,450,929
Becton, Dickinson and Co. 36,245 969,554
Boston Scientific Corp.(1) 1,080,300 23,631,563
Boston Scientific Corp.(1)(2)(3) 137,500 3,006,058
Boston Scientific Corp.(1)(2)(3) 59,844 1,307,517
Dentsply International, Inc. 42,000 992,250
ESC Medical Systems Ltd.(1) 180,000 1,721,250
Genzyme Surgical Products(1) 143,208 832,397
Guidant Corp.(1) 202,000 9,494,000
Guidant Corp.(1)(2)(3) 23,816 1,118,904
Heartport, Inc.(1) 41,026 194,874
Hillenbrand Industries, Inc. 647,898 20,530,268
Johnson & Johnson Co. 2,032,744 189,299,285
Medtronic, Inc. 3,185,670 116,077,851
MiniMed, Inc.(1)(2)(3) 202,600 14,822,641
Schein (Henry), Corp.(1) 1,125,194 14,979,145
St. Jude Medical, Inc.(1) 42,144 1,293,294
Steris Corp.(1) 78,394 808,438
VISX, Inc.(1) 50,000 2,587,500
- ---------------------------------------------------------------------
$ 497,044,851
- ---------------------------------------------------------------------
Metals - Industrial -- 0.1%
- ---------------------------------------------------------------------
Allegheny Technologies, Inc. 58,908 $ 1,321,748
Nucor Corp. 221,462 12,138,886
Phelps Dodge Corp. 7,332 492,161
Steel Dynamics, Inc.(1) 291,800 4,650,563
Steel Dynamics, Inc.(1)(2)(3) 20,000 318,463
Worthington Industries 147,466 2,442,406
- ---------------------------------------------------------------------
$ 21,364,227
- ---------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Minerals and Fertilizer -- 0.0%
- ---------------------------------------------------------------------
Mississippi Chemical Corp. 217,070 $ 1,343,121
- ---------------------------------------------------------------------
$ 1,343,121
- ---------------------------------------------------------------------
Natural Gas Distribution -- 0.2%
- ---------------------------------------------------------------------
Dynegy, Inc. 290,000 $ 7,050,625
Kinder Morgan, Inc. 1,230,000 24,830,625
National Fuel Gas Co. 2,000 93,000
- ---------------------------------------------------------------------
$ 31,974,250
- ---------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 1.7%
- ---------------------------------------------------------------------
Baker Hughes, Inc. 746,804 $ 15,729,559
Core Laboratories NV(1) 1,049,214 21,049,856
Halliburton Co. 2,662,050 107,147,513
Nabors Industries, Inc.(1)(2)(3) 400,000 12,360,150
National-Oilwell, Inc.(1) 398,417 6,250,167
National-Oilwell, Inc.(1)(2)(3) 115,645 1,812,911
National-Oilwell, Inc.(1)(2)(3) 127,137 1,992,721
Newpark Resources, Inc.(1) 110,000 673,750
Noble Drilling, Inc.(1) 170,000 5,567,500
Patterson Energy, Inc.(1) 200,000 2,600,000
Schlumberger Ltd. 1,226,532 68,992,425
Syntroleum Corp.(1) 2,735 22,222
Transocean Sedco Forex, Inc. 237,457 7,999,319
Valero Energy Corp. 51,510 1,023,761
Weatherford International 49,861 1,991,324
Weatherford International(2)(3) 65,679 2,619,827
- ---------------------------------------------------------------------
$ 257,833,005
- ---------------------------------------------------------------------
Oil and Gas - Exploration and Production -- 0.8%
- ---------------------------------------------------------------------
Anadarko Petroleum Corp. 2,554,000 $ 87,155,250
Apache Corp. 200,003 7,387,611
Burlington Resources, Inc. 428,629 14,171,546
El Paso Energy Corp. 173,830 6,746,777
Kerr - McGee Corp. 136,199 8,444,338
Newfield Exploration Co.(1)(2)(3) 60,000 1,602,492
Union Pacific Resources Group, Inc. 79,795 1,017,386
USX-Marathon Group 50,000 1,234,375
- ---------------------------------------------------------------------
$ 127,759,775
- ---------------------------------------------------------------------
Oil and Gas - Integrated -- 1.1%
- ---------------------------------------------------------------------
Atlantic Richfield Co. 55,366 $ 4,789,159
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Oil and Gas - Integrated (continued)
- ---------------------------------------------------------------------
BP Amoco PLC ADR 954,222 $ 56,597,292
Chevron Corp. 94,909 8,221,492
Exxon Mobil Corp. 965,231 77,761,461
Murphy Oil Corp. 29,700 1,704,038
Pennzoil-Quaker State Co. 74,457 758,531
Phillips Petroleum Co. 18,407 865,129
Royal Dutch Petroleum Co. 48,037 2,903,236
Texaco, Inc. 2,500 135,781
Tosco Corp. 614,619 16,709,954
- ---------------------------------------------------------------------
$ 170,446,073
- ---------------------------------------------------------------------
Paper and Forest Products -- 0.5%
- ---------------------------------------------------------------------
Caraustar Industries, Inc. 264,862 $ 6,356,688
Champion International Corp. 21,089 1,306,200
Fort James Corp. 56,401 1,543,977
Georgia-Pacific Corp. - G-P Group 647,827 32,877,220
Georgia-Pacific Corp. - Timber Group 305,098 7,513,038
International Paper Co. 144,526 8,156,686
Louisiana Pacific Corp. 70,750 1,008,188
Mead Corporation (The) 38,768 1,683,985
Temple Inland, Inc. 12,632 832,923
Weyerhaeuser Co. 119,608 8,589,350
Willamette Industries, Inc. 151,412 7,031,195
- ---------------------------------------------------------------------
$ 76,899,450
- ---------------------------------------------------------------------
Photography -- 0.1%
- ---------------------------------------------------------------------
Eastman Kodak Co. 122,529 $ 8,117,546
- ---------------------------------------------------------------------
$ 8,117,546
- ---------------------------------------------------------------------
Printing and Business Products -- 0.8%
- ---------------------------------------------------------------------
American Business Products, Inc. 261,355 $ 3,054,587
Avery Dennison Corp. 1,361,504 99,219,604
Avery Dennison Corp.(2)(3) 40,000 2,913,980
Banta Corp. 42,341 955,319
Bowne & Co., Inc. 172,640 2,330,640
Consolidated Graphics, Inc.(1) 70,215 1,048,837
Day Runner, Inc.(1) 8,000 31,250
Deluxe Corp. 80,675 2,213,520
Donnelley (R.R.) & Sons Co. 32,896 816,232
Harland (John H.) Co. 51,540 943,826
Ikon Office Solutions, Inc. 166,094 1,131,515
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Printing and Business Products (continued)
- ---------------------------------------------------------------------
Workflow Management, Inc.(1) 79,507 $ 2,275,888
- ---------------------------------------------------------------------
$ 116,935,198
- ---------------------------------------------------------------------
Publishing -- 1.3%
- ---------------------------------------------------------------------
Belo (A.H.) Corp. 542,924 $ 10,349,489
Dow Jones & Co., Inc. 376,300 25,588,400
Gannett Co., Inc. 297,800 24,289,313
Houghton Mifflin Co. 97,400 4,109,063
McGraw-Hill Companies, Inc. (The) 1,311,216 80,803,686
McGraw-Hill Companies, Inc. (The)(2)(3) 178,948 11,023,811
Meredith Corp. 190,000 7,920,625
New York Times Co., Class A (The) 278,000 13,656,750
The MacClatchy Co., Class A 48,066 2,078,855
Times Mirror Co., Class A 151,670 10,161,890
Tribune Co. 26,200 1,442,638
Washington Post Co., Class B (The) 3,600 2,001,150
- ---------------------------------------------------------------------
$ 193,425,670
- ---------------------------------------------------------------------
Real Estate -- 0.2%
- ---------------------------------------------------------------------
Avalonbay Communities, Inc. 55,000 $ 1,887,188
Catellus Development Corp.(1) 415,722 5,326,438
Equity Office Properties Trust 2,812 69,246
Jones Lang Lasalle, Inc.(1) 213,193 2,531,667
Prison Realty Corp. 85,146 431,052
Redwood Trust, Inc. 71,710 896,375
Rouse Co. (The) 127,700 2,713,625
Trammell Crow Co.(1) 876,098 10,184,639
Ventas, Inc.(1) 25,600 107,200
- ---------------------------------------------------------------------
$ 24,147,430
- ---------------------------------------------------------------------
Restaurants -- 1.1%
- ---------------------------------------------------------------------
Bob Evans Farms, Inc. 48,193 $ 743,979
Boston Chicken, Inc.(1)(3) 38,500 385
Brinker International, Inc.(1) 435,034 10,440,816
CBRL Group, Inc. 62,047 602,048
CKE Restaurants, Inc. 126,522 743,317
Jack in the Box, Inc.(1) 500,000 10,343,750
Lone Star Steakhouse and Saloon, Inc.(1) 345,981 3,086,808
McDonald's Corp. 2,152,592 86,776,365
Outback Steakhouse, Inc.(1) 685,923 17,791,128
Papa John's International, Inc.(1) 77,551 2,021,173
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Restaurants (continued)
- ---------------------------------------------------------------------
Papa John's International, Inc.(1)(2)(3) 47,649 $ 1,241,417
Papa John's International, Inc.(1)(2)(3) 23,000 599,088
Papa John's International, Inc.(1)(2)(3) 49,046 1,276,727
Sonic Corp.(1) 47,338 1,349,133
Starbucks Corp.(1) 684,000 16,587,000
Tricon Global Restaurants, Inc.(1) 219,121 8,463,549
- ---------------------------------------------------------------------
$ 162,066,683
- ---------------------------------------------------------------------
Retail - Food and Drug -- 2.0%
- ---------------------------------------------------------------------
Albertson's, Inc. 2,192,341 $ 70,702,997
CVS Corp. 1,831,571 73,148,367
Hannaford Brothers Co. 96,349 6,678,190
Kroger Co. (The)(1) 52,440 989,805
Rite Aid Corp. 6,000 67,125
Safeway, Inc.(1) 3,355,233 119,320,474
Walgreen Co. 127,500 3,729,375
Whole Foods Market, Inc.(1) 90,000 4,173,750
Winn-Dixie Stores, Inc. 729,899 17,471,957
- ---------------------------------------------------------------------
$ 296,282,040
- ---------------------------------------------------------------------
Retail - General -- 1.5%
- ---------------------------------------------------------------------
99 Cents Only Stores(1) 428,337 $ 16,383,890
Casey's General Stores, Inc. 75,000 782,813
Department 56, Inc.(1) 219,404 4,964,016
Department 56, Inc.(1)(2)(3) 35,758 808,701
Dollar General Corp. 199,987 4,549,704
Dollar Tree Stores, Inc.(1) 770,178 37,305,497
Dollar Tree Stores, Inc.(1)(2)(3) 154,032 7,457,941
Dollar Tree Stores, Inc.(1)(2)(3) 87,961 4,256,776
Family Dollar Stores 757,718 12,360,275
Family Dollar Stores(2)(3) 345,987 5,641,655
Family Dollar Stores(2)(3) 1,259,373 20,528,114
May Department Stores Co. (The) 562,886 18,153,074
Nordstrom, Inc. 27,610 723,037
Penney (J.C.) Company, Inc. 1,068,960 21,312,390
Sears Roebuck & Co. 15,750 479,391
Wal-Mart Stores, Inc. 1,003,281 69,351,799
- ---------------------------------------------------------------------
$ 225,059,073
- ---------------------------------------------------------------------
Retail - Specialty and Apparel -- 2.7%
- ---------------------------------------------------------------------
Abercrombie and Fitch Co., Class A(1) 5,604 $ 149,557
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Retail - Specialty and Apparel (continued)
- ---------------------------------------------------------------------
Autonation, Inc.(1) 5,695,785 $ 52,686,011
Burlington Coat Factory Warehouse Corp. 628,228 8,716,664
Circuit City Stores-Circuit City Group 16,000 721,000
Circuit City Stores-Circut City
Group(2)(3) 200,000 9,001,685
Gap, Inc. (The) 41,776 1,921,696
Harcourt General, Inc. 216,416 8,710,744
Home Depot, Inc. (The) 3,714,168 254,652,644
Intimate Brands, Inc.(1)(2)(3) 26,500 1,141,441
Limited, Inc. (The) 302,250 13,091,203
Lowe's Companies 60,000 3,585,000
Neiman Marcus Group, Inc., Class B
(The)(1) 65,206 1,756,487
Office Depot, Inc.(1) 303,219 3,316,458
OfficeMax, Inc.(1) 912,117 5,016,644
Payless Shoesource, Inc.(1) 7,700 361,900
Pep Boys - Manny, Moe & Jack (The) 97,976 894,031
Pier 1 Imports, Inc. 350,000 2,231,250
Tandy Corp. 443,401 21,809,787
Tiffany and Co. 44,000 3,927,000
TJX Companies, Inc. (The) 500,000 10,218,750
Too, Inc.(1) 39,087 674,251
Toys 'R' Us, Inc.(1) 56,355 806,581
- ---------------------------------------------------------------------
$ 405,390,784
- ---------------------------------------------------------------------
Specialty Chemicals and Materials -- 1.1%
- ---------------------------------------------------------------------
Arch Chemicals, Inc. 4,950 $ 103,641
Corning, Inc. 336,282 43,359,360
Dexter Corp. (The) 36,139 1,436,525
Ecolab, Inc. 2,043,736 79,961,171
International Flavors & Fragrances, Inc. 148,101 5,590,813
International Specialty Products,
Inc.(1) 59,000 542,063
MacDermid, Inc. 61,937 2,543,288
Millipore Corp. 101,440 3,918,120
Minnesota Mining & Manufacturing Co. 114,851 11,241,042
Olin Corp. 9,900 196,144
Pall Corp. 216,000 4,657,500
RPM, Inc. 470,138 4,789,531
Sigma Aldrich Corp. 195,000 5,862,188
- ---------------------------------------------------------------------
$ 164,201,386
- ---------------------------------------------------------------------
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Tobacco -- 0.1%
- ---------------------------------------------------------------------
Philip Morris Co., Inc. 481,024 $ 11,153,744
- ---------------------------------------------------------------------
$ 11,153,744
- ---------------------------------------------------------------------
Transportation -- 0.4%
- ---------------------------------------------------------------------
Arnold Industries, Inc. 148,543 $ 2,088,886
Burlington Northern Santa Fe Corp. 212,295 5,148,154
C.H. Robinson Worldwide, Inc. 87,672 3,484,962
C.H. Robinson Worldwide, Inc.(2)(3) 121,000 4,803,978
CSX Corp. 36,496 1,145,062
FDX Corp.(1) 695,106 28,455,902
Florida East Coast Industries, Inc. 122,888 5,130,574
Heartland Express, Inc.(1) 250,000 3,937,500
Kansas City Southern Industries, Inc. 16,800 1,253,700
Norfolk Southern Corp. 390 7,995
Union Pacific Corp. 92,081 4,017,034
United Parcel Service, Inc., Class B 25,700 1,773,300
- ---------------------------------------------------------------------
$ 61,247,047
- ---------------------------------------------------------------------
Trucks and Parts -- 0.0%
- ---------------------------------------------------------------------
Paccar, Inc. 12,894 $ 571,365
- ---------------------------------------------------------------------
$ 571,365
- ---------------------------------------------------------------------
Total Common Stocks
(identified cost $9,942,958,016) $14,420,304,715
- ---------------------------------------------------------------------
</TABLE>
CONVERTIBLE PREFERRED STOCKS -- 0.2%
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Entertainment -- 0.2%
- ---------------------------------------------------------------------
Time Warner Inc., Series J(3) 121,597 $ 36,851,256
- ---------------------------------------------------------------------
$ 36,851,256
- ---------------------------------------------------------------------
Financial - Miscellaneous -- 0.0%
- ---------------------------------------------------------------------
American General Corp., Series D 5,673 $ 354,562
- ---------------------------------------------------------------------
$ 354,562
- ---------------------------------------------------------------------
Total Convertible Preferred Stocks
(identified cost $13,737,810) $ 37,205,818
- ---------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
RIGHTS -- 0.0%
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
Communications Services -- 0.0%
- ---------------------------------------------------------------------
Talk.com, Inc.(1) 12,369 $ 9,277
- ---------------------------------------------------------------------
$ 9,277
- ---------------------------------------------------------------------
Total Rights
(identified cost $0) $ 9,277
- ---------------------------------------------------------------------
</TABLE>
COMMERCIAL PAPER -- 3.7%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000'S
SECURITY OMITTED) VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
American General Corp., 4.50%, 1/3/00 $ 28,300 $ 28,292,925
Ciesco LP, 6.00%, 1/20/00 100,000 99,683,333
CIT Group, Inc., 5.99%, 1/27/00 100,000 99,567,389
Corporate Receivables Corp. (144A),
6.05%, 1/19/00 35,471 35,363,700
General Electric Capital Corp.,
6.01%, 1/28/00 80,402 80,039,588
Panasonic Finance, 5.45%, 1/5/00 40,000 39,975,778
Prudential Funding Corp.,
5.99%, 2/7/00 150,000 149,076,542
SBC Communications, Inc.,
4.45%, 1/3/00 20,000 19,995,056
- ---------------------------------------------------------------------
Total Commercial Paper
(at amortized cost, $551,994,311) $ 551,994,311
- ---------------------------------------------------------------------
Total Investments -- 99.3%
(identified cost $10,508,690,137) $15,009,514,121
- ---------------------------------------------------------------------
Other Assets, Less Liabilities -- 0.7% $ 105,134,838
- ---------------------------------------------------------------------
Net Assets -- 100.0% $15,114,648,959
- ---------------------------------------------------------------------
</TABLE>
ADR - American Depositary Receipt
(1) Non-income producing security.
(2) Security restricted from resale for a period not exceeding one year. At
December 31, 1999, the value of these securities totaled $757,283,521 or
5.0% 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
38
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
<S> <C>
Assets
- ---------------------------------------------------------
Investments, at value
(identified cost, $10,508,690,137) $15,009,514,121
Cash 90,699,036
Receivable for investments sold 2,374,878
Interest and dividends receivable 11,946,129
Other assets 353,771
Tax reclaim receivable 28,687
Deferred organization expenses 1,989
- ---------------------------------------------------------
TOTAL ASSETS $15,114,918,611
- ---------------------------------------------------------
Liabilities
- ---------------------------------------------------------
Payable to affiliate for Trustees' fees $ 8,443
Accrued expenses 261,209
- ---------------------------------------------------------
TOTAL LIABILITIES $ 269,652
- ---------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS'
INTEREST IN PORTFOLIO $15,114,648,959
- ---------------------------------------------------------
Sources of Net Assets
- ---------------------------------------------------------
Net proceeds from capital contributions
and withdrawals $10,613,825,235
Net unrealized appreciation (computed on
the basis of identified cost) 4,500,823,724
- ---------------------------------------------------------
TOTAL $15,114,648,959
- ---------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
<S> <C>
Investment Income
- --------------------------------------------------------
Dividends (net of foreign taxes,
$824,260) $ 104,816,227
Interest 30,978,859
- --------------------------------------------------------
TOTAL INVESTMENT INCOME $ 135,795,086
- --------------------------------------------------------
Expenses
- --------------------------------------------------------
Investment adviser fee $ 51,368,943
Trustees fees and expenses 40,972
Custodian fee 1,332,208
Legal and accounting services 118,905
Amortization of organization expenses 2,176
Miscellaneous 105,614
- --------------------------------------------------------
TOTAL EXPENSES $ 52,968,818
- --------------------------------------------------------
NET INVESTMENT INCOME $ 82,826,268
- --------------------------------------------------------
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ 19,286,893
Foreign currency transactions (5,306)
- --------------------------------------------------------
NET REALIZED GAIN $ 19,281,587
- --------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $1,954,982,573
Foreign currency (260)
- --------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $1,954,982,313
- --------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $1,974,263,900
- --------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $2,057,090,168
- --------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
FINANCIAL STATEMENTS CONT'D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INCREASE (DECREASE) YEAR ENDED PERIOD ENDED YEAR ENDED
IN NET ASSETS DECEMBER 31, 1999 DECEMBER 31, 1998(1) OCTOBER 31, 1998
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
From operations --
Net investment income $ 82,826,268 $ 9,404,648 $ 40,322,702
Net realized gain (loss) 19,281,587 21,475,026 (88,268,073)
Net change in unrealized
appreciation
(depreciation) 1,954,982,313 950,828,792 540,179,532
- ---------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 2,057,090,168 $ 981,708,466 $ 492,234,161
- ---------------------------------------------------------------------------------------------
Capital transactions --
Contributions $ 5,393,615,110 $ 858,758,546 $4,084,235,841
Withdrawals (1,040,915,654) (121,286,161) (462,237,336)
- ---------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM CAPITAL TRANSACTIONS $ 4,352,699,456 $ 737,472,385 $3,621,998,505
- ---------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 6,409,789,624 $1,719,180,851 $4,114,232,666
- ---------------------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------------
At beginning of year $ 8,704,859,335 $6,985,678,484 $2,871,445,818
- ---------------------------------------------------------------------------------------------
AT END OF YEAR $15,114,648,959 $8,704,859,335 $6,985,678,484
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) For the two-month period ended December 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
FINANCIAL STATEMENTS CONT'D
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
YEAR ENDED PERIOD ENDED ------------------------------------------------
DECEMBER 31, 1999 DECEMBER 31, 1998(1) 1998 1997 1996(2)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses 0.46% 0.48%(3) 0.50% 0.56% 0.66%(3)
Net investment income 0.72% 0.72%(3) 0.78% 0.81% 0.91%(3)
Portfolio Turnover 11% 3% 12% 14% 6%
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000'S OMITTED) $15,114,649 $8,704,859 $6,985,678 $2,871,446 $ 936,800
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the two-month period ended December 31, 1998.
(2) For the period form the start of business, December 1, 1995, to October
31, 1996.
(3) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
- -------------------------------------------
Tax-Managed Growth Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Portfolio, which was organized as a trust
under the laws of the State of New York on December 1, 1995, seeks to provide
long-term after-tax returns by investing in a diversified portfolio of equity
securities. The Declaration of Trust permits the Trustees to issue interests
in the Portfolio. The following is a summary of significant accounting
policies consistently followed by the Portfolio in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles.
A Investment Valuations -- Marketable securities, including options, that are
listed on foreign or U.S. securities exchanges or in the NASDAQ National
Market System are valued at closing sale prices, on the exchange where such
securities are principally traded. Futures positions on securities or
currencies are generally valued at closing settlement prices. Unlisted or
listed securities for which closing sale prices are not available are
generally valued at the mean between the latest bid and asked prices.
Short-term debt securities with a remaining maturity of 60 days or less are
valued at amortized cost, which approximates value. Other fixed income and
debt securities, including listed securities and securities for which price
quotations are available, will normally be valued on the basis of valuations
furnished by a pricing service. Over-the counter options are normally valued
at the mean between the latest bid and asked price. Investments for which
valuations or market quotations are unavailable are valued at fair value
using methods determined in good faith by or at the direction of
the Trustees.
B Income Taxes -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes on its share of such
taxable income. Since some of the Portfolio's investors are regulated
investment companies that invest all or substantially all of their assets in
the Portfolio, the Portfolio normally must satisfy the applicable source of
income and diversification requirements (under the Internal Revenue Code) in
order for its investors to satisfy them. The Portfolio will allocate, at
least annually among its investors, each investor's distributive share of the
Portfolio's net investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit.
C Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
D Futures Contracts -- Upon the entering of a financial futures contract, the
Portfolio is required to deposit either in cash or securities an amount
(initial margin) equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio (margin maintenance) each day, dependent on daily
fluctuations in the value of the underlying security, and are recorded for
book purposes as unrealized gains or losses by the Portfolio. The Portfolio's
investment in financial futures contracts is designed to hedge against
anticipated future changes in price of current or anticipated portfolio
positions. Should prices move unexpectedly, the Portfolio may not achieve the
anticipated benefits of the financial futures contracts and may realize a
loss.
E Put Options -- Upon the purchase of a put option by the Portfolio, the
premium paid is recorded as an investment, the value of which is
marked-to-market daily. When a purchased option expires, the Portfolio will
realize a loss in the amount of the cost of the option. When the Portfolio
enters into a closing sale transaction, the Portfolio will realize a gain or
loss depending on whether the sales proceeds from the closing sale
transaction are greater or less than the cost of the option. When the
Portfolio exercises a put option, settlement is made in cash. The risk
associated with purchasing options is limited to the premium originally paid.
F Securities Sold Short -- The Portfolio may sell securities it does not own in
anticipation of a decline in the market price of the securities or in order
to hedge portfolio positions. The Portfolio will generally borrow the
security sold in order to make delivery to the buyer. Upon executing the
transaction, the Portfolio records the proceeds as deposits with brokers in
the Statement of Assets and Liabilities and establishes an offsetting payable
for securities sold short for the securities due on settlement. The proceeds
are retained by the broker as collateral for the short position. The
liability is marked to market and the Portfolio is required to pay the
lending broker any dividend or interest income earned while the short
position is open. A gain or loss is recorded when the security is delivered
to the broker. The Portfolio may recognize a loss on the transaction if the
market value of the securities sold increases before the securities
are delivered.
42
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
G Other -- Investment transactions are accounted for on the date the securities
are purchased or sold. Dividend income is recorded on the ex-dividend date.
However, if the ex-dividend date has passed, certain dividends from foreign
securities are recorded as the Portfolio is informed of the ex-dividend date.
Interest income is recorded on the accrual basis.
H Use of Estimates -- The preparation of the 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.
2 Investment Adviser Fee and Other Transactions with Affiliates
- -------------------------------------------
The investment adviser fee is earned by Boston Management and Research (BMR),
a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation
for management and investment advisory services rendered to the Portfolio.
Under the advisory agreement, BMR receives a monthly advisory fee of 5/96 of
1% (0.625% annually) of the average daily net assets of the Portfolio up to
$500,000,000, and at reduced rates as daily net assets exceed that level. For
the year ended December 31, 1999, the adviser fee was 0.45% of the
Portfolio's average net assets. Except for Trustees of the Portfolio who are
not members of EVM's or BMR's organization, officers and Trustees receive
remuneration for their services to the Portfolio out of such investment
adviser fee. Trustees of the Portfolio that are not affiliated with the
Investment Adviser may elect to defer receipt of all or a percentage of their
annual fees in accordance with the terms of the Trustees Deferred
Compensation Plan. For the year ended December 31, 1999, no significant
amounts have been deferred.
Certain officers and Trustees of the Portfolio are officers of the above
organizations.
3 Investment Transactions
- -------------------------------------------
For the year ended December 31, 1999, purchases and sales of investments,
other than short-term obligations, aggregated $2,189,568,246 and
$1,178,444,732, respectively. In addition, investments having an aggregate
market value of $323,735,434 at dates of withdrawal were distributed in
payment for capital withdrawals. During the year ended December 31, 1999,
investors contributed securities with a value of $3,191,016,822.
4 Federal Income Tax Basis of Investments
- -------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at December 31, 1999 as computed on a federal income tax
basis, were as follows:
<TABLE>
<S> <C>
AGGREGATE COST $ 4,733,822,312
---------------------------------------------------------
Gross unrealized appreciation $10,362,747,476
Gross unrealized depreciation (87,055,667)
---------------------------------------------------------
NET UNREALIZED APPRECIATION $10,275,691,809
---------------------------------------------------------
</TABLE>
5 Financial Instruments
- -------------------------------------------
The Portfolio may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options, forward foreign currency exchange contracts and financial futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment the Portfolio has in particular classes of financial instruments
and does not necessarily represent the amounts potentially subject to risk.
The measurement of the risks associated with these instruments is meaningful
only when all related and offsetting transactions are considered.
The Portfolio did not have any open obligations under these financial
instruments at December 31, 1999.
6 Line of Credit
- -------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a $150 million unsecured line of credit agreement
with a group of banks. The Portfolio may temporarily borrow from the line of
credit to satisfy redemption requests or settle investment transactions.
Interest is charged to each portfolio or fund based on its borrowings at an
amount above the Eurodollar rate or federal funds rate. In addition, a fee
computed at an annual rate of 0.10% on the daily unused portion of the line
of credit is allocated among the participating portfolios and funds at the
end of each quarter. The Portfolio did not have any significant borrowings or
allocated fees during the year ended December 31, 1999.
7 Fiscal Year End Change
- -------------------------------------------
Effective November 1, 1998, the Portfolio changed its fiscal year-end to
December 31.
43
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS
OF TAX-MANAGED GROWTH PORTFOLIO:
- ---------------------------------------------
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tax-Managed Growth Portfolio (the Portfolio) as
of December 31, 1999, and the related statement of operations for the year then
ended, the statements of changes in net assets for the year ended December 31,
1999, the two-month period ended December 31, 1998 and for the year ended
October 31, 1998, and the supplementary data for the year ended December 31,
1999, the two-month period ended December 31, 1998 and for each of the years in
the two-year period ended October 31, 1998 and for the period from the start of
business, December 1, 1995 to October 31, 1996. These financial statements and
supplementary data are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
supplementary data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of the
Portfolio as of December 31, 1999, and the results of its operations, the
changes in its net assets and its supplementary data for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 11, 2000
44
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3 Copy of Amended and Restated Operating Agreement of the Fund
dated February 6, 1998 and First Amendment thereto dated
November 24, 1998 filed as Exhibit 3 to the Fund's Initial
Registration Statement on Form 10 and incorporated herein by
reference. (Note: the Operating Agreement also defines the
rights of the holders of Shares of the Fund)
4 Copy of Loan and Security Agreement dated as of February 5,
1998, First Amendment thereto dated as of April 30, 1998;
Second Amendment thereto dated as of June 25, 1998; Third
Amendment thereto dated as of December 18, 1998; and Fourth
Amendment thereto dated as of February 23, 1999 filed as
Exhibit 4 to the Fund's Initial Registration Statement on
Form 10 and incorporated herein by reference.
4(1) Copy of Fifth Amendment to Loan and Security Agreement dated
July 28, 1999 and Sixth Amendment thereto dated March 17,
2000 filed herewith.
9 Not applicable and not filed.
10(1) Copy of Investment Advisory and Administration Agreement
between the Fund and Boston Management and Research dated
November 24, 1998 filed as Exhibit 10(1) to the Fund's
Initial Registration Statement on Form 10 and incorporated
herein by reference.
10(2) Copy of Management Agreement between Belair Real Estate
Corporation and Boston Management and Research dated
November 23, 1998 filed as Exhibit 10(2) to the Fund's
Initial Registration Statement on Form 10 and incorporated
herein by reference.
10(3) Copy of Investor Servicing Agreement between the Fund and
Eaton Vance Distributors, Inc. dated October 28, 1997 filed
as Exhibit 10(3) to the Fund's Initial Registration
Statement on Form 10 and incorporated herein by reference.
10(4) Copy of Custody and Transfer Agency Agreement between the
Fund and Investors Bank & Trust Company dated October 28,
1997 filed as Exhibit 10(4) to the Fund's Initial
Registration Statement on Form 10 and incorporated herein by
reference.
45
<PAGE>
11 Not applicable and not filed.
12 Not applicable and not filed.
13 Not applicable and not filed.
16 Not applicable and not filed.
18 Not applicable and not filed.
21 List of Subsidiaries of the Fund filed herewith.
22 Not applicable and not filed.
23 Not applicable and not filed.
24 Not applicable and not filed.
27 Financial Data Schedule
99 Form N-SAR of Eaton Vance Tax-Managed Growth Portfolio (File
No. 811-7409) for its fiscal year ended December 31, 1999
filed electronically with the Securities and Exchange
Commission under the Investment Company Act of 1940 on
February 17, 2000 (Accession No. 0000940394-00-000073)
(incorporated herein by reference pursuant to Rule 12b-32).
46
<PAGE>
AMENDMENT NO. 6 dated as of July 28,
1999 to the Loan and Security Agreement
dated as of February 5, 1998 (as heretofore
amended, the "Loan Agreement"), by and among
MERRILL LYNCH INTERNATIONAL BANK LIMITED
(the "Lender"), MERRILL LYNCH CAPITAL
SERVICES INC. ("MLCS") and BELAIR CAPITAL
FUND LLC (the "Borrower").
INTRODUCTORY STATEMENT
All capitalized terms not otherwise defined in this Amendment are as
defined in the Loan Agreement.
The Borrower has requested (and the Lender has agreed to) an increase in
the Commitment to $655,000,000.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is hereby
amended as of the Effective Date (subject to the terms and conditions set forth
in Section 2 hereof) as follows:
(A) The definition of Commitment appearing in Article 1 of the Loan
Agreement is hereby amended in its entirety to read as follows:
""COMMITMENT" shall mean six hundred fifty-five million dollars
($655,000,000) or such lesser amount if reduced pursuant to Section 2.10."
SECTION 2. CONDITIONS TO EFFECTIVENESS. This Amendment is subject to the
satisfaction in full of the following conditions (the first date on which all
such conditions have been satisfied being herein called the "Effective Date"):
(A) the Lender shall have received counterparts of this Amendment which,
when taken together, bear the signatures of all parties hereto;
(B) the Lender shall have received an Acknowledgment (in form and substance
satisfactory to the Lender) executed by the Borrower and the Custodian
confirming that the Securities Account Agreement remains in full force and
effect;
(C) the Lender shall have received a promissory note in the form of Exhibit
A to the Loan Agreement in the amount of $655,000,000 (a "New Note") which New
Note shall replace the Note currently held by the Lender and shall be deemed the
Note for purposes of the Loan Agreement and the Lender shall return the existing
Note to the Borrower;
<PAGE>
(D) the Lender shall have received a favorable written opinion of Counsel
to the Borrower, dated the Effective Date, addressed to the Lender, to the
effect that this Amendment and the New Note have been duly executed and
delivered by the Borrower and, together with the Loan Agreement as hereby
amended, constitute the legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms and no consent or approval
of any governmental authority or regulatory body to the execution, delivery and
performance of this Amendment or the New Note or to the borrowings thereunder is
required by law, or if any such consent or approval is necessary it has been
obtained, which opinion shall be satisfactory to Morgan, Lewis & Bockius LLP,
counsel for the Lender;
(E) the Lender shall have received (i) a certificate of the Manager of the
Borrower, dated the Effective Date and certifying that (1) the provisions of the
Operating Agreement authorize the Manager to authorize the execution, delivery
and performance in accordance with their terms of this Amendment, the New Note
and the other documents and transactions contemplated by this Amendment and the
borrowings under the Note and that the Manager has so authorized and such
authorization is in full force and effect and (2) neither the certificate of
organization nor the Operating Agreement of the Borrower have been amended since
February 5, 1998 (other than the Amended and Restated Operating Agreement as
amended by the First Amendment thereto dated November 24, 1998) and (ii) such
other documents as the Lender or Morgan, Lewis & Bockius LLP, counsel for the
Lender, may reasonably request; and
(F) all legal matters in connection with this Amendment shall be
satisfactory to Morgan, Lewis & Bockius LLP, counsel for the Lender.
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants that:
(A) the representations and warranties contained in the Loan Agreement are
true and correct in all material respects on and as of the date hereof as if
such representations and warranties had been made on and as of the date hereof;
and
(B) the Borrower is in compliance with all the terms and provisions set
forth in the Loan Agreement and, after giving effect hereto, no Default or Event
of Default has occurred and is continuing.
SECTION 4. FULL FORCE AND EFFECT. Except as expressly amended hereby, the
Loan Agreement shall continue in full force and effect in accordance with the
provisions thereof on the date hereof. As used in the Loan Agreement, the terms
"Agreement", "this Agreement" "herein", "hereafter", "hereto", "hereof", and
words of similar import, shall, unless the context otherwise requires, mean the
Loan Agreement as amended by this Amendment.
2
<PAGE>
SECTION 5. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. COUNTERPARTS. This Amendment may be executed in counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute but one instrument.
SECTION 7. EXPENSES. The Borrower agrees to pay all reasonable
out-of-pocket expenses incurred by the Lender in connection with the
preparation, execution and delivery of this Amendment, including, but not
limited to, the reasonable fees and disbursements of Morgan, Lewis & Bockius
LLP, counsel for the Lender.
SECTION 8. HEADINGS. The headings of this Amendment are for the purposes of
reference only and shall not affect the construction of or be taken into
consideration in interpreting this Amendment.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly
executed as of the date first written above.
BELAIR CAPITAL FUND, L.L.C.
BY: EATON VANCE MANAGEMENT,
as Manager
BY: /S/ THOMAS E. FAUST, JR.
------------------------
Name: Thomas E. Faust, Jr.
Title: Vice President
Address: The Eaton Vance Building
255 State Street
Boston, MA 02109
Telephone No.: 617-482-8260
Telecopier No.: 617-482-3836
3
<PAGE>
MERRILL LYNCH CAPITAL SERVICES, INC.
BY: /s/ Roger Baum
------------------------
Name: Roger Baum
Title:
Address: Merrill Lynch World Headquarters,
World Financial Center
North Tower, 22nd Floor
250 Vessey Street
New York, New York 10281-1322
Telephone No.: 212-449-0291
Telecopier No.: 212-449-1788
The Lender is a member of The Securities and Futures Authority Limited and
operates a Client Complaints Procedure. If for any reason the Borrower should
have cause for concern or complaint, the Borrower should contact the Manager,
PBG Operations, at the Lender's address indicated below.
MERRILL LYNCH INTERNATIONAL
BANK LIMITED
BY: /S/ JENNIFER A. BERESKA
--------------------------------
Executed in London, Name: Jennifer A. Bereska
England on ________, 1999 Title: Associate Director
Address: 123 Buckingham Palace Road
5th Floor
London SW1 W9TD
England
Telephone No.:
Telecopier No.:
AGREED TO:
MERRILL LYNCH INTERNATIONAL
PRIVATE FINANCE LIMITED
By: /s/ Fred Reinhardt
--------------------------------
Name: Fred Reinhards
Title:
4
<PAGE>
AMENDMENT NO. 5 dated as of March
17, 2000 to the Loan and Security Agreement
dated as of February 5, 1998 (as heretofore
amended, the "Loan Agreement"), by and among
MERRILL LYNCH INTERNATIONAL BANK LIMITED
(the "Lender"), MERRILL LYNCH CAPITAL
SERVICES INC. ("MLCS") and BELAIR CAPITAL
FUND LLC (the "Borrower").
INTRODUCTORY STATEMENT
All capitalized terms not otherwise defined in this Amendment are as
defined in the Loan Agreement.
The Borrower has requested (and the Lender has agreed to) an increase in
the Commitment to $765,000,000.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is hereby
amended as of the Effective Date (subject to the terms and conditions set forth
in Section 2 hereof) as follows:
(A) The definition of Commitment appearing in Article 1 of the Loan
Agreement is hereby amended in its entirety to read as follows:
""COMMITMENT" shall mean seven hundred sixty-five million dollars
($765,000,000) or such lesser amount if reduced pursuant to Section 2.10."
SECTION 2. CONDITIONS TO EFFECTIVENESS. This Amendment is subject to the
satisfaction in full of the following conditions (the first date on which all
such conditions have been satisfied being herein called the "Effective Date"):
(A) the Lender shall have received counterparts of this Amendment which,
when taken together, bear the signatures of all parties hereto;
(B) the Lender shall have received an Acknowledgment (in form and substance
satisfactory to the Lender) executed by the Borrower and the Custodian
confirming that the Securities Account Agreement remains in full force and
effect;
(C) the Lender shall have received a promissory note in the form of Exhibit
A to the Loan Agreement in the amount of $765,000,000 (a "New Note") which New
Note shall replace the Note currently held by the Lender and shall be deemed the
Note for purposes of the Loan Agreement and the Lender shall return the existing
Note to the Borrower;
<PAGE>
(D) the Lender shall have received a favorable written opinion of Counsel
to the Borrower, dated the Effective Date, addressed to the Lender, to the
effect that this Amendment and the New Note have been duly executed and
delivered by the Borrower and, together with the Loan Agreement as hereby
amended, constitute the legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms and no consent or approval
of any governmental authority or regulatory body to the execution, delivery and
performance of this Amendment or the New Note or to the borrowings thereunder is
required by law, or if any such consent or approval is necessary it has been
obtained, which opinion shall be satisfactory to Morgan, Lewis & Bockius LLP,
counsel for the Lender;
(E) the Lender shall have received (i) a certificate of the Manager of the
Borrower, dated the Effective Date and certifying that (1) the provisions of the
Operating Agreement authorize the Manager to authorize the execution, delivery
and performance in accordance with their terms of this Amendment, the New Note
and the other documents and transactions contemplated by this Amendment and the
borrowings under the Note and that the Manager has so authorized and such
authorization is in full force and effect and (2) neither the certificate of
organization nor the Operating Agreement of the Borrower have been amended since
February 5, 1998 (other than the Amended and Restated Operating Agreement as
amended by the First Amendment thereto dated November 24, 1998) and (ii) such
other documents as the Lender or Morgan, Lewis & Bockius LLP, counsel for the
Lender, may reasonably request; and
(F) all legal matters in connection with this Amendment shall be
satisfactory to Morgan, Lewis & Bockius LLP, counsel for the Lender.
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants that:
(A) the representations and warranties contained in the Loan Agreement are
true and correct in all material respects on and as of the date hereof as if
such representations and warranties had been made on and as of the date hereof;
and
(B) the Borrower is in compliance with all the terms and provisions set
forth in the Loan Agreement and, after giving effect hereto, no Default or Event
of Default has occurred and is continuing.
SECTION 4. FULL FORCE AND EFFECT. Except as expressly amended hereby, the
Loan Agreement shall continue in full force and effect in accordance with the
provisions thereof on the date hereof. As used in the Loan Agreement, the terms
"Agreement", "this Agreement" "herein", "hereafter", "hereto", "hereof", and
words of similar import, shall, unless the context otherwise requires, mean the
Loan Agreement as amended by this Amendment.
2
<PAGE>
SECTION 5. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. COUNTERPARTS. This Amendment may be executed in counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute but one instrument.
SECTION 7. EXPENSES. The Borrower agrees to pay all reasonable
out-of-pocket expenses incurred by the Lender in connection with the
preparation, execution and delivery of this Amendment, including, but not
limited to, the reasonable fees and disbursements of Morgan, Lewis & Bockius
LLP, counsel for the Lender.
SECTION 8. HEADINGS. The headings of this Amendment are for the purposes of
reference only -------- and shall not affect the construction of or be taken
into consideration in interpreting this Amendment.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly
executed as of the date first written above.
BELAIR CAPITAL FUND, L.L.C.
BY: EATON VANCE MANAGEMENT,
as Manager
BY: /S/ THOMAS E. FAUST, JR.
------------------------
Name: Thomas E. Faust, Jr.
Title: Vice President
Address: The Eaton Vance Building
255 State Street
Boston, MA 02109
Telephone No.: 617-482-8260
Telecopier No.: 617-482-3836
3
<PAGE>
MERRILL LYNCH CAPITAL SERVICES, INC.
BY: /s/ Roger Baum
----------------------------
Name: Roger Baum
Title:
Address: Merrill Lynch World Headquarters,
World Financial Center
North Tower, 22nd Floor
250 Vessey Street
New York, New York 10281-1322
Telephone No.: 212-449-0291
Telecopier No.: 212-449-1788
The Lender is a member of The Securities and Futures Authority Limited and
operates a Client Complaints Procedure. If for any reason the Borrower should
have cause for concern or complaint, the Borrower should contact the Manager,
PBG Operations, at the Lender's address indicated below.
MERRILL LYNCH INTERNATIONAL
BANK LIMITED
BY: /S/ JENNIFER A. BERESKA
------------------------------
Executed in London, Name: Jennifer A. Bereska
England on ________, 1999 Title: Associate Director
Address: 123 Buckingham Palace Road
5th Floor
London SW1 W9TD
England
Telephone No.:
Telecopier No.:
AGREED TO:
MERRILL LYNCH INTERNATIONAL
PRIVATE FINANCE LIMITED
By: /s/ Stephanie Villalva
------------------------------
Name: Stephanie Villalva
Title:
4
Exhibit 21
BELAIR CAPITAL FUND LLC
SUBSIDIARIES
NAME JURISDICTION OF INCORPORATION
- ---- -----------------------------
Belair Real Estate Corporation Delaware
Belport Realty Corporation Delaware
Belmar Realty Corporation Delaware
Belrieve Realty Corporation Delaware
Argosy Realty Corporation Delaware
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> BELAIR CAPITAL FUND LLC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 2,247,696,059
<INVESTMENTS-AT-VALUE> 2,731,072,954
<RECEIVABLES> 23,791,281
<ASSETS-OTHER> 338,678
<OTHER-ITEMS-ASSETS> 3,802,594
<TOTAL-ASSETS> 2,759,005,507
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 655,000,000
<OTHER-ITEMS-LIABILITIES> 9,635,754
<TOTAL-LIABILITIES> 664,635,754
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,610,992,858
<SHARES-COMMON-STOCK> 15,900,744
<SHARES-COMMON-PRIOR> 16,568,833
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 483,376,895
<NET-ASSETS> 2,094,369,753
<DIVIDEND-INCOME> 66,218,618
<INTEREST-INCOME> 5,892,953
<OTHER-INCOME> 0
<EXPENSES-NET> 63,058,288
<NET-INVESTMENT-INCOME> 9,053,283
<REALIZED-GAINS-CURRENT> (38,647,548)
<APPREC-INCREASE-CURRENT> 293,174,886
<NET-CHANGE-FROM-OPS> 263,580,621
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 20,134,580
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (753,491)
<SHARES-REINVESTED> 85,402
<NET-CHANGE-IN-ASSETS> 161,521,381
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 15,664,440
<INTEREST-EXPENSE> 36,722,400
<GROSS-EXPENSE> 63,058,288
<AVERAGE-NET-ASSETS> 1,986,340,312
<PER-SHARE-NAV-BEGIN> 116.66
<PER-SHARE-NII> 0.557
<PER-SHARE-GAIN-APPREC> 15.773
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.27)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 131.72
<EXPENSE-RATIO> 3.17
</TABLE>
