<PAGE>
[LOGO] EATON VANCE
--------------
MUTAL FUNDS
[PHOTO OF STATUE OF LIBERTY]
ANNUAL REPORT DECEMBER 31, 1999
[PHOTO OF STREET SIGN OF WALL ST, NY]
CAPITAL
EXCHANGE
FUND
Global Management--Global Distribution
[PHOTO OF CALCULATOR -- INCOME TAX 1120 FORM]
<PAGE>
CAPITAL EXCHANGE FUND AS OF DECEMBER 31, 1999
LETTER TO SHAREHOLDERS
[PHOTO]
James B. Hawkes
President
During the year ended December 31, 1999, Capital Exchange Fund had a total
return of 17.27%(1). This return resulted from an increase in net asset value to
$562.03 per share on December 31, 1999 from $482.62 per share on December 31,
1998, and the reinvestment of $3.550 per share in dividends. For comparison, the
average total return for mutual funds in the Lipper Multi-Cap Core
Classification was 22.45% during the period.(2)
A ROBUST ECONOMY AND TAME INFLATION PROVIDED THE BACKDROP FOR U.S. EQUITY
MARKETS IN 1999 ...
The U.S. economy continued to expand strongly in the past year, with gross
domestic product rising at a 5.8% annual pace in the fourth quarter. With
unemployment at a 30-year low, consumer confidence remained high, providing a
boost to retail activity. Remarkably, the robust economy and ebullient consumer
attitudes have not resulted in higher inflation. Continuing global competition,
increased productivity and the enhanced use of technology have generally helped
keep inflation pressures in check. The Federal Reserve, however, raised its
benchmark Federal Funds target rate three times during the year in a preemptive
strike against inflation.
U.S. equity markets, undeterred by interest rate activity, continued to break
new ground, with all major indices reaching record highs. However, the majority
of market returns came from a very narrow group of stocks in the high-flying and
volatile technology sector.
... WHILE OUR TAX-MANAGED STRATEGY ALLOWED YOU TO KEEP MORE OF YOUR RETURN ...
We believe that such volatility underscores the benefits of a tax-conscious
investment outlook. High volatility often means high portfolio turnover, which
leads to a bigger tax bite. But Tax-Managed Growth Portfolio, in which Capital
Exchange Fund invests, uses tax-efficient strategies to achieve its objective of
long-term after-tax returns for its shareholders. On the following pages,
Portfolio Manager Duncan W. Richardson discusses the past 12 months and shares
his thoughts about the U.S.equity markets.
Sincerely,
/s/ James B. Hawkes
James B. Hawkes
President
February 10, 2000
- --------------------------------------------------------------------------------
FUND INFORMATION
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERFORMANCE(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<S> <C>
One Year 17.27%
Five Years 27.42
Ten Years 18.69
Life of Fund (3/29/66) 11.91
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST EQUITY HOLDINGS(3)
- --------------------------------------------------------------------------------
BY TOTAL NET ASSETS
<S> <C>
American International Group, Inc. 2.3%
Lexmark International Group, Inc. 2.3
Omnicom Group, Inc. 1.9
Home Depot, Inc. (The) 1.7
Cisco Systems, Inc. 1.7
Automatic Data Processing, Inc. 1.6
Nokia Corp., Class A, ADR 1.6
General Electric Co. 1.6
Marsh & McLennan Cos., Inc. 1.5
Intel Corp. 1.5
</TABLE>
(1) Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested.
(2) It is not possible to invest directly in a Lipper Classification.
(3) Ten largest holdings are held by Tax-Managed Growth Portfolio and may not
be representative of the Portfolio's current or future investments.
Holdings accounted for 17.7% of the Portfolio's total net assets,
determined by dividing the total market value of the holdings by the total
net assets of the Portfolio. Holdings are subject to change.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
- --------------------------------------------------------------------------------
MUTUAL FUND SHARES ARE NOT INSURED BY THE FDIC AND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE SUBJECT
TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED.
- --------------------------------------------------------------------------------
2
<PAGE>
CAPITAL EXCHANGE FUND AS OF DECEMBER 31, 1999
MANAGEMENT DISCUSSION
AN INTERVIEW WITH DUNCAN W. RICHARDSON,
VICE PRESIDENT AND PORTFOLIO MANAGER OF
TAX-MANAGED GROWTH PORTFOLIO.
[PHOTO]
Duncan W. Richardson
Portfolio Manager
Q: DUNCAN, THE STOCK MARKET WAS QUITE VOLATILE IN 1999, WITH VERY NARROW
MARKET LEADERSHIP. HOW DID THIS AFFECT YOUR MANAGEMENT OF THE PORTFOLIO?
A: The market rewarded a high level of risk-taking in 1999. It was an unusual
market in which the companies earning the least (or even those with losses)
actually made more money for their investors than the companies with solid
levels of earnings. I believe an increasing participation by
valuation-insensitive investors is creating an increasingly speculative and
news-driven market. We continued with our approach over the last year,
attempting to manage the valuation and stock-specific risks taken within
the Portfolio.
Q: HOW DID THE PORTFOLIO PERFORM IN THIS CONTEXT?
A: Our approach has achieved excellent returns, in excess of our peer group of
funds over the last several years, though this was not the case in calendar
1999. There were three impediments to the Portfolio's performance over the
past year. First, the high level of diversification in the Portfolio was
not suited for the narrowest stock market ever. Secondly, our typical
overweighting of growth sectors and underweighting in cyclicals was
out-of-sync with last year's best-performing sectors. Third, we had several
companies in the Portfolio that had unanticipated fundamental
disappointments.
The narrowness of the market in 1999 was remarkable. Barely two dozen names
drove 100% of the appreciation in the S&P 500 index. A small universe of
stocks was bid up to what we believed were excessive valuations. We are not
interested in the highest growth companies at any price, but rather, the
more dependable growth companies at reasonable prices. This narrowing of
market breadth has accelerated since April 1998, when the overall market
breadth peaked. The average stock has actually declined in value since that
time, while the S&P 500 advanced by nearly 30% (to year-end).
In Tax-Managed Growth Portfolio, we don't chase sector performance, and
thus didn't significantly overweight any particular sector again this year.
We did slightly emphasize our traditional growth sectors (e.g., financials,
healthcare and consumer staples) and avoid most cyclicals (e.g., basic
industry and energy). Each of the traditional growth sector biases was
unproductive over the last year.
The financial sector appeared undervalued relative to the rest of the
market, but became more so as interest rates rose through most of the year.
Drug stocks continued to be hurt by the political uncertainty surrounding
potential healthcare legislation, and consumer stocks had another tough
year. As the Asian crisis appeared to have passed, there was a renewed
interest in cyclicals, and energy stocks performed well as the price of oil
more than doubled. Finally, in the technology sector, we reduced our
overweighting to a slight underweighting during the year because of our
sensitivity to valuations.
3
<PAGE>
CAPITAL EXCHANGE FUND AS OF DECEMBER 31, 1999
MANAGEMENT DISCUSSION
Q: YOU MENTIONED THAT THERE WERE SOME FUNDAMENTAL DISAPPOINTMENTS THAT HAD AN
IMPACT ON THE PORTFOLIO'S PERFORMANCE. WHAT ARE SOME EXAMPLES?
A: We had several different company-specific earnings shortfalls, and each was
met with ferocious selling in the market. The pressure for short-term
performance made many market participants intolerant of any short-term
disappointments. One out of every eight stocks in the S&P 500 experienced a
15% single-day decline in 1999. Gillette, in which we have been building a
position over the last several years, swung wildly from the mid-$30s to the
$60s and back, on news of earnings disappointments. This is an investment
we believe will be productive over the next three to five years; however,
in the near-term, the stock remains near the low of its two-year price
range. Last year, Xerox proved the pessimist's lament of "things can always
get worse" as earnings warnings were followed by even worse earnings
shortfalls and further warnings. The volatility and near-term setbacks were
frustrating, but our relatively small single-stock positions and our sell
discipline of taking losses early shielded the Portfolio from large capital
losses. We remain focused on evaluating long-term earnings prospects and
making investments in the best risk/reward situations available.
Q: MANY OF THE STOCKS THAT DID PERFORM WELL WERE INCREDIBLY VOLATILE. WHAT IS
YOUR STANCE REGARDING THAT KIND OF RISK?
A: Increasing volatility is likely to be with us for awhile. Fortunately, our
longer time horizon and tax-sensitive approach allow us to use the
volatility of the market to our advantage. We decline to participate in the
more volatile areas of the market and will continue to keep an eye toward
valuation and fundamental risks, in addition to tax-efficiency. We are
generally purchasing slightly out-of-favor stocks and sectors and paring
back our positions in the over-loved portions of the market. In this way,
we attempt to improve upon the underlying earnings progress of our
long-term investments and maintain a lower beta (volatility level) than the
market and our peer group of funds.
Having a valuation discipline allows the Portfolio to benefit from the
emotionally driven moves in individual stocks and sectors. We did a lot of
"seed-planting" in 1999 in stocks that should work out in our favor over
time, similar to our past investments in Oracle, Nokia and Analog Devices.
We had several opportunities over the prior few years to buy each of these
companies in size within the Portfolio. Our patience was rewarded last year
as each of the investments more than doubled. A volatile market can create
tremendous opportunities for long-term investors.
Q: WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE YEAR AHEAD?
A: The narrowness of the market, combined with higher valuations, has created
a higher-risk equity environment, one in which you can expect continued,
perhaps even increased, volatility. There have been some small encouraging
signs early this year that speculation is subsiding and the market is
paying more attention to fundamentals. I would emphasize, however, that
this is not a time for complacency in the U.S. equity market and that
investors should continue to focus on their tolerance for risk and
realistically assess the time horizon for their equity investments. We
continue to anticipate a resumption of historic market returns closer to
their 10% per annum average.
Our research-driven process, which is focused on valuation and fundamental
risks, has typically resulted in strong risk-adjusted returns. We believe
our strategy is well-suited to the taxable investor with a long-term time
horizon. The Eaton Vance research team thanks shareholders for their
continued participation in the Capital Exchange Fund. We remain committed
to providing a vehicle to help meet
longer-term financial objectives.
4
<PAGE>
CAPITAL EXCHANGE FUND AS OF DECEMBER 31, 1999
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
<S> <C>
Assets
- --------------------------------------------------------
Investment in Tax-Managed Growth
Portfolio, at value
(identified cost, $117,400,705) $1,363,459,945
- --------------------------------------------------------
TOTAL ASSETS $1,363,459,945
- --------------------------------------------------------
Liabilities
- --------------------------------------------------------
Payable for Fund shares redeemed $ 589,291
Payable to affiliate for Trustees' fees 1,325
Accrued expenses 28,829
- --------------------------------------------------------
TOTAL LIABILITIES $ 619,445
- --------------------------------------------------------
NET ASSETS FOR 2,424,874 SHARES OF
BENEFICIAL INTEREST OUTSTANDING $1,362,840,500
- --------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------
Accumulated undistributed net realized
gain from Portfolio (computed on the
basis of identified cost), less the
excess of cost of Fund shares
redeemed over proceeds from sales of
Fund shares (including shares issued
to shareholders electing to receive
payment of distributions in Fund
shares) $ 126,145,824
Accumulated undistributed net investment
income 87,926
Accumulated federal tax on undistributed
net realized long-term capital gain,
paid on behalf of the shareholders (9,452,490)
Net unrealized appreciation from
Portfolio (computed on the basis of
identified cost) 1,246,059,240
- --------------------------------------------------------
TOTAL $1,362,840,500
- --------------------------------------------------------
Net Asset Value and Redemption
Price Per Share
- --------------------------------------------------------
($1,362,840,500 DIVIDED BY 2,424,874
SHARES OF
BENEFICIAL INTEREST OUTSTANDING) $ 562.03
- --------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
<S> <C>
Investment Income
- ------------------------------------------------------
Dividends allocated from Portfolio (net
of foreign taxes, $94,905) $ 11,401,032
Interest allocated from Portfolio 3,340,433
Expenses allocated from Portfolio (5,799,401)
- ------------------------------------------------------
NET INVESTMENT INCOME FROM PORTFOLIO $ 8,942,064
- ------------------------------------------------------
Expenses
- ------------------------------------------------------
Trustees fees and expenses $ 10,892
Legal and accounting services 26,476
Transfer and dividend disbursing agent
fees 21,204
Custodian fee 14,598
Printing and postage 9,697
Registration fees 90
Miscellaneous 3,210
- ------------------------------------------------------
TOTAL EXPENSES $ 86,167
- ------------------------------------------------------
NET INVESTMENT INCOME $ 8,855,897
- ------------------------------------------------------
Realized and Unrealized Gain (Loss) from Portfolio
- ------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ 73,079,745
Foreign currency transactions (603)
- ------------------------------------------------------
NET REALIZED GAIN $ 73,079,142
- ------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $121,788,804
Foreign currency (3,301)
- ------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $121,785,503
- ------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $194,864,645
- ------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $203,720,542
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
CAPITAL EXCHANGE FUND AS OF DECEMBER 31, 1999
FINANCIAL STATEMENTS CONT'D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS DECEMBER 31, 1999 DECEMBER 31, 1998(1) OCTOBER 31, 1998
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
From operations --
Net investment income $ 8,855,897 $ 300,037 $ 1,245,577
Net realized gain 73,079,142 1,462,965 4,174,699
Net change in unrealized
appreciation (depreciation) 121,785,503 70,490,863 19,737,202
- --------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 203,720,542 $ 72,253,865 $ 25,157,478
- --------------------------------------------------------------------------------------------------
Distributions to shareholders --
From net investment income $ (8,764,849) $ (600,890) $ (1,128,567)
- --------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS
TO SHAREHOLDERS $ (8,764,849) $ (600,890) $ (1,128,567)
- --------------------------------------------------------------------------------------------------
Transactions in shares of
beneficial interest --
Issued in reorganization of
Depositors, Diversification,
The Exchange Fund of Boston,
Fiduciary
Exchange, Second Fiduciary
Exchange and Vance Sanders
Exchange Funds $ -- $ 993,844,081 $ --
Net asset value of shares
issued to shareholders in
payment of distributions
declared 1,600,476 532,597 286,965
Cost of shares redeemed (66,435,335) (665,148) (7,318,503)
- --------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS FROM FUND
SHARE TRANSACTIONS $ (64,834,859) $ 993,711,530 $ (7,031,538)
- --------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 130,120,834 $1,065,364,505 $ 16,997,373
- --------------------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------
At beginning of year $1,232,719,666 $ 167,355,161 $150,357,788
- --------------------------------------------------------------------------------------------------
AT END OF YEAR $1,362,840,500 $1,232,719,666 $167,355,161
- --------------------------------------------------------------------------------------------------
Accumulated undistributed
net investment income
included in net assets
- --------------------------------------------------------------------------------------------------
AT END OF YEAR $ 87,926 $ -- $ 312,700
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) For the two-month period ended December 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
CAPITAL EXCHANGE FUND AS OF DECEMBER 31, 1999
FINANCIAL STATEMENTS CONT'D
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
DECEMBER 31, DECEMBER 31, --------------------------------------
1999 1998(1) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Net asset value -- Beginning
of year $ 482.620 $ 426.610 $366.870 $280.570 $230.960 $176.610
- --------------------------------------------------------------------------------------------------
Income (loss) from operations
- --------------------------------------------------------------------------------------------------
Net investment income $ 3.588 $ 0.450 $3.120 $2.704 $2.562 $ 2.657
Net realized and unrealized
gain 79.372 56.802 59.420 86.191 49.548 56.480
- --------------------------------------------------------------------------------------------------
TOTAL INCOME FROM OPERATIONS $ 82.960 $ 57.252 $62.540 $88.895 $52.110 $ 59.137
- --------------------------------------------------------------------------------------------------
Less distributions
- --------------------------------------------------------------------------------------------------
From net investment income $ (3.550) $ (1.242) $(2.800 ) $(2.340 ) $(2.500 ) $ (2.700)
From net realized gain -- -- -- -- -- (0.025)
- --------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (3.550) $ (1.242) $(2.800 ) $(2.340 ) $(2.500 ) $ (2.725)
- --------------------------------------------------------------------------------------------------
PROVISION FOR FEDERAL TAX ON
UNDISTRIBUTED NET REALIZED
LONG-TERM GAIN $ -- $ -- $ -- $(0.255 ) $ -- $ (2.062)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE -- END OF YEAR $ 562.030 $ 482.620 $426.610 $366.870 $280.570 $230.960
- --------------------------------------------------------------------------------------------------
TOTAL RETURN(2) 17.27% 13.43% 17.07% 31.79% 22.67% 32.56%
- --------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------
Net assets, end of year (000's
omitted) $1,362,841 $1,232,720 $167,355 $150,358 $135,874 $114,643
Ratios (As a percentage of
average daily net assets):
Expenses(3) 0.47% 0.61%(4) 0.55% 0.64% 0.76% 0.76%
Net investment income 0.70% 0.45%(4) 0.75% 0.81% 1.01% 1.32%
Portfolio Turnover of the
Fund(5) -- -- -- -- -- 2%
Portfolio Turnover of the
Portfolio(5) 11% 3% 12% 14% 6% --
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) For the two-month period ended December 31, 1998.
(2) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the reinvestment date. Total return
is not computed on an annualized basis.
(3) Includes the Fund's share of the Portfolio's allocated expenses.
(4) Annualized.
(5) Portfolio Turnover of the Fund represents the rate of portfolio activity
while the Fund was making investments directly in securities. The Fund
began investing in the Portfolio on December 1, 1995.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
CAPITAL EXCHANGE FUND AS OF DECEMBER 31, 1999
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
- -------------------------------------------
Capital Exchange Fund (the Fund) is a diversified series of Eaton Vance
Series Trust (the Trust). The Trust is an entity of the type commonly known
as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company. The Fund invests all of its investable assets in interests of the
Tax-Managed Growth Portfolio (the Portfolio), a New York Trust, having the
same investment objective as the Fund. The value of the Fund's investment in
the Portfolio reflects the Fund's proportionate interest in the net assets of
the Portfolio (9.0% at December 31, 1999). The performance of the Fund is
directly affected by the performance of the Portfolio. The 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 Valuation -- Valuation of securities by the Portfolio is discussed
in Note 1A of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B Income -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally accepted
accounting principles.
C Federal Taxes -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its net investment income and net
realized short-term capital gain. Accordingly, no provision for federal
income or excise tax is necessary. At December 31, 1999, the Fund, for
federal income tax purposes, had a capital loss carryover of $35,873, which
will reduce the taxable income arising from future net realized gain on
investments, if any, to the extent permitted by the Internal Revenue Code,
and thus will reduce the amount of distributions to shareholders which would
otherwise be necessary to relieve the Fund of any liability for federal
income or excise tax. Such capital loss carryover will expire on
December 31, 2006. The Fund generally designates as undistributed any taxable
net realized long-term gain (but reserves the right to distribute such gain
in any year) and pays the federal tax thereon on behalf of shareholders.
Provision for such tax is recorded on the Fund's records on the last business
day of the Fund's fiscal year because the Internal Revenue Code provides that
such tax is allocated among shareholders of record on that date.
D Other -- Investment transactions are accounted for on a trade date basis.
Dividends to shareholders are recorded on the ex-dividend date.
E 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 Distributions to Shareholders
- -------------------------------------------
The Fund's policy is to distribute all or substantially all of the net
investment income allocated to the Fund by the Portfolio (less the Fund's
direct expenses). Distributions are paid in the form of additional shares of
the Fund or, at the election of the shareholder, in cash. Generally accepted
accounting principles require that only distributions in excess of tax basis
earnings and profits be reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over distributions for financial statement purposes are classified
as distributions in excess of net investment income or accumulated net
realized gains.
8
<PAGE>
CAPITAL EXCHANGE FUND AS OF DECEMBER 31, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
3 Shares of Beneficial Interest
- -------------------------------------------
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
1999 1998(1) 1998
<S> <C> <C> <C>
----------------------------------------------------------------------------------
Issued in reorganization of Depositors,
Diversification, The Exchange Fund of
Boston, Fiduciary Exchange Fund, Second
Fiduciary Exchange and Vance Sanders
Exchange Funds -- 2,162,273 --
Issued to shareholders electing to
receive payments of distributions in
Fund shares 3,132 1,156 691
Redemptions (132,500) (1,474) (18,239)
----------------------------------------------------------------------------------
NET INCREASE (DECREASE) (129,368) 2,161,955 (17,548)
----------------------------------------------------------------------------------
</TABLE>
(1) For the two-month period ended December 31, 1998.
4 Investment Transactions
- -------------------------------------------
Decreases in the Fund's investment in the Portfolio aggregated $73,094,080
for the year ended December 31, 1999.
5 Transactions with Affiliates
- -------------------------------------------
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services.
See Note 2 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report. Except for Trustees of the Fund who are
not members of EVM's organization, officers and Trustees receive remuneration
for their services to the Fund out of such investment adviser fee.
Certain officers and Trustees of the Fund are officers of the
above organizations.
6 Fund Reorganization
- -------------------------------------------
Effective November 1, 1998, the Fund changed its fiscal year-end to
December 31. Effective on December 18, 1998, the Fund acquired the net assets
of Depositors Fund, Diversification Fund, The Exchange Fund of Boston,
Fiduciary Exchange Fund, Second Fiduciary Exchange Fund and Vance Sanders
Exchange Fund, pursuant to an Agreement and Plan of Reorganization dated
October 19, 1998. In accordance with the agreement, the Fund, at closing,
issued shares as follows:
<TABLE>
<CAPTION>
AGGREGATE NET ASSET
SHARES VALUE OF VALUE PER
FUND ISSUED SHARES ISSUED SHARE
<S> <C> <C> <C>
-----------------------------------------------------------------------------
Depositors Fund 238,033 $109,407,203 $459.63
Diversification Fund 281,027 129,168,519 459.63
The Exchange Fund of Boston 280,926 129,121,906 459.63
Fiduciary Exchange Fund 192,407 88,434,566 459.63
Second Fiduciary Exchange Fund 275,340 126,554,447 459.63
Vance Sanders Exchange Fund 894,540 411,157,440 459.63
</TABLE>
The transaction was structured for tax purposes to qualify as a tax free
reorganization under the Internal Revenue Code. The net assets acquired,
including unrealized appreciation at the date of the transaction, were as
follows:
<TABLE>
<CAPTION>
FUND ACQUIRED NET ASSETS UNREALIZED APPRECIATION
<S> <C> <C>
--------------------------------------------------------------------------------------
Depositors Fund $109,407,203 $105,065,477
Diversification Fund 129,168,519 113,551,006
The Exchange Fund of Boston 129,121,906 116,460,407
Fiduciary Exchange Fund 88,434,566 79,600,603
Second Fiduciary Exchange Fund 126,554,447 107,900,682
Vance Sanders Exchange Fund 411,157,440 370,240,803
</TABLE>
Directly after the merger, the combined net assets of the Fund were
$1,173,720,711 and the net asset value was $459.63.
9
<PAGE>
CAPITAL EXCHANGE FUND AS OF DECEMBER 31, 1999
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND SHAREHOLDERS
OF CAPITAL EXCHANGE FUND:
- ---------------------------------------------
We have audited the accompanying statement of assets and liabilities of Capital
Exchange Fund 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 the
year ended October 31, 1998, and the financial highlights for the year ended
December 31, 1999, the two-month period ended December 31, 1998 and each of the
years in the four-year period ended October 31, 1998. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights 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 financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. 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 financial highlights present
fairly, in all material respects, the financial position of Capital Exchange
Fund as of December 31, 1999, and the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 11, 2000
10
<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
11
<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
12
<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
13
<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
14
<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
15
<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
16
<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
17
<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
18
<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
19
<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
20
<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
21
<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
22
<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
23
<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
24
<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
25
<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
26
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
recognize a loss on the transaction if the market value of the securities
sold increases before the securities are delivered.
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
27
<PAGE>
TAX-MANAGED GROWTH PORTFOLIO AS OF DECEMBER 31, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
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.
28
<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
29
<PAGE>
CAPITAL EXCHANGE FUND AS OF DECEMBER 31, 1999
INVESTMENT MANAGEMENT
CAPITAL EXCHANGE FUND
Officers
James B. Hawkes
President and Trustee
Thomas E. Faust, Jr.
Vice President
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Trustees
Jessica M. Bibliowicz
President and Chief Executive Officer,
National Financial Partners
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking, Emeritus, Harvard University
Graduate School of Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
Jack L. Treynor
Investment Adviser and Consultant
TAX-MANAGED GROWTH PORTFOLIO
Officers
James B. Hawkes
President and Trustee
Duncan W. Richardson
Vice President and
Portfolio Manager
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Trustees
Jessica M. Bibliowicz
President and Chief Executive Officer,
National Financial Partners
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking, Emeritus, Harvard University
Graduate School of Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
Jack L. Treynor
Investment Adviser and Consultant
30
<PAGE>
INVESTMENT ADVISER OF TAX-MANAGED GROWTH PORTFOLIO
Boston Management and Research
The Eaton Vance Building
255 State Street
Boston, MA 02109
ADMINISTRATOR OF CAPITAL EXCHANGE FUND
Eaton Vance Management
The Eaton Vance Building
255 State Street
Boston, MA 02109
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC Global Fund Services
Attention: Eaton Vance Funds
P.O. Box 9653
Providence, RI 02904-9653
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116-5022
Capital Exchange Fund
The Eaton Vance Building
255 State Street
Boston, MA 02109
157-12/99 CAPSRC-12/99
