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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2004
Commission File No. 000-49775
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Belport Capital Fund LLC (the Fund)
(Exact name of registrant as specified in its charter)
Securities registered pursuant to Section 12(g) of the Act:
Delaware 04-3551830
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(State of organization) ( I.R.S. Employer Identification No.)
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 617-482-8260
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Limited Liability Company Interests in the Fund (Shares)
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
YES [X] NO [ ]
Aggregate market value of the Shares held by non-affiliates of registrant, based
on the closing net asset value on June 30, 2004 was $1,591,849,325. Calculation
of holdings by non-affiliates is based upon the assumption, for these purposes
only, that the registrant's manager, its executive officers and directors and
persons holding 5% or more of the registrant's Shares are affiliates.
Incorporation by Reference:
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None.
The Exhibit Index is located on page 81.
Belport Capital Fund LLC
Index to Form 10-K
Item Page
PART I
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1 Business............................................................ 1
Fund Overview.................................................... 1
Structure of the Fund......................................... 1
Fund Management............................................... 1
The Fund's Offering........................................... 2
The Fund's Investment in Belvedere Capital Fund Company LLC
and Tax-Managed Growth Portfolio................................ 2
Belvedere Company............................................. 2
The Portfolio................................................. 3
The Portfolio's Investment Objective and Policies............. 3
The Portfolio's Tax-Sensitive Management Strategies........... 3
The Fund's Real Estate Investments............................... 4
Real Estate Joint Venture Investments......................... 5
Partnership Preference Units.................................. 6
Organization of the Fund's Controlled Subsidiaries............ 6
Fund Borrowings.................................................. 6
Interest Rate Swap Agreements................................. 7
The Eaton Vance Organization..................................... 7
Conflicts of Interest ........................................ 7
2 Properties.......................................................... 8
3 Legal Proceedings................................................... 8
4 Submission of Matters to a Vote of Security Holders................. 8
PART II
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5 Determining Net Asset Value, Market for Fund Shares, Related
Shareholder Matters and Issuer Purchases of Equity Securities...... 9
Market Information, Restrictions on Transfers and
Redemption of Shares............................................ 9
Transfers of Fund Shares...................................... 9
Redemption of Fund Shares..................................... 9
Determining Net Asset Value .................................. 10
Historic Net Asset Values .................................... 11
Record Holders of Shares of the Fund............................. 11
Distributions.................................................... 12
Income and Capital Gain Distributions......................... 12
Special Distributions......................................... 12
6 Selected Financial Data............................................. 13
Table of Selected Financial Data................................. 13
7 Management's Discussion and Analysis of Financial Condition
(MD&A) and Results of Operations................................... 13
Results of Operations............................................ 14
MD&A and Results of Operations for the Year Ended December 31,
2004 Compared to the Year Ended December 31, 2003............... 14
Performance of the Fund....................................... 14
Performance of the Portfolio.................................. 15
Performance of Real Estate Investments........................ 15
Performance of Interest Rate Swap Agreements.................. 16
MD&A and Results of Operations for the Year Ended December 31,
2003 Compared to the Year Ended December 31, 2002............... 17
Performance of the Fund....................................... 17
Performance of the Portfolio.................................. 17
Performance of Real Estate Investments........................ 17
Performance of Interest Rate Swap Agreements.................. 18
Liquidity and Capital Resources.................................. 18
Outstanding Borrowings........................................ 18
Liquidity..................................................... 19
Off-Balance Sheet Arrangements................................... 19
The Fund's Contractual Obligations............................... 20
Critical Accounting Estimates.................................... 20
7A Quantitative and Qualitative Disclosures About Market Risk
Quantitative Information About Market Risk....................... 23
Interest Rate Risk............................................ 23
Qualitative Information About Market Risk........................ 24
Risks Associated with Equity Investing........................ 24
Risks of Investing in Foreign Securities...................... 25
Risks of Certain Investment Techniques........................ 25
Risks of Real Estate Investments.............................. 26
Risks of Interest Rate Swap Agreements........................ 27
Risks of Leverage............................................. 28
8 Financial Statements and Supplementary Data......................... 28
9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.............................................. 29
9A Controls and Procedures............................................. 29
9B Other Information................................................... 29
PART III
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10 Directors and Executive Officers.................................... 30
Management....................................................... 30
Compliance with Section 16(a) of the Securities Exchange Act
of 1934......................................................... 31
Code of Ethics................................................... 31
11 Executive Compensation.............................................. 31
12 Security Ownership of Certain Beneficial Owners and Management...... 31
Security Ownership of Certain Beneficial Owners.................. 31
Security Ownership of Management................................. 31
Changes in Control............................................... 31
13 Certain Relationships and Related Transactions...................... 32
The Fund's Investment Advisory and Administrative Fee............ 32
Belport Realty's Management Fee.................................. 32
The Portfolio's Investment Advisory Fee.......................... 33
Servicing Fees Paid by the Fund.................................. 33
Servicing Fees Paid by Belvedere Company......................... 33
Distribution Fees Paid to EV Distributors........................ 33
Redemption Fees.................................................. 33
Certain Real Estate Investment Transactions...................... 34
14 Principal Accountant Fees and Services.............................. 34
PART IV
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15 Exhibits, Financial Statements and Reports on Form 8-K.............. 35
APPENDIX A................................................................. 36
FINANCIAL STATEMENTS....................................................... 37
SIGNATURES................................................................. 80
EXHIBIT INDEX.............................................................. 81
PART I
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ITEM 1. BUSINESS.
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FUND OVERVIEW. Belport Capital Fund LLC (the Fund) is a private investment
company organized by Eaton Vance Management (Eaton Vance) to provide
diversification and tax-sensitive investment management to investors holding
large and concentrated positions in equity securities of selected public
companies. The Fund's investment objective is to achieve long-term, after-tax
returns for persons who have invested in the Fund (Shareholders). The Fund, a
Delaware limited liability company, commenced its investment operations on March
14, 2001. Limited liability company interests of the Fund (Shares) were issued
to Shareholders at five closings during 2001. At each Fund closing, the Fund
accepted contributions of stock from investors in exchange for Shares of the
Fund. The Fund discontinued offering Shares on December 18, 2001 and, while the
Fund is not prohibited from doing so, no future offering is anticipated. As of
December 31, 2004, the Fund had net assets of approximately $1.7 billion.
STRUCTURE OF THE FUND. The Fund is structured to provide tax-free
diversification and tax-sensitive investment management to Shareholders. To meet
the objective of tax-free diversification, the Fund must satisfy specific
requirements of the Internal Revenue Code of 1986, as amended (the Code). In
order for the contributions of appreciated stock to the Fund by Shareholders to
be nontaxable, not more than 80% of the Fund's assets (calculated in the manner
prescribed) may consist of "stocks and securities" as defined in the Code. To
meet this requirement, the Fund invests at least 20% of its assets as so
determined in certain real estate investments (see "The Fund's Real Estate
Investments" below). The Fund invests up to 80% of its assets in a diversified
portfolio of common stocks (see "The Fund's Investment in Belvedere Capital Fund
Company LLC and Tax-Managed Growth Portfolio" below). The Fund acquired its real
estate investments with borrowed funds, as described below under "Fund
Borrowings". See Appendix A for a chart detailing the investment structure of
the Fund.
In its investment program, the Fund balances investment considerations and tax
considerations, and takes into account the taxes payable by Shareholders on
allocated investment income and realized capital gains. See "The Fund's
Investment in Belvedere Capital Fund Company LLC and Tax-Managed Growth
Portfolio" below.
There is no trading market for the Fund's Shares. As described further under
"Redemption of Fund Shares" in Item 5(a), Fund Shares may be redeemed on any
business day. The Fund satisfies redemption requests principally by distributing
securities, but may also distribute cash. The value of securities and cash
distributed to satisfy a redemption will equal the net asset value of the number
of Shares redeemed, less any applicable redemption fee. Under most
circumstances, a redemption from the Fund that is met by distributing securities
as described herein will not result in the recognition of capital gains by the
Fund or by the redeeming Shareholder. The redeeming Shareholder would generally
recognize capital gains upon the sale of the securities received upon the
redemption.
The Fund intends to distribute each year the amount of its net investment income
for such year, if any. The Fund also intends to make annual capital gain
distributions equal to approximately 18% of the amount of its net realized
capital gains, if any, other than certain precontribution gains. The Fund's
distributions generally are based on determinations of net investment income and
net realized capital gains for federal income tax purposes. Such amounts may
differ from net investment income (or loss) and net realized gain (or loss) as
set forth in the Fund's consolidated financial statements due to differences in
the treatment of various income, gain, loss, expense and other items for federal
income tax purposes and under generally accepted accounting principles. The
Fund's income distributions are not expected to be significant. The Fund intends
to pay any distributions on the last business day of each fiscal year of the
Fund (which concludes on December 31) or shortly thereafter. See "Distributions"
in Item 5(c).
FUND MANAGEMENT. The manager of the Fund is Eaton Vance, a Massachusetts
business trust registered as an investment adviser under the Investment Advisers
Act of 1940, as amended (the Advisers Act). Eaton Vance and its subsidiary,
Boston Management and Research (Boston Management), provide management and
advisory services to the Fund, its real estate subsidiary and the investment
portfolio in which the Fund invests. Boston Management is also registered as an
investment adviser under the Advisers Act. Eaton Vance and Boston Management
provide advisory, administration and/or management services to over 150
investment companies, as well as individual and institutional investors. As of
October 31, 2004, Eaton Vance and its affiliates managed more than $90 billion
on behalf of clients. The fees payable to the Eaton Vance organization, as well
as other fees payable by the Fund, are described in Item 13. The Eaton Vance
organization is subject to certain conflicts of interest in providing services
to the Fund, its subsidiaries and the investment portfolio in which the Fund
invests. See "The Eaton Vance Organization - Conflicts of Interest" below.
1
THE FUND'S OFFERING. Shares of the Fund were privately offered and sold only to
"accredited investors" as defined in Rule 501(a) under the Securities Act of
1933, as amended (the Securities Act), who were "qualified purchasers" (as
defined in Section 2(a)(51)(A) of the Investment Company Act of 1940, as amended
(the 1940 Act)). The offering was conducted by Eaton Vance Distributors, Inc.
(EV Distributors), a wholly-owned subsidiary of Eaton Vance, as placement agent
and by certain subagents appointed by EV Distributors. The Shares were offered
and sold in reliance upon an exemption from registration provided by Rule 506
under the Securities Act. The Fund issued Shares to Shareholders at closings
taking place on March 14, 2001, May 23, 2001, July 26, 2001, October 4, 2001 and
December 18, 2001. At the five closings, an aggregate of 17,842,860 Shares were
issued in exchange for Shareholder contributions totaling approximately $1.8
billion.
The Fund is registered under the Securities Exchange Act of 1934, as amended
(the 1934 Act), and files periodic reports (such as reports on Form 10-Q and
Form 10-K) thereunder. Copies of the reports filed by the Fund are available: at
the public reference room of the Securities and Exchange Commission (SEC) in
Washington, DC (call 1-202-942-8090 for information on the operation of the
public reference room); on the EDGAR Database on the SEC's Internet site
(http:// www.sec.gov); or, upon payment of copying fees, by writing to the SEC's
public reference section, Washington, DC 20549-0102, or by electronic mail at
publicinfo@sec.gov. The Fund does not have a website. The Fund intends to
provide Shareholders with an annual and semiannual report containing the Fund's
consolidated financial statements, audited by the Fund's independent registered
public accounting firm in the case of the annual report.
THE FUND'S INVESTMENT IN BELVEDERE CAPITAL FUND COMPANY LLC AND TAX-MANAGED
GROWTH PORTFOLIO. At each Fund closing, all of the securities accepted for
contribution to the Fund were contributed by the Fund to Belvedere Capital Fund
Company LLC (Belvedere Company), a Massachusetts limited liability company, in
exchange for shares of Belvedere Company. Belvedere Company, in turn,
immediately thereafter contributed the securities received from the Fund to
Tax-Managed Growth Portfolio (the Portfolio) in exchange for an interest in the
Portfolio. The Portfolio is a diversified, open-end management investment
company registered under the 1940 Act with net assets of approximately $19.1
billion as of December 31, 2004. As of December 31, 2004, the Fund's investment
in the Portfolio through Belvedere Company had a value of approximately $1.7
billion (equal to approximately 73.5% of the Fund's total assets on a
consolidated basis).
BELVEDERE COMPANY. Belvedere Company was organized in 1997 by Eaton Vance to
offer tax-free diversification and tax-sensitive investment management to
certain qualified investors who contributed diversified portfolios of equity
securities. As of December 31, 2004, the investment assets of Belvedere Company
consisted exclusively of an interest in the Portfolio with a value of
approximately $12.8 billion. As of such date, the Fund owned approximately 13.2%
of Belvedere Company's outstanding shares. As of December 31, 2004, the other
investors in Belvedere Company included seven other investment funds sponsored
by the Eaton Vance organization (investment fund investors), as well as
qualified individual investors who acquired shares of Belvedere Company in
exchange for portfolios of acceptable securities (non-investment fund
investors).
Belvedere Company considers for acceptance equity securities that (i) are listed
on the New York Stock Exchange, the American Stock Exchange, the NASDAQ National
Market or a major foreign exchange, (ii) have a trading price of at least $10.00
per share and (iii) are issued by issuers having an equity market capitalization
of at least $500 million. Because Belvedere Company only accepts contributions
of diversified baskets of securities (as described below), it is not subject to
the requirement that not more than 80% of its assets consist of "stocks and
securities" as defined in the Code. For investors that own a diversified basket
of securities, investing in Belvedere Company (rather than in the Fund) avoids
the costs and risks of investing in real estate and the associated financial
leverage to which the Fund is subject. See "Risks of Investing in Real Estate"
and "Risks of Leverage" in Item 7A(b).
Belvedere Company provides a vehicle through which investment fund and
non-investment fund investors contributing a "diversified basket of securities"
can acquire an indirect interest in the Portfolio. A "diversified basket of
securities" means a group of securities that is diversified such that not more
than 25% of the value of the securities are investments in the securities of any
one issuer and not more than 50% of the value of the securities are investments
in the securities of five or fewer issuers. The securities contributed to
Belvedere Company at each Fund closing constituted a diversified basket of
securities. Because the Fund is required to hold a percentage of its investments
in non-Portfolio assets in order to meet certain tax requirements (see
"Structure of the Fund" above and "The Fund's Real Estate Investments" below),
it does not satisfy the conditions of the 1940 Act for investing directly in the
Portfolio.
2
THE PORTFOLIO. The Portfolio was organized in 1995 by Eaton Vance as the
successor to the investment operations of Eaton Vance Tax-Managed Growth Fund
1.0 (Tax-Managed Growth 1.0), a mutual fund established in 1966 by Eaton Vance
and managed from inception for long-term, after-tax returns. As of December 31,
2004, investors in the Portfolio included six investors in addition to Belvedere
Company and Tax-Managed Growth 1.0, each of which acquired or is acquiring on a
continuous basis interests in the Portfolio with cash. All investors in the
Portfolio are sponsored by or affiliated with Eaton Vance. As of December 31,
2004, Belvedere Company owned approximately 66.9% of the Portfolio.
The Fund invests in the Portfolio (on an indirect basis through Belvedere
Company) because it is a well-established investment portfolio that has an
investment objective and policies that are compatible to those of the Fund.
Investing in the Portfolio enables the Fund to participate in a substantially
larger and more diversified investment portfolio than it could achieve by
managing the contributed securities directly. The audited financial statements
of the Portfolio for the year ended December 31, 2004 are included as pages 37
to 79 of this Annual Report on Form 10-K. The Portfolio's audited financial
statements include information about the assets and liabilities of the
Portfolio, including Portfolio expenses. For a discussion of the Portfolio's
performance for the year ended December 31, 2004, see "Performance of the
Portfolio" in Item 7. For a description of the investment advisory fee payable
by the Portfolio, see "The Portfolio's Investment Advisory Fee" in Item 13.
THE PORTFOLIO'S INVESTMENT OBJECTIVE AND POLICIES. The investment objective of
the Portfolio is to achieve long-term, after-tax returns for its investors by
investing in a diversified portfolio of equity securities. The Portfolio invests
primarily in common stocks of domestic and foreign growth companies that are
considered by its investment adviser to be high in quality and attractive in
their long-term investment prospects. The Portfolio seeks to invest in a broadly
diversified portfolio of stocks and to invest primarily in established companies
with characteristics of above-average growth, predictability and stability that
are acquired with the expectation of being held for a period of years. Under
normal market conditions, the Portfolio invests primarily in common stocks. The
Portfolio has acquired securities through contributions from Belvedere Company
and Tax-Managed Growth 1.0, and through purchases of securities with cash
invested in the Portfolio by other investors.
Although the Portfolio may, in addition to investing in common stocks, invest in
investment-grade preferred stocks and debt securities, purchases of such
securities are normally limited to securities convertible into common stocks and
temporary investments in short-term notes and government obligations. During
periods in which the investment adviser to the Portfolio believes that returns
on common stock investments may be unfavorable, the Portfolio may invest a
portion of its assets in U.S. government obligations and high quality short-term
notes. The Portfolio's holdings represent a number of different industries. Not
more than 25% of the Portfolio's assets may be invested in the securities of
issuers having their principal business activity in the same industry,
determined as of the time of acquisition of any such securities.
THE PORTFOLIO'S TAX-SENSITIVE MANAGEMENT STRATEGIES. In its operations, the
Portfolio seeks to achieve long-term, after-tax returns in part by minimizing
the taxes incurred by investors in the Portfolio in connection with the
Portfolio's investment income and realized capital gains. Taxes on investment
income are minimized by investing primarily in lower-yielding securities and
stocks that pay dividends that qualify for favorable federal tax treatment.
Taxes on realized capital gains are minimized by avoiding or minimizing the sale
of securities holdings with large accumulated capital gains. The Portfolio
generally seeks to avoid net realized short-term capital gains.
When the Portfolio decides to sell a particular appreciated security, the
Portfolio will select for sale the share lots resulting in the most favorable
tax treatment, generally those with holding periods sufficient to qualify for
long-term capital gain treatment that have the highest cost basis. The Portfolio
may, when deemed prudent by its investment adviser, sell securities to realize
capital losses that can be used to offset realized gains. While the Portfolio
generally retains the securities contributed to the Portfolio by Belvedere
Company, the Portfolio has the flexibility to sell contributed securities.
Securities acquired by the Portfolio with cash may be sold in accordance with
the tax-management strategies described above. In lieu of selling a security,
the Portfolio may hedge its exposure to that security by using the techniques
described below. The Portfolio also disposes of contributed securities through
its practice of settling redemptions by investors in the Portfolio that
contributed securities primarily by distributing securities as described in Item
5(a) under "Redemption of Fund Shares." As described in Item 5(a), settling
redemptions with securities can result in certain tax benefits to the Portfolio,
Belvedere Company, the Fund and the redeeming Shareholder.
To reduce its exposure to adverse price movements in individual securities or
groups of securities holdings with large accumulated gains, the Portfolio may
use various investment techniques, including, but not limited to, the purchase
of put options on securities held, equity collars (combining the purchase of a
put option and the sale of a call option), equity swaps, short sales of
individual securities held, short sales of index or basket securities whose
3
constituents are held in whole or in part, forward sales of stocks held, and the
purchase and sale of futures contracts on stocks and stock indexes and options
thereon. By using these techniques rather than selling such securities, the
Portfolio can, within certain limits, reduce its exposure to price declines in
the securities without realizing substantial capital gains under current tax
law.
The Portfolio's ability to utilize covered short sales, certain equity swaps,
forward sales, futures contracts and certain equity collar strategies as a
tax-efficient management technique with respect to holdings of appreciated
securities is limited to circumstances in which the hedging transaction is
closed out within 30 days after the end of the Portfolio's taxable year in which
the hedging transaction was initiated and the underlying appreciated securities
position is held unhedged for at least the next 60 days after such hedging
transaction is closed. In addition, dividends received on stock for which the
Portfolio is obligated to make related payments (pursuant to a short sale or
otherwise) with respect to positions in substantially similar or related
property are subject to federal income tax at ordinary rates and do not qualify
for favorable tax treatment. Also, the holding periods required to receive
tax-advantaged treatment of qualified dividends on a stock are suspended
whenever the Portfolio has an option (other than a qualified covered call option
not in the money when written) or contractual obligation to sell or an open
short sale of substantially identical stock, is the grantor of an option (other
than a qualified covered call option not in the money when written) to buy
substantially identical stock or has diminished risk of loss in such stock by
holding positions with respect to substantially similar or related property. The
use of these investment techniques may require the Portfolio to commit or make
available cash and, therefore, may not be available at such times as the
Portfolio has limited holdings of cash. At December 31, 2004, the Portfolio held
a short position on a security with a value equal to approximately 1.0% of the
Portfolio's net assets. The Portfolio paid commissions totaling approximately
$90,000 in connection with entering into this short position in 2004. The
Portfolio did not otherwise employ any of the techniques described above on
securities holdings during the year ended December 31, 2004. See "Risks of
Certain Investment Techniques" in Item 7A(b).
THE FUND'S REAL ESTATE INVESTMENTS. Separate from its investment in the
Portfolio through Belvedere Company, the Fund invests in certain real estate
investments through Belport Realty Corporation (Belport Realty). The ownership
structure of Belport Realty is described below under "Organization of the Fund's
Controlled Subsidiaries". As referred to above under "Fund Overview - Structure
of the Fund", the Fund invests in real estate investments to satisfy certain
requirements of the Code for contributions of appreciated stocks to the Fund by
Shareholders to be nontaxable. As of December 31, 2004, the consolidated real
estate investments of Belport Realty totaled approximately $590.2 million and
represented 25.7% of the Fund's assets on a consolidated basis. The Fund
acquired its real estate investments with borrowed funds, as described below
under "Fund Borrowings". The Fund seeks a return on its real estate investments
over the long term that exceeds the cost of the borrowings incurred to acquire
such investments. For a description of real estate investment transactions
during the year ended December 31, 2004, see "Performance of Real Estate
Investments" in Item 7.
At December 31, 2004, Belport Realty held investments in two real estate joint
ventures (Real Estate Joint Ventures) that are controlled by Belport Realty and
in a portfolio of income-producing preferred equity interests in real estate
operating partnerships that generally are affiliated with and controlled by real
estate investment trusts (REITs) that are publicly traded (Partnership
Preference Units). Belport Realty also owned an interest in Bel Holdings LLC, a
Delaware limited liability company formed in 2003 and treated as a partnership
for tax purposes (Bel Holdings). At December 31, 2004, Bel Holdings' sole
investment was Partnership Preference Units issued by Vornado Realty, L.P. At
December 31, 2004, Belport Realty owned 15.0% of Bel Holdings' outstanding
units. Information included herein about Belport Realty's Partnership Preference
Units includes the Partnership Preference Units held directly by Belport Realty
and indirectly through Bel Holdings. As of December 31, 2004, approximately
86.4% of the consolidated real estate investments of Belport Realty consisted of
investments in Real Estate Joint Ventures and approximately 13.6% was
investments in Partnership Preference Units.
In the future, Belport Realty may invest in other types of real estate
investments, such as interests in Real Estate Joint Ventures owning industrial
distribution properties and in one or more real properties subject to long-term
leases (Net Leased Property). Belport Realty may purchase real estate
investments from, and sell them to, real estate subsidiaries of other investment
funds advised by Boston Management. See "Certain Real Estate Transactions" in
Item 13.
Boston Management serves as manager of Belport Realty. In that capacity, Boston
Management manages the investment and reinvestment of Belport Realty's assets
and administers its affairs. See "Belport Realty's Management Fee" in Item 13
for a description of the management fee payable by Belport Realty to Boston
Management.
4
REAL ESTATE JOINT VENTURE INVESTMENTS. At December 31, 2004, Belport Realty
owned a controlling interest in two Real Estate Joint Ventures, Bel Multifamily
Property Trust (Bel Multifamily) and Monadnock Property Trust LLC (Monadnock).
With respect to each Real Estate Joint Venture, Belport Realty owns a majority
economic interest therein and controls a majority of its board. Belport Realty's
approval is required for all major decisions affecting each Real Estate Joint
Venture.
The day-to-day operating management of the real properties owned by each Real
Estate Joint Venture is provided by the real estate operating company (the
Operating Partner) that is the principal minority investor in the Real Estate
Joint Venture or an affiliated company thereof. The Operating Partner (or its
affiliate) receives property management fees from the Real Estate Joint
Ventures. For the year ended December 31, 2004, such fees were approximately
$2.5 million.
At December 31, 2004, the assets of the Real Estate Joint Ventures consisted of
23 multifamily properties acquired from or in conjunction with the Operating
Partner of the respective Real Estate Joint Venture. See Item 2. Distributable
cash flows from each Real Estate Joint Venture are allocated in a manner that
provides Belport Realty: 1) a priority position versus the Operating Partner
with respect to a fixed annual preferred return; and 2) participation on a pro
rata or reduced basis in distributable cash flows in excess of the annual
preferred return of Belport Realty and the subordinated preferred return of the
Operating Partner. Financing for the Real Estate Joint Ventures consists
primarily of fixed-rate secured mortgage debt obligations of the Real Estate
Joint Ventures that generally are without recourse to Belport Realty and the
Fund, as described in "Risks of Real Estate Investments" in Item 7A(b). Both
Belport Realty and the respective Operating Partner invested equity in the Real
Estate Joint Ventures. Belport Realty's equity in the Real Estate Joint Ventures
was acquired using the proceeds of Fund borrowings.
A board of managers or trustees controlled by Belport Realty oversees the
performance of the Operating Partner and controls the major decisions of each
Real Estate Joint Venture. In the case of Monadnock, Belport Realty controls
three of the five seats on the board of managers. In the case of Bel
Multifamily, Belport Realty controls three of the four seats on the board of
trustees. The persons serving as managers or trustees on behalf of Belport
Realty are employees of Boston Management. See "Directors and Executive
Officers" in Item 10(a). As of December 31, 2004, no director of Belport Realty
or manager or trustee of a Real Estate Joint Venture is a Shareholder of the
Fund. Each Operating Partner of Belport Realty's Real Estate Joint Ventures also
serves as an operating partner of other Real Estate Joint Ventures that are
majority owned by real estate subsidiaries of other investment funds advised by
Boston Management. Eaton Vance and its affiliates do not have a material
financial interest in the Real Estate Joint Ventures.
The Operating Partner of Bel Multifamily is ERP Operating Limited Partnership
(ERP), an affiliate of Equity Residential. Equity Residential is a publicly
owned, self-administered and self-managed REIT. Equity Residential is the
largest publicly traded apartment company in America. As of December 31, 2004,
Equity Residential owned or had investments in 939 apartment communities in 32
states and the District of Columbia consisting of 200,149 apartment units.
Equity Residential's corporate headquarters are located in Chicago, Illinois.
Equity Residential's common shares are traded on the New York Stock Exchange
under the symbol "EQR". ERP owns 25% of the issued and outstanding shares of Bel
Multifamily that are entitled to vote for election of trustees of Bel
Multifamily. Belport Realty owns the balance of such shares. Pursuant to a
buy/sell agreement entered into at the time Bel Multifamily was established,
either Belport Realty or ERP can give notice after February 22, 2010 to the
other party either to buy the other's equity interest in Bel Multifamily or to
sell its own equity interest in Bel Multifamily. Any such sale would be at a
negotiated price.
The Operating Partner of Monadnock is Archstone-Smith Operating Trust.
Archstone-Smith Trust (Archstone-Smith), the sole trustee of Archstone-Smith
Operating Trust, is a publicly owned REIT and a recognized leader in apartment
investment and operations with a current market capitalization of $11.8 billion
as of December 31, 2004. Archstone-Smith owns and operates a portfolio of
high-rise and garden apartment communities concentrated in the greater
Washington, D.C. metropolitan area, Southern California, the San Francisco Bay
area, Chicago, Boston, Southeast Florida, Seattle and the greater New York City
metropolitan area. As of December 31, 2004, Archstone-Smith owned or had an
ownership position in 235 communities, representing approximately 81,000 units,
including units under construction. Archstone-Smith's corporate headquarters are
located in Englewood, Colorado. Archstone-Smith is traded on the New York Stock
Exchange under the symbol "ASN". Archstone-Smith owns 25% of the issued and
outstanding shares of Monadnock that are entitled to board representation.
Belport Realty owns the balance of such shares. Pursuant to a buy/sell agreement
entered into at the time Monadnock was established, either Belport Realty or
Archstone-Smith can give notice on or after September 13, 2010 to the other
party to either to buy the other's equity interest in Monadnock or to sell its
own equity interest in Monadnock. Any such purchase or sale would be at a
negotiated price.
5
The buy/sell agreement applicable to each Real Estate Joint Venture continues
indefinitely, but could be terminated upon the receipt of the requisite approval
of the owners of the voting interests in the Real Estate Joint Venture. The sale
to Belport Realty by the Operating Partner of the Operating Partner's interest
in Bel Multifamily or Monadnock would not affect the REIT qualification of Bel
Multifamily or Monadnock. If Belport Realty were to dispose of its interest in a
Real Estate Joint Venture pursuant to a buy/sell agreement or otherwise, it may
acquire an interest in a different real estate investment to replace the
investment sold.
PARTNERSHIP PREFERENCE UNITS. Belport Realty's investments in Partnership
Preference Units represent preferred equity interests in real estate operating
partnerships. The assets of the partnerships that issued the Partnership
Preference Units owned by Belport Realty on December 31, 2004 consisted of
direct or indirect ownership interests in real properties, including multifamily
properties, office and industrial properties, shopping centers and self-storage
facilities. The Partnership Preference Units owned by Belport Realty as of
December 31, 2004 are listed in Item 7A(a) and in the consolidated portfolio of
investments included in the Fund's consolidated financial statements, which are
included as pages 37 to 79 of this Annual Report on Form 10-K. Eaton Vance is
not, and has not been, involved in the management or operation of the real
estate operating partnerships that issued the Partnership Preference Units owned
by Belport Realty.
The Partnership Preference Units held by Belport Realty were issued by
partnerships that are not publicly-traded partnerships within the meaning of
Code Section 7704(b). The Partnership Preference Units are perpetual life
instruments (subject to call provisions) and are not, by their terms, readily
convertible or exchangeable into cash or securities of the affiliated public
company. Partnership Preference Units are not rated by a nationally-recognized
rating agency, and such interests may not be as high in quality as issues that
are rated investment grade.
Each issue of Partnership Preference Units held by Belport Realty pays regular
quarterly distributions at fixed rates from the net profits of the issuing
partnership, with preferential rights over common and other subordinated units.
None of the Partnership Preference Units are or will be registered under the
Securities Act and each issue is thus subject to restrictions on transfer.
ORGANIZATION OF THE FUND'S CONTROLLED SUBSIDIARIES. Belport Realty and each Real
Estate Joint Venture operate in such a manner as to qualify for taxation as
REITs under the Code. As REITs, Belport Realty and each Real Estate Joint
Venture generally are not subject to federal income tax on that portion of their
ordinary income or taxable gain that is distributed to stockholders each year.
The Fund owns 100% of the common stock issued by Belport Realty, and intends to
hold all of the common stock at all times. Belport Realty and the relevant
Operating Partner own all of the common shares of each Real Estate Joint
Venture.
Belport Realty and the Real Estate Joint Ventures also have issued preferred
shares to satisfy certain provisions of the Code, which require (among other
things) that a REIT be beneficially owned in the aggregate by 100 or more
persons. The preferred shares of each such entity are owned by not less than 100
charitable organizations that received the preferred shares as gifts. Each
charitable organization that received a preferred share was an "accredited
investor" (as defined in the Securities Act) with total assets in excess of $5
million at the time the organization received the preferred shares. Eaton Vance
selected the charitable organizations from the charities for which it has
matched employee contributions and/or based on suggestions from its employees or
the Operating Partners. As of December 31, 2004, the total value of the
preferred shares outstanding of Belport Realty, Bel Multifamily and Monadnock
was $210,000, $220,000 and $216,000, respectively. Dividends on preferred shares
are cumulative and payable annually at a dividend rate of 8% per year. The
dividends paid on preferred shares have priority over payments on common shares.
For the year ended December 31, 2004, Belport Realty, Bel Multifamily and
Monadnock paid or accrued distributions to preferred shareholders of $16,800,
$17,600 and $17,280, respectively.
FUND BORROWINGS. To finance its real estate investments, the Fund has entered
into credit arrangements with DrKW Holdings, Inc. (the DrKW Credit Facility) and
Merrill Lynch Mortgage Capital, Inc. (the MLMC Credit Facility) (collectively,
the Credit Facility). The Credit Facility is secured by a pledge of the Fund's
assets, excluding the assets of Bel Multifamily and Monadnock, and expires in
June 2010. At December 31, 2004, the total principal amount outstanding under
the Credit Facility was $235.9 million. The Credit Facility is also used to
provide for selling commissions, organizational expenses and any liquidity needs
of the Fund. Under certain circumstances, the Fund may increase the size of the
Credit Facility (subject to lender consent) and the amount of outstanding
borrowings thereunder.
The DrKW Credit Facility is a term credit agreement. Borrowings under the DrKW
Credit Facility accrue interest at a rate of one-month LIBOR plus 0.20% per
annum. As of December 31, 2004, outstanding borrowings under the DrKW Credit
Facility totaled $218.5 million.
6
The MLMC Credit Facility is a revolving credit agreement. The Fund may borrow up
to $54.0 million under the MLMC Credit Facility, of which up to $10.0 million
may be letters of credit. Borrowings under the MLMC Credit Facility accrue
interest at a rate of one-month LIBOR plus 0.38% per annum. As of December 31,
2004, outstanding borrowings under the MLMC Credit Facility totaled $17.4
million. There was $1.6 million outstanding under a letter of credit as of
December 31, 2004. The unused loan commitment amount totaled $35.0 million. A
commitment fee of 0.10% per annum is paid on the unused commitment amount. The
Fund pays all fees associated with issuing letters of credit.
Obligations under the Credit Facility are without recourse to Fund Shareholders.
As described above, financing for the Real Estate Joint Ventures consists
primarily of fixed-rate secured mortgage debt obligations of the Real Estate
Joint Ventures that are without recourse to Fund Shareholders, and generally are
without recourse to Belport Realty and the Fund, as described under "Risks of
Real Estate Investments" in Item 7A(b).
INTEREST RATE SWAP AGREEMENTS. The Fund has entered into interest rate swap
agreements with Merrill Lynch Capital Services, Inc. (MLCS) to fix the cost of
borrowings under the Credit Facility used to acquire equity in real estate
investments. Pursuant to the interest rate swap agreements, the Fund makes cash
payments to MLCS at fixed rates in exchange for floating rate payments from MLCS
that fluctuate with one-month LIBOR. The interest rate swap agreements entered
into with respect to Belport Realty's real estate investments extend until June
25, 2010, subject to the Fund's earlier termination rights in the case of
certain swaps, and provide for the Fund to make payments to MLCS at fixed rates
averaging 4.08%. See Note 7 to the Fund's consolidated financial statements
included as pages to of this Annual Report on Form 10-K.
THE EATON VANCE ORGANIZATION. The Eaton Vance organization sponsors the Fund.
Eaton Vance serves as the Fund's manager. Boston Management serves as the Fund's
investment adviser and as manager of Belport Realty. EV Distributors served as
the Fund's placement agent. The Fund's business affairs are conducted by Eaton
Vance (as its manager) and its investment operations are conducted by Boston
Management (as its investment adviser). The Fund's officers are employees of
Eaton Vance. Eaton Vance, Boston Management and EV Distributors are wholly-owned
subsidiaries of Eaton Vance Corp., a publicly-traded holding company that,
through its affiliates and subsidiaries, engages primarily in investment
management, administration and marketing activities.
As described above, the Fund pursues its objective primarily by investing in
Belvedere Company. Belvedere Company invests exclusively in the Portfolio.
Boston Management acts as investment adviser of the Portfolio and manager of
Belvedere Company. EV Distributors acts as placement agent for Belvedere Company
and the Portfolio. As of December 31, 2004, the assets of the Fund represented
approximately 2.3% of assets under management by Eaton Vance and its affiliates.
The offices of the Fund, Eaton Vance, Boston Management and EV Distributors are
located at 255 State Street, Boston, Massachusetts 02109.
CONFLICTS OF INTEREST. Boston Management and other Eaton Vance affiliates are
subject to certain conflicts of interests in their dealings with the Fund,
Belport Realty, Belvedere Company and the Portfolio, as well as with other
investment companies advised by Boston Management that invest in the Portfolio.
Eaton Vance and Boston Management have determined and will determine which of
their sponsored investment companies invest in the Portfolio, the securities
each of them contributes to the Portfolio when making an investment therein and,
subject to the rights of redeeming investors in the Portfolio, the securities
and/or cash received in redemptions from the Portfolio. Such determinations are
inherently subject to potential conflicts of interest. In addition, Portfolio
management activities with respect to securities contributed to the Portfolio
may have different tax consequences for the contributing investor in the
Portfolio than for other investors in the Portfolio. Boston Management manages
the Portfolio in pursuit of long-term, after-tax returns for all investors in
the Portfolio and, with respect to contributed securities, takes into account
the tax position of the contributing investor in the Portfolio. Whenever
conflicts of interest arise, Eaton Vance, Boston Management and other Eaton
Vance affiliates will endeavor to exercise their discretion in a manner that
they believe is equitable to all interested persons.
Belport Realty may purchase real estate investments from real estate
subsidiaries of other investment funds advised by Boston Management. Belport
Realty may also co-invest with such entities in real estate investments and sell
real estate investments to such entities. In any such transaction, the assets
purchased and sold will be valued in good faith by Boston Management, after
consideration of factors, data and information that Boston Management considers
relevant. Transaction prices generally will include an allocation of the
original costs incurred in creating and acquiring the transferred real estate
investments. Real estate investments are often difficult to value and others
could in good faith arrive at valuations different from those of Boston
Management. See "Critical Accounting Estimates" in Item 7(e).
7
ITEM 2. PROPERTIES.
- -------------------
The Fund does not own any physical properties, other than indirectly through
Belport Realty's investments. At December 31, 2004, Belport Realty held
investments in Partnership Preference Units of six issuers and a majority
interest in two Real Estate Joint Ventures, Bel Multifamily and Monadnock, whose
assets are reflected in the consolidated financial statements of the Fund. At
December 31, 2004, Bel Multifamily owned eleven multifamily residential
properties located in seven states (Washington, Missouri, North Carolina,
Arizona, Florida, Georgia and Texas). Monadnock owns twelve multifamily
residential properties located in seven states (Texas, Arizona, Georgia, North
Carolina, Oregon, Tennessee and Florida).
ITEM 3. LEGAL PROCEEDINGS.
- --------------------------
Although in the ordinary course of business, the Fund and its directly and
indirectly controlled subsidiaries may become involved in legal proceedings, the
Fund is not aware of any material pending legal proceedings to which any of them
is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the quarter ended
December 31, 2004.
8
PART II
-------
ITEM 5. DETERMINING NET ASSET VALUE, MARKET FOR FUND SHARES, RELATED SHAREHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
- --------------------------------------------------------------------------------
This Item and other Items in this report contain summaries of certain provisions
contained in the Limited Liability Company Agreement of the Fund, as amended
(the LLC Agreement), which was filed as an exhibit to the Fund's registration
statement on Form 10. All such summaries are qualified in their entirety by the
actual provisions of the LLC Agreement, which are incorporated by reference
herein.
(a) MARKET INFORMATION, RESTRICTIONS ON TRANSFERS AND REDEMPTION OF SHARES.
- ---------------------------------------------------------------------------
TRANSFERS OF FUND SHARES. There is no established public trading market for the
Shares of the Fund. Other than transfers to the Fund in a redemption, transfers
of Shares are expressly prohibited by the LLC Agreement of the Fund without the
consent of Eaton Vance. Eaton Vance's consent to a transfer may be withheld in
its sole discretion for any reason or for no reason.
The Shares have not been and will not be registered under the Securities Act,
and may not be resold unless an exemption from such registration is available.
Shareholders have no right to require registration of the Shares and the Fund
does not intend to register the Shares under the Securities Act or take any
action to cause an exemption (whether pursuant to Rule 144 of the Securities Act
or otherwise) to be available.
The Fund is not and will not be registered under the 1940 Act, and no transfer
of Shares may be made if, as determined by Eaton Vance or counsel to the Fund,
such transfer would result in the Fund being required to be registered under the
1940 Act. In addition, no transfer of Shares may be made unless, in the opinion
of counsel to the Fund, such transfer would not result in termination of the
Fund for purposes of Section 708 of the Code or result in the classification of
the Fund as an association or a publicly traded partnership taxable as a
corporation under the Code.
In no event shall all or any part of a Shareholder's Shares be assigned to a
minor or an incompetent, unless in trust for the benefit of such person. Shares
may be sold, transferred, assigned or otherwise disposed of by a Shareholder
only if it is determined by Eaton Vance or counsel to the Fund that such
transfer, assignment or disposition would not violate federal securities or
state securities or "blue sky" laws (including investor qualification
standards).
There are no outstanding options or warrants to purchase, or securities
convertible into, Shares of the Fund. Shares of the Fund cannot be sold pursuant
to Rule 144 under the Securities Act, and the Fund does not propose to publicly
offer any of its Shares at any time.
REDEMPTION OF FUND SHARES. Shares of the Fund may be redeemed on any business
day. The redemption price of Shares that are redeemed is based on the Fund's net
asset value next computed after receipt of the redemption request. Shares
redeemed within three years of issuance are generally subject to a redemption
fee equal to 1% of the net asset value of the Shares redeemed. See Item 13.
During each month in the quarter ended December 31, 2004, the total number of
Shares redeemed and the average price paid per Share were as follows:
Total No. of Shares Average Price Paid Per
Month Ended Redeemed(1) Share
---------------------------------------------------------------------
October 57,269.54 $ 95.51
---------------------------------------------------------------------
November 66,985.30 $100.50
---------------------------------------------------------------------
December 146,428.04 $102.28
---------------------------------------------------------------------
Total 270,682.88 $100.92
---------------------------------------------------------------------
(1) All Shares redeemed during the periods were redeemed at the option of
Shareholders pursuant to the Fund's redemption policy. The Fund has not
announced any plans or programs to repurchase Shares other than at the
option of Shareholders.
9
The Fund satisfies redemption requests principally by distributing securities
drawn from the Portfolio, but may also distribute cash. If requested by a
redeeming Shareholder, the Fund will satisfy a redemption request by
distributing securities that were contributed by the redeeming Shareholder,
provided that such securities are held in the Portfolio at the time of
redemption. The securities contributed by a Shareholder will not be distributed
to any other Shareholder in the Fund (or to any other investor in Belvedere
Company or the Portfolio) during the first seven years following their
contribution unless the contributing Shareholder has withdrawn from the Fund.
Under most circumstances, a redemption from the Fund that is settled with
securities as described herein will not result in the recognition of capital
gains by the Fund or by the redeeming Shareholder. The redeeming Shareholder
would generally recognize capital gains upon the sale of the securities received
through redemption. If a redeeming Shareholder receives cash in addition to
securities to settle a redemption, the amount of cash received will be taxable
to the Shareholder to the extent it exceeds such Shareholder's tax basis in Fund
Shares. Shareholders should consult their tax advisors about the tax
consequences of redeeming Fund Shares.
A Shareholder redemption request within seven years of a contribution of
securities by such Shareholder is ordinarily satisfied by distributing
securities that were contributed by such Shareholder, prior to distributing to
such Shareholder any other securities held in the Portfolio. Securities
contributed by a Shareholder may be distributed to other Shareholders in the
Fund (or to other investors in Belvedere Company or the Portfolio) after a
holding period of at least seven years and, if so distributed, would not be
available to meet subsequent redemption requests made by the contributing
Shareholder.
If requested by a redeeming Shareholder making a redemption of at least $1
million occurring more than seven years after such Shareholder's final
contribution of securities to the Fund, the Fund will generally distribute to
the redeeming Shareholder a diversified basket of securities representing a
range of industry groups that is drawn from the Portfolio, but the selection of
individual securities would be made by Boston Management in its sole discretion.
No interests in a Real Estate Joint Venture, Partnership Preference Units or
other real estate investments will be distributed to meet a redemption request,
and "restricted securities" will be distributed only to the Shareholder who
contributed such securities or such Shareholder's successor in interest.
Other than as set forth above, the allocation of each redemption between
securities and cash and the selection of securities to be distributed will be at
the sole discretion of Boston Management. Distributed securities may include
securities contributed by Shareholders as well as other readily marketable
securities held in the Portfolio. The value of securities and cash distributed
to meet a redemption will equal the net asset value of the number of Shares
being redeemed, less any applicable redemption fee. The Fund's Credit Facility
prohibits the Fund from honoring redemption requests while there is an event of
default outstanding under the Credit Facility.
The Fund may compulsorily redeem all or a portion of the Shares of a Shareholder
if the Fund has determined that such redemption is necessary or appropriate to
avoid registration of the Fund or Belvedere Company under the 1940 Act, or to
avoid adverse tax or other consequences to the Portfolio, Belvedere Company, the
Fund or Shareholders, including those arising as the result of applicable
anti-money laundering requirements. No redemption fee is payable in the event of
a compulsory redemption.
The right of a Shareholder to redeem can be suspended and the payment of the
redemption price may be deferred while there is outstanding an event of default
under the Credit Facility, when the NYSE is closed, during periods when trading
on the NYSE is restricted or during any emergency as determined by the SEC, at
any time when it is impracticable for the Portfolio or the Fund to dispose of or
value its assets, or during any other period permitted by order of the SEC for
the protection of investors.
A capital account for each Shareholder is maintained on the books of the Fund.
The account reflects the value of such Shareholder's interest in the Fund, which
is adjusted for profits, liabilities and distributions allocable to such account
in accordance with Article 6 of the Fund's LLC Agreement.
Subject to the consent of the manager of the Fund, a Shareholder may make an
estate freeze election pursuant to which all or a portion of such Shareholder's
Shares will be divided into Preferred Shares and Common Shares (Estate Freeze
Shares). Such division will be made in accordance with the terms of the LLC
Agreement. Estate Freeze Shares are not transferable without the consent of the
Fund's manager and have no redemption rights or voting or consent rights.
DETERMINING NET ASSET VALUE. Boston Management, as investment adviser, is
responsible for determining the value of the Fund's assets. The Fund's
custodian, Investors Bank & Trust Company, calculates the value of the assets of
the Fund, Belvedere Company and the Portfolio each day that the New York Stock
Exchange (NYSE) is open for trading, as of the close of regular trading on the
NYSE. The Fund's net asset value per Share is calculated by dividing the value
of the Fund's total assets, less its liabilities, by the number of Shares
outstanding.
10
The Fund's net assets are valued in accordance with the Fund's valuation
procedures and reflect the value of its directly-held assets and liabilities, as
well as the net asset value of the Fund's investment in the Portfolio held
through Belvedere Company and in real estate investments held through Belport
Realty. The trustees of the Portfolio have established procedures for the
valuation of the Portfolio's assets under normal market conditions. Pursuant to
these procedures, marketable securities listed on U.S. securities exchanges
generally are valued at the last sale price on the day of the valuation or, if
there were no sales, at the mean between the closing bid and asked prices
therefor on the exchange where such securities are principally traded.
Marketable securities listed on the NASDAQ National Market generally are valued
at the NASDAQ official closing price. Unlisted or listed securities for which
closing sale prices are not available are valued at the mean between the last
available bid and asked prices or by an independent pricing service.
Exchange-traded options are valued at the last sale price for the day of
valuation as quoted on the principal exchange or board of trade on which the
options are traded, or in the absence of a sale on such day, at the mean between
the latest bid and asked prices therefor. Futures positions on securities or
currencies are generally valued at closing settlement prices. Short-term debt
securities with a remaining maturity of 60 days or less are valued at amortized
cost. If short-term debt securities were acquired with a remaining maturity of
more than 60 days, their amortized cost value will be based on their value on
the sixty-first day prior to maturity. 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.
Foreign securities and currencies held by the Portfolio are valued in U.S.
dollars, as calculated by the Portfolio's custodian based on foreign currency
exchange rate quotations supplied by an independent quotation service. The daily
valuation of foreign securities generally is determined as of the close of
trading on the principal exchange on which such securities trade. Events
occuring after the close of trading on foreign exchanges may result in
adjustments to the valuations of foreign securities to more accurately reflect
their fair value as of the close of regular trading on the NYSE. When valuing
foreign equity securities that meet certain criteria, the Portfolio uses a fair
value service that values such securities to reflect market trading that occurs
after the close of the applicable foreign markets of comparable securities or
other instruments that have a strong correlation to the securities held by the
Portfolio. All other securities are valued at fair value as determined in good
faith by or at the direction of the Portfolio's trustees considering relevant
factors, data and information including the market value of freely tradable
securities of the same class in the principal market on which such securities
are normally traded.
The Fund's real estate investments are valued each day as determined in good
faith by Boston Management after consideration of relevant factors, data and
information. The procedures for valuing real estate investments are described
under "Critical Accounting Estimates" in Item 7(e). Boston Management values the
Fund's interest rate swap agreements based upon dealer and counterparty quotes
and pricing models that take into consideration the market trading prices of
interest rate swap agreements that have similar terms to the Fund's interest
rate swap agreements. Fixed liabilities of the Fund generally are stated at
principal value.
HISTORIC NET ASSET VALUES. Set forth below are the high and low net asset values
per Share (NAVs) of the Fund for each full quarter during the two years ended
December 31, 2004 and 2003, the closing NAV on the last business day of each
full quarter, and the percentage change in NAV during each such quarter.
NAV at Quarterly %
Quarter Ended High NAV Low NAV Quarter End Change in NAV(1)
- ------------- -------- ------- ----------- ----------------
12/31/04 $103.95 $93.55 $103.95 8.79%
9/30/04 $ 96.56 $90.38 $ 95.55 -1.99%
6/30/04 $ 97.70 $92.66 $ 97.49 1.86%
3/31/04 $ 98.10 $92.89 $ 95.71 0.83%
12/31/03 $ 94.92 $86.15 $ 94.92 12.77%
9/30/03 $ 87.79 $82.13 $ 84.17 2.72%
6/30/03 $ 85.07 $72.88 $ 81.94 13.58%
3/31/03 $ 80.15 $68.33 $ 72.14 -6.01%
(1) 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. Changes in NAV are historical.
Performance is for the stated time period only; due to market volatility,
the Fund's current performance may be lower or higher. For more information
about the performance of the Fund, see "Management's Discussion and
Analysis of Financial Condition (MD&A) and Results of Operations" in Item
7(a).
(b) RECORD HOLDERS OF SHARES OF THE FUND.
- -----------------------------------------
As of March 1, 2005, there were 640 record holders of Shares of the Fund.
11
(c) DISTRIBUTIONS.
- ------------------
INCOME AND CAPITAL GAIN DISTRIBUTIONS. The Fund intends to distribute each year
the amount of its net investment income for such year, if any. The Fund also
intends to make annual capital gain distributions equal to approximately 18% of
the amount of its net realized capital gains, if any, other than precontribution
gains allocated to a Shareholder in connection with a taxable tender offer or
other taxable corporate event for a security contributed to the Fund by that
Shareholder or that Shareholder's predecessor in interest. The Fund's net
investment income and net realized gains include the Fund's allocated share of
the net investment income and net realized gains of Belvedere Company and,
indirectly, the Portfolio, as well as income and capital gains, if any,
distributed by Belport Realty. The Fund's distributions generally are based on
determinations of net investment income and net realized capital gains for
federal income tax purposes. Such amounts may differ from net investment income
(or loss) and net realized gain (or loss) as set forth in the Fund's
consolidated financial statements due to differences in the treatment of various
income, gain, loss, expense and other items for federal income tax purposes and
under generally accepted accounting principles. Because the Portfolio invests
primarily in lower yielding securities, seeks to avoid net realized short-term
capital gains and bears certain ongoing expenses, it is not expected that income
distributions will be significant. The Fund intends to pay distributions (if
any) on the last business day of each fiscal year of the Fund (which concludes
on December 31) or shortly thereafter. The Fund's distribution rates with
respect to realized gains may be adjusted in the future to reflect changes in
the effective maximum marginal individual federal tax rate applicable to
long-term capital gains.
Shareholder distributions with respect to net investment income and realized
post-contribution gains are made pro rata in proportion to the number of Shares
held as of the record date of the distribution. All income and capital gain
distributions (including Special Distributions described below) are paid by the
Fund in cash. Distributions are generally not taxable to the recipient
Shareholder unless the distributions exceed the recipient Shareholder's tax
basis in Fund Shares. The Fund's Credit Facility prohibits the Fund from making
any distribution to Shareholders while there is an event of default outstanding
under the Credit Facility.
On January 27, 2005, the Fund made a distribution of $1.24 per Share to
Shareholders of record on January 26, 2005. On January 14, 2004, the Fund made a
distribution of $0.76 per Share to Shareholders of record on January 13, 2004.
On January 17, 2003, the Fund made a distribution of $0.72 per Share to
Shareholders of record on January 16, 2003.
SPECIAL DISTRIBUTIONS. In addition to the pro rata income and capital gain
distributions described above, the Fund also makes distributions to Shareholders
allocated precontribution gain (other than precontribution gains allocated to a
Shareholder in connection with a tender offer or other extraordinary corporate
event involving a security contributed by such Shareholder) (a Special
Distribution). Special Distributions generally equal approximately 18% of the
amount of realized precontribution gains plus approximately 4% of the allocated
precontribution gain or such other percentage as deemed appropriate to
compensate Shareholders receiving such distributions for taxes that may be due
in connection with the precontribution gain and Special Distributions. Special
Distributions are made solely to the Shareholders to whom the precontribution
gain is allocated. The Fund does not intend to make Special Distributions to a
Shareholder in respect of realized precontribution gain allocated to a
Shareholder in connection with a tender offer or other extraordinary corporate
event involving a security contributed by such Shareholder. During the year
ended December 31, 2004, the Fund made no Special Distributions. During the year
ended December 31, 2003, the Fund made Special Distributions of approximately
$17.
12
ITEM 6. SELECTED FINANCIAL DATA.
- --------------------------------
TABLE OF SELECTED FINANCIAL DATA. The consolidated data referred to below
reflects the Fund's historical results for the years ended December 31, 2004,
2003 and 2002. The following information should be read in conjunction with all
of the consolidated financial statements and related notes appearing on pages 37
to 79 of this Annual Report on Form 10-K. The other consolidated data referred
to below is as of each period end.
Year Ended Year Ended Year Ended Year Ended
December 31, 2004 December 31, 2003 December 31, 2002(1) December 31, 2001(1)
----------------- ----------------- -------------------- --------------------
Total investment income $ 86,629,485 $ 86,922,971 $ 87,158,378 $ 48,271,188
Interest expense $ 29,270,859 $ 28,950,162 $ 30,092,621 $ 19,060,292
Total expenses (including
interest expense) $ 65,693,918 $ 64,831,145 $ 64,822,836 $ 40,039,651
Net investment income $ 19,064,333 $ 19,648,844 $ 18,908,498 $ 5,631,643
Minority interests in net
income of controlled
subsidiaries $ (1,871,234) $ (2,442,982) $ (3,427,044) $ (2,599,894)
Net realized (loss) gain $ 40,482,717 $ (10,022,550) $ (18,022,339) $ (2,424,250)
Net change in unrealized
appreciation (depreciation) $ 99,132,913 $ 309,086,814 $ (379,891,616) $ (17,999,161)
Net increase (decrease) in
net assets from operations $ 158,679,963 $ 318,713,108 $ (379,005,457) $ (14,791,768)
Total assets $2,293,909,664 $2,208,386,444 $1,976,399,942 $2,391,474,863
Loan payable $ 235,900,000 $ 230,500,000 $ 226,000,000 $ 231,000,000
Mortgages payable $ 361,107,500 $ 361,107,500 $ 361,107,500 $ 361,107,500
Net assets $1,657,760,507 $1,584,853,412 $1,324,642,064 $1,749,157,864
Shares outstanding 15,947,288 16,697,292 17,258,094 17,782,241
Net asset value and
redemption price per Share $ 103.95 $ 94.92 $ 76.75 $ 98.37
Net increase (decrease) in
net assets from operations
per Share $ 9.79 $ 18.89 $ (21.62) $ (1.604)
Distribution paid per Share $ 0.76(5) $ 0.72(4) $ 0.00(3) $ 0.026(2)
(1) Certain amounts have been reclassified to conform with the current year
presentation.
(2) Special Distributions of $0.026 per Share were paid during the period ended
December 31, 2001. Special Distributions are not made on a pro rata basis.
See Item 5(c).
(3) On January 17, 2003, the Fund made a distribution of $0.72 per Share to
Shareholders of record on January 16, 2003.
(4) On January 14, 2004, the Fund made a distribution of $0.76 per Share to
Shareholders of record on January 13, 2004.
(5) On January 27, 2005, the Fund made a distribution of $1.24 per Share to
Shareholders of record on January 26, 2005.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (MD&A) AND
RESULTS OF OPERATIONS.
- --------------------------------------------------------------------------------
The information in this report contains forward-looking statements within the
meaning of the federal securities laws. Forward-looking statements typically are
identified by use of terms such as "may," "will," "should," "might," "expect,"
"anticipate," "estimate," and similar words, although some forward-looking
statements are expressed differently. The actual results of the Fund could
differ materially from those contained in the forward-looking statements due to
a number of factors. The Fund undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events, or otherwise, except as required by applicable law. Factors that could
affect the Fund's performance include a decline in the U.S. stock markets or in
general economic conditions, adverse developments affecting the real estate
industry, or fluctuations in interest rates. See "Qualitative Information About
Market Risk" in Item 7A(b) below.
The following discussion should be read in conjunction with the Fund's
consolidated financial statements and related notes appearing on pages 37 to 79
of this Annual Report on Form 10-K.
13
(a) RESULTS OF OPERATIONS.
- --------------------------
Increases and decreases in the Fund's net asset value per share are based on
increases and decreases in net investment income (or loss) and realized and
unrealized gains and losses on investments. The Fund's net investment income (or
loss) is determined by subtracting the Fund's total expenses from its investment
income and then deducting the net investment income (or loss) attributable to
the minority interest in Belport Realty's controlled subsidiaries. The Fund's
investment income includes the net investment income allocated to the Fund from
Belvedere Company, rental income from the properties owned by Belport Realty's
controlled subsidiaries, partnership income allocated to the Partnership
Preference Units owned by Belport Realty and interest earned on the Fund's
short-term investments (if any). The net investment income of Belvedere Company
allocated to the Fund includes dividends and interest allocated to Belvedere
Company by the Portfolio less the expenses of Belvedere Company allocated to the
Fund. The Fund's total expenses include the Fund's investment advisory and
administrative fees, distribution and servicing fees, interest expense from
mortgages on properties owned by Belport Realty's controlled subsidiaries,
interest expense on the Fund's Credit Facility, property management fees,
property taxes, insurance, maintenance and other expenses relating to the
properties owned by Belport Realty's controlled subsidiaries, and other
miscellaneous expenses. The Fund's realized and unrealized gains and losses are
the result of transactions in, or changes in value of, security investments held
through the Fund's indirect interest (through Belvedere Company) in the
Portfolio, real estate investments held through Belport Realty, the Fund's
interest rate swap agreements and any other direct investments of the Fund, as
well as periodic payments made by the Fund pursuant to interest rate swap
agreements.
Realized and unrealized gains and losses on investments have the most
significant impact on the Fund's net asset value per share and result primarily
from sales of such investments and changes in their underlying value. The
investments of the Portfolio consist primarily of common stocks of domestic and
foreign growth companies that are considered by its investment adviser to be
high in quality and attractive in their long-term investment prospects. Because
the securities holdings of the Portfolio are broadly diversified, the
performance of the Portfolio cannot be attributed to one particular stock or one
particular industry or market sector. The performance of the Portfolio and the
Fund are substantially influenced by the overall performance of the U.S. stock
market, as well as by the relative performance versus the overall market of
specific stocks and classes of stocks in which the Portfolio maintains large
positions.
MD&A AND RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004 COMPARED TO
THE YEAR ENDED DECEMBER 31, 2003.
- --------------------------------------------------------------------------------
PERFORMANCE OF THE FUND.(1) The Fund's investment objective is to achieve
long-term, after-tax returns for Shareholders. Eaton Vance, as the Fund's
manager, measures the Fund's success in achieving its objective based on the
investment returns of the Fund, using the S&P 500 Index as the Fund's primary
performance benchmark. The S&P 500 Index is a broad-based unmanaged index of
common stocks commonly used as a measure of U.S. stock market performance. Eaton
Vance's primary focus in pursuing total return is on the Fund's common stock
portfolio, which consists of its indirect interest in the Portfolio. In
measuring the performance of the Fund's real estate investments, Eaton Vance
considers whether, through current returns and changes in valuation, the real
estate investments achieve returns that over the long-term exceed the cost of
the borrowing incurred to acquire such investments and thereby add to Fund
returns. The Fund has entered into interest rate swap agreements to fix the cost
of its borrowings under the Credit Facility used to acquire equity in real
estate investments and to mitigate in part the impact of interest rate changes
on the Fund's net asset value.
The Fund's total return for the year ended December 31, 2004 was 10.40%. This
return reflects an increase in the Fund's net asset value per Share from $94.92
to $103.95 and a distribution of $0.76 per Share during the period. For
comparison, the S&P 500 Index had a total return of 10.87% over the same period.
The combined impact on performance of the Fund's investment activities outside
of the Portfolio was modestly positive for the year ended December 31, 2004. The
performance of the Fund exceeded that of the Portfolio by approximately 0.73%
for the year.
The Fund had a total return of 24.81% for the year ended December 31, 2003. This
return reflected an increase in the Fund's net asset value per Share from $76.75
to $94.92 and a distribution of $0.72 per Share during the period. For
comparison, the S&P 500 Index had a total return of 28.67% over the same period.
For the year ended December 31, 2003, the performance of the Fund exceeded that
of the Portfolio by approximately 0.93%.
- -------------------------
(1) 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. Returns are calculated by
determining the percentage change in net asset value with all distributions
invested. Performance is for the stated time period only; due to market
volatility, the Fund's current performance may be lower or higher. The
performance of the Fund and the Portfolio is compared to that of their
benchmark, the S&P 500 Index. It is not possible to invest directly in an
Index.
14
PERFORMANCE OF THE PORTFOLIO. Economic pressures lingered for much of 2004, but
the lifting of some political uncertainty ignited a late-year market rally,
helping U.S. equities lock in a second consecutive year of gains. Strength in
the broader market toward year-end was a function of several economic and
fundamental factors: historically low interest rates, decisive election results,
retreating oil prices and solid earnings growth. A wave of merger and
acquisition activity provided additional support for equities, as companies
across technology, telecommunications and healthcare sectors announced
multi-billion dollar combinations. The Federal Reserve raised its key
interest-rate target five times in 2004, increasing the federal funds target
rate to 2.25%. The Portfolio's performance for the year ended December 31, 2004
was 9.67%, trailing the S&P 500 Index, which had a total return of 10.87% for
the year. The total return of the Portfolio for the year ended December 31, 2003
was 23.88%.
In 2004, value stocks outperformed growth stocks and small-caps and mid-caps
outperformed large-caps. The best performing market sectors were energy,
utilities, telecom services and industrials. Lagging the overall market were the
healthcare, technology, and consumer staples sectors.
During the year, the Portfolio's sector allocation shifted slightly from 2003,
as it increased positions in energy and industrial stocks and reduced exposure
to the technology, healthcare and consumer discretionary sectors. The
Portfolio's performance versus the S&P 500 Index benefited from relative
overweightings in the strong performing energy and industrial sectors and
favorable stock selection among consumer staples. The Portfolio's relative
performance versus the S&P 500 Index was hampered by underweightings in the
utilities and telecom services sectors and adverse selection among technology,
healthcare and consumer discretionary stocks. Among industry groups, the
Portfolio benefited from overweightings of air freight & logistics, oil & gas,
and building products and underweightings of semiconductors and pharmaceuticals.
Industry groups adversely affecting the Portfolio's relative performance
included the overweighted insurance and media groups and the underweighted
health services and internet groups.
Looking forward, Boston Management believes that corporate earnings and the
economy will remain on track as we enter 2005. The longer-term success of the
Portfolio will be determined by the performance of the U.S. equity markets and
the execution of the Portfolio's investment strategy. The Portfolio maintains a
broadly diversified portfolio of stocks, emphasizing investments in established
growth companies that are considered by Boston Management to be high in quality
and attractive in their long-term investment prospects. The Portfolio seeks to
minimize trading costs and defer the recognition of taxable gains by holding
most successful investments for the long-term. Stock selection and asset
allocation are based on Boston Management's detailed fundamental analysis.
PERFORMANCE OF REAL ESTATE INVESTMENTS. The Fund's real estate investments are
held through Belport Realty. As of December 31, 2004, real estate investments
included majority interests in two Real Estate Joint Ventures (Bel Multifamily
and Monadnock) and a portfolio of Partnership Preference Units. During the year
ended December 31, 2004, Monadnock sold a property for approximately $41.3
million, recognizing a gain of $4.4 million on the transaction, and acquired two
replacement properties for approximately $48.9 million.
During the year ended December 31, 2004, rental income from real estate
operations was approximately $62.7 million compared to approximately $65.6
million for the year ended December 31, 2003, a decrease of $2.9 million or 4%.
This decrease in rental income resulted principally from fewer properties held
during the year by the Real Estate Joint Ventures as a result of the sale of a
property held by Monadnock during the first quarter of 2004, offset by the
subsequent purchases of two replacement properties. For the year ended December
31, 2003, rental income decreased principally due to increased rent concessions
or reduced apartment rental rates and lower occupancy levels at properties owned
by the Real Estate Joint Ventures during 2003.
During the year ended December 31, 2004, property operating expenses were
approximately $28.4 million compared to approximately $28.0 million for the year
ended December 31, 2003, an increase of $0.4 million or 1% (property operating
expenses are before certain operating expenses of Belport Realty of
approximately $3.3 million for the year ended December 31, 2004 and $3.8 million
for the year ended December 31, 2003). The modest increase in property operating
expenses was principally due to purchases of two properties by Monadnock to
replace a property sold by Monadnock during the period. During the year ended
December 31, 2003, property operating expenses increased principally due to a 4%
increase in property taxes and insurance expense, and a 16% increase in property
and maintenance expense. The near-term outlook for multifamily property
operations continues to be weak. While the recent pick-up in economic and
employment growth is expected to lead to improved supply-demand balance in the
apartment industry, oversupply conditions continue to exist in many major
markets. Boston Management expects that multifamily real estate operating
results for 2005 will be similar to 2004.
15
At December 31, 2004, the estimated fair value of the real properties indirectly
held through Belport Realty was approximately $509.7 million compared to
approximately $484.7 million at December 31, 2003, an increase of $25.0 million,
or 5%. The net increase in estimated real property values at December 31, 2004
as compared to December 31, 2003 was principally due to declines in
capitalization rates, offset in part by lower near-term property earnings
expectations. The capitalization rate, a term commonly used in the real estate
industry, is the rate of return percentage applied to actual or projected income
levels to estimate the value of real estate investments. The increase was also
due in part to an increase in the number of properties held by Monadnock. The
decrease in estimated property values at December 31, 2003 resulted from
declines in near-term earnings expectations and the economic downturn. Decreases
in capitalization rates partially offset declining income level expectations
during 2003.
During the year ended December 31, 2004, the Fund saw unrealized appreciation of
the estimated fair value of its other real estate investments (which includes
the Real Estate Joint Ventures) of approximately $5.7 million compared to
unrealized depreciation of approximately $6.6 million during the year ended
December 31, 2003. Net unrealized appreciation during the year ended December
31, 2004 consisted of approximately $5.7 million of unrealized appreciation
resulting from increases in estimated multifamily property values. Unrealized
depreciation during the year ended December 31, 2003 resulted from decreases in
estimated multifamily property values during the year.
During the year ended December 31, 2004, Belport Realty sold (or experienced
scheduled redemptions of) certain of its Partnership Preference Units totaling
approximately $69.0 million (including sales to real estate subsidiaries of
other investment funds advised by Boston Management), recognizing a net gain of
approximately $3.9 million on the transactions. During the year ended December
31, 2004, Belport Realty also acquired interests in additional Partnership
Preference Units (representing acquisitions from real estate subsidiaries of
other investment funds advised by Boston Management) for a total of
approximately $54.5 million.
At December 31, 2004, the estimated fair value of Belport Realty's Partnership
Preference Units totaled approximately $80.5 million compared to approximately
$93.3 million at December 31, 2003, a net decrease of $12.8 million or 14%. The
net decrease in the value of Partnership Preference Units at December 31, 2004
was principally due to fewer Partnership Preference Units held. In the current
low interest rate environment, many issuers have been redeeming Partnership
Preference Units as call protections expire or restructuring the terms of
outstanding Partnership Preference Units in advance of their call dates. Boston
Management expects this trend to continue in 2005. At December 31, 2003, the
estimated fair value of Partnership Preference Units increased due to low
interest rates and tight spreads on real estate securities during 2003.
During the year ended December 31, 2004, the Fund saw net unrealized
depreciation of the estimated fair value of its Partnership Preference Units of
approximately $2.2 million compared to unrealized appreciation of approximately
$1.9 million during the year ended December 31, 2003. The net unrealized
depreciation of approximately $2.2 million during 2004 consisted of
approximately $0.1 million of unrealized appreciation resulting from increases
in per unit values of the Partnership Preference Units held by Belport Realty at
December 31, 2004, offset by approximately $2.3 million of unrealized
depreciation resulting from the recharacterization of previously recorded
unrealized appreciation to realized gains due to sales of Partnership Preference
Units during the year ended December 31, 2004. The increase in per unit values
was due to increases in the value of certain Partnership Preference Units as a
result of extending their terms and renegotiating their rates. This increase was
offset in part by decreases in the per unit values of other Partnership
Preference Units due to restructurings, which resulted in a special cash
distribution and renegotiated lower subsequent distribution rates.
Distributions from Partnership Preference Units for the year ended December 31,
2004 totaled approximately $6.9 million compared to approximately $8.2 million
for the year ended December 31, 2003, a decrease of $1.3 million or 16%. The
decrease was principally due to fewer Partnership Preference Units held on
average, as well as lower average distribution rates for the Partnership
Preference Units held during the year ended December 31, 2004. During the year
ended December 31 ,2003, distributions from Partnership Preference Units were
unchanged compared to the year ended December 31, 2002.
PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the year ended December 31,
2004, net realized and unrealized losses on the Fund's interest rate swap
agreements totaled approximately $4.3 million, compared to approximately $5.5
million of net realized and unrealized losses for the year ended December 31,
2003. Net realized and unrealized losses on swap agreements in 2004 consisted of
$0.4 million of net realized and unrealized gains due to changes in swap
agreement valuations, offset by $4.7 million of periodic payments made pursuant
to outstanding swap agreements (and classified as net realized losses on
interest rate swap agreements). In 2003, the Fund had net realized and
16
unrealized gains of $2.8 million due to swap agreement valuation changes, offset
by $8.3 million of swap agreement periodic payments. Swap rates increased
modestly in 2004, resulting in unrealized gains of $0.4 million from changes in
swap agreement valuations. The positive contribution to 2003 Fund performance
from changes in swap agreement valuations was attributable to a rise in swap
rates during the year and swap agreements entered into by the Fund approaching
their optional termination dates.
On October 1, 2003, the Fund terminated all of its then outstanding swap
agreements and entered into new agreements to fix the cost of a substantial
portion of Fund borrowings under the Credit Facility. The Fund realized a loss
of approximately $25.4 million on the swap agreement terminations.
MD&A AND RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 COMPARED TO
THE YEAR ENDED DECEMBER 31, 2002.
- --------------------------------------------------------------------------------
PERFORMANCE OF THE FUND. The Fund had a total return of 24.81% for the year
ended December 31, 2003. This return reflected an increase in the Fund's net
asset value per Share from $76.75 to $94.92 and a distribution of $0.72 per
Share during the period. For comparison, the S&P 500 Index had a total return of
28.67% over the same period. For the year ended December 31, 2003, the
performance of the Fund exceeded that of the Portfolio by approximately 0.93%.
The Fund had a total return of -21.98% for the year ended December 31, 2002.
This return reflected a decrease in the Fund's net asset value per Share from
$98.37 to $76.75. For comparison, the S&P 500 Index had a total return of
- -22.09% over the same period. For the year ended December 31, 2002, the
performance of the Fund trailed that of the Portfolio by approximately 2.46%.
PERFORMANCE OF THE PORTFOLIO. U.S. equities experienced a successful 2003, with
most major indices posting their first annual gains since 1999. Strength in the
broader market was a function of a favorable economic environment: historically
low inflation and interest rates, coupled with robust earnings growth and
continued consumer strength. While the Portfolio's performance for the year
ended December 31, 2003 of 23.88% was strong, the Portfolio trailed the S&P 500
Index, which had a total return of 28.67% for the year. The total return of the
Portfolio for the year ended December 31, 2002 was -19.52%.
The Portfolio's sector allocation in 2003 was substantially unaltered from 2002
in that the Portfolio continued to maintain overweighted positions in the
industrial, consumer discretionary and financials sectors. Although these
sectors generally performed well during 2003, the sub-par performance of the
Portfolio's holdings across the constituent industries, and multi-line retail
and aerospace/defense names in particular, hindered its performance. The
Portfolio's continued underweight of the best performing sector of the year,
information technology, was another factor contributing to the Portfolio's
relative underperformance versus the S&P 500 Index. As in 2002, lack of earnings
visibility and unattractive valuations caused Boston Management to remain
cautious on the technology sector. A similar rationale prompted a de-emphasis of
the telecommunications sector, the underweighting of which had a positive impact
on the Portfolio's return in 2003.
During the year, Boston Management increased the Portfolio's allocation to more
economically sensitive sectors, such as consumer discretionary and energy, from
2002 levels. This shift, particularly with respect to investments in
pro-cyclical industries, such as consumer electronics, energy services, and oil
and gas, was particularly beneficial. Financial and health care investments also
contributed to relative performance in 2003, with strong performance by consumer
finance, pharmaceuticals and biotechnology investments. While the Portfolio
remained underweighted in the materials and the utilities sectors during 2003,
stock selections in the electric and gas utilities groups positively impacted
returns for the year.
Unlike in 2002, the market favored lower quality and higher volatility
securities in 2003, something that is not unusual when coming out of an economic
slowdown or bear market. The Portfolio's policy of investing primarily in higher
quality securities and its valuation discipline contributed to its
underperformance versus its benchmark and the Portfolio's more aggressive peers
during 2003.
PERFORMANCE OF REAL ESTATE INVESTMENTS. At December 31, 2003, the Fund's real
estate investments held through Belport Realty included majority interests in
two Real Estate Joint Ventures (Bel Multifamily and Monadnock) and investments
in Partnership Preference Units.
During the year ended December 31, 2003, the Fund's real estate operations
continued to be impacted by weak multifamily market fundamentals. Rental income
from real estate operations decreased to $65.6 million for the year ended
December 31, 2003 from $67.5 million for the year ended December 31, 2002, a
17
decline of $1.9 million or 3%. This decrease in rental income resulted primarily
from increased rent concessions and/or reduced apartment rental rates and lower
occupancy levels at properties owned by the Fund's Real Estate Joint Ventures, a
trend that continued from 2002.
Property operating expenses increased to $28.0 million for the year ended
December 31, 2003 from $26.8 million for the year ended December 31, 2002, an
increase of $1.2 million or 4%. The increase was principally due to a 4%
increase in property tax and insurance expenses, and a 6% increase in property
and maintenance expenses during 2003. Property operating expenses are before
certain operating expenses of Belport Realty of approximately $3.8 million for
the year ended December 31, 2003 and approximately $3.5 million for the year
ended December 31, 2002. Multifamily market fundamentals began to deteriorate in
most regions in late 2001 with falling occupancy levels and rising rent
concessions. This trend continued through 2002. While the U.S. economy showed
signs of strength during the year ended December 31, 2003, significant
employment growth did not occur in most markets and low interest rates
contributed to continued apartment move-outs (due to new home purchases) and
ongoing development of new multifamily properties.
In May 2003, Belport Realty sold its investment in Bel Oakbrook LLC (acquired in
March 2003) to the real estate subsidiary of another investment fund advised by
Boston Management and recognized a gain of $0.3 million on the transaction. At
December 31, 2003, the estimated fair value of the real properties held through
Belport Realty was $484.7 million compared to $494.0 million at December 31,
2002, a decrease of $9.3 million or 2%. The decreases in estimated real property
value in 2002 and 2003 were due to declines in near-term earnings expectations.
The Fund saw unrealized depreciation in the estimated fair value of its other
real estate investments (which includes Belport Realty's interests in the Real
Estate Joint Ventures) of approximately $6.6 million during the year ended
December 31, 2003 compared to approximately $19.2 million in unrealized
depreciation for the year ended December 31, 2002.
During the year ended December 31, 2003, Belport Realty sold certain of its
Partnership Preference Units to the real estate subsidiary of another investment
fund advised by Boston Management, recognizing gains of $4.7 million on the
transactions. In November 2003, Belport Realty acquired an interest in
additional Partnership Preference Units for approximately $18.5 million. Like
the period ended December 31, 2002, Belport Realty's investments in Partnership
Preference Units continued to benefit from low interest rates and tighter
spreads on real estate securities during the year ended December 31, 2003. At
December 31, 2003, the estimated fair value of Belport Realty's Partnership
Preference Units totaled $93.3 million compared to $96.5 million at December 31,
2002, a decrease of $3.2 million or 3%. The decrease was due to fewer
Partnership Preference Units being held at December 31, 2003, offset in part by
increases in the per unit value of the Partnership Preference Units held by
Belport Realty and by the purchase of Partnership Preference Units in November
2003. Belport Realty saw unrealized appreciation in the estimated fair value of
its Partnership Preference Units of approximately $1.9 million during the year
ended December 31, 2003 compared to unrealized appreciation of approximately
$4.0 million for the year ended December 31, 2002.
Distributions received from Partnership Preference Units for the year ended
December 31, 2003 totaled $8.2 million compared to $8.8 million for the year
ended December 31, 2002, a decrease of $0.6 million or 7%. The decrease was due
to fewer Partnership Preference Units being held during the year ended December
31, 2003.
PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the year ended December 31,
2003, net realized and unrealized losses on the Fund's interest rate swap
agreements totaled approximately $5.5 million, compared to approximately $32.0
million of net realized and unrealized losses for the year ended December 31,
2002. Net realized and unrealized losses on swap agreements in 2003 consisted of
$2.8 million of net realized and unrealized gains due to changes in swap
agreement valuations, offset by $8.3 million of periodic payments made pursuant
to outstanding swap agreements (and classified as net realized losses on
interest rate swap agreements in the Fund's consolidated statement of
operations). In 2002, the Fund had net realized and unrealized losses of $24.0
million due to swap agreement valuation changes and $8.0 million of swap
agreement periodic payments. The positive contribution to 2003 Fund performance
from changes in swap agreement valuations was attributable to a rise in swap
rates during the year and swap agreements entered into by the Fund approaching
their optional termination dates. The negative impact on 2002 Fund performance
from changes in swap valuations was due primarily to a decline in swap rates
during the period.
(b) LIQUIDITY AND CAPITAL RESOURCES.
- ------------------------------------
OUTSTANDING BORROWINGS. The Fund has entered into the Credit Facility primarily
to finance the Fund's real estate investments and will continue to use the
Credit Facility for such purpose in the future. The Credit Facility may also be
used for other purposes, including any liquidity needs of the Fund. In the
future, the Fund may increase the size of the Credit Facility (subject to lender
consent) and the amount of outstanding borrowings thereunder. As of December 31,
18
2004, the Fund had outstanding borrowings of $235.9 million and unused loan
commitments of $35.0 million under the Credit Facility.
As of December 31, 2004, Monadnock and Bel Multifamily had outstanding
borrowings consisting of fixed-rate secured mortgage debt obligations of $217.3
million and $143.8 million, respectively.
LIQUIDITY. The Fund may redeem shares of Belvedere Company at any time. Both
Belvedere Company and the Portfolio normally follow the practice of satisfying
redemptions by distributing securities drawn from the Portfolio. Belvedere
Company and the Portfolio may also satisfy redemptions by distributing cash. As
of December 31, 2004, the Portfolio had cash and short-term investments totaling
$29.9 million. The Portfolio participates in a $150 million multi-fund unsecured
line of credit agreement with a group of banks. The Portfolio may temporarily
borrow from the line of credit to satisfy redemption requests in cash or to
settle investment transactions. The Portfolio had no outstanding borrowings at
December 31, 2004. To ensure liquidity for investors in the Portfolio, the
Portfolio may not invest more than 15% of its net assets in illiquid assets. As
of December 31, 2004, illiquid assets (consisting of restricted securities not
available for current public sale) constituted 0.02% of the net assets of the
Portfolio.
The liquidity of Belport Realty's Real Estate Joint Venture investments is
extremely limited, and relies principally upon buy/sell agreements with the
Operating Partners described in "Real Estate Joint Venuture Investments" under
"The Fund's Real Estate Investments through Belport Realty Corporation" in Item
1. Transfers of Belport Realty's interest in the Real Estate Joint Ventures to
parties other than the respective Operating Partner are restricted by terms of
certain agreements with the Operating Partners and lender consent requirements.
The Partnership Preference Units held by Belport Realty are not registered under
the Securities Act and are subject to substantial restrictions on transfer. As
such, they are illiquid.
(c) OFF-BALANCE SHEET ARRANGEMENTS.
- -----------------------------------
The Fund is required to disclose off-balance sheet arrangements that either
have, or are reasonably likely to have, a current or future effect on its
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to Shareholders. An off-balance sheet arrangement includes any
contractual arrangement to which an unconsolidated entity is a party and under
which the Fund has certain specified obligations. As of December 31, 2004, the
Fund did not have any such off-balance sheet arrangements.
19
(d) THE FUND'S CONTRACTUAL OBLIGATIONS.
- ---------------------------------------
The following table sets forth the amounts of payments due under the specified
contractual obligations outstanding on December 31, 2004:
Payments due:
- -------------------------------------------------------------------------------------------------------------------
Type of Obligation Total Less than 1 Year 1-3 Years 3-5 Years More than 5 years
- -------------------------------------------------------------------------------------------------------------------
Long Term Debt:
Mortgage Debt(1) $361,107,500 $ -- $ -- $ -- $361,107,500
Borrowings under Credit Facility(2) $235,900,000 $ -- $ -- $ -- $235,900,000
Purchase Obligations(3) $ -- $ -- $ -- $ -- $ --
Other Long Term Liabilities:
Interest Rate Swap Agreements(4) $ 42,723,067 $7,793,063 $15,586,126 $15,586,126 $ 3,757,751
- -------------------------------------------------------------------------------------------------------------------
Total $639,730,567 $7,793,063 $15,586,126 $15,586,126 $600,765,251
- -------------------------------------------------------------------------------------------------------------------
(1) The property held by Belport Realty is financed primarily through mortgages
issued to each Real Estate Joint Venture. Each mortgage is secured by the
underlying property and is generally without recourse to the other assets
of the Fund or Belport Realty, as described in "Risks of Real Estate
Investments" in Item 7A(b). The mortgages mature in 2009 and 2011. Mortgage
obligations cannot be prepaid or otherwise disposed of without incurring a
substantial prepayment penalty or without the sale of the associated
property.
(2) To finance its real estate investments, the Fund has entered into a Credit
Facility as described in "Liquidity and Capital Resources" above. The
Credit Facility is secured by a pledge of the Fund's assets, excluding the
assets of Bel Multifamily and Monadnock, and expires in June 2010. The
Credit Facility is primarily used to finance the Fund's equity in its real
estate investments and will continue to be used for such purpose in the
future.
(3) The Fund and Belport Realty have entered into agreements with certain
service providers pursuant to which the Fund and Belport Realty pay fees as
a percentage of assets. These fees include fees paid to Eaton Vance and its
affiliates (which are described in Item 13). These agreements generally
continue indefinitely unless terminated by the Fund or Belport Realty (as
applicable) or the service provider. For the year ended December 31, 2004,
fees paid to Eaton Vance and its affiliates equaled approximately 1.06% of
the Fund's net assets. Because these fees are based on the Fund's assets
(which will fluctuate over time) it is not possible to specify the dollar
amounts payable in the future.
(4) The Fund has entered into interest rate swap agreements to fix the cost of
borrowings under the Credit Facility used to acquire equity in real estate
investments. Pursuant to the interest rate swap agreements, the Fund makes
cash payments to MLCS at fixed rates in exchange for floating rate payments
from MLCS that fluctuate with one-month LIBOR. The amounts disclosed in the
table represent the fixed interest amounts payable by the Fund. The
periodic floating rate payments that the Fund expects to receive pursuant
to the agreements will reduce the fixed interest cost to the Fund. The swap
agreements expire on June 25, 2010, subject to the Fund's right to
terminate earlier in the case of certain swaps.
(e) CRITICAL ACCOUNTING ESTIMATES.
- ----------------------------------
The Fund's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires the Fund to make estimates,
judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Estimates are deemed critical when a
different estimate could have reasonably been used or where changes in the
estimate are reasonably likely to occur from period to period, and where such
different or changed estimates would materially impact the Fund's financial
condition, changes in financial condition or results of operations. The Fund's
significant accounting policies are discussed in Note 2 of the consolidated
financial statements; critical estimates inherent in these accounting policies
are discussed in the following paragraphs.
The Fund has determined that the valuation of the Fund's real estate investments
(including Real Estate Joint Ventures and Partnership Preference Units) involve
critical estimates. The Fund's investments in real estate are an important
component of its total investment program. Market prices for these investments
are not readily available and therefore the investments are stated in the Fund's
consolidated financial statements at estimated fair value. The estimated fair
value of an investment represents the amount at which Boston Management believes
the investment could be sold in a current transaction between willing parties in
20
an orderly disposition, that is, other than in a forced or liquidation sale. The
Fund reports the estimated fair value of its real estate investments on its
consolidated statement of assets and liabilities with any changes to estimated
fair value charged to unrealized appreciation or depreciation in the Fund's
consolidated statement of operations.
The need to estimate the fair value of the Fund's real estate investments
introduces uncertainty into the Fund's reported financial condition and
performance because:
* such assets are, by their nature, difficult to value and estimated
values may not accurately reflect what the Fund could realize in a
current sale between willing parties;
* property appraisals and other factors used to determine the estimated
fair value of the Fund's real estate investments depend on estimates
of future operating results and supply and demand assumptions that may
not reflect actual current market conditions and full consideration of
all factors relevant to valuations;
* property appraisals and other factors used to determine the estimated
fair value of the Fund's real estate investments are not continuously
updated and therefore may not be current as of specific dates; and
* if the Fund were forced to sell illiquid assets on a distressed basis,
the proceeds may be substantially less than stated values.
As of December 31, 2004, the estimated fair value of the Fund's real estate
investments represented 25.7% of the Fund's total assets. As of December 31,
2004, adjusting for the minority interest of the Operating Partner that is the
principal minority investor in each Real Estate Joint Venture, the Fund's real
estate investments represented 29.5% of the Fund's net assets. The estimated
fair value of the Fund's real estate investments may change due to changes in
market conditions and changes in valuation assumptions made by property
appraisers and third party valuation service providers as described below.
As noted in Item 1, to satisfy certain requirements of the Code, the Fund
invests at least 20% of its assets (calculated in the manner prescribed) in real
estate investments (the 20% requirement). Should the estimated fair value of the
Fund's real estate investments decrease, the Fund may be required to acquire
additional real estate investments to satisfy the 20% requirement. Because the
Fund acquires real estate investments with borrowings, acquisitions of
additional real estate investments would increase the Fund's borrowings under
the Credit Facility and reduce the amounts otherwise available to the Fund
thereunder. Should the estimated fair value of the Fund's real estate
investments increase, real estate investments could represent a larger
percentage of the Fund's investment portfolio.
PARTNERSHIP PREFERENCE UNITS. Boston Management determines the estimated fair
value of the Fund's Partnership Preference Units based on analysis and
calculations performed primarily on a monthly basis by a third party service
provider. The service provider calculates an estimated price and yield (before
accrued distributions) for each issue of Partnership Preference Units based on
descriptions of such issue provided by Boston Management and certain publicly
available information including, but not limited to, the trading prices of
publicly issued debt and/or preferred stock instruments of the same or similar
issuers, which may be adjusted to reflect the illiquidity and other structural
characteristics of the Partnership Preference Units (such as call provisions).
Daily valuations of Partnership Preference Units are determined by adjusting
prices from the service provider to account for accrued distributions under the
terms of the Partnership Preference Units. If changes in relevant markets,
events that materially affect an issuer or other events that have a significant
effect on the price or yield of Partnership Preference Units occur, relevant
prices or yields may be recalculated to take such occurrences into account.
Valuations of Partnership Preference Units are inherently uncertain because they
are based on adjustments from the market prices of publicly-traded debt and/or
preferred stock instruments of the same or similar issuers to account for the
Partnership Preference Units' illiquidity, structural features (such as call
provisions) and other relevant factors. Each month Boston Management reviews the
analysis and calculations performed by the service provider. Boston Management
generally relies on the assumptions and judgments made by the service provider
in estimating the fair value of the Partnership Preference Units. If the
assumptions and estimates used by the service provider to calculate prices for
Partnership Preference Units were to change, it could materially impact the
estimated fair value of the Fund's holdings of Partnership Preference Units.
21
THE REAL ESTATE JOINT VENTURES. Boston Management determines the estimated fair
value of the Fund's interest in each Real Estate Joint Venture based primarily
on annual appraisals of the properties owned by such Real Estate Joint Venture
(provided such appraisals are available) and an allocation of the equity value
of the Real Estate Joint Venture between the Fund and the Operating Partner.
Appraisals of the Real Estate Joint Venture properties may be conducted more
frequently than once a year if Boston Management determines that significant
changes in economic circumstances that may materially impact estimated property
values have occurred since the most recent appraisal.
In deriving the estimated value of a property, an appraiser considers numerous
factors, including the expected future cash flows from the property, recent sale
prices for similar properties and, if applicable, the replacement cost of the
property, in order to derive an indication of the amount that a prudent,
informed purchaser-investor would pay for the property. More specifically, the
appraiser considers the revenues and expenses of the property and the estimated
future growth or decline thereof, which may be based on tenant quality, property
condition, neighborhood change, market trends, interest rates, inflation rates
or other factors deemed relevant by the appraiser. The appraiser estimates
operating cash flows from the property and the sale proceeds of a hypothetical
transaction at the end of a hypothetical holding period. The cash flows are
discounted to their present values using a market-derived discount rate and are
added together to obtain a value indication. This value indication is compared
to the value indication that results from applying a market-derived
capitalization rate to a single year's stabilized net operating income for the
property. The assumed capitalization rate may be extracted from local market
transactions or, when transaction evidence is lacking, obtained from trade
sources. The appraiser considers the value indications derived by these two
methods, as well as the value indicated by recent market transactions involving
similar properties, in order to produce a final value estimate for the property.
Appraisals of properties owned by each Real Estate Joint Venture are conducted
by independent appraisers who are licensed in their respective states and not
affiliated with Eaton Vance or the Operating Partners. Each appraisal is
conducted in accordance with the Uniform Standards Board and the Code of
Professional Appraisal Practice of the Appraisal Institute (as well as other
relevant standards). Boston Management reviews the appraisal of each property
and generally relies on the assumptions and judgments made by the appraiser.
Property appraisals are inherently uncertain because they apply assumed discount
rates, capitalization rates, growth rates and inflation rates to the appraiser's
estimated stabilized cash flows, and due to the unique characteristics of a
property, which may affect its value but may not be taken into account. If the
assumptions and estimates used by the appraisers to determine the value of the
properties owned by the Fund's Real Estate Joint Ventures were to change, it
could materially impact the estimated fair value of the Fund's Real Estate Joint
Ventures. When a property owned by a Real Estate Joint Venture has not been
appraised (such as when the Real Estate Joint Venture recently acquired the
property), Boston Management determines the estimated fair value of the property
based on the transaction value of the property, which equals the total
acquisition cost of the property exclusive of certain legal and transaction
costs, provided such amount is indicative of fair value. Once an appraisal of a
property has been conducted, Boston Management bases the estimated fair value of
the property principally on the estimated value as determined by the appraiser.
Appraisals of newly acquired properties are conducted in the year following the
acquisition. If the initial appraised value of a newly acquired property differs
significantly from the transaction value of the property, it may materially
impact the estimated fair value of the Real Estate Joint Venture that holds the
property. Interim valuations of Real Estate Joint Venture assets may be adjusted
by Boston Management to reflect significant changes in economic circumstances or
recent independent evaluations of similar properties, and the results of
operations and distributions.
Boston Management determines the estimated fair value of the Fund's equity
interest in a Real Estate Joint Venture based on an estimate of the allocation
of equity interests between the Fund and the Operating Partner. This allocation
is generally calculated by a third party specialist, using current appraisals of
the properties owned by the Real Estate Joint Venture. The specialist uses a
financial model that considers (i) the terms of the joint venture agreement
relating to allocation of distributable cash flow; (ii) the duration of the
joint venture; and (iii) the projected property values and cash flows from the
properties based on estimates made by the appraisers. The estimated allocation
of equity interests between the Fund and the Operating Partner of a Real Estate
Joint Venture is prepared quarterly and reviewed by Boston Management. If the
estimate of the allocation of equity interests in the Real Estate Joint Ventures
were to change (because, for example, the appraisers' estimates of property
values or projected cash flows of the Real Estate Joint Ventures changed), it
may materially impact the estimated fair value of the Fund's equity interest in
each Real Estate Joint Venture. When the properties owned by a Real Estate Joint
Venture have not been appraised (such as when the Real Estate Joint Venture
recently acquired the properties), Boston Management allocates equity interests
in the Real Estate Joint Venture based on the contractual ownership interests of
Belport Realty and the Operating Partner. As of December 31, 2004, all of the
properties owned by the Real Estate Joint Ventures have been appraised.
22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- --------------------------------------------------------------------
(a) QUANTITATIVE INFORMATION ABOUT MARKET RISK.
- -----------------------------------------------
INTEREST RATE RISK. The Fund's primary exposure to interest rate risk arises
from its real estate investments that are financed by the Fund with floating
rate borrowings under the Credit Facility and by fixed-rate secured mortgage
debt obligations of the Real Estate Joint Ventures. Partnership Preference Units
are fixed rate instruments whose values will generally decrease when interest
rates rise and increase when interest rates fall. The interest rates on
borrowings under the Credit Facility are reset at regular intervals based on
one-month LIBOR. The Fund has entered into interest rate swap agreements to fix
the cost of a substantial portion of its borrowings under the Credit Facility
used to acquire equity in real estate investments and to mitigate in part the
impact of interest rate changes on the Fund's net asset value. Under the terms
of the interest rate swap agreements, the Fund makes cash payments at fixed
rates in exchange for floating rate payments that fluctuate with one-month
LIBOR. The Fund's interest rate swap agreements will generally increase in value
when interest rates rise and decrease in value when interest rates fall. In the
future, the Fund may use other interest rate hedging arrangements (such as caps,
floors and collars) to fix or limit borrowing costs. The use of interest rate
hedging arrangements is a specialized activity that can expose the Fund to
significant loss.
The following table summarizes the contractual maturities and weighted-average
interest rates associated with the Fund's significant non-trading financial
instruments. The Fund has no market risk sensitive instruments held for trading
purposes. This information should be read in conjunction with Notes 7 and 8 to
the Fund's consolidated financial statements appearing on pages 37 to 79 of this
Annual Report on Form 10-K.
Interest Rate Sensitivity
Cost, Principal (Notional) Amount
by Contractual Maturity and Callable Date
for the Twelve Months Ended December 31,*
Estimated
Fair Value as
of December
2005 2006-2007 2008 2009 Thereafter Total 31, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive
liabilities:
- ------------------------
Long-term debt:
- ------------------------
Fixed-rate mortgages $15,307,500 $345,800,000 $361,107,500 $509,700,473
Average interest rate 7.89% 6.73% 6.78%
- ------------------------
Variable-rate Credit
Facility $235,900,000 $235,900,000 $235,900,000
Average interest rate 2.61% 2.61%
- ------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive
derivative
financial instruments:
- ------------------------
Pay fixed/receive
variable interest rate
swap agreements $190,887,000 $190,887,000 $ 2,231,045
Average pay rate 4.08% 4.08%
Average receive rate 2.60% 2.60%
- ------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive
investments:
- ------------------------
Fixed-rate Partnership
Preference Units:
- ------------------------
23
Estimated
Fair Value as
of December
2005 2006-2007 2008 2009 Thereafter Total 31, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Camden Operating,
L.P., 7.0% Series B
Cumulative Redeemable
Perpetual Preferred
Units, Callable
12/2/08, Current
Yield: 7.10% $16,916,830 $ 16,916,830 $ 17,262,000
Colonial Realty
Limited Partnership,
7.25% Series B
Cumulative Redeemable
Perpetual Preferred
Units, Callable
8/24/09, Current
Yield: 7.37% $ 9,637,020 $ 9,637,020 $ 9,842,000
Essex Portfolio, L.P.,
7.875% Series B
Cumulative Redeemable
Preferred Units,
Callable 12/31/09,
Current Yield: 7.76% $9,949,075 $ 9,949,075 $ 12,693,050
PSA Institutional
Partners, L.P., 6.4%
Series NN Cumulative
Redeemable Perpetual
Preferred Units,
Callable 3/17/10,
Current Yield: 6.69% $ 10,740,000 $ 10,740,000 $ 9,568,000
Regency Centers, L.P.,
7.45% Series D
Cumulative Redeemable
Preferred Units,
Callable 9/29/09,
Current Yield: 8.65% $18,327,294 $ 18,327,294 $ 18,979,200
Vornado Realty, L.P.,
7.0% Series D-10
Cumulative Redeemable
Preferred Units,
Callable 11/17/08,
Current Yield:
6.92%(1) $11,141,246 $ 11,141,246 $ 12,133,498
* The amounts listed reflect the Fund's positions as of December 31, 2004.
The Fund's current positions may differ.
(1) Belport Realty's interest in these Partnership Preference Units is held
through Bel Holdings.
(b) QUALITATIVE INFORMATION ABOUT MARKET RISK.
- ----------------------------------------------
RISKS ASSOCIATED WITH EQUITY INVESTING. The Fund invests primarily in a
diversified portfolio of common stocks and is thereby subject to general stock
market risk. There can be no assurance that the performance of the Fund will
match that of the U.S. stock market or that of other equity funds. In managing
the Portfolio for long-term, after-tax returns, Boston Management generally
seeks to avoid or minimize sales of securities with large accumulated capital
gains, including contributed securities. Such securities constitute a
substantial portion of the assets of the Portfolio. Although the Portfolio may
utilize certain management strategies in lieu of selling appreciated securities,
the Portfolio's, and hence the Fund's, exposure to losses during stock market
declines may nonetheless be higher than funds that do not follow a general
policy of avoiding sales of highly-appreciated securities.
24
RISKS OF INVESTING IN FOREIGN SECURITIES. The Portfolio invests in securities
issued by foreign companies and the Fund may acquire foreign investments.
Foreign investments involve considerations and possible risks not typically
associated with investing in the United States. The value of foreign investments
to U.S. investors may be adversely affected by changes in currency rates.
Foreign brokerage commissions, custody fees and other costs of investing are
generally higher than in the United States, and foreign investments may be less
liquid, more volatile and subject to more government regulation than in the
United States. Foreign investments could be adversely affected by other factors
not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards, armed conflict, and
potential difficulty in enforcing contractual obligations. These risks can be
more significant for investments in emerging markets.
RISKS OF CERTAIN INVESTMENT TECHNIQUES. In managing the Portfolio, Boston
Management may purchase or sell derivative instruments (which derive their value
by reference to other securities, indexes, instruments or currencies) to hedge
against securities price declines and currency movements, to add investment
exposure to individual securities and groups of securities and to enhance
returns. Such transactions may include, without limitation, the purchase and
sale of futures contracts on stocks and stock indexes and options thereon, the
purchase of put options and the sale of call options on securities held, equity
swaps, forward sales of stocks, and the purchase and sale of forward currency
exchange contracts and currency futures. The Portfolio may engage in short sales
of individual securities held and short sales of index or basket securities
whose constituents are held in whole or in part. The Portfolio may enter into
private contracts for the forward sale of stock held and may also lend portfolio
securities.
The use of these investment techniques is a specialized activity that may be
considered speculative and which can expose the Fund and the Portfolio to
significant risk of loss. Successful use of these investment techniques is
subject to the ability and performance of the investment adviser. The Fund's and
the Portfolio's ability to achieve their investment objectives may be adversely
affected by the use of these techniques. The writer of an option or a party to
an equity swap may incur losses that substantially exceed the payments, if any,
received from a counterparty. Forward sales, swaps, caps, floors, collars and
over-the-counter options are private contracts in which there is also a risk of
loss in the event of a default on an obligation to pay by the counterparty. Such
instruments may be difficult to value, may be illiquid and may be subject to
wide swings in valuation caused by changes in the price of the underlying
security, index, instrument or currency. In addition, if the Fund or the
Portfolio has insufficient cash to meet margin, collateral or settlement
requirements, it may have to sell assets to meet such requirements.
Alternatively, should the Fund or the Portfolio fail to meet these requirements,
the counterparty or broker may liquidate positions of the Fund or the Portfolio.
The Portfolio may also have to sell or deliver securities holdings in the event
that it is not able to purchase securities on the open market to cover its short
positions or to close out or satisfy an exercise notice with respect to options
positions it has sold. In any of these cases, such sales may be made at prices
or in circumstances that Boston Management considers unfavorable.
The Portfolio's ability to utilize covered short sales, certain equity swaps,
forward sales, futures and certain equity collar strategies (combining the
purchase of a put option and the sale of a call option) as a tax-efficient
management technique with respect to holdings of appreciated securities is
limited to circumstances in which the hedging transaction is closed out within
30 days of the end of the Portfolio's taxable year in which the hedging
transaction was initiated and the underlying appreciated securities position is
held unhedged for at least the next 60 days after such hedging transaction is
closed. In addition, dividends received on stock for which the Portfolio is
obligated to make related payments (pursuant to a short sale or otherwise) with
respect to positions in substantially similar or related property are subject to
federal income taxation at ordinary rates and do not qualify for favorable tax
treatment. Also, holding periods required to receive tax-advantaged treatment of
qualified dividends on a stock are suspended whenever the Portfolio has an
option (other than a qualified covered call option not in the money when
written) or contractual obligation to sell or an open short sale of
substantially identical stock, is the grantor of an option (other than a
qualified covered call option not in the money when written) to buy
substantially identical stock or has diminished risk of loss in such stock by
holding positions with respect to substantially similar or related property.
There can be no assurance that counterparties will at all times be willing to
enter into covered short sales, forward sales of stocks, interest rate hedges,
equity swaps and other derivative instrument transactions on terms satisfactory
to the Fund or the Portfolio. The Fund's and the Portfolio's ability to enter
into such transactions may also be limited by covenants under the Fund's Credit
Facility, the federal margin regulations and other laws and regulations. The
Portfolio's use of certain investment techniques may be constrained because the
Portfolio is a diversified, open-end management investment company registered
under the 1940 Act and because other investors in the Portfolio are regulated
investment companies under Subchapter M of the Code. Moreover, the Fund and the
Portfolio are subject to restrictions under the federal securities laws on their
ability to enter into transactions in respect of securities that are subject to
restrictions on transfer pursuant to the Securities Act.
25
RISKS OF REAL ESTATE INVESTMENTS. The success of the Fund's real estate
investments depends in part on many factors related to the real estate market.
These factors include, without limitation, general economic conditions, the
supply and demand for different types of real properties, the financial health
of tenants, changing transportation and logistics patterns (in the case of
industrial distribution properties), the timing of lease expirations and
terminations, fluctuations in rental rates and operating costs, exposure to
adverse environmental conditions and losses from casualty or condemnation,
fluctuations in interest rates, availability of financing, managerial
performance, government rules and regulations, and acts of God (whether or not
insured against). There can be no assurance that Belport Realty's ownership of
real estate investments will be an economic success.
The success of investments in Partnership Preference Units depends upon factors
relating to the issuing partnerships that may affect such partnerships'
profitability and their ability to make distributions to holders of Partnership
Preference Units. Interests in the Real Estate Joint Ventures and Partnership
Preference Units are not registered under the federal securities laws and are
subject to restrictions on transfer. Due to their illiquidity, they may be
difficult to value and the ongoing value of the investments is uncertain. See
"Critical Accounting Estimates" in Item 7. Investments in Partnership Preference
Units are valued primarily by referencing market trading prices for comparable
preferred equity securities or other fixed-rate instruments having similar
investment characteristics. The valuations of Partnership Preference Units
fluctuate over time to reflect, among other factors, changes in interest rates,
changes in the perceived riskiness of such units (including call risk), changes
in the perceived riskiness of comparable or similar securities trading in the
public market and the relationship between supply and demand for comparable or
similar securities trading in the public market. The valuation of Partnership
Preference Units will be adversely affected by increases in interest rates and
increases in the perceived riskiness of such units or comparable or similar
securities. Fluctuations in the value of Partnership Preference Units derived
from changes in general interest rates can be expected to be offset in part (but
not entirely) by changes in the value of interest rate swap agreements or other
interest rate hedges entered into by the Fund with respect to its borrowings
under the Credit Facility. Fluctuations in the value of Partnership Preference
Units that are derived from other factors besides general interest rate
movements (including issuer-specific and sector-specific credit concerns,
property or tenant-specific concerns, and changes in interest rate spread
relationships) will not be offset by changes in the value of interest rate swap
agreements or other interest rate hedges entered into by the Fund. Because the
Partnership Preference Units are not rated by a nationally-recognized rating
agency, they may be subject to more credit risk than securities that are rated
investment grade.
The performance of the Real Estate Joint Ventures is substantially influenced by
the property management capabilities of the Operating Partners and conditions in
the specific real estate sub-markets in which the properties owned by the Real
Estate Joint Ventures are located. The Operating Partners are subject to
substantial conflicts of interest in structuring, operating and winding up the
Real Estate Joint Ventures. Each respective Operating Partner had an economic
incentive to maximize the prices at which it sold properties to a Real Estate
Joint Venture and has a similar incentive to minimize the prices at which it may
acquire properties from a Real Estate Joint Venture. The Operating Partners may
devote greater attention or more resources to managing their wholly-owned
properties than properties held by the Real Estate Joint Ventures. Future
investment opportunities identified by the Operating Partners will more likely
be pursued independently, rather than through, the Real Estate Joint Ventures.
Financial difficulties encountered by the Operating Partners in their other
businesses may interfere with the operations of the Real Estate Joint Ventures.
Belport Realty's investments in Real Estate Joint Ventures may be significantly
concentrated in terms of geographic regions, property types and operators,
increasing the Fund's exposure to regional, property type and operator specific
risks. Given a lack of stand-alone operating history and relatively high
financial leverage, the Real Estate Joint Ventures are not equivalent in quality
to real estate companies whose preferred equity or senior debt securities are
rated investment grade. Distributable cash flows from the Real Estate Joint
Ventures may not be sufficient for Belport Realty to receive its fixed annual
preferred return, or any returns in excess thereof.
The debt of the Real Estate Joint Ventures owned by Belport Realty on December
31, 2004 is fixed-rate, secured by the underlying properties and generally
without recourse to Belport Realty and the Fund. In the case of Bel Multifamily,
Belport Realty and the Fund may be directly or indirectly responsible for
certain liabilities constituting exceptions to the generally non-recourse nature
of the mortgage indebtedness, including liabilities associated with fraud,
misrepresentation, misappropriation of funds, or breach of material covenants,
and liabilities arising from environmental conditions involving or affecting
Real Estate Joint Venture properties. The Fund and Belport Realty have received
indemnification from ERP for certain of such potential liabilities. The
availability of financing and other financial conditions can have a material
impact on property values and therefore on the value of Real Estate Joint
Venture assets. Mortgage debt of the Real Estate Joint Ventures normally cannot
be refinanced prior to maturity without substantial penalties.
26
The ongoing value of Belport Realty's investments in the Real Estate Joint
Ventures is substantially uncertain. The real property held through Belport
Realty's Real Estate Joint Ventures is stated at estimated fair value as
described in Item 7(e). The policies for valuing real estate investments involve
significant judgments that are based upon a number of factors, which may
include, without limitation, general economic conditions, the supply and demand
for different types of real properties, the financial health of tenants, the
timing of lease expirations and terminations, fluctuations in rental rates and
operating costs, exposure to adverse environmental conditions and losses from
casualty or condemnation, interest rates, availability of financing, managerial
performance and government rules and regulations. Given that such valuations
include many assumptions, values may differ from amounts ultimately realized.
Investments by Belport Realty in Net Leased Property will be subject to general
real estate market risks similar to Real Estate Joint Ventures. Investments in
Net Leased Property will also be subject to risks specific to this type of
investment, including a concentration of risk exposure to specific real estate
submarkets and individual properties and tenants. Principal among the risks of
investing in Net Leased Property is the risk that a major tenant fails to
satisfy its lease obligations due to financial distress or other reasons. A
tenant's failure to meet its lease obligations would expose Belport Realty to
substantial loss of income without a commensurate reduction in debt service
costs and other expenses, and would transfer to Belport Realty all the costs,
expenses and liabilities of property ownership and management borne by the
tenant under the terms of the lease. Re-leasing a property could involve
considerable time and expense. Re-leasing opportunities may be limited by the
nature and location of the property, which may not be well suited to the needs
of other possible tenants. Even if a property is re-leased, the property may not
generate sufficient rental income to cover debt service and other expenses.
Net Leased Property is generally illiquid, and the ongoing value of Belport
Realty's investments in Net Leased Property will be substantially uncertain. Net
Leased Property held generally will be stated at estimated fair value based on
annual appraisals. These appraisals are conducted by independent, licensed
appraisers in a manner similar to the appraisals of properties owned by the Real
Estate Joint Ventures (described in "Critical Accounting Estimates" in Item 7).
Because the value of Net Leased Property will reflect in part the financial
status of its principal tenant(s), any reduction in the financial status of a
major tenant could have an adverse effect on the appraised value of a property
and the value realized upon the disposition of such property. Tenants may hold
rights to renew or extend expiring leases, and exercise of such rights would
extend Belport Realty's risk exposure to a particular tenant beyond the initial
lease term. Tenants may also hold options to purchase Net Leased Property,
including options to purchase at below market levels. The value received upon
the disposition of Net Leased Property will depend on real estate market
conditions, lease and mortgage terms, tenant credit quality, tenant purchase
options, lender approvals and other factors affecting valuation as may then
apply. Because sales of Net Leased Property are not expected to occur for many
years, market conditions and other valuation factors at the time of sale cannot
be predicted. Since valuations of Net Leased Property assume an orderly
disposition of assets, amounts realized in a distressed sale may differ
substantially from stated values. Mortgage debt associated with Net Leased
Property generally cannot be refinanced prior to maturity without substantial
penalties. The terms of outstanding leases and mortgage debt obligations and
restrictions on refinancing such debt will limit Belport Realty's ability to
dispose of Net Leased Property.
Because all or substantially all of the rental payments on Net Leased Property
generally will be dedicated to servicing the associated mortgage debt, during
the initial lease term Belport Realty will not generate significant cash flow
from investments to offset Belport Realty's operating expenses and the cost of
Fund borrowings used to finance Belport Realty's equity therein. Such costs and
expenses must be provided from other sources of cash flow for Belport Realty and
the Fund, which may include additional Fund borrowings under the Credit
Facility. Realized returns on investments in Net Leased Property generally are
deferred until the properties are sold or re-leased following the initial lease
term.
Changes in the value of real estate investments and other factors will cause the
performance of the Fund to deviate from the performance of the Portfolio. Over
time, the performance of the Fund can be expected to be more volatile than the
performance of the Portfolio.
RISKS OF INTEREST RATE SWAP AGREEMENTS. Interest rate swap agreements are
subject to changes in valuation caused principally by movements in interest
rates. Interest rate swap agreements are private contracts in which there is a
risk of loss in the event of a default on an obligation to pay by the
counterparty. Interest rate swap agreements may be difficult to value and may be
illiquid. Fluctuations in the value of Partnership Preference Units derived from
changes in general interest rates can be expected to be offset in part (but not
entirely) by changes in the value of interest rate swap agreements or other
interest rate hedges that may be entered into by the Fund with respect to its
borrowings.
27
RISKS OF LEVERAGE. Although intended to add to returns, the borrowing of funds
to purchase real estate investments exposes the Fund to the risk that the
returns achieved on the real estate investments will be lower than the cost of
borrowing to purchase such assets and that the leveraging of the Fund to buy
such assets will therefore diminish the returns achieved by the Fund as a whole.
In addition, there is a risk that the availability of financing will be
interrupted at some future time, requiring the Fund to sell assets to repay
outstanding borrowings or a portion thereof. It may be necessary to make such
sales at unfavorable prices. The Fund's obligations under the Credit Facility
are secured by a pledge of its assets, excluding the assets of Bel Multifamily
and Monadnock. In the event of default, the lender could elect to sell assets of
the Fund without regard to consequences of such action for Shareholders. The
rights of the lender to receive payments of interest on and repayments of
principal of borrowings under the Credit Facility are senior to the rights of
the Shareholders.
Under the terms of the Credit Facility, the Fund is not permitted to make
distributions of cash or securities while there is an event of default
outstanding under the Credit Facility. During such periods, the Fund would not
be able to honor redemption requests or make cash distributions. In addition,
the rights of lenders under the mortgages used to finance Real Estate Joint
Venture properties are senior to Belport Realty's right to receive distributions
from the Real Estate Joint Ventures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ----------------------------------------------------
The consolidated financial statements required by Item 8 are contained on pages
37 to 79 of this Annual Report on Form 10-K. The following is a summary of
unaudited quarterly results of operations of the Fund for the years ended
December 31, 2004 and 2003.
2004
--------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------------------------------------------------------
Investment income $21,130,390 $20,035,715 $ 21,720,162 $ 23,743,218
Minority interest in net income
of controlled subsidiaries $ (413,957) $ (416,038) $ (455,411) $ (585,828)
Net investment income $ 4,965,125 $ 3,896,809 $ 4,427,365 $ 5,775,034
Net increase (decrease) in
net assets from operations $26,152,501 $29,417,698 $(32,254,428) $135,364,192
Per share data:(1)
Investment income $ 1.26 $ 1.21 $ 1.33 $ 1.47
Net investment income $ 0.30 $ 0.24 $ 0.27 $ 0.36
Net increase (decrease) in
net assets from operations $ 1.56 $ 1.78 $ (1.97) $ 8.40
2003
--------------------------------------------------------------
First Second Third Fourth
Quarter(2) Quarter(2) Quarter(2) Quarter
--------------------------------------------------------------
Investment income $ 21,888,930 $ 21,888,125 $21,524,327 $ 21,621,589
Minority interest in net income
of controlled subsidiaries $ (658,259) $ (544,906) $ (642,577) $ (597,240)
Net investment income $ 5,159,887 $ 4,365,508 $ 5,189,602 $ 4,933,847
Net increase (decrease) in
net assets from operations $(67,319,500) $167,810,183 $38,047,334 $180,175,091
Per share data:(1)
Investment income $ 1.27 $ 1.28 $ 1.27 $ 1.29
Net investment income $ 0.30 $ 0.26 $ 0.31 $ 0.29
Net increase
(decrease) in net
assets from operations $ (3.91) $ 9.83 $ 2.25 $ 10.75
(1) Based on average Shares outstanding.
(2) Certain amounts have been reclassified to conform with the current year
presentation.
28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
- --------------------------------------------------------------------------------
There have been no changes in, or disagreements with, accountants on accounting
and financial disclosures.
ITEM 9A. CONTROLS AND PROCEDURES.
- ---------------------------------
Eaton Vance, as the Fund's manager, evaluated the effectiveness of the Fund's
disclosure controls and procedures (as defined by Rule 13a-15(e) of the 1934
Act) as of the end of the period covered by this report, with the participation
of the Fund's Chief Executive Officer and Chief Financial Officer. The Fund's
disclosure controls and procedures are the controls and other procedures that
the Fund designed to ensure that it records, processess, summarizes and reports
in a timely manner the information that the Fund must disclose in reports that
it files or submits to the Securities and Exchange Commission. Based on that
evaluation, the Fund's Chief Executive Officer and Chief Financial Officer
concluded that, as of December 31, 2004, the Fund's disclosure controls and
procedures were effective.
The Fund's Chief Executive Officer and Chief Financial Officer established and
maintain internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the 1934 Act). Fund management's report on internal
control over financial reporting, including its assessment of the Fund's
internal control over financial reporting, appears on page 56 of this Annual
Report on Form 10-K. The Fund's Chief Executive Officer and Chief Financial
Officer intend to report to the Board of Directors of Eaton Vance, Inc. any
significant deficiency in the design or operation of internal control over
financial reporting which could adversely affect the Fund's ability to record,
process, summarize and report financial data, and any fraud, whether or not
material, that involves management or other employees who have a significant
role in the Fund's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
- ---------------------------
None.
29
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
- ------------------------------------------
(a) MANAGEMENT.
- ---------------
Pursuant to the Fund's LLC Agreement, the Fund's manager, Eaton Vance, has the
authority to conduct the Fund's business. Eaton Vance appointed Thomas E. Faust
Jr. and Michelle A. Green to serve indefinitely as the Fund's Chief Executive
Officer and Chief Financial Officer, respectively. Information about Mr. Faust
appears below. Ms. Green, 35, is a Vice President of Eaton Vance and Boston
Management. She also serves as Chief Financial Officer of Belair Capital Fund
LLC, Belcrest Capital Fund LLC, Belmar Capital Fund LLC and Belrose Capital Fund
LLC and as an officer of various other investment companies managed by Eaton
Vance or Boston Management. Ms. Green has been an employee of Eaton Vance since
1997. As members of the Eaton Vance organization, Mr. Faust and Ms. Green
receive no compensation from the Fund for serving as Fund officers. There are no
other officers of the Fund. The Fund does not have a board of directors or
similar governing body.
The Board of Directors of Eaton Vance, Inc., the sole trustee of Eaton Vance,
oversees the accounting and financial reporting processes of the Fund and audits
of the Fund's financial statements. The directors of Eaton Vance, Inc. are James
B. Hawkes and William M. Steul. The Fund's audit committee financial expert (as
that term is defined in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act)
is Mr. Steul. Messrs. Hawkes and Steul are senior officers of Eaton Vance and,
as such, are not independent of Fund management. Information about Mr. Hawkes
and Mr. Steul appears below.
Boston Management is investment adviser to the Fund and the Portfolio and
manager of Belport Realty. The portfolio manager of the Fund and the Portfolio
is Duncan W. Richardson, Senior Vice President and Chief Equity Investment
Officer of Eaton Vance and Boston Management. Mr. Richardson has been employed
by the Eaton Vance organization since 1987 and has served as portfolio manager
of the Fund since its inception and of the Portfolio and its predecessor since
1990. A majority of Mr. Richardson's time is spent managing the Portfolio and
related entities. Boston Management has an experienced team of analysts that
provides Mr. Richardson with research and recommendations on investments.
The directors of Belport Realty are Mr. Faust and Alan R. Dynner, each of whom
is described below. William R. Cross, President and portfolio manager of Belport
Realty, has primary responsibility for providing research and analysis relating
to the Fund's real estate investments held through Belport Realty. Mr. Cross is
a Vice President of Eaton Vance and Boston Management and has been employed by
the Eaton Vance organization since 1996. A majority of Mr. Cross's time is spent
managing the real estate investments of Belport Realty and the real estate
subsidiaries of other investment funds advised by Boston Management. Mr. Cross,
David Carlson and Mr. Dynner serve as managers or trustees of the Real Estate
Joint Ventures owned by Belport Realty. Mr. Dynner is also Vice President of
each Real Estate Joint Venture and and secretary of Bel Multifamily. Mr. Carlson
is secretary of Monadnock. Mr. Cross serves as Chairman and President of
Monadnock and Bel Multifamily. Mr. Carlson is a Vice President of Eaton Vance
and Boston Management and has been employed by the Eaton Vance organization
since 2001. Prior to joining Eaton Vance, Mr. Carlson was President of ILM
Holding, Inc., a real estate holding company. Information about Mr. Dynner
appears below.
As disclosed under "The Eaton Vance Organization" in Item 1, Eaton Vance and
Boston Management are wholly-owned subsidiaries of Eaton Vance Corp. The
non-voting common stock of Eaton Vance Corp. is listed and traded on the NYSE.
All shares of the voting common stock of Eaton Vance Corp. are held in a voting
trust, the voting trustees of which are senior officers of the Eaton Vance
organization. Eaton Vance, Inc., a wholly-owned subsidiary of Eaton Vance Corp.,
is the sole trustee of Eaton Vance and of Boston Management, each of which is a
Massachusetts business trust. The names of the executive officers and the
directors of Eaton Vance, Inc. and their ages and principal occupations (in
addition to their responsibilities described above) are set forth below.
James B. Hawkes (63) is Chairman, President and Chief Executive Officer of Eaton
Vance, Boston Management, Eaton Vance Corp. and Eaton Vance, Inc. and a Director
of Eaton Vance Corp. and Eaton Vance, Inc. He is Vice President and Director of
EV Distributors. He is also a Trustee and an officer of various investment
companies managed by Eaton Vance or Boston Management and has been employed by
Eaton Vance since 1970.
Thomas E. Faust Jr. (46) is Executive Vice President and Chief Investment
Officer of Eaton Vance, Boston Management, Eaton Vance Corp. and Eaton Vance,
Inc., and a Director of Eaton Vance Corp. He is also Chief Executive Officer of
Belair Capital Fund LLC, Belcrest Capital Fund LLC, Belmar Capital Fund LLC and
30
Belrose Capital Fund LLC and is an officer of various other investment companies
managed by Eaton Vance or Boston Management. Mr. Faust has been employed by
Eaton Vance since 1985.
Alan R. Dynner (64) is Vice President, Chief Legal Officer and Secretary of
Eaton Vance, Boston Management, Eaton Vance Corp., EV Distributors and Eaton
Vance, Inc. He is also an officer of various investment companies managed by
Eaton Vance or Boston Management and has been employed by Eaton Vance since
1996.
William M. Steul (62) is Vice President and Chief Financial Officer of Eaton
Vance, Boston Management, Eaton Vance Corp. and Eaton Vance, Inc. and a Director
of Eaton Vance, Inc. He is also Vice President of EV Distributors. He has been
employed by Eaton Vance since 1994.
(b) COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934.
- -------------------------------------------------------------------------
Section 16(a) of the 1934 Act requires the Fund's officers and directors and
persons who own more than ten percent of the Fund's Shares to file forms
reporting their affiliation with the Fund and reports of ownership and changes
in ownership of the Fund's Shares with the SEC. Eaton Vance, as manager of the
Fund, and the Directors and executive officers of Eaton Vance, Inc., the sole
trustee of Eaton Vance, also comply with Section 16(a). These persons and
entities are required by SEC regulations to furnish the Fund with copies of all
Section 16(a) forms they file. To the best of the Fund's knowledge, during the
year ended December 31, 2004 no Section 16(a) filings were required by such
persons or entities.
(c) CODE OF ETHICS.
- -------------------
The Fund has adopted a Code of Ethics that applies to the principal executive
officer and principal financial officer (who is also the Fund's principal
accounting officer). A copy of the Code of Ethics is available at no cost by
request to the Fund's Chief Financial Officer, 255 State Street, Boston, MA
02109 or by calling (800) 225-6265. If the Fund makes any substantive amendments
to the Code of Ethics or grants any waiver, including an implicit waiver, from a
provision of the Code of Ethics as applicable to the principal executive officer
or principal financial officer, the Fund will disclose the nature of such
amendment or waiver in a report on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION.
- --------------------------------
As noted in Item 10, the officers of the Fund receive no compensation from the
Fund. The Fund's manager, Eaton Vance, and its affiliates receive certain fees
from the Fund for services provided to the Fund, which are described in Item 13
below.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. To the knowledge of the Fund,
no person beneficially owns more than 5% of the Shares of the Fund.
SECURITY OWNERSHIP OF MANAGEMENT. As of March 1, 2005, Eaton Vance, the manager
of the Fund, beneficially owned 103.00 Shares of the Fund and James B. Hawkes,
Chairman, President and Chief Executive Officer of Eaton Vance, owned 78,753.265
Shares of the Fund individually and 24,324.427 Shares of the Fund jointly with
his spouse. The Shares owned by Mr. Hawkes (individually and jointly) and Eaton
Vance represent less than 1% of the outstanding Shares of the Fund as of March
1, 2005. None of the other entities or individuals named in response to Item 10
above beneficially owned Shares of the Fund as of such date.
CHANGES IN CONTROL. Not applicable.
31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
The table below sets forth the fees, paid or payable by, or allocable to, the
Fund and Belport Realty for the years ended December 31, 2004 and 2003 in
connection with services rendered by Eaton Vance and its affiliates. Each fee is
described following the table.
Year ended Year ended
December 31, December 31,
2004 2003
- --------------------------------------------------------------------------------
Fund Advisory and Administrative Fees* $1,194,942 $1,011,068
- --------------------------------------------------------------------------------
Belport Realty Management Fees* $2,997,323 $3,028,427
- --------------------------------------------------------------------------------
Fund's Allocable Portion of the Portfolio's
Advisory Fees** $7,000,321 $6,277,917
- --------------------------------------------------------------------------------
Fund Servicing Fees $1,528,820 $1,322,277
- --------------------------------------------------------------------------------
Fund's Allocable Portion of Belvedere
Company's Servicing Fees $2,425,992 $2,152,277
- --------------------------------------------------------------------------------
Fund Distribution Fees* $1,581,887 $1,390,860
- --------------------------------------------------------------------------------
Redemption Fees paid by Redeeming Shareholders $ 103,353 $ 449,806
- --------------------------------------------------------------------------------
Aggregate Compensation Paid by the Fund to
Eaton Vance and its Affiliates $5,774,152 $5,430,355
- --------------------------------------------------------------------------------
* Boston Management has agreed to waive the portion of the investment
advisory and administrative fee payable by the Fund to the extent that such
fee, together with the distribution fee payable by the Fund and the Fund's
attributable share of the investment advisory and management fees payable
by the Portfolio and Belport Realty, respectively, exceeds 0.60% of the
average daily gross assets of the Fund. The amount shown reflects this
waiver by Boston Management.
** For years ended December 31, 2004 and 2003, advisory fees paid or payable
by the Portfolio totaled $77,609,178 and $67,584,543, respectively. For the
year ended December 31, 2004, Belvedere Company's allocable portion of that
fee was $50,252,861, of which $7,000,321 was allocable to the Fund. For the
year ended December 31, 2003, Belvedere Company's allocable portion of that
fee was $41,671,111 of which $6,277,917 was allocable to the Fund.
THE FUND'S INVESTMENT ADVISORY AND ADMINISTRATIVE FEE. Under the terms of the
Fund's investment advisory and administrative agreement, Boston Management is
entitled to receive, subject to the fee waiver described in the next sentence, a
monthly advisory and administrative fee at the rate of 1/20 of 1% (equivalent to
0.60% annually) of the average daily gross assets of the Fund. Boston Management
has agreed to waive that portion of the monthly investment advisory and
administrative fee payable by the Fund to the extent that such fee, together
with the distribution fees payable by the Fund (see below) and the Fund's
attributable share of the monthly investment advisory and management fees for
such month payable by the Portfolio and Belport Realty, respectively, exceeds
1/20 of 1% of the average daily gross assets of the Fund. The term "gross assets
of the Fund" means the value of all Fund assets (including the Fund's interest
in Belvedere Company and the Fund's ratable share of the assets of its directly
and indirectly controlled subsidiaries), without reduction by any liabilities.
BELPORT REALTY'S MANAGEMENT FEE. Under the terms of Belport Realty's management
agreement with Boston Management, Boston Management receives a monthly
management fee at the rate of 1/20 of 1% (equivalent to 0.60% annually) of the
average daily gross assets of Belport Realty. The term "gross assets of Belport
Realty" means the current value of all assets of Belport Realty, including
Belport Realty's ratable share of the assets of its controlled subsidiaries,
without reduction by any liabilities. For this purpose, the assets and
liabilities of Belport Realty's controlled subsidiaries are reduced by the
proportionate interests therein of investors other than Belport Realty.
32
THE PORTFOLIO'S INVESTMENT ADVISORY FEE. Under the terms of the Portfolio's
investment advisory agreement with Boston Management, Boston Management receives
a monthly advisory fee as follows:
Annual Fee Rate
Average Daily Net Assets for the Month (for each level)
------------------------------------------------------------
Up to $500 million 0.6250%
$500 million but less than $1 billion 0.5625%
$1 billion but less than $1.5 billion 0.5000%
$1.5 billion but less than $7 billion 0.4375%
$7 billion but less than $10 billion 0.4250%
$10 billion but less than $15 billion 0.4125%
$15 billion and over 0.4000%
In accordance with the terms of the 1940 Act, the Portfolio's Board of Trustees
considers the continuation of the Portfolio's investment advisory agreement
annually.
SERVICING FEES PAID BY THE FUND. Pursuant to a servicing agreement between the
Fund and EV Distributors, the Fund pays a servicing fee to EV Distributors for
providing certain services and information to the Shareholders of the Fund. The
servicing fee is paid on a quarterly basis at an annual rate of 0.25% of the
Fund's average daily net assets. With respect to Shareholders who subscribed
through a subagent, EV Distributors has assigned servicing responsibilities and
fees to the applicable subagent, beginning twelve months after the issuance of
Shares of the Fund to such persons. The Fund's allocated share of the servicing
fee paid by Belvedere Company is credited toward the Fund's servicing fee
payment, thereby reducing the amount of the servicing fee payable by the Fund.
SERVICING FEES PAID BY BELVEDERE COMPANY. Pursuant to a servicing agreement
between Belvedere Company and EV Distributors, Belvedere Company pays a
servicing fee to EV Distributors for providing certain services and information
to direct and indirect investors in Belvedere Company. The servicing fee is paid
on a quarterly basis, at an annual rate of 0.15% of Belvedere Company's average
daily net assets. With respect to investors in Belvedere Company and
Shareholders of the Fund who subscribed through a subagent, EV Distributors has
assigned servicing responsibilities and fees to the applicable subagent,
beginning twelve months after the issuance of shares of Belvedere Company or
Shares of the Fund to such persons. The Fund assumes its allocated share of
Belvedere Company's servicing fee. The servicing fee payable in respect of the
Fund's investment in Belvedere Company is credited toward the Fund servicing fee
described above.
DISTRIBUTION FEES PAID TO EV DISTRIBUTORS. Under the terms of the Fund's
placement agreement with EV Distributors, EV Distributors receives a monthly
distribution fee at an annual rate of 0.10% of the average daily net assets of
the Fund as compensation for its services as placement agent. The distribution
fee accrued from the Fund's initial closing and will continue for a period of
ten years (subject to the annual approval of Eaton Vance, Inc.).
REDEMPTION FEES. Shares of the Fund redeemed within three years of issuance are
generally subject to a redemption fee equal to 1% of the net asset value of the
Fund Shares redeemed. The redemption fee is payable to EV Distributors in cash
by the Fund on behalf of the redeeming Shareholder. No redemption fee is imposed
on Shares of the Fund held for at least three years, Shares acquired through the
reinvestment of Fund distributions, Shares redeemed in connection with a tender
offer or other extraordinary corporate event involving securities contributed by
the redeeming Shareholder, or Shares redeemed following the death of all of the
initial owners of the Shares redeemed. In addition, no fee applies to
redemptions made pursuant to a systematic redemption plan established by a
Shareholder with the Fund.
33
CERTAIN REAL ESTATE INVESTMENT TRANSACTIONS. During the year ended December 31,
2004, Belport Realty entered into the following real estate investment
transactions with real estate subsidiaries of other investment funds managed by
Eaton Vance and advised by Boston Management or, in the case of Bel Holdings, an
entity owned by such real estate subsidiaries:
* Belport Realty purchased Partnership Preference Units from Belair Real
Estate Corporation, which realized a gain of approximately $0.6
million on the transaction;
* Belport Realty purchased Partnership Preference Units from Belcrest
Realty Corporation, which realized a loss of approximately $0.8
million on the transactions;
* Belport Realty sold Partnership Preference Units to Bel Holdings,
realizing a gain of approximately $21,000 on the transactions;
* Belport Realty sold Partnership Preference Units to Belshire Realty
Corporation, realizing a loss of approximately $0.4 million on the
transaction;
* Belport Realty sold Partnership Preference Units to Belterra Realty
Corporation, realizing a gain of approximately $0.4 million on the
transaction;
* Belport Realty sold Partnership Preference Units to Belcrest Realty
Corporation, realizing a gain of approximately $2.2 million on the
transaction;
* Belport Realty sold Partnership Preference Units to Bel Alliance
Apartments, realizing a loss of approximately $2.1 million on the
transaction; and
* Belport Realty sold Partnership Preference Units to Belair Real Estate
Corporation, realizing a gain of approximately $20,000 on the
transaction.
The prices of the real estate investments purchased and sold by Belport Realty
were determined in good faith by Boston Management after consideration of
factors, data and information that it considered relevant. See "Critical
Accounting Estimates" in Item 7(e).
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- ------------------------------------------------
The following table presents fees for the professional audit services rendered
by Deloitte & Touche LLP for the audit of the Fund's annual financial statements
for the years ended December 31, 2004 and 2003 and fees billed for other
services rendered by Deloitte & Touche LLP during those periods.
Year ended December 31, 2004 2003
- --------------------------------------------------------------------------------
Audit fees $126,883 $ 70,031
Audit related fees(1) 39,790 35,040
Tax fees(2) 227,645 115,624
All other fees(3) -- 12,200
-----------------------
Total $394,318 $232,895
-----------------------
(1) Audit related fees consist of assurance and related services that are
reasonably related to the performance of the audit of the Fund's
consolidated financial statements. The category includes fees related to
the performance of audits and attest services not required by statute or
regulation and accounting consultations regarding the application of
generally accepted accounting principles to proposed transactions.
(2) Tax fees consist of the aggregate fees billed for professional services
rendered by Deloitte & Touche LLP for tax compliance, tax advice and tax
planning.
(3) Other fees consist primarily of the aggregate fees billed for professional
services rendered by Deloitte & Touche LLP related to agreed upon
procedures for requirements by lenders and assistance in dealings with the
Securities and Exchange Commission.
The Directors of Eaton Vance, Inc. review all audit, audit-related and tax fees
at least annually. The Directors pre-approved all audit, audit-related and tax
services for the years ended December 31, 2004 and 2003. The Directors have
concluded that the provision of the audit-related, tax and other services listed
above is compatible with maintaining the independence of Deloitte & Touche LLP.
34
PART IV
-------
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
- ----------------------------------------------------------------
(a) Please see the Fund's consolidated financial statements followed by the
Portfolio's financial statements on pages 37 to 79 of this Annual Report on
Form 10-K.
(b) Reports on Form 8-K:
None.
(c) A list of the exhibits filed as a part of this Form 10-K is included
in the Exhibit Index appearing on page 81 hereof.
35
BELPORT 2004
Appendix A
The Fund's Investment Structure as of December 31, 2004
[Chart depicting (1) the Fund investing in Belvedere Company and Belport Realty;
(2) Belvedere Company investing in the Portfolio; and (3) Belport Realty
investing in Bel Multifamily, Monadnock and Bel Holdings. The Fund is followed
by footnote (A); Belvedere Company is followed by footnote (B); the Portfolio is
followed by footnote (C); Belport Realty is followed by footnote (D); Bel
Multifamily and Monadnock are each followed by footnote (E); and Bel Holdings is
followed by footnote (F). The footnotes appear below.]
(A) Eaton Vance is the manager of the Fund; Boston Management is the Fund's
investment adviser.
(B) Boston Management is the manager of Belvedere Company.
(C) Boston Management is the Portfolio's investment adviser.
(D) Boston Management is the manager of Belport Realty. Belport Realty holds
investments in Partnership Preference Units.
(E) Belport Realty owns a majority interest in these Real Estate Joint
Ventures.
(F) Belport Realty owns an interest in Bel Holdings LLC, which owns Partnership
Preference Units issued by Vornado Realty L.P.
36
BELPORT CAPITAL FUND LLC
CONSOLIDATED PORTFOLIOS OF INVESTMENTS
AS OF DECEMBER 31, 2004
INVESTMENT IN BELVEDERE CAPITAL FUND COMPANY LLC -- 73.9%
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
Investment in Belvedere Capital Fund Company LLC
(Belvedere Company) 9,901,375 $ 1,685,083,562
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT IN BELVEDERE COMPANY
(IDENTIFIED COST, $ 1,658,930,195) $ 1,685,083,562
- ------------------------------------------------------------------------------------------------------------------------
PARTNERSHIP PREFERENCE UNITS -- 3.5%
SECURITY UNITS VALUE
- ------------------------------------------------------------------------------------------------------------------------
Bel Holdings, LLC+(1)(2) 111,412 $ 12,133,498
Camden Operating, L.P. (Delaware Limited
Partnership affiliate of Camden Property
Trust), 7% Series B Cumulative
Redeemable Perpetual Preferred Units,
Callable from 12/2/08+(2) 700,000 17,262,000
Colonial Realty Limited Partnership
(Delaware Limited Partnership affiliate of
Colonial Properties Trust), 7.25% Series B
Cumulative Redeemable Perpetual
Preferred Units, Callable from 8/24/09+(2) 200,000 9,842,000
Essex Portfolio, L.P. (California Limited
Partnership affiliate of Essex Property
Trust, Inc.), 7.875% Series B Cumulative
Redeemable Preferred Units, Callable
from 12/31/09+(2) 250,000 12,693,050
PSA Institutional Partners, L.P. (California
Limited Partnership affiliate of Public
Storage, Inc.), 6.40% Series NN Cumulative
Redeemable Perpetual Preferred Units, Callable
from 3/17/10+(2) 400,000 9,568,000
Regency Centers, L.P. (Delaware Limited
Partnership affiliate of Regency Realty
Corporation), 7.45% Series D Cumulative
Redeemable Preferred Units, Callable
from 9/29/09+(2) 180,000 18,979,200
- ------------------------------------------------------------------------------------------------------------------------
TOTAL PARTNERSHIP PREFERENCE UNITS
(IDENTIFIED COST, $76,711,465) $ 80,477,748
- ------------------------------------------------------------------------------------------------------------------------
OTHER REAL ESTATE INVESTMENTS -- 22.4%
DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------
Rental property(2)(4) $ 509,700,473
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER REAL ESTATE INVESTMENTS
(IDENTIFIED COST, $548,892,732) $ 509,700,473
- ------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.2%
PRINCIPAL
AMOUNT
(000'S
SECURITY OMITTED) VALUE
- ------------------------------------------------------------------------------------------------------------------------
Investors Bank & Trust Company --
Time Deposit 2.25%, 1/3/05 $ 4,362 $ 4,362,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(AT AMORTIZED COST, $4,362,000) $ 4,362,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(IDENTIFIED COST, $2,288,896,392) $ 2,279,623,783
- ------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
37
INVESTMENT IN BELVEDERE CAPITAL FUND COMPANY LLC -- 73.4%
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
Investment in Belvedere Capital Fund Company LLC
(Belvedere Company) 10,292,977 $ 1,611,769,203
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT IN BELVEDERE COMPANY
(IDENTIFIED COST, $1,680,824,754) $ 1,611,769,203
- ------------------------------------------------------------------------------------------------------------------------
PARTNERSHIP PREFERENCE UNITS -- 4.3%
SECURITY UNITS VALUE
- ------------------------------------------------------------------------------------------------------------------------
Bel Holdings, LLC+(1)(2) 184,327 $ 18,634,421
Essex Portfolio, L.P. (California Limited
Partnership affiliate of Essex Property
Trust, Inc.), 7.875% Series B Cumulative
Redeemable Preferred Units, Callable
from 02/06/03+(2)(3) 450,000 21,681,990
PSA Institutional Partners, L.P. (California
Limited Partnership affiliate of Public
Storage, Inc.), 9.50% Series N Cumulative
Redeemable Perpetual Preferred Units,
Callable from 3/17/05+(2) 1,300,000 33,800,000
Prentiss Properties Acquisition Partners, L.P.
(Delaware Limited Partnership affiliate of
Prentiss Properties Trust), 8.30% Series B
Cumulative Redeemable Perpetual Preferred
Units, Callable from 6/25/03+(2) 390,000 19,160,700
- ------------------------------------------------------------------------------------------------------------------------
TOTAL PARTNERSHIP PREFERENCE UNITS
(IDENTIFIED COST, $87,333,414) $ 93,277,111
- ------------------------------------------------------------------------------------------------------------------------
OTHER REAL ESTATE INVESTMENTS -- 22.1%
DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------
Rental property(2)(4) $ 484,704,890
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER REAL ESTATE INVESTMENTS
(IDENTIFIED COST, $530,790,333) $ 484,704,890
- ------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.2%
PRINCIPAL
AMOUNT
(000'S
SECURITY OMITTED) VALUE
- ------------------------------------------------------------------------------------------------------------------------
Investors Bank & Trust Company --
Time Deposit 1.01%, 1/2/04 $ 4,821 $ 4,821,135
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(AT AMORTIZED COST, $4,821,135) $ 4,821,135
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(IDENTIFIED COST, $2,303,769,636) $ 2,194,572,339
- ------------------------------------------------------------------------------------------------------------------------
The following footnotes are for the years ended December 31, 2004 and December
31, 2003.
+ Security exempt from registration under the Securities Act of 1933. At
December 31, 2004 and 2003 the value of these securities totaled
$80,477,748 and $93,277,111 or 4.8% and 5.9% of net assets, respectively.
(1) The sole investment of Bel Holdings, LLC is as follows: Vornado Realty,
L.P. (Delaware Limited Partnership affiliate of Vornado Realty Trust), 7%
Series D-10 Cumulative Redeemable Preferred Units, Callable from 11/17/08.
See Note 1B.
(2) Investment valued at fair value using methods determined in good faith by
or at the direction of the manager of Belport Realty Corporation.
(3) On January 8, 2004, the call date was changed to 12/31/09.
(4) At December 31, 2004, rental property represents twenty-three multifamily
residential properties located in eight states. At December 31, 2003,
rental property represents twenty-three multifamily residential properties
located in ten states. None of the values of the individual properties
represent more than 5% of net assets.
See notes to consolidated financial statements
38
BELPORT CAPITAL FUND LLC
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2004 DECEMBER 31, 2003
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (identified cost, $2,288,896,392 and
$2,303,769,636, respectively) $ 2,279,623,783 $ 2,194,572,339
Cash 6,014,571 6,522,994
Escrow deposits -- restricted 3,557,811 2,764,808
Open interest rate swap agreements, at value 2,214,924 1,763,670
Distributions and interest receivable 306,635 404,628
Other assets 2,191,940 2,358,005
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,293,909,664 $ 2,208,386,444
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Loan payable -- Credit Facility $ 235,900,000 $ 230,500,000
Mortgages payable 361,107,500 361,107,500
Distributions payable to minority shareholders -- 16,800
Special Distributions payable -- 17
Security deposits 925,906 863,503
Swap interest payable 54,285 118,147
Accrued expenses:
Interest expense 2,143,706 2,141,722
Property taxes 2,965,474 2,212,615
Other expenses and liabilities 2,381,892 2,224,975
Minority interests in controlled subsidiaries 30,670,394 24,347,753
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 636,149,157 $ 623,533,032
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 1,657,760,507 $ 1,584,853,412
- ------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' CAPITAL $ 1,657,760,507 $ 1,584,853,412
- ------------------------------------------------------------------------------------------------------------------------
FUND SHARES OUTSTANDING 15,947,288 16,697,292
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE (NOTE 4) $ 103.95 $ 94.92
- ------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
39
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends allocated from Belvedere Company
(net of foreign taxes, $342,711, $248,032 and $190,889,
respectively) $ 26,215,103 $ 21,301,557 $ 19,519,140
Interest allocated from Belvedere Company 113,852 337,201 565,728
Expenses allocated from Belvedere Company (9,722,292) (8,705,495) (9,368,372)
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from Belvedere Company $ 16,606,663 $ 12,933,263 $ 10,716,496
Rental income 62,712,508 65,576,738 67,475,332
Distributions from Partnership Preference Units 6,912,226 8,230,953 8,815,313
Interest 398,088 182,017 151,237
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME $ 86,629,485 $ 86,922,971 $ 87,158,378
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory and administrative fees $ 5,774,152 $ 5,430,355 $ 5,509,938
Property management fees 2,511,920 2,613,099 2,712,324
Distribution and servicing fees 3,110,707 2,713,137 2,975,671
Interest expense on mortgages 25,106,990 25,392,737 24,926,829
Interest expense on Credit Facility 4,163,869 3,557,425 5,165,792
Property and maintenance expenses 18,219,736 17,374,486 16,390,005
Property taxes and insurance 7,685,253 8,038,500 7,736,844
Miscellaneous 703,178 1,102,266 917,714
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES $ 67,275,805 $ 66,222,005 $ 66,335,117
- -----------------------------------------------------------------------------------------------------------------------------
Deduct --
Reduction of investment advisory and administrative fees $ 1,581,887 $ 1,390,860 $ 1,512,281
- -----------------------------------------------------------------------------------------------------------------------------
NET EXPENSES $ 65,693,918 $ 64,831,145 $ 64,822,836
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income before minority interests in net
income of controlled subsidiaries $ 20,935,567 $ 22,091,826 $ 22,335,542
Minority interests in net income of controlled subsidiaries (1,871,234) (2,442,982) (3,427,044)
- -----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 19,064,333 $ 19,648,844 $ 18,908,498
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) --
Investment transactions, securities sold short and
foreign currency transactions allocated from
Belvedere Company (identified cost basis) $ 36,943,971 $ 18,686,724 $ (9,996,126)
Investment transactions (identified cost basis) -- (22,088) (59,596)
Investment transactions in Partnership Preference Units
(identified cost basis) 3,861,710 4,667,180 --
Investment transactions in other real estate (net of
minority interests in realized gain of controlled
subsidiaries of $1,304,340, $0, and $0, respectively) 4,391,466 323,384 --
Interest rate swap agreements(1) (4,714,430) (33,677,750) (7,966,617)
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) $ 40,482,717 $ (10,022,550) $ (18,022,339)
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments, securities sold short and foreign currency
allocated from Belvedere Company (identified cost
basis) $ 95,208,918 $ 285,637,095 $ (340,666,941)
Investments in Partnership Preference Units (identified
cost basis) (2,177,414) 1,854,494 4,002,025
Investment in other real estate (net of minority
interests in unrealized appreciation (depreciation)
of controlled subsidiaries of $1,243,029,
$(7,471,486), and $(9,074,327), respectively) 5,650,155 (6,553,960) (19,185,193)
Interest rate swap agreements 451,254 28,149,185 (24,041,507)
- -----------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) $ 99,132,913 $ 309,086,814 $ (379,891,616)
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) $ 139,615,630 $ 299,064,264 $ (397,913,955)
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 158,679,963 $ 318,713,108 $ (379,005,457)
- -----------------------------------------------------------------------------------------------------------------------------
(1) Amounts include periodic payments made in connection with interest rate
swap agreements of $4,714,430, $8,286,946 and $7,966,617, respectively
(Note 2).
See notes to consolidated financial statements
40
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Net investment income $ 19,064,333 $ 19,648,844 $ 18,908,498
Net realized gain (loss) from investment transactions,
securities sold short, foreign currency transactions and
interest rate swap agreements 40,482,717 (10,022,550) (18,022,339)
Net change in unrealized appreciation (depreciation) of
investments, securities sold short, foreign currency and
interest rate swap agreements 99,132,913 309,086,814 (379,891,616)
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 158,679,963 $ 318,713,108 $ (379,005,457)
- -----------------------------------------------------------------------------------------------------------------------------
Transactions in Fund Shares --
Net asset value of Fund Shares issued to Shareholders in
payment of distributions declared $ 6,341,090 $ 6,479,733 $ --
Net asset value of Fund Shares redeemed (79,424,167) (52,613,896) (45,510,343)
- -----------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS $ (73,083,077) $ (46,134,163) $ (45,510,343)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions --
Distributions to Shareholders $ (12,689,791) $ (12,367,580) $ --
Special Distributions to Shareholders -- (17) --
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (12,689,791) $ (12,367,597) $ --
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS $ 72,907,095 $ 260,211,348 $ (424,515,800)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
AT BEGINNING OF YEAR $ 1,584,853,412 $ 1,324,642,064 $ 1,749,157,864
- -----------------------------------------------------------------------------------------------------------------------------
At end of year $ 1,657,760,507 $ 1,584,853,412 $ 1,324,642,064
- -----------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
41
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
Cash Flows From (For) Operating Activities --
Net increase (decrease) in net assets from operations $ 158,679,963 $ 318,713,108 $ (379,005,457)
Adjustments to reconcile net increase (descrease) in net
assets from operations to net cash flows from operating
activities --
Net investment income allocated from Belvedere Company (16,606,663) (12,933,263) (10,716,496)
Increase in escrow deposits (793,003) (492,597) (190,361)
Decrease in receivable for investments sold -- 50,221,589 --
Decrease in other assets 166,065 322,417 693,673
Decrease (Increase) in distributions and interest
receivable 97,993 166,076 (79)
(Decrease) increase in interest payable for open swap
agreements (63,862) (71,307) 19,344
Increase (decrease) in security deposits, accrued
interest and accrued other expenses and liabilities 221,304 (852,534) (482,227)
Increase in accrued property taxes 752,859 161,212 352,581
Purchases of Partnership Preference Units (54,521,724) (18,533,268) --
Proceeds from sales of Partnership Preference Units 69,005,383 28,280,856 --
Payments for investment in other real estate (48,851,337) (5,026,960) --
Proceeds from sale of investment in other real estate 41,336,126 5,356,755 --
Proceeds from sale of common stock -- 20,248,362 --
Improvements to rental property (4,891,385) (4,779,830) (3,592,900)
Net (increase) decrease in investment in Belvedere Company -- (41,000,000) 10,432,410
Payment for termination of interest swap agreements -- (25,390,804) --
Net interest incurred on interest rate swap agreements (4,714,430) (8,286,946) (7,966,617)
Decrease (increase) in short-term investments 459,135 (4,198,157) 1,082,937
Minority interests in net income of controlled subsidiaries 1,871,234 2,442,982 3,427,044
Net realized (gain) loss from investment transactions,
securities sold short, foreign currency transactions
and interest rate swap agreements (40,482,717) 10,022,550 18,022,339
Net change in unrealized (appreciation) depreciation of
investments, securities sold short, foreign currency and
interest rate swap agreements (99,132,913) (309,086,814) 379,891,616
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 2,532,028 $ 5,283,427 $ 11,967,807
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows From (For) Financing Activities --
Proceeds from Credit Facility $ 56,000,000 $ 57,500,000 $ --
Repayments of Credit Facility (50,600,000) (53,000,000) (5,000,000)
Repayments of mortgage -- (6,411) --
Payments for Fund Shares redeemed (3,978,974) (4,270,256) (5,674,423)
Distributions paid to Shareholders (6,348,718) (5,887,847) --
Capital contributed to controlled subsidiaries 1,955,721 -- --
Distributions paid to minority shareholders (68,480) (548,215) (3,843,043)
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FOR FINANCING ACTIVITIES $ (3,040,451) $ (6,212,729) $ (14,517,466)
- -----------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH $ (508,423) $ (929,302) $ (2,549,659)
- -----------------------------------------------------------------------------------------------------------------------------
CASH AT BEGINNING OF YEAR $ 6,522,994 $ 7,452,296 $ 10,001,955
- -----------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 6,014,571 $ 6,522,994 $ 7,452,296
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE AND NON-CASH INVESTING AND
FINANCING ACTIVITIES
Interest paid on loan -- Credit Facility $ 4,122,133 $ 3,323,625 $ 4,262,611
Interest paid on mortgages $ 24,809,169 $ 25,123,105 $ 24,694,546
Interest paid on swap agreements $ 4,650,568 $ 8,358,253 $ 7,947,273
Market value of securities distributed in payment of
redemptions $ 75,445,193 $ 48,343,640 $ 39,835,920
Market value of common stock received from Belvedere Company $ -- $ 20,270,450 $ 50,281,185
Market value of real property and other assets, net
of current liabilities, assumed in conjunction with
acquisition of other real estate $ -- $ 64,628,785 $ --
Mortgage assumed in conjunction with acquisition of other
real estate $ -- $ 59,601,825 $ --
Market value of real property and other assets, net
of current liabilities, disposed of in conjunction with
sale of other real estate $ -- $ 64,713,609 $ --
Mortgage disposed of in conjunction with sale of other real
estate $ -- $ 59,595,414 $ --
See notes to consolidated financial statements
42
BELPORT CAPITAL FUND LLC
CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE -- BEGINNING OF YEAR $ 94.920 $ 76.750 $ 98.370
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
Net investment income(1) $ 1.160 $ 1.157 $ 1.080
Net realized and unrealized gain (loss) 8.630 17.733 (22.700)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM OPERATIONS $ 9.790 $ 18.890 $ (21.620)
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Distributions to Shareholders $ (0.760) $ (0.720) $ --
Special Distributions to Shareholders -- (0.000)(9) --
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (0.760) $ (0.720) $ --
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE -- END OF YEAR $ 103.950 $ 94.920 $ 76.750
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2) 10.40% 24.81% (21.98)%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AS A PERCENTAGE OF AVERAGE NET ASSETS(3):
Expenses of Consolidated Real Property Subsidiaries
Interest and other borrowing costs(4) 1.27% 1.49% 1.30%
Operating expenses(4) 1.45% 1.64% 1.40%
Belport Capital Fund LLC Expenses
Interest and other borrowing costs(5)(6) 0.26% 0.26% 0.34%
Investment advisory and administrative fees, servicing
fees and other Fund operating expenses(5)(7) 1.11% 1.18% 1.13%
------------------------------------------------------------------
Total expenses 4.09% 4.57% 4.17%
Net investment income 1.21% 1.41% 1.25%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AS A PERCENTAGE OF AVERAGE GROSS ASSETS(3)(8):
Expenses of Consolidated Real Property Subsidiaries
Interest and other borrowing costs(4) 0.95% 1.06% 0.96%
Operating expenses(4) 1.07% 1.17% 1.04%
Belport Capital Fund LLC Expenses
Interest and other borrowing costs(5)(6) 0.19% 0.18% 0.25%
Investment advisory and administrative fees, servicing
fees and other Fund operating expenses(5)(7) 0.83% 0.84% 0.84%
------------------------------------------------------------------
Total expenses 3.04% 3.25% 3.09%
Net investment income 0.90% 1.01% 0.93%
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 1,657,761 $ 1,584,853 $ 1,324,642
Portfolio turnover of Tax-Managed Growth Portfolio (the
Portfolio) 3% 15% 23%
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Calculated using average shares outstanding.
(2) Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested.
(3) For the purpose of calculating ratios, the income and expenses of Belport
Realty Corporation's (Belport Realty) controlled subsidiaries are reduced
by the proportionate interest therein of investors other than Belport
Realty.
(4) Includes Belport Realty's proportional share of expenses incurred by its
majority-owned subsidiaries.
(5) Includes the expenses of Belport Capital Fund LLC (Belport Capital) and
Belport Realty. Does not include expenses of the real estate subsidiaries
majority-owned by Belport Realty.
(6) Ratios do not include interest incurred in connection with the interest
rate swap agreements. Had such amounts been included, ratios would be
higher.
(7) Includes Belport Capital's share of Belvedere Company's allocated expenses,
including those expenses allocated from the Portfolio.
(8) Average Gross Assets is defined as the average daily amount of all assets
of Belport Capital (including Belport Capital's interest in Belvedere
Company and Belport Capital's ratable share of the assets of its directly
and indirectly controlled subsidiaries (Note 1)), without reduction by any
liabilities. For this purpose, the assets of Belport Realty controlled
subsidiaries are reduced by the proportionate interests therein of
investors other than Belport Realty.
(9) Special Distributions amount to less than $0.001 per share for the year
ended December 31, 2003.
See notes to consolidated financial statements
43
BELPORT CAPITAL FUND LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 ORGANIZATION
A INVESTMENT OBJECTIVE -- Belport Capital Fund LLC (Belport Capital) is a
Delaware limited liability company established to offer diversification and
tax-sensitive investment management to investors holding large and concentrated
positions in equity securities of selected publicly-traded companies. The
investment objective of Belport Capital is to achieve long-term, after-tax
returns for Belport Capital shareholders (Shareholders). Belport Capital pursues
this objective primarily by investing indirectly in Tax-Managed Growth Portfolio
(the Portfolio), a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Portfolio
is organized as a trust under the laws of the state of New York. Belport Capital
maintains its investment in the Portfolio by investing in Belvedere Capital Fund
Company LLC (Belvedere Company), a separate Massachusetts limited liability
company that invests exclusively in the Portfolio. The performance of Belport
Capital and Belvedere Company is directly and substantially affected by the
performance of the Portfolio. Separate from its investment in the Portfolio
through Belvedere Company, Belport Capital invests in real estate assets through
a controlled subsidiary, Belport Realty Corporation (Belport Realty). Such
investments include income-producing preferred equity interests in real estate
operating partnerships (Partnership Preference Units) affiliated with
publicly-traded real estate investment trusts (REITs) and interests in real
properties held through joint ventures that are controlled subsidiaries of
Belport Realty.
B SUBSIDIARIES -- Belport Realty invests directly and indirectly in Partnership
Preference Units and indirectly in real property through controlled
subsidiaries, Bel Multifamily Property Trust (Bel Multifamily) and Monadnock
Property Trust, LLC (Monadnock). For a portion of the year ended December 31,
2003, Belport Realty also invested indirectly in real property through a
controlled subsidiary, Bel Oakbrook LLC (Bel Oakbrook). Belport Realty's
investments in Partnership Preference Units are held directly except for its
indirect investment in Partnership Preference Units of Vornado Realty, L.P. (a
Delaware Limited Partnership) which is held through its 15.0% and 23.1%
investment in Bel Holdings, LLC at December 31, 2004 and 2003, respectively.
Vornado Realty, L.P. is the sole investment of Bel Holdings, LLC.
Belport Realty -- Belport Capital owns 100% of the common stock issued by
Belport Realty and intends to hold all of Belport Realty's common stock at all
times. Additionally, 2,100 shares of preferred stock of Belport Realty are
outstanding at December 31, 2004 and 2003. The preferred stock has a par value
of $0.01 per share and is redeemable by Belport Realty at a redemption price of
$100 per share after the occurrence of certain tax events or after December 31,
2005. Dividends on the preferred stock are cumulative and payable annually equal
to $8 per share. The interest in preferred stock is recorded as minority
interest on the Consolidated Statements of Assets and Liabilities.
Bel Multifamily -- Bel Multifamily, a majority-owned subsidiary of Belport
Realty since March 2001, owns eleven multi-family residential properties
consisting of 3,011 units (collectively, the Bel Multifamily Properties) located
in seven states (Washington, Missouri, North Carolina, Arizona, Florida, Georgia
and Texas). The average occupancy rate was approximately 94% at December 31,
2004. Belport Realty owns 100% of the Class A shares of Bel Multifamily,
representing 75% of the voting interests in Bel Multifamily, and a minority
shareholder (the Bel Multifamily Minority Shareholder) owns 100% of the Class B
shares, representing 25% of the voting interests in Bel Multifamily. The Class B
equity interest is recorded as minority interest on the Consolidated Statements
of Assets and Liabilities. The primary distinctions between the two classes of
shares are the distribution priority and voting rights. Class A shares have
priority in distributions and greater voting rights than Class B shares.
Pursuant to a buy/sell agreement entered into at the time Bel Multifamily was
established, either Belport Realty or the Bel Multifamily Minority Shareholder
can give notice after February 22, 2010 either to buy the other's equity
interest in Bel Multifamily or to sell its own equity interest in Bel
Multifamily.
Monadnock -- Monadnock, a majority-owned subsidiary of Belport Realty since
October 2001, owns twelve multi-family residential properties consisting of
4,611 units (collectively, the Monadnock Properties) located in seven states
(Texas, Arizona, Georgia, North Carolina, Oregon, Tennessee and Florida). The
average occupancy rate was approximately 95% at December 31, 2004. Belport
Realty owns 100% of the Class A units of Monadnock and a minority shareholder
(the Monadnock Minority Shareholder) owns 100% of the Class B units. The units
of Monadnock entitled to board of managers' representation are currently owned
75% by Belport Realty and 25% by the Monadnock Minority Shareholder. The Class B
equity interest is recorded as minority interest on the Consolidated Statements
of Assets and Liabilities. The primary distinctions between the two classes of
units are the distribution priority and voting rights. Class A units have
priority in distributions and greater voting rights than Class B units. Pursuant
to a buy/sell agreement entered into at the time Monadnock was established,
either Belport Realty or the Monadnock Minority Shareholder can give notice
after September 13, 2010 either to buy the other's equity interest in Monadnock
or to sell its own equity interest in Monadnock.
44
Bel Oakbrook -- Bel Oakbrook, which was a wholly-owned subsidiary of Belport
Realty for a portion of the year ended December 31, 2003, owned 100% indirect
interest in an office building located in Illinois. The property is leased to a
single tenant on a triple net lease basis pursuant to a non-cancelable,
fixed-term operating lease expiring in June 2017 with options to extend the
lease or to purchase the property. Belport Realty did not own an interest in Bel
Oakbrook at December 31, 2003 or anytime thereafter.
The audited financial statements of the Portfolio, including the Portfolio of
Investments, are included elsewhere in this report and should be read in
conjunction with these financial statements.
2 SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed in the preparation of the consolidated financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America.
A PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of Belport Capital and its majority owned subsidiaries for the
periods during which Belport Capital was invested in such majority owned
subsidiaries. Belport Capital and Belport Realty consolidate all investments in
affiliates in which their ownership exceeds 50 percent. The accompanying
consolidated financial statements include the accounts of Belport Capital and
Belport Realty, and may also include Bel Multifamily, Monadnock and Bel Oakbrook
(collectively, the Fund). All material intercompany accounts and transactions
have been eliminated.
B BASIS OF PRESENTATION -- Belport Capital is an investment company and, as
such, presents its assets at fair value. Fixed liabilities are generally stated
at their principal value.
C INVESTMENT COSTS -- The Fund's investment assets were principally acquired
through contributions of common stock by Shareholders in exchange for Shares of
the Fund, through purchases of Partnership Preference Units and other real
estate investments, and through contributions of real estate investments by each
respective Minority Shareholder in exchange for cash and a minority interest in
controlled subsidiaries. Upon receipt of common stock from Shareholders, Belport
Capital immediately exchanged the contributed securities into Belvedere Company
for shares thereof, and Belvedere Company, in turn, immediately thereafter
exchanged the contributed securities into the Portfolio for an interest in the
Portfolio. The initial cost at which the Fund's investments of contributed
securities is carried in the consolidated financial statements is the value of
the contributed securities as of the close of business on the day prior to their
contribution to the Fund. The initial tax basis of the Fund's investment in the
Portfolio through Belvedere Company is the same as the contributing
Shareholders' basis in securities contributed to the Fund. The initial tax and
financial reporting basis of the Fund's investment in Partnership Preference
Units and other real estate purchased by the Fund is the purchase cost. The
initial cost at which the Fund's investments in real estate contributed to the
Fund is carried in the consolidated financial statements is the market value on
contribution date. The initial tax basis of real estate investments contributed
to the Fund is the contributor's tax basis at the time of contribution or value
at the time of contribution, depending on the taxability of the contribution.
D INVESTMENT AND OTHER VALUATIONS -- The Fund's investments may consist of
shares of Belvedere Company, real property investments, Partnership Preference
Units and short-term debt securities. Belvedere Company's only investment is an
interest in the Portfolio, the value of which is derived from a proportional
interest therein. Additionally, the Fund has entered into interest rate swap
agreements (Note 7). The valuation policy followed by the Fund, Belvedere
Company and the Portfolio is as follows:
Securities listed on a U.S. securities exchange generally are valued at the last
sale price on the day of valuation or, if no sales took place on such date, at
the mean between the closing bid and asked prices therefore on the exchange
where such securities are principally traded. Equity securities listed on the
NASDAQ National Market generally are valued at the official NASDAQ closing
price. Unlisted or listed securities for which closing sales prices or closing
quotations are not available are valued at the mean between the latest available
bid and asked prices or, in the case of preferred equity securities held by the
Portfolio that are not listed or traded in the over-the-counter market, by an
independent pricing service. Exchange-traded options are valued at the last sale
price for the day of valuation as quoted on the principal exchange or board of
trade on which the options are traded or, in the absence of sales on such date,
at the mean between the latest bid and asked prices therefore. Futures positions
on securities and currencies generally are valued at closing settlement prices.
Short-term debt securities with a remaining maturity of 60 days or less are
valued at amortized cost. If short-term debt securities were acquired with a
remaining maturity of more than 60 days, their amortized cost value will be
based on their value on the sixty-first day prior to maturity. Other fixed
income and debt securities, including listed securities and securities for which
45
price quotations are available, will normally be valued on the basis of
valuations furnished by a pricing service. Foreign securities and currencies are
valued in U.S. dollars, based on foreign currency exchange rate quotations
supplied by an independent quotation service. The daily valuation of foreign
securities generally is determined as of the close of trading on the principal
exhange on which such securities trade. Events occurring after the close of
trading on foreign exchanges may result in adjustments to the valuation of
foreign securities to more accurately reflect their fair value as of the close
of regular trading on the New York Stock Exchange (NYSE). When valuing foreign
equity securities that meet certain criteria, the Trustees have approved the use
of a fair value service that values such securities to reflect market trading
that occurs after the close of the applicable foreign markets of comparable
securities or other instruments that have a strong correlation to the securities
held by the Portfolio. Investments held by the Portfolio for which valuations or
market quotations are unavailable are valued at fair value using methods
determined in good faith by or at the direction of the Trustees of the Portfolio
considering relevant factors, data and information including the market value of
freely tradable securities of the same class in the principal market on which
such securities are normally traded. Interest rate swap agreements are valued by
Boston Management, as investment adviser of Belport Capital, based upon dealer
and counterparty quotes and pricing models which take into consideration the
market trading prices of interest rate swap agreements that have similar terms
to the interest rate swap agreements the Fund has entered.
Market prices for the Fund's real estate investments (including Partnership
Preference Units and joint ventures) are not readily available and therefore
they are stated in the Fund's consolidated financial statements at estimated
fair value. The estimated fair value of an investment represents the amount at
which Boston Management (as manager of Belport Realty) believes the investment
could be sold in a current transaction between willing parties in an orderly
disposition, that is, other than in a forced or liquidation sale. In valuing
these investments, Boston Management considers relevant factors, data and
information. With respect to investments in Partnership Preference Units, Boston
Management considers information from dealers and similar firms with knowledge
of such issues and/or the prices of comparable preferred equity securities and
other fixed or adjustable rate instruments having similar investment
characteristics. Real estate investments, other than Partnership Preference
Units, are primarily valued based upon independent valuations(i.e., appraisals),
that represent the amount at which Boston Management believes the investments
could be sold in a current transaction between willing parties and assume an
orderly disposition, that is, other than in a forced or liquidation sale.
Detailed real property valuations are performed at least annually and reviewed
periodically. When a property has not been appraised (such as when a property
has been recently acquired), Boston Management determines the estimated fair
value of the property based on the transaction value of the property, which
equals the total acquisition cost of the property, exclusive of certain legal
and transaction costs. Once an appraisal of a property has been conducted,
Boston Management bases the estimated fair value of the property principally on
the estimated value as determined by the appraiser. Appraisals of newly acquired
properties are conducted in the year following the acquisition. Interim
valuations of properties may be adjusted to reflect significant changes in
economic circumstances or recent evaluations of similar properties, and the
results of operations and distributions. The equity value of each real estate
joint venture between Belport Realty and the respective Minority Shareholder is
estimated using a financial model that consider (i) the terms of the joint
venture agreements relating to allocation of distributable cash flow, (ii) the
expected duration of the joint venture; and (iii) the projected property values
and cash flows from the properties based on estimates used in the independent
valuations. If detailed real property valuations have not been performed on
every property within a joint venture (such as when a joint venture recently
acquired the properties) then Boston Management allocates equity interest based
on the contractual ownership interest of Belport Realty and the respective
Minority Shareholder. Interim valuations reflect results of operations and
distributions, and may be adjusted if there has been a significant change in
economic circumstances or recent independent evaluations of similar properties.
The valuation of real estate investments includes many assumptions, including,
but not limited to, a current transaction between willing parties and an orderly
disposition of assets. If the assumptions used to value a real estate investment
change, it may materially impact the estimated fair value of that investment.
If a rental property securing a mortgage note payable has an estimated fair
value lower than the outstanding principal balance, the mortgage note payable
may be adjusted to the estimated fair value of the property securing the
mortgage note. No such adjustments have been made to mortgage notes payable at
December 31, 2004 and 2003.
Changes in the fair value of the Fund's investments are recorded as unrealized
appreciation or depreciation in the Consolidated Statements of Operations.
E INTEREST RATE SWAPS -- Belport Capital has entered into interest rate swap
agreements with respect to its borrowings and real estate investments. Pursuant
to these agreements, Belport Capital makes periodic payments to the counterparty
at predetermined fixed rates in exchange for floating-rate payments from the
counterparty that fluctuate with one-month LIBOR. Net interest paid and accrued
or received and earned is recorded as realized gains or losses and changes in
the underlying values of the swaps are recorded as unrealized appreciation
(depreciation), each in the Consolidated Statement of Operations. Belport
Capital is exposed to credit loss in the event of non-performance by
46
Capital is exposed to credit loss in the event of non-performance by the swap
counterparty. Risks may arise from the unanticipated movements in the value of
interest rates.
F RENTAL OPERATIONS -- The apartment units held by Bel Multifamily and Monadnock
are leased to residents generally for a term averaging approximately one year,
renewable upon consent of both parties on a year-to-year or month-to-month
basis.
The mortgage escrow accounts consist of deposits for real estate taxes,
insurance, reserve for replacements and capital repairs as required under the
mortgage agreements. The mortgage escrow accounts are held and controlled by
mortgage lenders (Note 8).
Certain of the costs incurred in connection with acquisitions of properties have
been capitalized. Significant betterments and improvements are capitalized as
part of real property.
G INCOME -- Dividend income and distributions from Partnership Preference Units
are recorded on the ex-dividend date and interest income is recorded on the
accrual basis. Rental income is recorded on the accrual basis based upon the
terms of the lease agreements.
Belvedere Company's net investment income or loss consists of Belvedere
Company's pro rata share of the net investment income or loss of the Portfolio,
less all actual or accrued expenses of Belvedere Company, determined in
accordance with accounting principles generally accepted in the United States of
America. The Fund's net investment income or loss consists of the Fund's pro
rata share of the net investment income or loss of Belvedere Company, plus all
income earned on the Fund's direct and indirect investments (including
Partnership Preference Units and real property), less all actual and accrued
expenses of the Fund determined in accordance with accounting principles
generally accepted in the United States of America.
H DEFERRED COSTS -- Mortgage origination expenses incurred in connection with
the financing of real estate joint ventures are capitalized and amortized over
the terms of the respective loans. Deferred loan costs are included in other
assets and amortization expense is included in mortgage interest expense in the
accompanying consolidated financial statements.
I INCOME TAXES -- Belport Capital, Belvedere Company and the Portfolio are
treated as partnerships for federal income tax purposes. As a result, Belport
Capital, Belvedere Company and the Portfolio do not incur federal income tax
liability, and the shareholders and partners thereof are individually
responsible for taxes on items of partnership income, gain, loss and deduction.
The policy of Belport Realty, Bel Multifamily and Monadnock is to comply with
the Internal Revenue Code of 1986, as amended, applicable to REITs. Belport
Realty, Bel Multifamily and Monadnock will generally not be subject to federal
income tax to the extent that they distribute their earnings to their
stockholders each year and maintain their qualification as REITs. Bel Oakbrook
was a single member limited liability company treated as a pass-through entity
for federal tax purposes for the period that Belport Realty owned an interest in
Bel Oakbrook.
Net investment income and capital gains determined in accordance with income tax
regulations may differ from such amounts determined in accordance with generally
accepted accounting principles. Such differences could be significant and are
primarily due to differences in the cost basis of securities and other
contributed investments, depreciation on real estate assets, periodic payments
made in connection with interest rate swap agreements and the character of
distributions received from REITs and Partnership Preference Units.
J OTHER -- Investment transactions are accounted for on a trade date basis.
K USE OF ESTIMATES -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of income and expense during the reporting period. Actual
results could differ from those estimates.
L RECLASSIFICATIONS -- Certain amounts in the prior years' consolidated
financial statements have been reclassified to conform with the current year
presentation.
M INDEMNIFICATIONS -- Under Belport Capital's Limited Liability Company
Agreement, Belport Capital's officers, its manager, investment adviser, and any
affiliate, associate, officer, employee or trustee thereof, and any manager,
director, officer or employee of Belport Realty or any other controlled
subsidiary may be indemnified against certain liabilities and expenses arising
out of their duties to the Fund. Shareholders also may be indemnified against
personal liability for the liabilities of Belport Capital. Additionally, in the
normal course of business, the Fund enters into agreements with service
providers that may contain indemnification clauses. The Fund's maximum exposure
under these arrangements is unknown as this would involve future claims that may
be made against the Fund that have not yet occurred.
3 DISTRIBUTIONS TO SHAREHOLDERS
Belport Capital intends to distribute at the end of each year, or shortly
thereafter, the amount of its net investment income for the year, if any, and
47
18% of the amount of its net realized capital gains for such year (reduced
during the year ended December 31, 2003 from 22% to reflect the reduction in
federal long-term capital gains tax rates), if any, other than precontribution
gains allocated to a Shareholder in connection with a tender offer or other
extraordinary event with respect to a security contributed by that Shareholder
or such Shareholder's predecessor in interest. In addition, whenever a
distribution in respect of a precontribution gain is made, Belport Capital
intends to make a supplemental distribution to compensate Shareholders receiving
such distributions for taxes that may be due on income specially allocated in
connection with the precontribution gain and supplemental distributions. Capital
gain distributions that are made with respect to realized precontribution gains
and the associated supplemental distributions (collectively, Special
Distributions) are made solely to the Shareholders to whom such realized
precontribution gain is allocated. Special Distributions paid or accrued during
the year ended December 31, 2003 were $17. There were no Special Distributions
paid or accrued during the years ended December 31, 2004 and 2002.
The Fund's distributions generally are based on determinations of net investment
income and net realized capital gains for federal income tax purposes. Such
amounts may differ from net investment income (or loss) and net realized gain
(or loss) as set forth in the Fund's financial statements due to differences in
the treatment of various income, gain, loss, expense and other items for federal
income tax purposes and under generally accepted accounting principles.
In addition, Belport Realty, Bel Multifamily and Monadnock intend to distribute
substantially all of their taxable income earned by the respective entities
during the year.
4 SHAREHOLDER TRANSACTIONS
Belport Capital may issue an unlimited number of full and fractional Fund
Shares. Transactions in Fund Shares were as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
- ------------------------------------------------------------------------------------------
Issued to Shareholders electing to
receive payment of distributions
in Fund Shares 67,193 83,010 --
Redemptions (817,197) (643,812) (524,147)
- ------------------------------------------------------------------------------------------
NET DECREASE (750,004) (560,802) (524,147)
- ------------------------------------------------------------------------------------------
Redemptions of Fund Shares held less than three years are generally subject to a
redemption fee of 1% of the net asset value of Fund Shares redeemed. The
redemption fee is paid to Eaton Vance Distributors, Inc. (EV Distributors) by
Belport Capital on behalf of the redeeming Shareholder. No charge is levied on
redemptions of Fund Shares acquired through the reinvestment of distributions,
Fund Shares redeemed in connection with a taxable tender offer or other taxable
corporate event or Fund Shares redeemed following the death of all of the
initial holders of the Fund Shares redeemed. In addition, no fee applies to
redemptions made pursuant to a Systematic Redemption Plan, whereby a Shareholder
can redeem up to 2% of Fund Shares held on a quarterly basis. EV Distributors
received redemption fees of $103,353, $449,806 and $183,987 for the years ended
December 31, 2004, 2003 and 2002, respectively.
Shareholders in Belport Capital are entitled to restructure their Fund Share
interests under what is termed an Estate Freeze Election. Under this election,
Fund Shares are divided into Preferred Shares and Common Shares. Preferred
Shares have a preferential right over the corresponding Common Shares equal to
(i) 95% of the original capital contribution made in respect of the undivided
Shares from which the Preferred Shares and Common Shares were derived, plus (ii)
an annuity priority return equal to 8.5% of the Preferred Shares' preferential
interest in the original capital contribution of the undivided Fund Shares. The
associated Common Shares are entitled to the remaining 5% of the original
capital contribution in respect of the undivided Fund Shares, plus any returns
thereon in excess of the fixed annual priority of the Preferred Shares. The
existence of restructured Fund Shares does not adversely affect Shareholders who
do not participate in the election nor do the restructured Fund Shares have
preferential rights to Fund Shares that have not been restructured. Shareholders
who subdivide Fund Shares under this election sacrifice certain rights and
privileges that they would otherwise have with respect to the Fund Shares so
divided, including redemption rights and voting and consent rights. Upon the
twentieth anniversary of the issuance of the associated undivided Fund Shares to
the original holders thereof, Preferred and Common Shares will automatically
convert into full and fractional undivided Fund Shares.
The allocation of Belport Capital's net asset value per Share of $103.95 and
$94.92 as of December 31, 2004 and 2003, respectively, between Preferred and
Common Shares that have been restructured is as follows:
PER SHARE VALUE AT PER SHARE VALUE AT
DECEMBER 31, 2004 DECEMBER 31, 2003
-------------------------------------------------
PREFERRED COMMON PREFERRED COMMON
DATE OF CONTRIBUTION SHARES SHARES SHARES SHARES
- ----------------------------------------------------------------------------
May 23, 2001 $ 103.46 $ 0.49 $ 94.92 $ --
July 26, 2001 $ 98.97 $ 4.98 $ 94.71 $ 0.21
December 18, 2001 $ 99.12 $ 4.83 $ 91.87 $ 3.05
48
5 INVESTMENT TRANSACTIONS
The following table summarizes the Fund's investment transactions, other than
short-term obligations, for the years ended December 31, 2004, 2003 and 2002:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
INVESTMENT TRANSACTION 2004 2003 2002
- -----------------------------------------------------------------------------------
Increases in investment in
Belvedere Company $ -- $ 41,000,000 $ 19,122,117
Decreases in investment in
Belvedere Company(1) $ 75,445,193 $ 48,343,640 $ 119,671,632
Acquisitions of other real
estate(2)(3) $ 48,851,337 $ 5,026,960 $ --
Sales of other real
estate(2)(3) $ 41,336,126 $ 5,356,755 $ --
Sale of common stock(1) $ -- $ 20,248,362 $ 50,221,589
Purchase of Partnership
Preference Units(4) $ 54,521,724 $ 18,533,268 $ --
Sales of Partnership
Preference Units(5) $ 69,005,383 $ 28,280,856 $ --
(1) Included in decreases in investment in Belvedere Company for the years
ended December 31, 2003 and 2002 is the receipt of common stock through a
redemption in-kind of $20,270,450 and $50,281,185, respectively. Belport
Capital subsequently sold the common stock during the years ended December
31, 2003 and 2002 recognizing losses of $22,088 and $59,596, respectively,
on the transactions.
(2) In January 2004, a multifamily residential property owned by Monadnock was
sold to a third party for which a gain of $4,391,466 was recognized. In
June and November, 2004, Monadnock subsequently acquired two replacement
multifamily residential properties with the proceeds from that sale.
(3) In March 2003 the Fund established Bel Oakbrook, a then wholly-owned
subsidiary of Belport Realty. Bel Oakbrook concurrently acquired a 100%
ownership interest in an office building. In May 2003, Belport Realty sold
its interest in Bel Oakbrook to another investment fund advised by Boston
Management. A gain of $323,384 was recognized on the transaction.
(4) Purchases of partnership Preference Units during the years ended December
31, 2004 and 2003 represent Partnership Preference Units purchased from
other investment funds advised by Boston Management. There were no
purchases of Partnership Preference Units for the year ended December 31,
2002.
(5) Sales of Partnership Preference Units for the years ended December 31, 2004
and 2003 represent Partnership Preference Units sold to other investment
funds advised by Boston Management for which gains of $201,627 and
$4,667,180, respectively were recognized. There were no sales of
Partnership Preference Units for the year ended December 31, 2002.
6 INDIRECT INVESTMENT IN PORTFOLIO
The following table summarizes the Fund's investment in the Portfolio through
Belvedere Company, for the years ended December 31, 2004, 2003 and 2002
including allocations of income, expenses and net realized and unrealized gains
(losses) for the years then ended:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
- -----------------------------------------------------------------------------------------------
Belvedere Company's
interest in the
Portfolio(1) $ 12,806,516,230 $ 11,100,012,615 $ 8,753,268,522
The Fund's investment in
Belvedere Company(2) $ 1,685,083,562 $ 1,611,769,203 $ 1,322,126,211
Income allocated to
Belvedere Company
from the Portfolio $ 189,728,235 $ 143,671,130 $ 123,096,851
Income allocated to the
Fund from Belvedere
Company $ 26,328,955 $ 21,638,758 $ 20,084,868
Expenses allocated to
Belvedere Company
from the Portfolio $ 51,953,817 $ 43,085,940 $ 42,648,896
Expenses allocated to the
Fund from Belvedere
Company(3) $ 9,722,292 $ 8,705,495 $ 9,368,372
Net realized gain (loss)
from investment
transactions, securities
sold short and foreign
currency transactions
allocated to Belvedere
Company from the
Portfolio $ 276,250,393 $ 128,352,887 $ (2,190,956)
Net realized gain (loss)
from investment
transactions, securities
sold short and foreign
currency transactions
allocated to the Fund
from Belvedere
Company $ 36,943,971 $ 18,686,724 $ (9,996,126)
Net change in unrealized
appreciation (depreciation)
of investments, securities
sold short and foreign
currency allocated to
Belvedere Company
from the Portfolio $ 691,783,587 $ 1,892,271,872 $ (2,139,304,336)
49
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
- -----------------------------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation)
of investments, securities
sold short and foreign
currency allocated to the
Fund from Belvedere
Company $ 95,208,918 $ 285,637,095 $ (340,666,941)
(1) As of December 31, 2004, 2003 and 2002, the value of Belvedere Company's
interest in the Portfolio represents 66.9%, 63.0% and 60.1% of the
Portfolio's net assets, respectively.
(2) As of December 31, 2004, 2003 and 2002 the Fund's investment in Belvedere
Company represents 13.1%, 14.5% and 15.1% of Belvedere Company's net
assets, respectively.
(3) Allocated expenses include $7,236,833, $6,491,194 and $6,989,394 of
expenses allocated from the Portfolio, operating expenses of $59,467,
$62,024 and $59,057 and service fees of $2,425,992, $2,152,277 and
$2,319,921, for the years ended December 31, 2004, 2003 and 2002,
respectively, (Note 9).
7 INTEREST RATE SWAP AGREEMENTS
Belport Capital has entered into interest rate swap agreements with Merrill
Lynch Capital Services, Inc. in connection with its real estate investments and
the associated borrowings. Under such agreements, Belport Capital has agreed to
make periodic payments at fixed rates in exchange for payments at floating
rates. The notional or contractual amounts of these instruments may not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these investments is meaningful only when
considered in conjunction with all related assets, liabilities and agreements.
Interest rate swap agreements open at December 31, 2004 and 2003 are listed
below.
INITIAL UNREALIZED UNREALIZED
NOTIONAL OPTIONAL FINAL APPRECI- APPRECI-
AMOUNT TERMI- TERMI- ATION AT ATION AT
EFFECTIVE (000'S FIXED FLOATING NATION NATION DECEMBER 31, DECEMBER 31,
DATE OMITTED) RATE RATE DATE DATE 2004 2003
- ---------------------------------------------------------------------------------------------
LIBOR +
10/03 $ 34,905 4.565% 0.20% 3/05 6/10 $ 314,958 $ 170,784
LIBOR +
10/03 46,160 4.045% 0.20% 2/10 6/10 443,777 326,668
LIBOR +
10/03 109,822 3.945% 0.20% - 6/10 1,456,189 1,266,218
- ---------------------------------------------------------------------------------------------
TOTAL $ 2,214,924 $ 1,763,670
- ---------------------------------------------------------------------------------------------
On October 1, 2003, new interest rate swap agreements were entered into to fix a
portion of the cost of Belport Capital's borrowings under the Credit Facility
(Note 8B) established on June 30, 2003. Concurrently, all interest rate swap
agreements outstanding on September 30, 2003 were terminated, resulting in
realized loses of $25,390,804.
8 DEBT
A MORTGAGES -- Rental property held by Belport Realty's controlled subsidiaries
is financed through mortgages issued to the controlled subsidiaries. The
mortgages are secured by the rental property. The mortgages are generally
without recourse to Belport Realty and Belport Capital, except, in the case of
Bel Multifamily, where there may be recourse for certain liabilities associated
with fraud, misrepresentation, misappropriation of funds, or breach of material
covenants, and liabilities arising from environmental conditions involving or
affecting the rental property subject to the mortgages. Belport Capital and
Belport Realty have received indemnification from the Bel Multifamily Minority
Shareholder (Note 1B) for certain of such potential liabilities.
The estimated fair value of rental property securing the loans was $509,700,473
and $484,704,890 at December 31, 2004 and 2003, respectively. Amounts
outstanding at December 31, 2004 and 2003 are as follows:
ANNUAL MONTHLY BALANCE AT BALANCE AT
MATURITY INTEREST INTEREST DECEMBER 31, DECEMBER 31,
DATE RATE PAYMENT* 2004 2003
- --------------------------------------------------------------------------------------
April 1, 2009 7.89% $ 100,647 $ 15,307,500 $ 15,307,500
March 1, 2011 6.95% 832,842 143,800,000 143,800,000
April 1, 2011 6.57% 1,105,952 202,000,000 202,000,000
- --------------------------------------------------------------------------------------
$ 2,039,441 $ 361,107,500 $ 361,107,500
- --------------------------------------------------------------------------------------
* Mortgages provide for monthly payments of interest only through the
respective maturity date, with the entire principal balance due on the
respective maturity date.
The estimated market value of the mortgage notes payable is approximately
$397,100,000 and $394,000,000 at December 31, 2004 and 2003, respectively. The
mortgage notes payable cannot be prepaid or otherwise disposed of without
incurring a substantial prepayment penalty or without the sale of the rental
property financed by the mortgage notes payable. Management generally has no
current plans to prepay or otherwise dispose of the mortgage notes payable or
sell the related rental property prior to the maturity date. The market value of
the mortgages is based on estimates using discounted cash flow analysis and
currently prevailing rates. Considerable judgment is necessary in interpreting
market data to develop estimates of market value. The use of different
assumptions or estimation methodologies may have a material effect on the
estimated market value.
50
B CREDIT FACILITY -- On June 30, 2003, Belport Capital refinanced its credit
facility with Citicorp North America, Inc. with two new credit arrangements with
DrKW Holdings, Inc. (DrKW) and Merrill Lynch Mortgage Capital, Inc. (Merrill
Lynch) (collectively, the Credit Facility). The Credit Facility has a seven-year
maturity and will expire on June 25, 2010. Belport Capital's obligations under
the Credit Facility are secured by a pledge of its assets, excluding the assets
of Bel Multifamily and Monadnock.
The credit arrangement with DrKW is a term loan facility that accrues interest
at a rate of one-month LIBOR plus 0.20% per annum.
The credit arrangement with Merrill Lynch is a revolving loan facility in the
amount of $54,000,000, including the ability to issue letters of credit up to
$10,000,000. This credit arrangement accrues interest at a rate of one-month
LIBOR plus 0.38% per annum. A commitment fee of 0.10% per annum is paid on the
unused commitment amount. Belport Capital pays all fees associated with issuing
letters of credit. A letter of credit was issued as a substitute for funding
certain mortgage escrow accounts required by the lender of Bel Multifamily. The
letter of credit expires on June 30, 2005 and automatically extends for one-year
periods not to extend beyond June 15, 2010.
The following table summarizes Belport Capital's Credit Facility:
AT DECEMBER 31, 2004 AT DECEMBER 31, 2003
- ----------------------------------------------------------------------------------------
Total amount available under
Credit Facility $ 272,500,000 $ 284,500,000
DrKW borrowings outstanding $ 218,500,000 $ 230,500,000
Merrill Lynch borrowings outstanding $ 17,400,000 $ --
Outstanding letters of credit $ 1,584,000 $ 1,584,000
Borrowings under the Credit Facility have been used to purchase the Fund's
interests in real estate investments, to pay selling commissions and
organizational expenses, and to provide for the liquidity needs of the Fund.
Additional borrowings under the Credit Facility may be made in the future for
these purposes.
9 MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Belport Capital and the Portfolio have engaged Boston Management as investment
adviser. Under the terms of the advisory agreement with the Portfolio, Boston
Management 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. Certain of the advisory fee rate
reductions are pursuant to an agreement between the Portfolio's Board of
Trustees and Boston Management. These reductions may not be changed without
Trustee and interestholder approval. For the years ended December 31, 2004, 2003
and 2002 the advisory fee applicable to the Portfolio was 0.43%, 0.44% and 0.44%
of average daily net assets, respectively.
In addition, Boston Management is, subject to the fee cap described below,
entitled to receive a monthly advisory and administrative fee of 1/20 of 1%
(0.60% annually) of the average daily gross assets of Belport Capital. The term
"gross assets" with respect to Belport Capital is defined to include the current
value of all of Belport Capital's assets, including Belport Capital's interest
in Belvedere Company and Belport Capital's ratable share of the assets of its
directly and indirectly controlled subsidiaries, without reduction by any
liabilities. Belport Realty pays Boston Management a monthly management fee at a
rate of 1/20 of 1% (equivalent to 0.60% annually) of the average daily gross
assets of Belport Realty. The term "gross assets" with respect to Belport Realty
is defined to include the current value of all assets of Belport Realty,
including Belport Realty's ratable share of the assets of its controlled
subsidiaries, without reduction by any liabilities. For this purpose, the assets
of Belport Realty's controlled subsidiaries are reduced by the proportionate
interest therein of investors other than Belport Realty.
Eaton Vance Management and Boston Management do not receive separate
compensation for serving as manager of Belport Capital and manager of Belvedere
Company, respectively.
As compensation for its services as Placement Agent, Belport Capital pays EV
Distributors a monthly distribution fee at a rate of 1/120 of 1% (equivalent to
0.10% annually) of Belport Capital's average daily net assets.
Payments to the Eaton Vance organization for investment advisory, management,
administration and distribution services made by or in respect of Belport
Capital on a direct or indirect basis are subject to a monthly fee cap at a rate
of 1/20 of 1% (equivalent to 0.60% annually) of the average daily gross assets
of Belport Capital (as defined above). Payments subject to the monthly fee cap
are the distribution fee paid to EV Distributors, Belport Capital's attributable
share of the advisory and management fees paid by the Portfolio and Belport
Realty, and Belport Capital's advisory and administrative fee. Boston Management
has agreed to waive a portion of the monthly advisory and administrative fee
otherwise payable by Belport Capital as necessary to comply with the monthly fee
cap.
51
Pursuant to a servicing agreement between Belvedere Company and EV Distributors,
Belvedere Company pays a servicing fee to EV Distributors for providing certain
services and information to Shareholders. With respect to shareholders who
subscribe through a subagent, EV Distributors assigns servicing responsibilities
and fees to the applicable subagent beginning twelve months after the issuance
of Fund Shares to such persons. The servicing fee is paid on a quarterly basis
at an annual rate of 0.15% of Belvedere Company's average daily net assets.
Pursuant to a servicing agreement between Belport Capital and EV Distributors,
Belport Capital pays a servicing fee to EV Distributors on a quarterly basis at
an annual rate of 0.25% of Belport Capital's average daily net assets, less
Belport Capital's allocated share of the servicing fee payable by Belvedere
Company.
Management services for the real property held by Bel Multifamily and Monadnock
are provided by an affiliate of each respective entity's Minority Shareholder
(Note 1B). Each management agreement provides for a management fee and allows
for reimbursement of payroll expenses incurred by the managers in conjunction
with managing each respective entity's properties (Note 1B).
The table below sets forth the fees, paid or payable by, or allocable to, the
Fund and Belport Realty for the years ended December 31, 2004, 2003 and 2002 in
connection with the services rendered by Eaton Vance, its affiliates, and
affiliates of Belport Realty's controlled subsidiaries.
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
- -----------------------------------------------------------------------------------
Advisory fee allocated to
Belvedere Company from
the Portfolio $ 50,252,861 $ 41,671,111 $ 41,180,780
Advisory fee allocated to
the Fund from Belvedere
Company $ 7,000,321 $ 6,277,917 $ 6,746,346
Advisory and administrative
fee and management
incurred directly by the Fund $ 5,774,152 $ 5,430,355 $ 5,509,938
Distribution fees $ 1,581,887 $ 1,390,860 $ 1,512,281
Reduction of advisory and
administrative fees $ 1,581,887 $ 1,390,860 $ 1,512,281
Servicing fees of Belvedere
Company $ 17,418,515 $ 14,288,579 $ 14,167,556
Servicing fees allocated to
the Fund from Belvedere
Company $ 2,425,992 $ 2,152,277 $ 2,319,921
Servicing fees incurred
directly by the Fund $ 1,528,820 $ 1,322,277 $ 1,463,390
Servicing fees paid or
accrued to subagents $ 3,921,327 $ 3,444,493 $ 1,637,934
Property management fees $ 2,511,920 $ 2,613,099 $ 2,712,324
10 SEGMENT INFORMATION
Belport Capital pursues its investment objective primarily by investing
indirectly in the Portfolio through Belvedere Company. The Portfolio is a
diversified investment company that emphasizes investments in common stocks of
domestic and foreign growth companies that are considered by its investment
adviser to be high in quality and attractive in their long-term investment
prospects. Separate from its investment in Belvedere Company, Belport Capital
invests in real estate assets through its subsidiary Belport Realty. Belport
Realty invests directly and indirectly in Partnership Preference Units and
indirectly in real property through controlled subsidiaries, Bel Multifamily,
Monadnock and Bel Oakbrook (for the period from March 19, 2003, to May 13, 2003)
(Note 1).
Belport Capital evaluates performance of the reportable segments based on the
net increase (decrease) in net assets from operations of the respective segment,
which includes net investment income (loss), realized gain (loss) and unrealized
appreciation (depreciation). The accounting policies of the reportable segments
are the same as those for the Fund on a consolidated basis (Note 2). No
reportable segments have been aggregated. Reportable information by segment is
as follows:
TAX-
MANAGED
FOR THE YEAR ENDED GROWTH REAL
DECEMBER 31, 2004 PORTFOLIO* ESTATE TOTAL
- -----------------------------------------------------------------------------------
Revenue $ 16,606,663 $ 69,884,288 $ 86,490,951
Interest expense
on mortgages -- (25,106,990) (25,106,990)
Interest expense on
Credit Facility (291,471) (3,497,650) (3,789,121)
Operating expenses (1,194,942) (31,679,047) (32,873,989)
Minority interest in net
income of
controlled subsidiaries -- (1,871,234) (1,871,234)
- -----------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 15,120,250 $ 7,729,367 $ 22,849,617
Net realized gain 36,943,971 3,538,746 40,482,717
Net change in unrealized
appreciation (depreciation) 95,208,918 3,923,995 99,132,913
- -----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS OF
REPORTABLE SEGMENTS $ 147,273,139 $ 15,192,108 $ 162,465,247
52
TAX-
MANAGED
FOR THE YEAR ENDED GROWTH REAL
DECEMBER 31, 2003 PORTFOLIO* ESTATE TOTAL
- -----------------------------------------------------------------------------------
Revenue $ 12,933,263 $ 73,882,093 $ 86,815,356
Interest expense
on mortgages -- (25,392,737) (25,392,737)
Interest expense on
Credit Facility -- (3,272,831) (3,272,831)
Operating expenses (1,011,068) (31,818,763) (32,829,831)
Minority interest in net
income of
controlled subsidiary -- (2,442,982) (2,442,982)
- ------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 11,922,195 $ 10,954,780 $ 22,876,975
Net realized gain (loss) 18,664,636 (28,687,186) (10,022,550)
Net change in unrealized
appreciation (depreciation) 285,637,095 23,449,719 309,086,814
- ------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS OF
REPORTABLE SEGMENTS $ 316,223,926 $ 5,717,313 $ 321,941,239
TAX-
MANAGED
FOR THE YEAR ENDED GROWTH REAL
DECEMBER 31, 2002 PORTFOLIO* ESTATE TOTAL
- ------------------------------------------------------------------------------------
Revenue $ 10,716,496 $ 76,407,590 $ 87,124,086
Interest expense
on mortgages -- (24,926,829) (24,926,829)
Interest expense on
Credit Facility -- (4,907,502) (4,907,502)
Operating expenses (1,032,117) (30,273,533) (31,305,650)
Minority interest in net
income of
controlled subsidiary -- (3,427,044) (3,427,044)
- ------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 9,684,379 $ 12,872,682 $ 22,557,061
Net realized loss (10,055,722) (7,966,617) (18,022,339)
Net change in unrealized
appreciation (depreciation) (340,666,941) (39,224,675) (379,891,616)
- ------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
FROM OPERATIONS OF
REPORTABLE SEGMENTS $ (341,038,284) $ (34,318,610) $ (375,356,894)
The following tables reconcile the reported segment information to the
consolidated financial statements for the periods indicated:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
- ------------------------------------------------------------------------------------
Revenue:
Revenue from reportable
segments $ 86,490,951 $ 86,815,356 $ 87,124,086
Unallocated amounts:
Interest earned on cash
not invested in the
Portfolio or in subsidiaries 138,534 107,615 34,292
- ------------------------------------------------------------------------------------
TOTAL REVENUE $ 86,629,485 $ 86,922,971 $ 87,158,378
- ------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations:
Net increase (decrease) in net
assets from operations of
reportable segments $ 162,465,247 $ 321,941,239 $ (375,356,894)
Unallocated investment income:
Interest earned on cash
not invested in the
Portfolio or in subsidiaries 138,534 107,615 34,292
Unallocated expenses(1):
Distribution and servicing fees (3,110,707) (2,713,137) (2,975,671)
Interest expense on Credit
Facility (374,748) (284,594) (258,290)
Audit, tax and legal fees (309,162) (215,470) (335,980)
Other operating expenses (129,201) (122,545) (112,914)
- ------------------------------------------------------------------------------------
TOTAL NET INCREASE (DECREASE) IN
NET ASSETS FROM OPERATIONS $ 158,679,963 $ 318,713,108 $ (379,005,457)
(1) Unallocated expenses represent costs incurred that pertain to the overall
operation of Belport Capital, and do not pertain to either operating
segment.
53
TAX-
MANAGED
GROWTH REAL
AT DECEMBER 31, 2004 PORTFOLIO* ESTATE TOTAL
- -----------------------------------------------------------------------------------------------
Segment assets $ 1,685,083,562 $ 603,343,343 $ 2,288,426,905
Segment liabilities 16,601,101 591,953,435 608,554,536
- -----------------------------------------------------------------------------------------------
NET ASSETS OF REPORTABLE
SEGMENTS $ 1,688,482,461 $ 11,389,908 $ 1,679,872,369
TAX-
MANAGED
GROWTH REAL
AT DECEMBER 31, 2004 PORTFOLIO* ESTATE TOTAL
- -----------------------------------------------------------------------------------------------
Segment assets $ 1,611,769,203 $ 589,657,910 $ 2,201,427,113
Segment liabilities 16,596,400 598,192,300 614,788,700
- -----------------------------------------------------------------------------------------------
NET ASSETS (LIABILITIES) OF
REPORTABLE SEGMENTS $ 1,595,172,803 $ (8,534,390) $ 1,586,638,413
* Belport Capital invests indirectly in Tax-Managed Growth Portfolio through
Belvedere Company.
The following table reconciles the reported segment information to the
consolidated financial statements for the periods indicated:
DECEMBER 31, 2004 DECEMBER 31, 2003
- ---------------------------------------------------------------------------------
Net assets:
Net assets of reportable segments $ 1,679,872,369 $ 1,586,638,413
Unallocated amounts:
Cash(1) 1,120,759 2,138,196
Short-term investments(1) 4,362,000 4,821,135
Loan payable -- Credit Facility(2) (27,371,938) (8,568,222)
Other liabilities (222,683) (176,110)
- ---------------------------------------------------------------------------------
TOTAL NET ASSETS $ 1,657,760,507 $ 1,584,853,412
- ---------------------------------------------------------------------------------
(1) Unallocated cash and short-term investments represent cash and cash
equivalents not invested in the Portfolio or real estate assets.
(2) Unallocated amount of loan payable -- Credit Facility represents borrowings
not specifically used to fund real estate investments. Such borrowings are
generally used to pay selling commissions, organization expenses and other
liquidity needs of the Fund.
11 SUBSEQUENT EVENT (UNAUDITED)
On January 27, 2005, the Fund made a distribution of $1.24 per share to
Shareholders of record on January 26, 2005.
54
BELPORT CAPITAL FUND LLC
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS OF BELPORT CAPITAL FUND LLC AND SUBSIDIARIES:
We have audited the accompanying consolidated statements of assets and
liabilities, including the consolidated portfolio of investments, of Belport
Capital Fund LLC and subsidiaries, (collectively, the Fund) as of December 31,
2004 and 2003, and the related consolidated statements of operations, changes in
net assets, cash flows, and financial highlights for each of the three years in
the period ended December 31, 2004. These financial statements and the 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 standards of the Public Company
Accounting Oversight Board (United States). 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. Our procedures included confirmation of
securities owned as of December 31, 2004 and 2003 by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund as of December 31, 2004 and 2003, the results of its
operations, the changes in its net assets, its cash flows, and the financial
highlights for each of the three years in the period ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004, based on the
criteria established in INTERNAL CONTROL -- INTEGRATED FRAMEWORK issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated March 11, 2005 expressed an unqualified opinion on management's assessment
of the effectiveness of the Company's internal control over financial reporting
and an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 11, 2005
55
BELPORT CAPITAL FUND LLC
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Eaton Vance Management ("Eaton Vance"), as manager of Belport Capital Fund LLC
(the "Fund"), with the participation of the Fund's Chief Executive Officer and
Chief Financial Officer, (collectively referred to in this report as
"management") is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the 1934 Act. The Fund's internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Fund's internal control over
financial reporting as of December 31, 2004. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework.
Based on its assessment and those criteria, management believes that the Fund
maintained effective internal control over financial reporting as of December
31, 2004.
The Fund's independent registered public accounting firm has issued an
attestation report on management's assessment of the Fund's internal control
over financial reporting. That report appears on the following page.
March 11, 2005
56
BELPORT CAPITAL FUND LLC
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS OF BELPORT CAPITAL FUND LLC AND SUBSIDIARIES:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Belport
Capital Fund LLC and Subsidiaries (the "Fund") maintained effective internal
control over financial reporting as of December 31, 2004, based on criteria
established in INTERNAL CONTROL -- INTEGRATED FRAMEWORK issued by the Committee
of Sponsoring Organizations of the Treadway Commission. The Fund's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by,
or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective
internal control over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the criteria established in INTERNAL
CONTROL -- INTEGRATED FRAMEWORK issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the criteria established in INTERNAL
CONTROL -- INTEGRATED FRAMEWORK issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements as of and for the year ended December 31, 2004 of the Fund and our
report dated March 11, 2005 expressed an unqualified opinion on those financial
statements.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 11, 2005
57
TAX-MANAGED GROWTH PORTFOLIO as of December 31, 2004
PORTFOLIO OF INVESTMENTS
COMMON STOCKS -- 99.8%
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 2.8%
Boeing Company (The) 796,801 $ 41,250,388
General Dynamics 735,000 76,881,000
Honeywell International, Inc. 277,798 9,836,827
Northrop Grumman Corp. 3,497,103 190,102,519
Raytheon Company 340,663 13,227,944
Rockwell Collins, Inc. 190,614 7,517,816
Teledyne Technologies Incorporated(1) 6,117 180,023
United Technologies Corp. 1,897,601 196,117,063
- ---------------------------------------------------------------------------------------------
$ 535,113,580
- ---------------------------------------------------------------------------------------------
AIR FREIGHT AND LOGISTICS -- 2.9%
FedEx Corporation 2,106,578 $ 207,476,867
Robinson (C.H.) Worldwide, Inc. 1,098,233 60,973,896
United Parcel Service, Inc. Class B 3,401,734 290,712,188
- ---------------------------------------------------------------------------------------------
$ 559,162,951
- ---------------------------------------------------------------------------------------------
AIRLINES -- 0.0%
Southwest Airlines, Inc. 294,642 $ 4,796,772
- ---------------------------------------------------------------------------------------------
$ 4,796,772
- ---------------------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.2%
ArvinMeritor, Inc. 8,000 $ 178,960
Borg-Warner Automotive, Inc. 381,499 20,665,801
Dana Corp. 25,000 433,250
Delphi Automotive Systems Corp. 6,199 55,915
Johnson Controls, Inc. 234,164 14,855,364
Visteon Corp. 9,828 96,020
- ---------------------------------------------------------------------------------------------
$ 36,285,310
- ---------------------------------------------------------------------------------------------
AUTOMOBILES -- 0.1%
DaimlerChrysler AG 7,000 $ 336,350
Ford Motor Co. 145,050 2,123,532
General Motors Corp. 13,492 540,490
Harley-Davidson, Inc. 140,700 8,547,525
Honda Motor Co. Ltd. ADR 20,000 521,200
- ---------------------------------------------------------------------------------------------
$ 12,069,097
- ---------------------------------------------------------------------------------------------
BEVERAGES -- 4.0%
Anheuser-Busch Companies, Inc. 4,421,625 $ 224,309,036
Brown-Forman Corp. Class A 547,732 27,802,876
Brown-Forman Corp. Class B 45,820 $ 2,230,518
Coca-Cola Company (The) 3,442,924 143,328,926
Coca-Cola Enterprises, Inc. 1,756,930 36,631,991
PepsiCo., Inc. 6,267,913 327,185,059
- ---------------------------------------------------------------------------------------------
$ 761,488,406
- ---------------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.7%
Amgen, Inc.(1) 4,060,747 $ 260,496,920
Applera Corp. - Celera Genomics Group(1) 26,000 357,500
Biogen Idec Inc.(1) 11,200 746,032
Genzyme Corp. - General Division(1) 564,926 32,805,253
Gilead Sciences, Inc.(1) 115,482 4,040,715
Incyte Pharmaceuticals, Inc.(1) 14,294 142,797
Invitrogen Corp.(1) 429,910 28,859,858
Vertex Pharmaceuticals, Inc.(1) 13,000 137,410
- ---------------------------------------------------------------------------------------------
$ 327,586,485
- ---------------------------------------------------------------------------------------------
BUILDING PRODUCTS -- 1.0%
American Standard Companies, Inc.(1) 977,738 $ 40,400,134
Masco Corporation 4,157,854 151,886,407
Water Pik Technologies(1) 2,141 37,960
- ---------------------------------------------------------------------------------------------
$ 192,324,501
- ---------------------------------------------------------------------------------------------
CAPITAL MARKETS -- 4.1%
Affiliated Managers Group(1) 20,520 $ 1,390,025
Bank of New York Co., Inc. (The) 402,028 13,435,776
Bear Stearns Companies, Inc. 88,001 9,003,382
Credit Suisse Group(1) 155,136 6,521,607
Federated Investors, Inc. 1,666,768 50,669,747
Franklin Resources, Inc. 1,462,116 101,836,379
Goldman Sachs Group, Inc. 832,738 86,638,062
Investors Financial Services Corp. 453,428 22,662,331
Knight Trading Group, Inc.(1) 1,750,000 19,162,500
Legg Mason, Inc. 26,461 1,938,533
Lehman Brothers Holdings, Inc. 99,493 8,703,648
Mellon Financial Corporation 221,912 6,903,682
Merrill Lynch & Co., Inc. 2,108,147 126,003,946
Morgan Stanley Dean Witter & Co. 4,737,998 263,053,649
Northern Trust Corp. 368,571 17,905,179
Nuveen Investments Class A 150,000 5,920,500
Piper Jaffray Companies, Inc.(1) 41,059 1,968,779
Price (T. Rowe) Group, Inc. 191,743 11,926,415
See notes to financial statements
58
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
CAPITAL MARKETS (CONTINUED)
Raymond James Financial, Inc. 147,337 $ 4,564,500
Schwab (Charles) & Co. 857,261 10,252,842
State Street Corp. 131,670 6,467,630
UBS AG 63,392 5,314,785
Waddell & Reed Financial, Inc., Class A 340,438 8,133,064
- ---------------------------------------------------------------------------------------------
$ 790,376,961
- ---------------------------------------------------------------------------------------------
CHEMICALS -- 1.0%
Airgas, Inc. 353,715 $ 9,376,985
Arch Chemicals, Inc. 4,950 142,461
Bayer AG ADR 40,000 1,359,200
Dow Chemical Co. (The) 247,183 12,238,030
DuPont (E.I.) de Nemours & Co. 1,328,903 65,182,692
Ecolab, Inc. 258,423 9,078,400
MacDermid, Inc. 61,937 2,235,926
Monsanto Company 19,181 1,065,505
Olin Corp. 9,900 217,998
PPG Industries, Inc. 23,542 1,604,623
Rohm and Haas, Co. 2,601 115,042
RPM, Inc. 70,138 1,378,913
Sigma-Aldrich Corp. 630,897 38,144,033
Solutia Inc.(1) 20,293 23,743
Valspar Corp. 818,316 40,923,983
- ---------------------------------------------------------------------------------------------
$ 183,087,534
- ---------------------------------------------------------------------------------------------
COMMERCIAL BANKS -- 8.6%
AmSouth Bancorporation 626,715 $ 16,231,919
Associated Banc-Corp 1,061,378 35,248,363
Bank of America Corporation 4,845,034 227,668,148
Bank of Hawaii Corp. 69,735 3,538,354
Bank of Montreal 267,204 12,863,201
Banknorth Group, Inc. 10,000 366,000
BB&T Corp. 1,826,737 76,814,291
Canadian Imperial Bank of Commerce 100,000 6,026,000
City National Corp. 273,260 19,305,819
Colonial Bancgroup, Inc. (The) 253,936 5,391,061
Comerica, Inc. 331,589 20,233,561
Commerce Bancshares, Inc. 155,154 7,788,731
Compass Bancshares, Inc. 301,339 14,666,169
Fifth Third Bancorp 1,355,381 64,082,414
First Citizens BancShares, Inc. 30,600 4,536,450
First Financial Bancorp 47,933 838,828
First Horizon National Corp. 155,551 $ 6,705,804
First Midwest Bancorp, Inc. 815,329 29,588,289
Hibernia Corp. Class A 187,345 5,528,551
HSBC Holdings PLC ADR 592,965 50,485,040
Huntington Bancshares, Inc. 586,532 14,534,263
Keycorp 625,951 21,219,739
M&T Bank Corp. 47,419 5,113,665
Marshall & Ilsley Corp. 629,932 27,842,994
National City Corp. 1,677,060 62,973,603
North Fork Bancorporation, Inc. 1,785,892 51,522,984
PNC Bank Corp. 156,003 8,960,812
Popular, Inc. 1,432 41,285
Regions Financial Corp. 2,282,030 81,217,448
Royal Bank of Canada 349,353 18,669,424
Royal Bank of Scotland Group PLC 50,837 1,707,348
S&T Bancorp, Inc. 100,000 3,769,000
Societe Generale 809,647 81,960,387
Southwest Bancorporation of Texas, Inc. 1,255,140 29,232,211
SunTrust Banks, Inc. 1,307,505 96,598,469
Synovus Financial Corp. 1,345,581 38,456,705
TCF Financial Corporation 72,500 2,330,150
U.S. Bancorp 5,276,270 165,252,776
Valley National Bancorp 164,652 4,552,628
Wachovia Corp. 2,239,760 117,811,376
Wells Fargo & Company 2,391,184 148,612,086
Westamerica Bancorporation 268,474 15,654,719
Whitney Holding Corp. 347,200 15,620,528
Zions Bancorporation 250,076 17,012,670
- ---------------------------------------------------------------------------------------------
$ 1,638,574,263
- ---------------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES -- 2.0%
Allied Waste Industries, Inc.(1) 1,674,390 $ 15,538,339
Apollo Group, Inc. Class A(1) 18,411 1,485,952
Avery Dennison Corp. 1,157,598 69,421,152
Banta Corp. 42,341 1,895,183
Block (H&R), Inc. 732,354 35,885,346
Cendant Corp. 549,359 12,844,013
Century Business Services, Inc.(1) 185,000 806,600
Cintas Corp. 1,399,270 61,371,982
Consolidated Graphics, Inc.(1) 70,215 3,222,869
Deluxe Corporation 32,000 1,194,560
Donnelley (R.R.) & Sons Co. 91,260 3,220,565
Equifax, Inc. 80,000 2,248,000
See notes to financial statements
59
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES (CONTINUED)
Gevity HR, Inc. 78,125 $ 1,606,250
HNI Corp. 1,470,565 63,307,823
Hudson Highland Group, Inc.(1) 11,581 333,533
Ikon Office Solutions, Inc. 83,040 959,942
Imagistics International Inc.(1) 809 27,231
Laureate Education Inc.(1) 520,213 22,936,191
Manpower, Inc. 2,000 96,600
Miller (Herman) Inc. 541,800 14,969,934
Monster Worldwide Inc.(1) 154,426 5,194,891
Navigant Consulting, Inc.(1) 463,017 12,316,252
Pitney Bowes, Inc. 42,343 1,959,634
School Specialty Corp.(1) 49,197 1,897,036
ServiceMaster Co. 1,224,880 16,891,095
Steelcase Inc. 123,000 1,702,320
Waste Management, Inc. 1,145,998 34,311,180
- ---------------------------------------------------------------------------------------------
$ 387,644,473
- ---------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.2%
3Com Corp.(1) 873,949 $ 3,644,367
ADC Telecommunications, Inc.(1) 301,164 807,119
Alcatel S.A. ADR(1) 43,728 683,469
Avaya, Inc.(1) 56,571 973,021
Ciena Corp.(1) 380,378 1,270,463
Cisco Systems, Inc.(1) 4,475,139 86,370,183
Comverse Technology, Inc.(1) 375,922 9,191,293
Corning, Inc.(1) 3,645,380 42,906,123
Enterasys Networks, Inc.(1) 55,945 100,701
JDS Uniphase Corp.(1) 52,451 166,270
Lucent Technologies, Inc.(1) 555,464 2,088,545
Motorola, Inc. 980,426 16,863,327
Nokia Corp., Class A, ADR 2,050,478 32,130,990
Nortel Networks Corp.(1) 1,135,030 3,961,255
Qualcomm, Inc. 758,638 32,166,251
Riverstone Networks, Inc.(1) 28,706 30,572
Tellabs, Inc.(1) 110,405 948,379
- ---------------------------------------------------------------------------------------------
$ 234,302,328
- ---------------------------------------------------------------------------------------------
COMPUTERS AND PERIPHERALS -- 3.4%
Dell Inc.(1) 4,460,429 $ 187,962,478
EMC Corp.(1) 1,388,652 20,649,255
Gateway, Inc.(1) 95,621 574,682
Hewlett-Packard Co. 1,094,183 22,945,018
International Business Machines Corp. 2,426,216 $ 239,176,373
Lexmark International Group, Inc.(1) 1,804,885 153,415,225
McData Corp., Class A(1) 17,982 107,173
Network Appliance, Inc.(1) 488,000 16,211,360
Palmone, Inc.(1) 65,230 2,058,007
Sun Microsystems, Inc.(1) 366,670 1,972,685
- ---------------------------------------------------------------------------------------------
$ 645,072,256
- ---------------------------------------------------------------------------------------------
CONSTRUCTION AND ENGINEERING -- 0.1%
Dycom Industries, Inc.(1) 149,711 $ 4,569,180
Jacobs Engineering Group, Inc.(1) 229,985 10,990,983
- ---------------------------------------------------------------------------------------------
$ 15,560,163
- ---------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS -- 0.1%
CRH plc 329,450 $ 8,812,801
Vulcan Materials Company 184,512 10,076,200
- ---------------------------------------------------------------------------------------------
$ 18,889,001
- ---------------------------------------------------------------------------------------------
CONSUMER FINANCE -- 1.2%
American Express Co. 772,583 $ 43,550,504
Capital One Financial Corp. 1,411,152 118,833,110
MBNA Corporation 456,002 12,854,696
Providian Financial Corp.(1) 457,296 7,531,665
SLM Corp. 905,499 48,344,592
- ---------------------------------------------------------------------------------------------
$ 231,114,567
- ---------------------------------------------------------------------------------------------
CONTAINERS AND PACKAGING -- 0.1%
Bemis Co. 295,186 $ 8,586,961
Caraustar Industries, Inc.(1) 167,599 2,819,015
Sealed Air Corp.(1) 37,014 1,971,736
Sonoco Products Co. 160,690 4,764,459
Temple-Inland, Inc. 57,962 3,964,601
- ---------------------------------------------------------------------------------------------
$ 22,106,772
- ---------------------------------------------------------------------------------------------
DISTRIBUTORS -- 0.1%
Genuine Parts Company 323,060 $ 14,234,024
- ---------------------------------------------------------------------------------------------
$ 14,234,024
- ---------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 1.7%
Citigroup Inc. 4,110,278 $ 198,033,194
Finova Group, Inc.(1) 175,587 28,094
See notes to financial statements
60
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
ING groep, N.V. ADR 257,281 $ 7,782,750
Moody's Corp. 67,543 5,866,110
Morgan (J.P.) Chase & Co. 2,952,221 115,166,141
- ---------------------------------------------------------------------------------------------
$ 326,876,289
- ---------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.1%
Alltel Corp. 1,632,558 $ 95,929,108
AT&T Corp. 495,955 9,452,902
BCE, Inc. 3,400,000 82,042,000
BellSouth Corp. 455,705 12,664,042
Cincinnati Bell Inc.(1) 169,013 701,404
Citizens Communications Co. 13,568 187,103
Deutsche Telekom AG(1) 2,006,790 45,513,997
McLeodUSA(1) 21,974 15,821
PTEK Holdings, Inc.(1) 28,000 299,880
Qwest Communications International, Inc.(1) 59,924 266,063
RSL Communications Ltd.(1)(2) 247,161 0
SBC Communications, Inc. 1,464,924 37,751,091
Sprint Corp. - FON Group 101,903 2,532,290
Talk America Holdings, Inc.(1) 9,703 64,234
Telefonos de Mexico ADR 2,000,000 76,640,000
Verizon Communications 1,050,565 42,558,388
- ---------------------------------------------------------------------------------------------
$ 406,618,323
- ---------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.3%
Ameren Corp. 5,000 $ 250,700
American Electric Power, Inc. 960 32,966
Exelon Corp. 1,002,000 44,158,140
PG&E Corp.(1) 47,705 1,587,622
Southern Co. (The) 65,985 2,211,817
TECO Energy, Inc. 34,145 523,784
TXU Corp. 250,196 16,152,654
Wisconsin Energy Corp. 9,576 322,807
- ---------------------------------------------------------------------------------------------
$ 65,240,490
- ---------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.5%
American Power Conversion Corp. 34,704 $ 742,666
Baldor Electric Co. 149,060 4,103,622
Emerson Electric Co. 1,111,539 77,918,884
Rockwell International Corp. 156,699 7,764,435
Roper Industries, Inc. 23,122 1,405,124
Thomas & Betts Corp.(1) 114,600 3,523,950
- ---------------------------------------------------------------------------------------------
$ 95,458,681
- ---------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 0.7%
Agilent Technologies, Inc.(1) 569,891 $ 13,734,373
Arrow Electronics, Inc.(1) 8,750 212,625
Dionex Corp.(1) 139,750 7,919,633
Flextronics International Ltd.(1) 293,053 4,049,992
Jabil Circuit, Inc.(1) 2,127,971 54,433,498
Molex, Inc., Class A 65,367 1,742,031
National Instruments Corp. 735,687 20,047,471
PerkinElmer, Inc. 254,526 5,724,290
Plexus Corp.(1) 158,108 2,056,985
Sanmina Corp.(1) 1,140,602 9,660,899
Solectron Corporation(1) 1,752,794 9,342,392
X-Rite Incorporated 288,000 4,610,880
- ---------------------------------------------------------------------------------------------
$ 133,535,069
- ---------------------------------------------------------------------------------------------
ENERGY EQUIPMENT AND SERVICES -- 0.7%
Baker Hughes, Inc. 457,426 $ 19,518,367
Core Laboratories N.V.(1) 31,290 730,622
Grant Prideco, Inc.(1) 35,444 710,652
Halliburton Company 990,930 38,884,093
National-Oilwell, Inc.(1) 514,062 18,141,248
Schlumberger Ltd. 567,476 37,992,518
Smith International, Inc.(1) 140,000 7,617,400
Transocean Sedco Forex, Inc.(1) 106,247 4,503,810
- ---------------------------------------------------------------------------------------------
$ 128,098,710
- ---------------------------------------------------------------------------------------------
FOOD AND STAPLES RETAILING -- 2.2%
Albertson's, Inc. 1,022,529 $ 24,417,993
Casey's General Stores, Inc. 89,966 1,632,883
Costco Wholesale Corp. 927,132 44,882,460
CVS Corp. 132,268 5,961,319
Kroger Co. (The)(1) 1,357,551 23,811,445
Safeway, Inc.(1) 1,649,342 32,558,011
Sysco Corp.(2)(3) 30,000 1,143,381
Sysco Corp. 1,749,792 66,789,561
Sysco Corp.(2)(3) 25,000 953,892
Walgreen Co. 800,825 30,727,655
Wal-Mart Stores, Inc. 3,481,821 183,909,785
Winn-Dixie Stores, Inc. 204,622 931,030
- ---------------------------------------------------------------------------------------------
$ 417,719,415
- ---------------------------------------------------------------------------------------------
FOOD PRODUCTS -- 2.8%
Archer-Daniels-Midland Co. 1,143,641 $ 25,514,631
See notes to financial statements
61
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
FOOD PRODUCTS (CONTINUED)
Campbell Soup Co. 1,242,265 $ 37,131,301
Conagra Inc. 1,657,734 48,820,266
Dean Foods Co.(1) 443,988 14,629,405
Del Monte Foods, Co.(1) 99,492 1,096,402
General Mills, Inc. 186,227 9,257,344
Heinz (H.J.) Co. 292,208 11,393,190
Hershey Foods Corp. 507,333 28,177,275
JM Smucker Co. 12,365 582,021
Kellogg Co. 59,640 2,663,522
Kraft Foods, Inc. 465 16,559
McCormick & Co., Inc. 1,624 62,686
Nestle SA 275,000 71,773,953
Sara Lee Corp. 3,789,758 91,484,758
Smithfield Foods, Inc.(1) 4,207,530 124,500,813
Tyson Foods, Inc. 315,272 5,801,005
Wrigley (Wm.) Jr. Company Class A 902,761 62,462,034
- ---------------------------------------------------------------------------------------------
$ 535,367,165
- ---------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT AND SUPPLIES -- 1.4%
Advanced Medical Optics(1) 3,558 $ 146,376
Bausch & Lomb, Inc. 29,250 1,885,455
Baxter International, Inc. 221,749 7,659,210
Becton & Dickinson and Co. 64,173 3,645,026
Biomet, Inc. 419,890 18,219,027
Boston Scientific Corporation(1) 1,110,370 39,473,654
Dentsply International, Inc. 10,928 614,154
Edwards Lifesciences Corp.(1) 10,353 427,165
Guidant Corp. 74,638 5,381,400
Hillenbrand Industries, Inc. 586,943 32,598,814
Hospira, Inc.(1) 246,711 8,264,819
Lumenis Ltd.(1) 100,000 193,500
Medtronic, Inc. 2,312,831 114,878,316
St. Jude Medical, Inc.(1) 48,028 2,013,814
Steris Corp.(1) 8,125 192,725
Stryker Corp. 36,741 1,772,753
VISX, Inc.(1) 50,000 1,293,500
Waters Corp.(1) 165,841 7,759,700
Zimmer Holdings, Inc.(1) 285,489 22,873,379
- ---------------------------------------------------------------------------------------------
$ 269,292,787
- ---------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS AND SERVICES -- 1.9%
AmerisourceBergen Corp. 141,513 $ 8,303,983
Andrx Group(1) 180,170 $ 3,933,111
Beverly Enterprises, Inc.(1) 357,143 3,267,858
Cardinal Health, Inc. 1,840,995 107,053,859
Caremark Rx, Inc.(1) 701,471 27,659,002
Cigna Corp. 11,836 965,463
Express Scripts, Inc.(1) 26,658 2,037,738
HCA Inc. 140 5,594
Health Management Associates, Inc., Class A 856,502 19,459,725
IDX Systems Corp.(1) 60,000 2,067,600
IMS Health, Inc. 280,530 6,511,101
McKesson HBOC, Inc. 2,631 82,771
Medco Health Solutions, Inc.(1) 170,891 7,109,066
Parexel International Corp.(1) 27,837 565,091
Renal Care Group, Inc.(1) 480,046 17,276,856
Schein (Henry), Corp.(1) 1,188,477 82,765,538
Service Corp. International(1) 142,389 1,060,798
Stewart Enterprises, Inc.(1) 114,000 796,860
Sunrise Assisted Living, Inc.(1) 144,000 6,675,840
Tenet Healthcare Corp.(1) 3,961 43,492
UnitedHealth Group, Inc. 201,976 17,779,947
Ventiv Health, Inc.(1) 160,833 3,268,127
WellPoint Inc.(1) 404,000 46,460,000
- ---------------------------------------------------------------------------------------------
$ 365,149,420
- ---------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS AND LEISURE -- 1.9%
Brinker International, Inc.(1) 304,144 $ 10,666,330
Carnival Corporation 565,071 32,565,042
CBRL Group, Inc. 62,047 2,596,667
Darden Restaurants Inc. 184,714 5,123,966
Evans (Bob) Farms, Inc. 51,662 1,350,445
Gaylord Entertainment Co.(1) 428,482 17,794,857
International Game Technology 400,000 13,752,000
International Speedway Corporation 118,344 6,248,563
Jack in the Box, Inc.(1) 500,000 18,435,000
Lone Star Steakhouse & Saloon, Inc. 145,981 4,087,468
Marriott International, Inc. 288,169 18,148,884
McDonald's Corp. 690,866 22,149,164
MGM Grand, Inc.(1) 94,445 6,869,929
Navigant International, Inc.(1) 44,278 538,863
Outback Steakhouse, Inc. 1,641,207 75,134,456
Papa John's International, Inc.(1) 195,330 6,727,165
Royal Caribbean Cruises Ltd. 500,000 27,220,000
Sonic Corp.(1) 159,765 4,872,833
See notes to financial statements
62
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS AND LEISURE (CONTINUED)
Starbucks Corp.(1) 1,229,375 $ 76,663,825
Yum! Brands, Inc. 236,779 11,171,233
- ---------------------------------------------------------------------------------------------
$ 362,116,690
- ---------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.6%
Blyth Industries, Inc. 708,382 $ 20,939,772
D.R. Horton Inc. 468,942 18,903,052
Department 56, Inc.(1) 255,162 4,248,447
Fortune Brands Inc. 128,148 9,890,463
Helen of Troy Ltd.(1) 20,000 672,200
Interface, Inc. Class A(1) 75,467 752,406
Leggett & Platt, Inc. 1,813,805 51,566,476
Maytag Corp. 27,073 571,240
Newell Rubbermaid, Inc. 374,251 9,053,132
Snap-On, Inc. 42,453 1,458,685
- ---------------------------------------------------------------------------------------------
$ 118,055,873
- ---------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.7%
Clorox Co. (The) 53,688 $ 3,163,834
Colgate-Palmolive Co. 699,356 35,779,053
Energizer Holdings(1) 168,981 8,396,666
Kimberly-Clark Corp. 1,476,156 97,145,826
Procter & Gamble Co. 3,229,777 177,896,117
- ---------------------------------------------------------------------------------------------
$ 322,381,496
- ---------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 2.9%
3M Co. 697,787 $ 57,267,379
General Electric Co. 11,805,529 430,901,809
Teleflex, Inc. 33,700 1,750,378
Tyco International Ltd. 2,017,132 72,092,298
- ---------------------------------------------------------------------------------------------
$ 562,011,864
- ---------------------------------------------------------------------------------------------
INSURANCE -- 5.9%
21st Century Insurance Group 70,700 $ 961,520
Aegon N.V. ADR 5,311,829 72,825,176
AFLAC Inc. 2,190,281 87,260,795
Allstate Corp. (The) 199,712 10,329,105
American International Group, Inc. 5,670,853 372,404,917
AON Corp. 824,293 19,667,631
Berkshire Hathaway, Inc., Class A(1) 450 39,555,000
Berkshire Hathaway, Inc., Class B(1) 40,634 119,301,424
Chubb Corporation 7,077 544,221
Commerce Group, Inc. 120,000 $ 7,324,800
Gallagher (Arthur J.) and Co. 821,773 26,707,623
Hartford Financial Services Group, Inc. 13,797 956,270
Jefferson-Pilot Corp. 186,921 9,712,415
Lincoln National Corp. 52,903 2,469,512
Manulife Financial Corp. 74,958 3,463,060
Marsh & McLennan Cos., Inc. 1,080,587 35,551,312
MetLife, Inc. 1,869,700 75,741,547
Old Republic International Corp. 240,548 6,085,864
Progressive Corp.(2)(3) 10,900 923,369
Progressive Corp. 1,991,008 168,917,119
Safeco Corp. 173,122 9,043,893
St. Paul Companies, Inc. (The) 311,524 11,548,195
Torchmark Corp. 417,159 23,836,465
UICI 43,597 1,477,938
UnumProvident Corp. 53,710 963,557
XL Capital Ltd., Class A 187,100 14,528,315
- ---------------------------------------------------------------------------------------------
$ 1,122,101,043
- ---------------------------------------------------------------------------------------------
INTERNET AND CATALOG RETAIL -- 0.5%
Amazon.com Inc.(1) 23,500 $ 1,040,815
eBay, Inc.(1) 619,501 72,035,576
IAC/InterActivecorp(1) 806,192 22,267,023
- ---------------------------------------------------------------------------------------------
$ 95,343,414
- ---------------------------------------------------------------------------------------------
INTERNET SOFTWARE AND SERVICES -- 0.0%
Retek, Inc.(1) 110,742 $ 681,063
- ---------------------------------------------------------------------------------------------
$ 681,063
- ---------------------------------------------------------------------------------------------
IT SERVICES -- 2.8%
Accenture Ltd.(1) 4,838,000 $ 130,626,000
Acxiom Corp. 647,804 17,037,245
Affiliated Computer Services(1) 183,730 11,058,709
Automatic Data Processing, Inc. 1,553,046 68,877,590
BISYS Group, Inc. (The)(1) 280,492 4,614,093
Ceridian Corp.(1) 27,490 502,517
Certegy, Inc. 42,862 1,522,887
Computer Sciences Corp.(1) 362,598 20,439,649
CSG Systems International, Inc.(1) 25,200 471,240
DST Systems, Inc.(1) 391,634 20,411,964
eFunds Corp.(1) 17,645 423,656
Electronic Data Systems Corp. 77,336 1,786,462
See notes to financial statements
63
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
IT SERVICES (CONTINUED)
First Data Corp. 3,776,540 $ 160,654,012
Fiserv, Inc.(1) 300,000 12,057,000
Gartner Group, Inc., Class A(1) 4,811 59,945
Gartner Group, Inc., Class B(1) 27,576 338,909
Keane, Inc.(1) 50,295 739,337
Paychex, Inc. 1,398,101 47,647,282
Perot Systems Corp.(1) 725,507 11,629,877
Safeguard Scientifics, Inc.(1) 26,579 56,347
SunGard Data Systems, Inc.(1) 773,601 21,916,116
- ---------------------------------------------------------------------------------------------
$ 532,870,837
- ---------------------------------------------------------------------------------------------
LEISURE EQUIPMENT AND PRODUCTS -- 0.0%
Eastman Kodak Co. 113,722 $ 3,667,535
Mattel, Inc. 1,096 21,361
- ---------------------------------------------------------------------------------------------
$ 3,688,896
- ---------------------------------------------------------------------------------------------
MACHINERY -- 3.1%
Caterpillar, Inc. 53,830 $ 5,248,963
Danaher Corporation 4,031,970 231,475,398
Deere & Co. 3,350,000 249,240,000
Donaldson Company, Inc. 80,440 2,620,735
Dover Corp. 165,567 6,943,880
Federal Signal Corp. 283,471 5,006,098
Illinois Tool Works, Inc. 809,040 74,981,827
ITT Industries, Inc. 4,214 355,872
Nordson Corporation 163,978 6,570,598
Parker-Hannifin Corporation 30,653 2,321,658
Tecumseh Products Co., Class A 125,700 6,008,460
Wabtec 94,504 2,014,825
- ---------------------------------------------------------------------------------------------
$ 592,788,314
- ---------------------------------------------------------------------------------------------
MEDIA -- 5.3%
ADVO, Inc. 750,000 $ 26,737,500
Arbitron, Inc.(1) 11,555 452,725
Belo (A.H.) Corp. 542,924 14,246,326
Cablevision Systems Corp.(1) 207,410 5,165,546
Catalina Marketing Corp. 88,490 2,621,959
Clear Channel Communications, Inc. 145,017 4,856,619
Comcast Corp. Class A(1) 1,968,785 65,521,165
Comcast Corp. Class A Special(1) 1,280,622 42,055,626
Disney (Walt) Company 4,834,833 134,408,357
EchoStar Communications, Class A 35,150 1,168,386
Entercom Communications Corp.(1) 220,000 $ 7,895,800
Gannett Co., Inc. 1,562,342 127,643,341
Havas Advertising, S.A. ADR 3,142,938 17,565,880
Interpublic Group of Companies, Inc.(1) 1,134,505 15,202,367
Knight Ridder, Inc. 18,123 1,213,154
Lamar Advertising Co.(1) 241,409 10,327,477
Liberty Media Corp. Class A(1) 1,013,104 11,123,882
Liberty Media Corp. Class B(1) 32,876 381,362
Liberty Media International Inc. Class A(1) 50,655 2,341,781
Liberty Media International Inc. Class B(1) 1,643 80,408
McClatchy Co. (The) 48,066 3,451,619
McGraw-Hill Companies, Inc. (The) 446,964 40,915,085
Meredith Corp. 190,000 10,298,000
New York Times Co. (The), Class A 303,168 12,369,254
News Corp. Inc. - Class A 187,934 3,506,848
Omnicom Group, Inc. 2,318,719 195,514,386
Proquest Company(1) 115,000 3,415,500
Publicis Groupe SA 360,784 11,681,944
Reuters Holdings plc ADR 1,431 61,461
Scripps (The E.W) Company 51,066 2,465,466
Time Warner Inc.(1) 4,102,164 79,746,068
Tribune Co. 1,428,878 60,212,919
Univision Communications, Inc.(1) 401,298 11,745,992
Viacom, Inc., Class A 29,774 1,104,020
Viacom, Inc., Class B 971,451 35,351,102
Vivendi Universal S.A. ADR(1) 490,725 15,737,551
Washington Post Co. (The) 14,970 14,715,809
Westwood One, Inc.(1) 122,400 3,296,232
WPP Group plc 139,450 1,529,144
WPP Group plc ADR 256,051 13,993,187
- ---------------------------------------------------------------------------------------------
$ 1,012,121,248
- ---------------------------------------------------------------------------------------------
METALS AND MINING -- 0.4%
Alcoa, Inc. 797,947 $ 25,071,495
Allegheny Technologies, Inc. 21,408 463,911
Inco, Ltd.(1) 200,000 7,356,000
Nucor Corp. 442,924 23,182,642
Phelps Dodge Corp. 14,862 1,470,149
Steel Dynamics, Inc. 311,800 11,810,984
Worthington Industries, Inc. 75,160 1,471,633
- ---------------------------------------------------------------------------------------------
$ 70,826,814
- ---------------------------------------------------------------------------------------------
See notes to financial statements
64
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
MULTILINE RETAIL -- 1.8%
99 Cents Only Stores(1) 1,142,232 $ 18,458,469
Dollar General Corp. 101,456 2,107,241
Dollar Tree Stores, Inc.(1) 813,306 23,325,616
Family Dollar Stores, Inc. 2,618,411 81,772,976
Kohls Corp.(1) 55 2,704
May Department Stores Co. (The) 607,760 17,868,144
Neiman Marcus Group, Inc. (The) 6 401
Nordstrom, Inc. 65,692 3,069,787
Penney (J.C.) Company, Inc. 223,408 9,249,091
Sears, Roebuck & Co. 23,074 1,177,466
Target Corp. 3,547,475 184,220,377
- ---------------------------------------------------------------------------------------------
$ 341,252,272
- ---------------------------------------------------------------------------------------------
MULTI-UTILITIES AND UNREGULATED POWER -- 0.1%
AES Corporation(1) 49,542 $ 677,239
Dominion Resources, Inc. 10,464 708,831
Duke Energy Corp. 417,416 10,573,147
Dynegy, Inc.(1) 63,525 293,486
National Fuel Gas Co. 4,000 113,360
- ---------------------------------------------------------------------------------------------
$ 12,366,063
- ---------------------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.0%
Xerox Corp.(1) 42,878 $ 729,355
Zebra Technologies Corp., Class A(1) 13,500 759,780
- ---------------------------------------------------------------------------------------------
$ 1,489,135
- ---------------------------------------------------------------------------------------------
OIL AND GAS -- 7.8%
Amerada Hess Corp. 18,947 $ 1,560,854
Anadarko Petroleum Corp. 2,557,003 165,719,364
Apache Corporation 2,075,352 104,950,551
Ashland, Inc. 85,716 5,004,100
BP plc ADR 5,081,540 296,761,936
Burlington Resources, Inc. 4,259,405 185,284,118
ChevronTexaco Corporation 311,976 16,381,860
ConocoPhillips 1,675,581 145,490,698
Devon Energy Corp. 1,015,400 39,519,368
El Paso Corp. 148,709 1,546,574
Exxon Mobil Corp. 6,231,588 319,431,201
Kerr - McGee Corp. 267,327 15,448,827
Kinder Morgan, Inc. 1,781,672 130,293,673
Marathon Oil Corp. 1,450 54,535
Murphy Oil Corporation 19,518 1,570,223
Newfield Exploration Company(1) 60,000 $ 3,543,000
Royal Dutch Petroleum Co. 83,074 4,766,786
Total Fina Elf SA ADR 400,000 43,936,000
Valero Energy Corp. 103,020 4,677,108
Williams Companies Inc (The) 219,065 3,568,569
- ---------------------------------------------------------------------------------------------
$ 1,489,509,345
- ---------------------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 0.2%
Georgia-Pacific Corp. 598,732 $ 22,440,475
International Paper Co. 112,154 4,710,468
Louisiana-Pacific Corp. 70,750 1,891,855
MeadWestvaco Corp. 84,358 2,858,893
Neenah Paper Inc.(1) 44,890 1,463,414
Weyerhaeuser Co. 89,778 6,034,877
- ---------------------------------------------------------------------------------------------
$ 39,399,982
- ---------------------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 1.5%
Avon Products, Inc. 173,400 $ 6,710,580
Gillette Company 3,950,586 176,907,241
Lauder (Estee) Companies, Inc. 2,092,312 95,765,120
- ---------------------------------------------------------------------------------------------
$ 279,382,941
- ---------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 6.2%
Abbott Laboratories 2,821,474 $ 131,621,762
Allergan, Inc. 38,300 3,104,981
Bristol-Myers Squibb Company 4,566,981 117,006,053
Elan Corp., PLC ADR(1) 31,838 867,586
Forest Laboratories, Inc.(1) 56,800 2,548,048
GlaxoSmithKline plc 430,517 20,402,201
Johnson & Johnson 3,181,341 201,760,646
King Pharmaceuticals, Inc.(1) 505,637 6,269,899
Lilly (Eli) & Co. 3,412,870 193,680,373
Merck & Co., Inc. 2,317,124 74,472,365
Mylan Laboratories, Inc. 27,992 494,899
Novo Nordisk ADR 292,277 15,858,950
Pfizer, Inc. 8,662,582 232,936,830
Schering AG ADR 25,000 1,856,250
Schering-Plough Corp. 2,515,998 52,534,038
Sepracor, Inc.(1) 4,000 237,480
Teva Pharmaceutical Industries Ltd. ADR 2,282,011 68,140,848
Watson Pharmaceuticals, Inc.(1) 865,911 28,410,540
Wyeth Corp. 790,783 33,679,448
- ---------------------------------------------------------------------------------------------
$ 1,185,883,197
- ---------------------------------------------------------------------------------------------
See notes to financial statements
65
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
REAL ESTATE -- 0.2%
AvalonBay Communities, Inc. 28,867 $ 2,173,685
Catellus Development Corp. 419,601 12,839,791
Forest City Enterprises - Class A 38,663 2,225,056
Jones Lang Lasalle, Inc.(1) 154,567 5,782,351
Plum Creek Timber Co., Inc. 198,791 7,641,526
Trammell Crow Co.(1) 764,200 13,839,662
- ---------------------------------------------------------------------------------------------
$ 44,502,071
- ---------------------------------------------------------------------------------------------
ROAD AND RAIL -- 0.2%
ANC Rental Corporation(1) 459,525 $ 46
Burlington Northern Santa Fe Corp. 207,932 9,837,263
CSX Corporation 38,134 1,528,411
Florida East Coast Industries, Inc. 121,978 5,501,208
Heartland Express, Inc. 653,154 14,676,370
Kansas City Southern Industries, Inc.(1) 15,215 269,762
Norfolk Southern Corp. 3,990 144,398
Union Pacific Corp. 7,811 525,290
- ---------------------------------------------------------------------------------------------
$ 32,482,748
- ---------------------------------------------------------------------------------------------
SEMICONDUCTORS AND SEMICONDUCTOR
EQUIPMENT -- 2.0%
Agere Systems, Inc.(1) 6,495 $ 8,898
Agere Systems, Inc., Class B(1) 159,398 215,187
Altera Corp.(1) 66,116 1,368,601
Analog Devices, Inc. 778,870 28,755,880
Applied Materials, Inc.(1) 1,741,642 29,782,078
Broadcom Corp. - Class A(1) 530,892 17,137,194
Broadcom Corp. - Class A(1)(2)(3) 35,000 1,128,105
Conexant Systems, Inc.(1) 134,174 267,006
Cypress Semiconductor Corporation(1) 152,742 1,791,664
Freescale Semiconductor-B(1) 101,704 1,867,286
Intel Corp. 9,580,974 224,098,982
KLA-Tencor Corp.(1) 148,373 6,911,214
Linear Technologies Corp. 187,760 7,277,578
LSI Logic Corporation(1) 132,810 727,799
Maxim Integrated Products Co. 374,351 15,868,739
Mindspeed Technologies Inc.(1) 44,724 124,333
Skyworks Solutions, Inc.(1) 98,685 930,600
Taiwan Semiconductor ADR 866 7,352
Teradyne, Inc.(1) 27,996 477,892
Texas Instruments, Inc. 1,912,604 47,088,310
Xilinx, Inc. 59,554 1,765,776
- ---------------------------------------------------------------------------------------------
$ 387,600,474
- ---------------------------------------------------------------------------------------------
SOFTWARE -- 2.1%
Adobe Systems, Inc. 258,794 $ 16,236,736
Cadence Design Systems, Inc.(1) 900,000 12,429,000
Cognos, Inc.(1) 77,000 3,392,620
Computer Associates International, Inc. 33,070 1,027,154
Compuware Corp.(1) 150,944 976,608
Electronic Arts Inc.(1) 21,405 1,320,260
Fair, Isaac and Co., Inc. 997,172 36,576,269
Henry (Jack) & Associates 201,006 4,002,029
Intuit, Inc.(1) 921,314 40,547,029
Microsoft Corp. 7,312,311 195,311,827
Oracle Corp.(1) 817,568 11,217,033
PalmSource, Inc.(1) 20,208 257,450
Parametric Technology Corp.(1) 94,600 557,194
Reynolds & Reynolds, Co. 216,412 5,737,082
Sap AG ADR 600,000 26,526,000
Siebel Systems, Inc.(1) 179,184 1,881,432
Symantec Corporation(1) 1,499,722 38,632,839
VERITAS Software Corp.(1) 243,942 6,964,544
Wind River Systems, Inc.(1) 91,910 1,245,381
- ---------------------------------------------------------------------------------------------
$ 404,838,487
- ---------------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.0%
Abercrombie & Fitch Co. 11,225 $ 527,014
AutoNation, Inc.(1) 1,493,099 28,682,432
Best Buy Co., Inc. 113,610 6,750,706
Burlington Coat Factory Warehouse Corp. 238,448 5,412,770
CarMax, Inc.(1) 67,797 2,105,097
Circuit City Stores, Inc. 216,000 3,378,240
Gap, Inc. (The) 541,012 11,426,173
Home Depot, Inc. (The) 4,281,726 183,000,969
Limited Brands, Inc. 762,510 17,552,980
Lowe's Companies 875,941 50,445,442
Office Depot, Inc.(1) 205,276 3,563,591
Officemax Inc. 2,192 68,785
Payless Shoesource, Inc.(1) 23,100 284,130
Pep Boys - Manny, Moe & Jack (The) 83,415 1,423,894
Radioshack Corp. 631,599 20,766,975
Sherwin-Williams Co. (The) 80,569 3,595,794
Staples, Inc. 158,266 5,335,147
Tiffany & Co. 57,286 1,831,433
TJX Companies, Inc. (The) 1,716,834 43,144,038
Too, Inc.(1) 38,284 936,427
- ---------------------------------------------------------------------------------------------
$ 390,232,037
- ---------------------------------------------------------------------------------------------
See notes to financial statements
66
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
TEXTILES, APPAREL AND LUXURY GOODS -- 0.7%
Coach, Inc.(1) 365,720 $ 20,626,608
Nike Inc., Class B 1,329,222 120,547,143
Unifi, Inc.(1) 1,208 4,627
- ---------------------------------------------------------------------------------------------
$ 141,178,378
- ---------------------------------------------------------------------------------------------
THRIFTS AND MORTGAGE FINANCE -- 0.7%
Countrywide Financial Corp. 1,499,998 $ 55,514,926
Fannie Mae 345,171 24,579,627
Freddie Mac 135,586 9,992,688
Golden West Financial Corporation 74,590 4,581,318
MGIC Investment Corp. 85,000 5,857,350
Radian Group, Inc. 30,800 1,639,792
Washington Mutual, Inc. 927,674 39,222,057
- ---------------------------------------------------------------------------------------------
$ 141,387,758
- ---------------------------------------------------------------------------------------------
TOBACCO -- 0.2%
Altria Group Inc. 763,945 $ 46,677,040
UST, Inc. 439 21,120
- ---------------------------------------------------------------------------------------------
$ 46,698,160
- ---------------------------------------------------------------------------------------------
TRADING COMPANIES AND DISTRIBUTORS -- 0.0%
United Rentals, Inc.(1) 401,179 $ 7,582,283
- ---------------------------------------------------------------------------------------------
$ 7,582,283
- ---------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.1%
Nextel Communications, Inc., Class A(1) 134,072 $ 4,022,160
Telephone and Data Systems, Inc. 70,844 5,451,446
Vodafone Group plc ADR 213,962 5,858,280
- ---------------------------------------------------------------------------------------------
$ 15,331,886
- ---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $14,860,534,853) $ 19,109,250,562
- ---------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 0.0%
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
MULTI-UTILITIES AND UNREGULATED POWER -- 0.0%
Enron Corp.(1)(2) 11,050 $ 0
- ---------------------------------------------------------------------------------------------
$ 0
- ---------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $4,500,777) $ 0
- ---------------------------------------------------------------------------------------------
PREFERRED STOCKS -- 0.0%
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
COMMERCIAL BANKS -- 0.0%
Wachovia Corp. (Dividend Equalization
Preferred Shares)(1) 166,518 $ 167
- ---------------------------------------------------------------------------------------------
$ 167
- ---------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $39,407) $ 167
- ---------------------------------------------------------------------------------------------
WARRANTS -- 0.0%
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 0.0%
Lucent Technologies, Inc. 18,106 $ 28,607
- ---------------------------------------------------------------------------------------------
$ 28,607
- ---------------------------------------------------------------------------------------------
TOTAL WARRANTS
(IDENTIFIED COST $0) $ 28,607
- ---------------------------------------------------------------------------------------------
RIGHTS -- 0.0%
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
BANKS -- 0.0%
Bank United Corp. (Litigation Contingent
Payment Rights)(1)(2) 102,072 $ 6,124
- ---------------------------------------------------------------------------------------------
$ 6,124
- ---------------------------------------------------------------------------------------------
COMPUTERS AND BUSINESS EQUIPMENT -- 0.0%
Seagate Technology, Inc. (Tax Refund Rights)(1)(2) 197,392 $ 0
- ---------------------------------------------------------------------------------------------
$ 0
- ---------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES -- 0.0%
McLeodUSA (Escrow Rights)(1)(2) 1,592,200 $ 0
- ---------------------------------------------------------------------------------------------
$ 0
- ---------------------------------------------------------------------------------------------
TOTAL RIGHTS
(IDENTIFIED COST $50,596) $ 6,124
- ---------------------------------------------------------------------------------------------
See notes to financial statements
67
SHORT-TERM INVESTMENTS -- 0.1%
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
- -----------------------------------------------------------------------------------
Investors Bank & Trust Company --
Time Deposit, 2.25%, 1/3/05 $ 7,668 $ 7,668,000
- -----------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(AT AMORTIZED COST, $7,668,000) $ 7,668,000
- -----------------------------------------------------------------------------------
COMMERCIAL PAPER -- 0.1%
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
- -----------------------------------------------------------------------------------
Societe Generale North America, 2.32%, 1/5/05 $ 22,295 $ 22,289,253
- -----------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(AT AMORTIZED COST, $22,289,253) $ 22,289,253
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(IDENTIFIED COST $14,895,082,886) $ 19,139,242,713
- -----------------------------------------------------------------------------------
SECURITIES SOLD SHORT -- -1.0%
SECURITY SHARES VALUE
- -----------------------------------------------------------------------------------
American International Group, Inc. 3,000,000 $ (197,010,000)
- -----------------------------------------------------------------------------------
TOTAL SECURITIES SOLD SHORT
(PROCEEDS $169,710,627) $ (197,010,000)
- -----------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES
EXCLUDING SECURITIES SOLD SHORT -- 1.0% $ 198,909,689
- -----------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 19,141,142,402
- -----------------------------------------------------------------------------------
ADR - American Depositary Receipt
(1) Non-income producing security.
(2) Security valued at fair value using methods determined in good faith by or
at the direction of the Trustees.
(3) Security subject to restrictions on resale (see Note 7).
See notes to financial statements
68
TAX-MANAGED GROWTH PORTFOLIO as of December 31, 2004
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 2004
ASSETS
Investments, at value (identified cost, $14,895,082,886) $ 19,139,242,713
Cash 2,563
Deposits with brokers for securities sold short 169,710,627
Dividends and interest receivable 24,103,436
Receivable for investments sold 4,256,707
Tax reclaim receivable 1,180,262
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 19,338,496,308
- ------------------------------------------------------------------------------------------------
LIABILITIES
Securities sold short, at value (proceeds received of $169,710,627) $ 197,010,000
Payable for dividends on securities sold short 225,000
Payable to affiliate for Trustees' fees 6,053
Accrued expenses 112,853
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 197,353,906
- ------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS' INTEREST IN PORTFOLIO $ 19,141,142,402
- ------------------------------------------------------------------------------------------------
SOURCES OF NET ASSETS
Net proceeds from capital contributions and withdrawals $ 14,924,128,572
Net unrealized appreciation (computed on the basis of identified cost) 4,217,013,830
- ------------------------------------------------------------------------------------------------
TOTAL $ 19,141,142,402
- ------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 2004
INVESTMENT INCOME
Dividends (net of foreign taxes, $3,794,755) $ 291,107,513
Interest 1,157,693
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME $ 292,265,206
- ------------------------------------------------------------------------------------------------
EXPENSES
Investment adviser fee $ 77,609,178
Trustees' fees and expenses 25,376
Custodian fee 1,999,827
Dividends on securities sold short 225,000
Legal and accounting services 94,573
Miscellaneous 304,587
- ------------------------------------------------------------------------------------------------
TOTAL EXPENSES $ 80,258,541
- ------------------------------------------------------------------------------------------------
Deduct --
Reduction of custodian fee $ 39
Reduction of investment adviser fee 26,667
- ------------------------------------------------------------------------------------------------
TOTAL EXPENSE REDUCTIONS $ 26,706
- ------------------------------------------------------------------------------------------------
NET EXPENSES $ 80,231,835
- ------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 212,033,371
- ------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 152,362,325
Foreign currency transactions 60,515
- ------------------------------------------------------------------------------------------------
NET REALIZED GAIN $ 152,422,840
- ------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 1,345,093,649
Securities sold short (27,299,373)
Foreign currency 84,431
- ------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) $ 1,317,878,707
- ------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $ 1,470,301,547
- ------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,682,334,918
- ------------------------------------------------------------------------------------------------
See notes to financial statements
69
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
- ---------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
From operations --
Net investment income $ 212,033,371 $ 163,045,716
Net realized gain from investment
transactions, securities sold short
and foreign currency transactions 152,422,840 70,909,770
Net change in unrealized appreciation
(depreciation) of investments,
securities sold short and
foreign currency 1,317,878,707 3,174,709,110
- ---------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,682,334,918 $ 3,408,664,596
- ---------------------------------------------------------------------------------------------
Capital transactions --
Contributions $ 1,775,98,351 $ 1,351,483,956
Withdrawals (1,925,879,872) (1,722,081,135)
- ---------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM
CAPITAL TRANSACTIONS $ (150,781,521) $ (370,597,179)
- ---------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 1,531,553,397 $ 3,038,067,417
- ---------------------------------------------------------------------------------------------
NET ASSETS
At beginning of year $ 17,609,589,005 $ 14,571,521,588
- ---------------------------------------------------------------------------------------------
AT END OF YEAR $ 19,141,142,402 $ 17,609,589,005
- ---------------------------------------------------------------------------------------------
See notes to financial statements
70
SUPPLEMENTARY DATA
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA+
Ratios (As a percentage of average daily net assets):
Net expenses 0.45% 0.45% 0.45% 0.45% 0.45%
Net expenses after custodian fee reduction 0.45% -- -- -- --
Net investment income 1.18% 1.05% 0.85% 0.64% 0.67%
Portfolio Turnover 3% 15% 23% 18% 13%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(1) 9.67% 23.88% (19.52)% (9.67)% --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S OMITTED) $ 19,141,142 $ 17,609,589 $ 14,571,522 $ 18,335,865 $ 18,385,069
- -----------------------------------------------------------------------------------------------------------------------------------
+ The operating expenses of the Portfolio reflect a reduction of the
investment adviser fee. Had such action not been taken, the ratios would
have been as follows:
Ratios (As a percentage of average daily net assets):
Expenses 0.45% -- -- -- --
Expenses after custodian fee reduction 0.45% -- -- -- --
Net investment income 1.18% -- -- -- --
(1) Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
See notes to financial statements
71
TAX-MANAGED GROWTH PORTFOLIO as of December 31, 2004
NOTES TO FINANCIAL STATEMENTS
1 SIGNIFICANT ACCOUNTING POLICIES
Tax-Managed Growth Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Portfolio, which was organized as a trust under the laws
of the State of New York on December 1, 1995, seeks to provide long-term
after-tax returns by investing in a diversified portfolio of equity securities.
The Declaration of Trust permits the Trustees to issue interests in the
Portfolio. The following is a summary of significant accounting policies
consistently followed by the Portfolio in the preparation of its financial
statements. The policies are in conformity with accounting principles generally
accepted in the United States of America.
A INVESTMENT VALUATIONS -- Securities listed on a U.S. securities exchange
generally are valued at the last sale price on the day of valuation or, if no
sales took place on such date, at the mean between the closing bid and asked
prices therefore on the exchange where such securities are principally traded.
Equity securities listed on the NASDAQ National Market System generally are
valued at the official NASDAQ closing price. Unlisted or listed securities for
which closing sales prices or closing quotations are not available are valued at
the mean between the latest available bid and asked prices or, in the case of
preferred equity securities that are not listed or traded in the
over-the-counter market, by an independent pricing service. Exchange-traded
options are valued at the last sale price for the day of valuation as quoted on
the principal exchange or board of trade on which the options are traded or, in
the absence of sales on such date, at the mean between the latest bid and asked
prices therefore. Futures positions on securities and currencies generally are
valued at closing settlement prices. Short-term debt securities with a remaining
maturity of 60 days or less are valued at amortized cost. If short-term debt
securities were acquired with a remaining maturity of more than 60 days, their
amortized cost value will be based on their value on the sixty-first day prior
to maturity. 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. Foreign securities
and currencies are valued in U.S. dollars, based on foreign currency exchange
rate quotations supplied by an independent quotation service. The daily
valuation of foreign securities generally is determined as of the close of
trading on the principal exchange on which such securities trade. Events
occurring after the close of trading on foreign exchanges may result in
adjustments to the valuation of foreign securities to more accurately reflect
their fair value as of the close of regular trading on the New York Stock
Exchange. When valuing foreign equity securities that meet certain criteria, the
Trustees have approved the use of a fair value service that values such
securities to reflect market trading that occurs after the close of the
applicable foreign markets of comparable securities or other instruments that
have a strong correlation to the securities held by the Portfolio. Investments
held by the Portfolio for which valuations or market quotations are unavailable
are valued at fair value using methods determined in good faith by or at the
direction of the Trustees of the Portfolio considering relevant factors, data
and information including the market value of freely tradable securities of the
same class in the principal market on which such securities are normally traded.
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 or losses, and any other items of
income, gain, loss, deduction or credit.
C FUTURES CONTRACTS -- Upon the entering of a financial futures contract, the
Portfolio is required to deposit either in cash or securities an amount (initial
margin) equal to a certain percentage of the purchase price indicated in the
financial futures contract. Subsequent payments are made or received by the
Portfolio (margin maintenance) each day, dependent on daily fluctuations in the
value of the underlying security, and are recorded for book purposes as
unrealized gains or losses by the Portfolio. The Portfolio's investment in
financial futures contracts is designed to hedge against anticipated future
changes in the price of current or anticipated portfolio positions. Should
prices move unexpectedly, the Portfolio may not achieve the anticipated benefits
of the financial futures contracts and may realize a loss.
D PUT OPTIONS -- Upon the purchase of a put option by the Portfolio, the premium
paid is recorded as an asset in the Statement of Assets and Liabilities, 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 premium paid. When the
Portfolio enters into a closing sale transaction, the Portfolio will realize a
72
gain or loss depending on whether the sales proceeds from the closing sale
transaction are greater or less than the premium paid. When the Portfolio
exercises a put option, settlement is made in cash. The risk associated with
purchasing options is limited to the premium originally paid.
E SECURITIES SOLD SHORT -- The Portfolio may sell a security short if it owns at
least an equal amount of the security sold short or another security
exchangeable for an equal amount of the security sold short 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 recognized when the
security is delivered to the broker. The Portfolio may recognize a loss on the
transaction if the market value of the securities sold increases before the
securities are delivered.
F FOREIGN CURRENCY TRANSLATION -- Investment valuations, other assets and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investment securities and income and expenses are converted
into U.S. dollars based upon currency exchange rates prevailing on the
respective dates of such transactions. Recognized gains or losses on investment
transactions attributable to foreign currency exchange rates are recorded for
financial statement purposes as net realized gains and losses on investments.
That portion of unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
G INDEMNIFICATIONS -- Under the Portfolio's organizational documents, its
officers and Trustees may be indemnified against certain liabilities and
expenses arising out of the performance of their duties to the Portfolio.
Interestholders in the Portfolio are jointly and severally liable for the
liabilities and obligations of the Portfolio in the event that the Portfolio
fails to satisfy such liabilities and obligations; provided, however, that, to
the extent assets are available in the Portfolio, the Portfolio may, under
certain circumstances, indemnify interestholders from and against any claim or
liability to which such holder may become subject by reason of being or having
been an interestholder in the Portfolio. Additionally, in the normal course of
business, the Fund enters into agreements with the service providers that may
contain indemnification clauses. The Portfolio's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Portfolio that have not yet occurred.
H OTHER -- Investment transactions are accounted for on a trade-date basis.
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.
I EXPENSE REDUCTION -- Investors Bank & Trust Company (IBT) serves as custodian
of the Portfolio. Pursuant to the custodian agreement, IBT receives a fee
reduced by credits which are determined based on the average daily cash balances
the Portfolio maintains with IBT. All credit balances used to reduce the
Portfolio's custodian fees are reported as a reduction of expenses on the
Statement of Operations.
J USE OF ESTIMATES -- The preparation of the financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of income and expense during the reporting period. Actual
results could differ from those estimates.
2 INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to the Portfolio. Under the
advisory agreement, BMR receives a monthly advisory fee in the amount of 0.625%
annually of average daily net assets of the Portfolio up to $500,000,000 and at
reduced rates as daily net assets exceed that level. Certain of the advisory fee
rate reductions are pursuant to an agreement between the Portfolio's Board of
Trustees and BMR. Those reductions may not be changed without Trustee and
interestholder approval. For the year ended December 31, 2004, the advisory fee
was 0.43% of the Portfolio's average daily net assets. BMR has also agreed to
reduce the investment adviser fee by an amount equal to that portion of
73
commissions paid to broker dealers in execution of Portfolio security
transactions that is consideration for third-party research services. For the
year ended December 31, 2004, BMR waived $26,667 of its advisory fee. Except for
Trustees of the Portfolio who are not members of EVM's or BMR's organization,
officers and Trustees receive remuneration for their services to the Portfolio
out of such investment adviser fee. Trustees of the Portfolio who are not
affiliated with the Investment Adviser may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of the Trustees'
Deferred Compensation Plan. For the year ended December 31, 2004, 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, 2004, purchases and sales of investments, other
than short-term obligations, aggregated $534,673,041 and $946,726,635,
respectively. In addition, investments having an aggregate market value of
$808,158,950 at dates of withdrawal were distributed in payment for capital
withdrawals. During the year ended December 31, 2004, investors contributed
securities with a value of $1,370,704,943.
4 FEDERAL INCOME TAX BASIS OF UNREALIZED APPRECIATION (DEPRECIATION)
The cost and unrealized appreciation (depreciation) in value of the investments
owned at December 31, 2004 as computed on a federal income tax basis, were as
follows:
AGGREGATE COST $ 4,833,216,291
- -------------------------------------------------------
Gross unrealized appreciation $ 14,307,238,475
Gross unrealized depreciation (1,212,053)
- -------------------------------------------------------
NET UNREALIZED APPRECIATION $ 14,306,026,422
- -------------------------------------------------------
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,
2004.
6 LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a $150 million unsecured line of credit agreement with
a group of banks. Borrowings will be made by the Portfolio solely to facilitate
the handling of unusual and/or unanticipated short-term cash requirements.
Interest is charged to each participating portfolio or fund based on its
borrowings at an amount above either the Eurodollar rate or Federal Funds rate.
In addition, a fee computed at an annual rate of 0.1% on the daily unused
portion of the line of credit is allocated among the participating portfolios
and funds at the end of each quarter. The Portfolio did not have any significant
borrowings or allocated fees during the year ended December 31, 2004.
7 RESTRICTED SECURITIES
At December 31, 2004, the Portfolio owned the following securities (representing
0.02% of net assets) which were restricted as to public resale and not
registered under the Securities Act of 1933. The securities are eligible for
resale after December 15, 2005, except for the 25,000 shares of Sysco Corp.
which are eligible for resale after March 3, 2005. The securities are valued at
fair value using methods determined in good faith by or at the direction of the
Trustees.
DATE OF
COMMON STOCKS ACQUISITION SHARES COST FAIR VALUE
- ------------------------------------------------------------------------------------------
Broadcom Corp. - Class A 12/15/04 35,000 $ 1,121,815 $ 1,128,105
Progressive Corp. 12/15/04 10,900 943,939 923,369
Sysco Corp. 3/3/04 25,000 994,756 953,892
Sysco Corp. 12/15/04 30,000 1,115,824 1,143,381
- ------------------------------------------------------------------------------------------
$ 4,176,334 $ 4,148,747
- ------------------------------------------------------------------------------------------
74
TAX-MANAGED GROWTH PORTFOLIO as of December 31, 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended and the supplementary data for each of the five years in the
period then ended. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Portfolio's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2004, by correspondence with the
custodian. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and supplementary data present fairly,
in all material respects, the financial position of Tax-Managed Growth Portfolio
at December 31, 2004, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
its supplementary data for each of the five years in the period then ended in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 18, 2005
75
BELPORT CAPITAL FUND LLC
Investment Adviser of
Tax-Managed Growth Portfolio and
Belport Capital Fund LLC
Boston Management and Research
The Eaton Vance Building
255 State Street
Boston, MA 02109
Manager of Belport
Realty Corporation
Boston Management and Research
The Eaton Vance Building
255 State Street
Boston, MA 02109
Manager of Belport Capital Fund LLC
Eaton Vance Management
The Eaton Vance Building
255 State Street
Boston, MA 02109
Custodian and Transfer Agent
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BELPORT CAPITAL FUND LLC
(Registrant)
By: /s/ Michelle A. Green
-----------------------
Michelle A. Green
Duly Authorized Officer and
Principal Accounting Officer
Date: March 15, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ Thomas E. Faust Jr.
--------------------------
Thomas E. Faust Jr.
Chief Executive Officer
Date: March 15, 2005
By: /s/ Michelle A. Green
-------------------------
Michelle A. Green
Chief Financial Officer
Date: March 15, 2005
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EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3 Copy of Limited Liability Company Agreement of the Fund dated
December 5, 2001 filed as Exhibit 3 to the Fund's Initial
Registration Statement on Form 10 and incorporated herein by
reference. (Note: the LLC Agreement also defines the rights of
the holders of Shares of the Fund.)
3(a) Copy of Amendment No. 1 to the Fund's Limited Liability Company
Agreement dated December 30, 2003 filed as Exhibit 3(a) to the
Fund's Report on Form 10-K for the period ended December 31, 2003
and incorporated herein by reference.
4.1 Copy of Loan and Security Agreement between the Fund and DrKW
Holdings, Inc. dated as of June 30, 2003 filed as Exhibit 4.1 to
the Fund's Report on Form 10-Q filed for the period ended June
30, 2003 and incorporated herein by reference.
4.1(a) Copy of Amendment dated September 29, 2003 to Loan and Security
Agreement between the Fund and DrKW Holdings, Inc. filed as
Exhibit 4.1(a) to the Fund's Report on Form 10-Q filed for the
period ended September 30, 2003 and incorporated herein by
reference.
4.2 Copy of Loan and Security Agreement among the Fund, Merrill Lynch
Mortgage Capital, Inc., the lenders referred to therein and
Merrill Lynch Capital Services, Inc., dated June 30, 2003 filed
as Exhibit 4.2 to the Fund's Form 10-Q for the period ended June
30, 2003 and incorporated herein by reference.
4.2(b) Copy of Amendment dated September 29, 2003 to Loan and Security
Agreement among Belport Capital Fund, Merrill Lynch Mortgage
Capital, Inc., as Agent, the Lenders referred to therein and
Merrill Lynch Capital Services, Inc. filed as Exhibit 4.2(b) to
the Fund's Form 10-Q for the period ended September 30, 2003 and
incorporated herein by reference.
10(1) Copy of Investment Advisory and Administration Agreement between
the Fund and Boston Management and Research dated March 7, 2001
filed as Exhibit 10(1) to the Fund's Initial Registration
Statement on Form 10 and incorporated herein by reference.
10(2) Copy of Management Agreement between Belport Realty Corporation
and Boston Management and Research dated March 14, 2001 filed as
Exhibit 10(2) to the Fund's Initial Registration Statement on
Form 10 and incorporated herein by reference.
10(3) Copy of Investor Servicing Agreement between the Fund and Eaton
Vance Distributors, Inc. dated December 5, 2000 filed as Exhibit
10(3) to the Fund's Initial Registration Statement on Form 10 and
incorporated herein by reference.
10(4) Copy of Custody and Transfer Agency Agreement between the Fund
and Investors Bank & Trust Company dated December 5, 2000 filed
as Exhibit 10(4) to the Fund's Initial Registration Statement on
Form 10 and incorporated herein by reference.
21 List of Subsidiaries of the Fund filed herewith.
31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed
herewith.
31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed
herewith.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed
herewith.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed
herewith.
99.3 Form N-CSR of Eaton Vance Tax-Managed Growth Portfolio (File No.
811-7409) for its year ended December 31, 2004 filed
electronically with the Securities and Exchange Commission under
the Investment Company Act of 1940 on March 8, 2005 (incorporated
herein by reference pursuant to Rule 12b-32).
81