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BELMAR CAPITAL FUND LLC - 10-K/A - 20040630 - PART_I
PART I
ITEM 1. BUSINESS.
FUND OVERVIEW. 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 17, 2000. Limited liability company interests of
the Fund (Shares) were issued to Shareholders at five closings during 2000. 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
November 29, 2000 and, while the Fund is not prohibited from doing so, no future
offering is anticipated. As of December 31, 2003, the Fund had net assets of
approximately $1.9 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 through Belmar Realty Corporation" 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. 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 precontribution gain. 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. 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. Eaton Vance and Boston
Management provide advisory, administration and/or management services to over
170 investment companies, as well as individual and institutional investors. As
of December 31, 2003, Eaton Vance and its affiliates managed approximately $80
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 below. 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.
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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., a
wholly-owned subsidiary of Eaton Vance (EV Distributors), 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 17, 2000, May 16, 2000, July 19, 2000, September 27, 2000 and
November 29, 2000. At the five closings, an aggregate of 25,888,893 Shares were
issued in exchange for Shareholder contributions totaling approximately $2.6
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 auditor 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, a Massachusetts limited liability company (Belvedere 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 $17.6
billion as of December 31, 2003. As of December 31, 2003, the Fund's investment
in the Portfolio through Belvedere Company had a value of approximately $2.0
billion (equal to approximately 75.3% 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, 2003, the investment assets of Belvedere Company
consisted exclusively of an interest in the Portfolio with a value of
approximately $11.1 billion. As of such date, the Fund owned approximately 17.8%
of Belvedere Company's outstanding shares. The other investors in Belvedere
Company include six 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.
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 through
Belmar Realty Corporation" below), it could not satisfy the conditions of the
1940 Act for investing directly in the Portfolio.
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,
2003, investors in the Portfolio included six investors in addition to Belvedere
Company and Tax-Managed Growth 1.0, each of which has acquired or is acquiring
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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,
2003, Belvedere Company owned approximately 63.0% 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, 2003 are included in the Fund's
annual report to Shareholders and incorporated by reference into Item 8 below.
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, 2003,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7. For 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
primarily invests in common stocks of domestic and foreign growth companies that
are considered to be high in quality and attractive in their long-term
investment prospects. 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 by purchasing 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 realizing short-term capital gains.
When a decision is made to sell a particular appreciated security, the Portfolio
will select for sale the share lots resulting in the most favorable tax
treatment, generally those with holding periods sufficient to qualify for
long-term capital 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 a distribution of securities as described in
Item 5(a) under "Redemption of Fund Shares." As described in Item 5(a), settling
redemptions with securities may result in certain tax benefits to the Portfolio,
Belvedere Company, the Fund and the redeeming Shareholder.
To protect against price declines in securities holdings with large accumulated
capital gains, the Portfolio may use various investment techniques, including,
but not limited to, the purchase of put options on securities held, equity
collars (combining the purchase of a put option and the sale of a call option),
equity swaps, covered short sales, 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 may, 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 and certain equity collar strategies as a tax-efficient
management technique with respect to holdings of appreciated securities is
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limited to circumstances in which the hedging transaction is closed out within
30 days after the end of the taxable year of the Portfolio 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, holding periods required to receive tax-advantaged treatment of
qualified dividends on a stock holding are suspended whenever the Portfolio has
an option or contractual obligation to sell or an open short sale of
substantially identical stock, is the grantor of an option 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. During 2003, the Portfolio held covered
short positions that were closed in January. The Portfolio did not otherwise
employ any of the techniques described above on securities holdings during the
year ended December 31, 2003.
THE FUND'S REAL ESTATE INVESTMENTS THROUGH BELMAR REALTY CORPORATION. Separate
from its investment in the Portfolio through Belvedere Company, the Fund invests
in certain real estate investments through its subsidiary, Belmar Realty
Corporation (Belmar Realty). The ownership structure of Belmar Realty is
described below under "Organization of Belmar Realty and the Real Estate Joint
Venture". 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, 2003, the consolidated real estate investments
of Belmar Realty totaled approximately $609.9 million and represented 23.4% 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.
At December 31, 2003, Belmar Realty invested in a real estate joint venture
(Real Estate Joint Venture) that is controlled by Belmar 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). Belmar Realty also owns an interest in Bel Holdings, LLC, a
limited liability company formed in 2003 and treated as a partnership for tax
purposes (Bel Holdings). At December 31, 2003, Bel Holdings' sole investment was
Partnership Preference Units issued by Vornado Realty, L.P. Belmar Realty
acquired units of Bel Holdings for cash and at December 31, 2003 owned 29.6% of
Bel Holdings' outstanding units. Information included herein about Belmar
Realty's Partnership Preference Units includes the Partnership Preference Units
held directly by Belmar Realty and indirectly through Bel Holdings. As of
December 31, 2003, approximately 30.4% of the consolidated real estate
investments of Belmar Realty was its investment in the Real Estate Joint Venture
and approximately 69.6% was investments in Partnership Preference Units.
Belmar Realty may invest in other types of real estate investments, such as
interests in real properties subject to long-term leases (Net Leased Properties)
as described below. Belmar Realty may purchase real estate investments from, and
sell them to, other investment funds sponsored by the Eaton Vance organization
and REIT subsidiaries of such investment funds that are similar to Belmar
Realty. Certain of the Partnership Preference Units acquired by Belmar Realty
during 2003 were acquired from one such REIT subsidiary. During the year ended
December 31, 2003, Belmar Realty also sold Partnership Preference Units to
another of such REIT subsidiaries and Belmar Realty recognized gains of
approximately $7.2 million on that transaction. See "Certain Real Estate
Investment Transactions" in Item 13.
Boston Management serves as manager of Belmar Realty. In that capacity, Boston
Management manages the investment and reinvestment of Belmar Realty's assets and
administers its affairs. See Item 13 for a description of the management fee
payable by Belmar Realty to Boston Management.
REAL ESTATE JOINT VENTURE INVESTMENTS. At December 31, 2003, Belmar Realty owned
a controlling interest in a Real Estate Joint Venture, Bel Alliance Apartments,
LLC (Bel Apartments). With respect to the Real Estate Joint Venture, Belmar
Realty owns a majority economic interest therein and controls a majority of its
board of managers. Belmar Realty's approval is required for all major decisions
affecting the Real Estate Joint Venture.
The day-to-day operating management of the real properties owned by the 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 a property management fee for the services rendered to such
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properties. For the year ended December 31, 2003, property management fees
relating to real properties held through the Real Estate Joint Venture were
approximately $1.3 million.
At December 31, 2003, the assets of the Real Estate Joint Venture consisted of a
total of 19 multifamily residential communities acquired from or in conjunction
with the Operating Partner of the Real Estate Joint Venture. See Item 2.
Distributable cash flows from the Real Estate Joint Venture are allocated in a
manner that provides Belmar 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 Belmar Realty and a subordinated preferred return of the
Operating Partner.
Financing for the Real Estate Joint Venture consists primarily of fixed-rate
secured mortgage debt obligations of the Real Estate Joint Venture that are
without recourse to Belmar Realty and the Fund. Both Belmar Realty and the
Operating Partner invested equity in the Real Estate Joint Venture. Belmar
Realty's equity in the Real Estate Joint Venture was acquired using the proceeds
of Fund borrowings. At acquisition, Belmar Realty's equity investment in Bel
Apartments was approximately $39.4 million.
A board of managers controlled by Belmar Realty oversees the performance of the
Operating Partner and controls the major decisions of the Real Estate Joint
Venture. Belmar Realty controls three of the five seats on Bel Apartment's board
of managers. The persons serving as managers on behalf of Belmar Realty are
employees of Boston Management. See "Directors and Executive Officers" in Item
10. No director of Belmar Realty or trustee of the Real Estate Joint Venture is
a Shareholder of the Fund. The Operating Partner of Belmar Realty's Real Estate
Joint Venture also serves as an operating partner of other Real Estate Joint
Ventures that are majority owned by REIT subsidiaries of other
similarly-structured investment funds sponsored by the Eaton Vance organization.
Eaton Vance has no financial interest in the Real Estate Joint Venture.
The Operating Partner of Bel Apartments is Alliance GD GT, LLC, an affiliate of
Alliance Holdings LLC (Alliance). Alliance, a privately owned real estate
company with management operating headquarters in Houston, Texas, is one of the
largest owners and operators of multifamily residential communities in the
United States. Alliance specializes in middle-income, market-rent communities,
predominantly in the Southeastern and Southwestern portions of the country.
Alliance maintains regional management and construction offices in Dallas,
Texas, Greenville, South Carolina and Charlotte, North Carolina and currently
operates more than 214 communities, with 63,500 apartment units in 16 states.
Alliance owns 37% of the issued and outstanding shares of Bel Apartments. Belmar
Realty owns the balance of such shares.
The Real Estate Joint Venture includes a buy/sell provision that can be
exercised by either Belmar Realty or the Operating Partner after a fixed period
of years. Pursuant to the buy/sell provision entered into at the time Bel
Apartments was established, either Belmar Realty or the Bel Apartments Operating
Partner can give notice on or after September 8, 2010 either to buy the other's
equity interest in Bel Apartments or to sell its own equity interest in Bel
Apartments.
A purchase or sale pursuant to the buy/sell provision would be made at a
negotiated price. The agreement containing the buy/sell provision applicable to
the 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 Belmar Realty by the Operating
Partner of the Operating Partner's interest in Bel Apartments would not affect
the REIT qualification of Bel Apartments. If Belmar Realty were to dispose of
its interest in the Real Estate Joint Venture pursuant to the buy/sell provision
or otherwise, it may acquire an interest in a different real estate investment
to replace the investment sold.
PARTNERSHIP PREFERENCE UNITS. Belmar Realty's investments in Partnership
Preference Units represent preferred equity interests in real estate operating
partnerships that are affiliated with publicly traded REITs. The assets of the
partnerships that issued the Partnership Preference Units owned by Belmar Realty
on December 31, 2003 consisted of direct or indirect ownership interests in real
properties, including manufactured home communities, multifamily properties,
office and industrial properties, self-storage facilities, regional malls,
community shopping centers and, in the case of one issuer, a diversified
portfolio of properties. The Partnership Preference Units owned by Belmar Realty
as of December 31, 2003 are described in Item 7A and in the consolidated
portfolio of investments included in the Fund's consolidated financial
statements, which are incorporated by reference into Item 8. 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
Belmar Realty.
The Partnership Preference Units held by Belmar 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
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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 Belmar 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 issues of Partnership Preference Units is or will be registered
under the Securities Act and each issue is thus subject to restrictions on
transfer.
NET LEASED PROPERTIES. In January, 2004, Belmar Realty invested in a Net Leased
Property consisting of an office building and attached facilities leased to a
single tenant under a triple net lease. Belmar Realty owns this property through
its wholly-owned subsidiary, Bel Stamford Investors LLC (Bel Stamford). Bel
Stamford's property is financed by fixed-rate secured mortgage debt obligations
of Bel Stamford that generally are without recourse to Belmar Realty and the
Fund, as described in "Risks of Real Esatate Investments" in Item 7A(b). Belmar
Realty's equity in Bel Stamford was acquired using the proceeds of Fund
borrowings.
The Net Leased Property held by Belmar Realty is leased on a long-term basis to
one tenant that is obligated to pay rent sufficient to service the associated
mortgage debt and to pay all costs and expenses associated with operation and
maintenance of the property, including real estate taxes, repairs and insurance.
The tenant has also generally indemnified the owner of the Net Leased Property
against certain liabilities in connection with the property. Because all or
substantially all of the rental payments are dedicated to debt service, realized
returns on Belmar Realty's investment in the Net Leased Property generally are
deferred until the property is sold or re-leased following the initial lease
term.
ORGANIZATION OF BELMAR REALTY AND THE REAL ESTATE JOINT VENTURE. Belmar Realty
and the Real Estate Joint Venture operate in such a manner as to qualify for
taxation as REITs under the Code. As REITs, Belmar Realty and the 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 Belmar Realty, and
intends to hold all of Belmar Realty's common stock at all times. Belmar Realty
and the Operating Partner own all of the common shares or similar interests of
the Real Estate Joint Venture.
Belmar Realty and the Real Estate Joint Venture 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 approximately 105
charitable organizations that received the preferred shares as gifts. Each
charitable organization that received preferred stock 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 suggestions from its employees or the
Operating Partner. As of December 31, 2003, the total value of the preferred
shares outstanding of each of Belmar Realty and Bel Apartments was $210,000.
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, 2003, Belmar Realty
paid or accrued distributions to preferred shareholders of $16,800. Bel
Apartments made no distributions to preferred shareholders during the year.
FUND BORROWINGS. To finance its real estate investments held through Belmar
Realty, 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
Apartments, and expires in June 2010. At December 31, 2003, the total principal
amount outstanding under the Credit Facility was $513.0 million. The Credit
Facility is also used to provide for selling commissions, organizational
expenses and any short-term liquidity needs of the Fund. Under certain
circumstances, the Fund may increase the size of the Credit Facility and the
amount of outstanding borrowings thereunder.
Borrowings under the DrKW Credit Facility accrue interest at a rate of one-month
LIBOR plus 0.20% per annum. As of December 31, 2003, outstanding borrowings
under the DrKW Credit Facility totaled $513.0 million.
The Fund may borrow up to $118.5 million under the MLMC Credit Facility, of
which up to $10 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, 2003, there were no outstanding borrowings or letters
of credit issued under the MLMC Credit Facility. The unused loan commitment
amount totaled $118.5 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.
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Obligations under the Credit Facility are without recourse to Fund Shareholders.
As described above, financing for the Real Estate Joint Venture consists
primarily of fixed-rate secured mortgage debt obligations of the Real Estate
Joint Venture that are without recourse to Fund Shareholders, Belmar 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 Belmar Realty's equity in
its 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 Belmar Realty's real estate investments
extend until June 25, 2010 and provide for the Fund to make payments to MLCS at
fixed rates averaging 4.4%. See Note 7 to the Fund's consolidated financial
statements incorporated by reference into Item 8.
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 Belmar 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 adviser). The Fund's officers are employees of Eaton Vance.
Eaton Vance, Boston Management and EV Distributors are indirect 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 noted 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, 2003, the assets of the Fund represented
approximately 3.3% 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,
Belmar Realty, Belvedere Company and the Portfolio. Also investing in the
Portfolio are other investment companies sponsored by Eaton Vance. 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.
Belmar Realty may purchase real estate investments from the REIT subsidiaries of
other funds similar in purpose to the Fund that are sponsored by the Eaton Vance
organization. Belmar 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 include an
allocation of the original costs incurred in creating and acquiring the
transferred assets. Real estate investments are often difficult to value and
others could in good faith arrive at valuations different from those of Boston
Management.
ITEM 2. PROPERTIES.
The Fund does not own any physical properties, other than indirectly through
Belmar Realty's investments. As of December 31, 2003, Belmar Realty held
investments in Partnership Preference Units of ten issuers. At December 31,
2003, Belmar Realty owned majority interests in Bel Apartments, whose assets are
reflected in the consolidated financial statements of the Fund. Bel Apartments
owns 19 multifamily residential properties located in eight states (Virginia,
Missouri, North Carolina, South Carolina, Nevada, Florida, Georgia and Texas).
ITEM 3. LEGAL PROCEEDINGS.
Although in the ordinary course of business, the Fund, Belmar Realty and Belmar
Realty's controlled subsidiary may become involved in legal proceedings, the
Fund is not aware of any material pending legal proceedings to which any of them
is subject.
7
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, 2003.
PART II
ITEM 5. DETERMINING NET ASSET VALUE, MARKET FOR FUND SHARES AND RELATED
SHAREHOLDER MATTERS.
This Item and other Items in this report contain summaries of certain provisions
contained in the Limited Liability Company Agreement of the Fund (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 for the Fund, such transfer would not result in termination of the
Fund for purposes of Section 708 of the Code or result in the classification of
the Fund as an association or a publicly traded partnership taxable as a
corporation under the Code.
In no event shall all or any part of a Shareholder's Shares be assigned to a
minor or an incompetent, unless in trust for the benefit of such person. Shares
may be sold, transferred, assigned or otherwise disposed of by a Shareholder
only if 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.
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.
8
A Shareholder redemption request within seven years of a contribution of
securities by such Shareholder will ordinarily be 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 Real Estate Joint Ventures, Partnership Preference Units or
other real estate investments held by Belmar Realty 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. 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 Fund 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.
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.
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 Belmar
Realty. The Trustees of the Portfolio have established procedures for the fair
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 System 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. 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.
9
The daily valuation of foreign securities held by the Portfolio 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 NYSE. The Portfolio may rely on an independent fair valuation service in
adjusting the valuations of foreign securities. 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. 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, as investment adviser to Belmar Realty, after
consideration of relevant factors, data and information. The procedures for
valuing Belmar Realty's assets are described under "Critical Accounting
Estimates" in Item 7 and under "Risks of Real Estate Investments" in Item 7A.
Boston Management values the Fund's interest rate swap agreements 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 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, 2003 and 2002, 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)
------------- -------- ------- ----------- ----------------
12/31/03 $86.36 $78.90 $86.28 11.83%
9/30/03 $79.91 $74.75 $77.15 2.81%
6/30/03 $78.19 $66.42 $75.04 14.08%
3/31/03 $73.04 $61.58 $65.78 -5.85%
12/31/02 $73.16 $62.79 $69.87 5.75%
9/30/02 $77.71 $63.11 $66.07 -15.67%
6/30/02 $88.25 $76.72 $78.35 -11.31%
3/31/02 $90.50 $82.92 $88.34 1.11%
|
(1) Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that Shares, if 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
and Results of Operations" in Item 7.
(B) RECORD HOLDERS OF SHARES OF THE FUND.
As of March 1, 2004, there were 745 record holders of Shares of the Fund.
(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%
(reduced from 22% to reflect the reduction in federal long-term capital gains
rates) of the amount of its net realized capital gains, if any, other than
precontribution gain 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 Belmar Realty,
Belvedere Company and, indirectly, the Portfolio. 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
10
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 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 14, 2004, the Fund made a distribution of $1.15 per Share to
Shareholders of record on January 13, 2004. On January 17, 2003, the Fund made a
distribution of $1.70 per Share to Shareholders of record on January 16, 2003.
The Fund made no distributions in 2002.
SPECIAL DISTRIBUTIONS. In addition to the income and capital gain distributions
described above, the Fund also makes distributions whenever a Shareholder
recognizes a precontribution gain (other than precontribution gain allocated to
a Shareholder in connection with a tender offer or other extraordinary corporate
event involving a security contributed by such Shareholder) (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 will be 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. For the years ended December 31, 2003 and 2002, the Fund made no
Special Distributions.
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, 2003,
2002, 2001 and for the period from March 17, 2000 through December 31, 2000. The
following information should be read in conjunction with all of the consolidated
financial statements and related notes incorporated by reference in Intem 8. The
other consolidated data referred to below is as of each period end.
Year Ended Year Ended Year Ended Year Ended
December 31,2003 December 31, 2002(1) December 31, 2001(1) December 31, 2000(1)
----------------- -------------------- -------------------- --------------------
Total investment income $ 94,906,482 $ 99,814,835 $ 103,489,725 $ 53,330,719
Interest expense $ 22,974,061 $ 28,506,573 $ 45,447,387 $ 25,969,680
Net expenses (including
interest expense) $ 50,746,633 $ 56,644,137 $ 76,754,182 $ 39,649,034
Net investment income $ 43,724,019 $ 42,746,644 $ 26,515,171 $ 13,353,048
Minority interests in net
income of controlled
subsidiaries $ (435,830) $ (424,054) $ (220,372) $ (328,637)
Net realized gain (loss) $ 5,911,089 $ (41,522,684) $ (35,955,721) $ 8,272,294
Net change in unrealized
appreciation (depreciation) $ 362,154,142 $ (417,581,832) $ (230,675,625) $ (74,236,068)
Net increase (decrease) in net
assets from operations $ 411,789,250 $ (416,357,872) $ (240,116,175) $ (52,610,726)
Total assets $2,611,939,419 $2,445,639,296 $2,967,430,657 $3,325,479,191
Loan payable $ 513,000,000 $ 596,500,000 $ 613,500,000 $ 613,500,000
Mortgages payable $ 161,157,192 $ 162,461,900 $ 175,470,843 $ 176,647,796
Net assets $1,920,611,857 $1,620,229,805 $2,108,684,133 $2,457,715,428
Shares outstanding 22,261,334 23,190,678 24,134,504 25,122,311
Net asset value and redemption
price per Share $ 86.28 $ 69.87 $ 87.37 $ 97.83
Net increase (decrease) in net
assets from operations per Share $ 18.11 $ (17.50) $ (9.60) $ (1.84)
Distribution paid per Share(2) $ 1.70(3)(4) $ 0.00(3) $ 0.79 $ 0.30
|
(1) Certain amounts have been reclassified to conform with the current year
presentation. The Fund commenced operations on March 17, 2000.
11
(2) The Fund also makes Special Distributions, which are not made on a pro rata
basis. See Item 5(c). During the year or period ended December 31, 2001 and
2000, the Fund made Special Distributions of $0.073 and $0.03 per Share,
respectively.
(3) On January 17, 2003, the Fund made a distribution of $1.70 per Share to
Shareholders of record on January 16, 2003.
(4) On January 14, 2004, the Fund made a distribution of $1.15 per Share to
Shareholders of record on January 13, 2004.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 below.
The following discussion should be read in conjunction with the Fund's
consolidated financial statements and related notes incorporated by reference
into Item 8.
(A) RESULTS OF OPERATIONS.
Increases and decreases in the Fund's net asset value per Share are derived from
net investment income or loss, and realized and unrealized gains and losses on
investments. 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 minority interest in net income of Belmar Realty's controlled
subsidiary. The Fund's investment income includes the net investment income
allocated to the Fund from Belvedere Company, rental income from the properties
owned by Belmar Realty's controlled subsidiary, partnership income allocated to
the Partnership Preference Units owned by Belmar 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, property management fees,
distribution and servicing fees, interest expense from mortgages owned by Belmar
Realty's controlled subsidiary, interest expense on the Credit Facility,
property and maintenance expenses and property taxes and insurance expenses
relating to the properties owned by Belmar Realty's controlled subsidiary, 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 Belmar 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.
The realized and unrealized gains and losses on investments and interest rate
swap agreements 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 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.
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 Standard & Poor's 500 Composite Index
(the S&P 500) as the Fund's primary performance benchmark. The S&P 500 is a
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
reinvested. 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. It is not possible to invest directly in an Index.
12
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 Belmar Realty's equity in its 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, 2003 was 26.48%. This
return reflects an increase in the Fund's net asset value per Share from $69.87
to $86.28 and a distribution of $1.70 per Share during the period. For
comparison, the S&P 500 had a total return of 28.67% over the same period. The
combined impact on performance of the Fund's investment activities outside of
the Portfolio was positive for the year ended December 31, 2003. The performance
of the Fund exceeded that of the Portfolio by approximately 2.60% for the year.
The Fund had a total return of -20.03% for the year ended December 31, 2002.
This return reflected a decrease in the Fund's net asset value per Share from
$87.37 to $69.87. For comparison, the S&P 500 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 0.51%. The Fund had a total
return of -9.90% for the year ended December 31, 2001. This return reflected a
decrease in the Fund's net asset value per share from $97.83 to $87.37 during
the year, and a distribution of $0.79 per share at the conclusion of the year.
For comparison, the S&P 500 had a total return of -11.88% over the same period.
For the year ended December 31, 2001, the performance of the Fund trailed that
of the Portfolio by approximately 0.23%.
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,
which had a total return of 28.67% for the year. The total return of the
Portfolio for the years ended December 31, 2002 and December 31, 2001 was
-19.52% and -9.67%, respectively.
The Portfolio's sector allocation in 2003 was substantially unaltered from 2002
and 2001 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. As in 2002 and 2001, lack of
earnings visibility and unattractive valuations caused Boston Management, the
Portfolio's investment adviser, 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 the past year. Looking forward, Boston Management believes the economic
recovery will continue at a sustainable pace, and that the market will better
reward quality companies that can consistently deliver earnings. The longer-term
success of the Portfolio will be determined by the performance of U.S. equity
markets and the ability of Boston Management's research staff to deliver
superior stock selection versus the Portfolio's benchmark. Higher quality
investments are gradually gaining strength in the market, and the Portfolio's
investment focus will continue to be in companies with strong business
franchises and solid long-term earnings prospects.
PERFORMANCE OF REAL ESTATE INVESTMENTS. The Fund's real estate investments, held
through Belmar Realty, include Partnership Preference Units and a majority
interest in a Real Estate Joint Venture. During the years ended December 31,
2003 and December 31, 2002, Belmar Realty sold (or experienced scheduled
redemptions of) certain Partnership Preference Units, recognizing gains of $40.0
13
million and $5.1 million, respectively, on the transactions (including sales to
other investment funds advised by Boston Management). In 2003, Belmar Realty
acquired an interest in additional Partnership Preference Units for
approximately $75.7 million. At December 31, 2003, the estimated fair value of
Belmar Realty's Partnership Preference Units totaled $424.8 million compared to
$550.4 million at December 31, 2002, a decrease of $125.6 million or 23%. The
decrease in value was due to fewer Partnership Preference Units held at December
31, 2003 offset in part by increases in the per unit value of the Partnership
Preference Units held by Belmar Realty and by the purchase of Partnership
Preference Units in 2003. The estimated fair value of Belmar Realty's
Partnership Preference Units at December 31, 2002 decreased 6% from $587.6
million at December 31, 2001, primarily due to the sale of Partnership
Preference Units during the year. The Fund saw unrealized depreciation of the
estimated fair value in its Partnership Preference Units of approximately $12.3
million during the year ended December 31, 2003 compared to approximately $17.8
million of appreciation during the year ended December 31, 2002 and $26.5
million of appreciation for the year ended December 31, 2001. During 2003, the
Fund reported net unrealized depreciation consisting of approximately $8.6
million of unrealized appreciation as a result of increases in per unit value of
the Partnership Preference Units held by Belmar Realty, offset by the
reclassification of previously unrealized appreciation as realized gains due to
the sales of Partnership Preference Units in the amount of approximately $20.9
million.
Distributions received from Partnership Preference Units for the year ended
December 31, 2003 totaled $45.0 million compared to $52.1 million for the year
ended December 31, 2002, a decrease of $7.1 million or 14%. The decrease was due
to fewer Partnership Preference Units held on average during the year ended
December 31, 2003. Distributions received in 2002 decreased by 9% from
distributions of $57.0 million for the year ended December 31, 2001, primarily
due to sales of Partnership Preference units during the year ended December 31,
2002.
In February 2004, Belmar Realty sold (or experienced scheduled redemptions of)
certain Partnership Preference Units totaling approximately $213.5 million,
recognizing gains of approximately $30.5 million (including sales to other
investment funds advised by Boston Management).
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 $34.0 million for the year ended
December 31, 2003 compared to $34.8 million for the year ended December 31,
2002, a decrease of $0.8 million or 2%. Rental income for 2002 decreased 1% from
$35.3 million for 2001. 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 Real Estate Joint Venture.
Property operating expenses totaled $17.9 million for each of the years ended
December 31, 2003 and December 31, 2002. Operating expenses for 2002 decreased
4% from $18.6 million in 2001. Property operating expenses are before certain
operating expenses of Belmar Realty of approximately $4.8 million for the year
ended December 31, 2003, approximately $5.0 million for the year ended December
31, 2002 and approximately $6.1 million in 2001. Multifamily market fundamentals
began to deteriorate in late 2001 in most regions 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 has not occurred in most markets and low interest
rates have contributed to continued apartment move-outs (due to new home
purchases) and ongoing development of new properties. As a result, Boston
Management, Belmar Realty's manager, expects that real estate operating results
in 2004 will be modestly below the levels of 2003.
At December 31, 2003, the estimated fair value of the real properties held
through Belmar Realty was $185.1 million compared to $203.9 million at December
31, 2002, a decrease of $18.8 million or 9%. The decrease in estimated real
property value is due to declines in near-term earnings expectations offset in
part by decreases in capitalization rates. The capitalization rate, a term
commonly used in the real estate industry, is the rate of return percentage
applied to actual or estimated income levels to determine the value of a real
estate investment. The estimated fair value of Belmar Realty's real property
held through the Real Estate Joint Venture decreased 11% at December 31, 2002
from $229.1 million at December 31, 2001, due primarily to the reduction of the
number of properties held by the Fund's Real Estate Joint Venture during 2002.
The Fund saw unrealized depreciation in the estimated fair value of its other
real estate investments (which includes Belmar Realty's interest in the Real
Estate Joint Venture) of approximately $18.5 million during the year ended
December 31, 2003 compared to approximately $8.5 million of unrealized
depreciation during the year ended December 31, 2002. The Fund saw unrealized
appreciation of approximately $2.1 million during the year ended December 31,
2001.
14
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 $7.2 million, compared to approximately $43.5
million of net realized and unrealized losses for the year ended December 31,
2002. For the year ended December 31, 2001, net realized and unrealized losses
totaled approximately $34.9 million. Net realized and unrealized losses on swap
agreements in 2003 consisted of $22.4 million of net realized and unrealized
gains due to changes in swap agreement valuations, offset by $29.6 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 $2.8 million due to swap agreement valuation changes and
$40.7 million of swap agreement periodic payments. In 2001, the Fund had net
realized and unrealized losses of $8.8 million due to swap agreement valuation
changes and $26.1 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
impact on 2002 and 2001 Fund performance from changes in swap valuations was due
primarily to a decline in swap rates during the years.
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 $26.8 million on the swap agreement terminations.
(B) LIQUIDITY AND CAPITAL RESOURCES.
OUTSTANDING BORROWINGS. As of December 31, 2003, the Fund had outstanding
borrowings of $513.0 million and unused loan commitments of $118.5 million under
the Credit Facility. The Credit Facility is used primarily to finance the Fund's
equity in its real estate investments and will continue to be used for such
purpose in the future. The Credit Facility may also be used for any short-term
liquidity needs of the Fund. In the future, the Fund may increase the size of
the Credit Facility (subject to lender consent) and the amount of outstanding
borrowings thereunder for these purposes.
As of December 31, 2003, Bel Apartments had outstanding borrowings consisting of
fixed-rate secured mortgage debt obligations of $161.2 million.
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, 2003, the Portfolio had cash and short-term investments totaling
$122.4 million. The Portfolio participates in a $150.0 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, 2003. 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, 2003, illiquid assets (consisting of
restricted securities not available for current public sale) constituted 0.3% of
the net assets of the Portfolio.
The liquidity of Belmar Realty's Real Estate Joint Venture investments is
extremely limited, and relies principally upon buy/sell arrangements with the
Operating Partner that may be exercised on or after September 8, 2010. See "Real
Estate Joint Venuture Investments" under "The Fund's Real Estate Investments
through Belmar Realty Corporation" in Item 1. Transfers of Belmar Realty's
interest in the Real Estate Joint Venture to parties other than the Operating
Partner are restricted by terms of the operating management agreements, buy/sell
arrangements with the Operating Partner, and lender consent requirements. The
Partnership Preference Units held by Belmar Realty are not registered under the
Securities Act and are subject to substantial restrictions on transfer. As such,
they are illiquid. The liquidity of the Net Leased Property is also extremely
limited.
(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, 2003, the
Fund did not have any such off-balance sheet arrangements.
15
(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, 2003:
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) $161,157,192 $ 1,382,577 $ 3,225,763 $ 3,775,747 $152,773,105
Borrowings under Credit Facility(2) $513,000,000 $ -- $ -- $ -- $513,000,000
Purchase Obligations(3)
Other Long Term Liabilities:
Interest Rate Swap Agreements(4) $114,372,475 $17,644,105 $35,288,211 $35,288,211 $ 26,151,948
------------------------------------------------------------------------------------------------------------------------------------
Total $788,529,667 $19,026,682 $38,513,974 $39,063,958 $691,925,053
------------------------------------------------------------------------------------------------------------------------------------
|
(1) The rental property held by Belmar Realty is financed through mortgages
issued to the Real Estate Joint Venture. The mortgages are secured by the
underlying rental property and is without recourse to the other assets of
the Fund or Belmar Realty. The mortgages mature in 2010 and 2027. Mortgage
obligations cannot be prepaid or otherwise disposed of without incurring a
substantial prepayment penalty or without the sale of the associated rental
property.
(2) To finance its real estate investments held through Belmar Realty, the Fund
has entered into a Credit Facility with $513.0 million of borrowings
outstanding as of December 31, 2003. The Credit Facility is secured by a
pledge of the Fund's assets, excluding the assets of Bel Apartments, 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 Belmar Realty have entered into agreements with certain
service providers pursuant to which the Fund and Belmar 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 Belmar Realty (as
applicable) or the service provider. For the year ended December 31, 2003,
these fees equaled approximately 1.10% 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 Belmar Realty's equity
in its 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.
(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 notes to
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 the Real Estate Joint Venture, the Partnership Preference Units and
the Net Leased Property) are 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 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 Belmar Realty) believes the investment could be sold
16
in a current transaction between willing parties in 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 performance;
. 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, 2003, the estimated fair value of the Fund's real estate
investments represented 23.4% of the Fund's total assets. Adjusting for the
minority interest of the Operating Partner of the Real Estate Joint Venture as
of December 31, 2003, the Fund's real estate investments represented 28.8% 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 obligations under the Credit
Facility and thereafter 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, as manager of Belmar Realty,
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 may materially impact the
estimated fair value of the Fund's holdings of Partnership Preference Units.
THE REAL ESTATE JOINT VENTURE. Boston Management determines the estimated fair
value of the Fund's interest in the Real Estate Joint Venture based primarily on
annual appraisals of the multifamily properties owned by such Real Estate Joint
17
Venture and an allocation of the equity value of the Real Estate Joint Venture
between the Fund and the Operating Partner. Appraisals of 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 years' 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 the 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 Partner. 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 Venture were to change, it may
materially impact the estimated fair value of the Fund's Real Estate Joint
Venture.
Boston Management determines the estimated fair value of the Fund's equity
interest in the Real Estate Joint Venture based on an estimate of the allocation
of equity interests between the Fund and the Operating Partner, as calculated by
a third party service provider. The service provider uses a financial model that
considers the (i) 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 the Real Estate Joint Venture is prepared
quarterly and reviewed by Boston Management. Interim valuations of Real Estate
Joint Venture assets may be adjusted to reflect significant changes in economic
circumstances, and the results of operations and distributions. If the estimate
of the allocation of equity interests in the Real Estate Joint Venture were to
change (because, for example, the appraisers' estimate of property values or
projected cash flows of the Real Estate Joint Venture changed), it may
materially impact the estimated fair value of the Fund's Real Estate Joint
Venture.
NET LEASED PROPERTY. Boston Management determines the estimated fair value of
the Net Leased Property based on an annual appraisal of the leased fee market
value of the property. These appraisals are conducted by independent, licensed
appraisers in a manner similar to the appraisals of the properties owned by the
Real Estate Joint Venture (described above). In deriving a leased fee market
value for the Net Leased Property, an appraiser considers the owner's rights as
specified by the contract terms of the lease with the tenant of the properties
as well as the probability of the tenant performing its lease obligations based
in part on the tenant's financial status. This form of appraisal assumes that
the amount that a prudent, informed purchaser-investor would pay for the Net
Leased Property relates to the predictability of the expected income stream and
that a more predictable income stream would result in a higher estimated value.
Boston Management reviews the appraisal of the Net Leased Property and generally
relies on the assumptions and judgments made by the appraiser. Appraisals of Net
Leased Property may be conducted more frequently than once a year if Boston
Management determines that significant changes in economic circumstances have
occurred since the most recent appraisal. Appraisals of the Net Leased Property
are inherently uncertain because they apply assumed discount rates,
capitalization rates, growth rates and inflation rates to the expected income
stream from the property as defined by the contract terms of the lease, and due
to the unique characteristics of the property, which may affect its value but
18
cannot be taken into account. If the assumptions and estimates used by the
appraisers to determine the value of the property owned by the Fund's subsidiary
were to change, it may materially impact the estimated fair value of the Fund's
Net Leased Property.
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 Fund's Credit Facility and by fixed-rate secured
mortgage debt obligations of the Real Estate Joint Venture. Partnership
Preference Units are fixed rate instruments whose values will generally increase
when interest rates rise and decrease when interest rates fall. The interest
rates on borrowings under the Fund's 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 its borrowings under the Credit Facility used to
acquire Belmar Realty's equity in its 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 incorporated by reference into Item
8.
Interest Rate Sensitivity
Cost, Principal (Notional) Amount
by Contractual Maturity and Callable Date
for the Twelve Months Ended December 31,*
Estimated
Fair Value at
2004 2005 2006-2007 2008 Thereafter Total December 31, 2003
------------------------------------------------------------------------------------------------------------------------------------
Rate Sensitive liabilities:
-----------------------------
Long-term debt:
-----------------------------
Fixed-rate mortgages $161,157,192 $161,157,192 $182,000,000
Average interest rate 8.50% 8.50%
-----------------------------
Variable-rate Credit Facility $513,000,000 $513,000,000 $513,000,000
Average interest rate 1.32% 1.32%
------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive derivative
financial instruments:
-----------------------------
Pay fixed / receive variable
interest rate swap agreements $388,668,000 $388,668,000 $ 2,090,845
Average pay rate 4.54% 4.54%
Average receive rate 1.32% 1.32%
------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive investments:
-----------------------------
Fixed-rate Partnership
Preference Units:
-----------------------------
19
|
Estimated
Fair Value at
2004 2005 2006-2007 2008 Thereafter Total December 31, 2003
------------------------------------------------------------------------------------------------------------------------------------
Cabot Industrial Properties,
L.P., 8.625% Series B
Cumulative Redeemable
Preferred Units
Callable 4/29/04,
Current Yield: 8.32% $55,831,200 $ 55,831,200 $ 67,379,000
Camden Operating, L.P.,
7.00% Series B Cumulative
Redeemable Perpetual
Preferred Units,
Callable 12/2/08,
Current Yield: 7.21% $54,424,145 $ 54,424,145 $ 61,377,800
Essex Portfolio, L.P.,
7.875% Series B Cumulative
Redeemable Preferred Units,
Callable 2/6/03,
Current Yield: 8.17%(1) $11,997,050 $ 11,997,050 $ 15,659,215
Essex Portfolio L.P., 9.30%
Series D Cumulative
Redeemable Preferred Units,
Callable 7/28/10,
Current Yield: 9.08% $ 43,009,575 $ 43,009,575 $ 51,221,200
MHC Operating Limited
Partnership, 9% Series D
Cumulative Redeemable
Perpetual Preference Units,
Callable 9/29/04,
Current Yield: 8.95% $20,544,240 $ 20,544,240 $ 20,104,000
PSA Institutional Partners,
L.P., 9.50% Series N
Cumulative Redeemable
Perpetual Preferred Units,
Callable 3/17/05,
Current Yield: 9.13% $64,418,165 $ 64,418,165 $ 66,430,000
Prentiss Properties
Acquisition Partners, L.P.,
8.30% Series B Cumulative
Redeemable Perpetual
Preferred Units,
Callable 6/25/03,
Current Yield: 8.45% $25,492,776 $ 25,492,776 $ 32,599,524
Price Development
Company, L.P., 8.95% Series
B Cumulative Redeemable
Preferred Partnership Units,
Callable 7/28/04,
Current Yield: 9.11% $20,085,760 $ 20,085,760 $ 19,648,000
20
|
Estimated
Fair Value at
2004 2005 2006-2007 2008 Thereafter Total December 31, 2003
------------------------------------------------------------------------------------------------------------------------------------
Regency Centers, L.P.,
9.125% Series D Cumulative
Redeemable Preferred Units,
Callable 9/29/04,
Current Yield: 8.92% $12,924,525 $ 12,924,525 $ 15,349,500
Sun Communities Operating
L.P., 8.875% Series A
Cumulative Redeemable
Perpetual Preferred Units,
Callable 9/29/04,
Current Yield: 8.68% $44,052,800 $ 44,052,800 $ 51,140,000
Vornado Realty, L.P.,
7% Series
D-10 Cumulative
Redeemable Preferred Units,
Callable 11/17/08,
Current Yield: 6.95%(2) $23,613,991 $ 23,613,991 $ 23,872,204
|
* The investments listed reflect holdings as of December 31, 2003. The Fund's
current holdings may differ.
(1) On January 8, 2004, the call date was changed to 12/31/09.
(2) As described under "The Fund's Real Estate Investments through Belmar
Realty Corporation - Partnership Preference Units", Belmar 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 value of Fund Shares may not
increase and may decline. The performance of the Fund fluctuates. 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.
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 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 make short sales of securities
provided that it holds an equal amount of the security sold short (or securities
convertible into or exchangeable for an equal amount of the securities sold
21
short without payment of additional consideration) or cash or other liquid
securities in an amount equal to the current market value of the securities sold
short. The Portfolio 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 taxable year of the Portfolio 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. 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.
RISKS OF REAL ESTATE INVESTMENTS. The success of Belmar Realty's real estate
investments depends in part on many factors related to the real estate market.
These factors include, without limitation, general economic conditions, the
supply and demand for different types of real properties, the financial health
of tenants, the timing of lease expirations and terminations, fluctuations in
rental rates and operating costs, exposure to adverse environmental conditions
and losses from casualty or condemnation, 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 Belmar 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. Belmar Realty's interests in the Real Estate Joint Venture 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.
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. Increases in interest rates and increases in the perceived riskiness of
such units or comparable or similar securities will adversely affect the
valuation of the Partnership Preference Units. Fluctuations in the value of
Partnership Preference Units derived from changes in general interest rates can
be expected to be offset in part (but not entirely) by changes in the value of
interest rate swap agreements or other interest rate hedges entered into by the
22
Fund with respect to its borrowings under the Credit Facility. 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 Venture is substantially influenced by
the property management capabilities of the Operating Partner and conditions in
the specific real estate sub-markets in which the properties owned by the Real
Estate Joint Venture are located. The Operating Partner is subject to
substantial conflicts of interest in structuring, operating and winding up the
Real Estate Joint Venture. The Operating Partner had an economic incentive to
maximize the prices at which it sold properties to the Real Estate Joint Venture
and has a similar incentive to minimize the prices at which it may acquire
properties from the Real Estate Joint Venture. The Operating Partner may devote
greater attention or more resources to managing its wholly-owned properties than
properties held by the Real Estate Joint Venture. Future investment
opportunities identified by the Operating Partner will more likely be pursued
independently, rather than through, the Real Estate Joint Venture. Financial
difficulties encountered by the Operating Partner in its other businesses may
interfere with the operations of the Real Estate Joint Venture.
Belmar Realty's investments in the Real Estate Joint Venture 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 Venture will not be
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 Venture may not be sufficient for Belmar Realty to receive its
fixed annual preferred return, or any returns in excess thereof.
The debt of Bel Apartments is fixed-rate, secured by the underlying properties
and without recourse to Belmar Realty and the Fund. In connection with Real
Estate Joint Ventures that may be acquired in the future, Belmar 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. To the extent practicable, the Fund and Belmar Realty will
seek indemnification from the Operating Partner 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 Venture
normally cannot be refinanced prior to maturity without substantial penalties.
The ongoing value of Belmar Realty's investments in the Real Estate Joint
Venture is substantially uncertain. The real property held through Belmar
Realty's Real Estate Joint Venture is stated at estimated fair value based on
independent valuations, assuming an orderly disposition of assets, that is,
other than in a forced or liquidation sale. Independent valuations include
property appraisals performed by appraisers that are licensed in their
respective states and not affiliated with Eaton Vance or the Operating Partner
of the Real Estate Joint Venture. Such appraisals are performed in accordance
with the Uniform Standards of Professional Appraisal Practice of the Appraisal
Standards Board, as well as the Code of Professional Ethics and Standards of
Professional Appraisal Practice of the Appraisal Institute (and other relevant
standards).
Detailed investment evaluations are performed at least annually and reviewed
periodically. The value of the Real Estate Joint Venture is estimated using the
real property valuations and an allocation of the equity value of the Real
Estate Joint Venture between Belmar Realty and the Operating Partner based on
the terms of the Real Estate Joint Venture. Interim valuations reflect results
of operations and distributions, and may be adjusted to reflect significant
changes in economic circumstances since the most recent independent valuation.
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,
including, but not limited to, an orderly disposition of assets, values may
differ from amounts ultimately realized.
Belmar Realty's investments in Net Leased Properties are subject to general real
estate market risks similar to Real Estate Joint Ventures. Net Leased Properties
are also 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
Properties 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 Belmar Realty to substantial loss of
income without a commensurate reduction in debt service costs and other
expenses, and would transfer to Belmar Realty all the costs, expenses and
23
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 Properties are generally illiquid, and the ongoing value of Belmar
Realty's investments in Net Leased Properties is substantially uncertain. Net
Leased Properties are stated at estimated fair values 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 above). Because the value of Net Leased Properties
reflects in part the creditworthiness of their principal tenants, any reduction
in the credit standing 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 Belmar Realty's risk exposure to a
particular tenant beyond the initial lease term. Tenants may also hold options
to purchase Net Leased Properties, including options to purchase at below market
levels. The value received upon the disposition of Net Leased Properties 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 Properties 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
Prporties assume an orderly disposition of assets, amounts realized in a
distressed sale may differ substantially from stated values. Mortgage debt
associated with Net Leased Properties normally 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
Belmar Realty's ability to dispose of Net Leased Properties.
Because the mortgage debt obligation of Bel Stamford is generally without
recourse to Belmar Realty, the Fund and Shareholders, the potential loss from
Belmar Realty's investments in Bel Stamford is normally limited to the amount of
its equity investment. The Fund and Belmar Realty may, however, 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 Bel Stamford, increasing the potential for
loss under extraordinary circumstances.
Because all or substantially all of the rental payments on Net Leased Properties
generally is dedicated to servicing the associated mortgage debt, during the
initial lease term Belmar Realty does not generate significant cash flow from
investments in Net Leased Properties to offset Belmar Realty's operating
expenses and the cost of Fund borrowings used to finance Belmar Realty's equity
in the Net Leased Properties. Such costs and expenses must be provided from
other sources of cash flow for Belmar Realty and the Fund, which may include
additional Fund borrowings under the Credit Facility. Realized returns on
investments in Net Leased Properties generally are deferred until the properties
are sold or re-leased following the initial lease term.
Fluctuations in the value of Partnership Preference Units and Belmar Realty's
equity in the Real Estate Joint Venture and the Net Leased Property 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. Changes in the value of real estate investments
not offset by changes in the valuation of interest rate swap agreements or other
interest rate hedges entered into by the Fund will cause the performance of the
Fund to deviate from the performance of the Portfolio. Over time, the
performance of the Fund can be expected to be more volatile than the performance
of the Portfolio. See "Critical Accounting Estimates" in Item 7.
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.
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
24
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 Apartments.
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 Belmar Realty's right to receive distributions
from the Real Estate Joint Venture.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Fund's consolidated financial statements for the year ended December 31,
2003, together with the auditors' report thereon, appearing on pages 33 through
68 hereof, are incorporated herein by reference. The Portfolio's audited
financial statements for the year ended December 31, 2003 accompany the Fund's
consolidated financial statements and are also incorporated herein by reference.
The following is a summary of unaudited quarterly results of operations of the
Fund for the years ended December 31, 2003 and 2002.
2003
-----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------------
Investment income $ 24,737,532 $ 24,603,075 $22,963,420 $ 22,602,455
Minority interest in net income of controlled subsidiaries $ (137,545) $ (94,806) $ (45,381) $ (158,098)
Net investment income(1) $ 11,700,588 $ 11,435,095 $10,276,573 $ 10,311,763
Net (decrease) increase in net assets from operations $(56,441,928) $214,324,671 $49,210,874 $204,695,633
Per share data:(2)
Investment income $ 1.06 $ 1.06 $ 1.00 $ 1.01
Net investment income(1) $ 0.50 $ 0.49 $ 0.45 $ 0.46
Net (decrease) increase in net assets from operations $ (2.42) $ 9.25 $ 2.15 $ 9.12
2002
-----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------------
Investment income $25,147,757 $ 25,342,553 $ 24,358,376 $24,966,149
Minority interest in net income of controlled subsidiaries $ (114,392) $ (97,540) $ (155,365) $ (56,757)
Net investment income(3) $10,333,922 $ 10,732,800 $ 10,410,443 $11,269,479
Net increase (decrease) in net assets from operations $23,339,084 $(238,084,568) $(290,536,145) $88,923,757
Per share data:(2)
Investment income $ 1.04 $ 1.06 $ 1.03 $ 1.07
Net investment income(3) $ 0.43 $ 0.45 $ 0.44 $ 0.48
Net increase (decrease) in net assets from operations $ 0.97 $ (9.97) $ (12.34) $ 3.81
|
(1) Net investment income is presented without reduction for interest expense
on swap agreements. Such amounts were previously presented as a reduction
to net investment income. For the quarters ended March 31, 2003, June 30,
2003 and September 30, 2003, interest expense on swap agreements in the
amounts of $9,198,945, $9,551,052 and $6,972,899, respectively, is
presented as a realized loss (see Note 2 to the Fund's consolidated
financial statements incorporated herein by reference).
(2) Based on average Shares outstanding.
(3) Net investment income is presented without reduction for interest expense
on swap agreements. Such amounts were previously presented as a reduction
to net investment income. For the quarters ended March 31, 2002, June 30,
2002, September 30, 2002 and December 31, 2002, interest expense on swap
agreements in the amounts of $10,197,831, $9,840,142, $10,118,324 and
$10,575,138, respectively, is presented as a realized loss (see Note 2 to
the Fund's consolidated financial statements incorporated herein by
reference).
25
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, conducted an evaluation of 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.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Fund's disclosure controls and procedures were
effective. There were no changes in the Fund's internal control over financial
reporting that occurred during the quarter ended December 31, 2003 that have
materially affected, or are reasonably likely to materially affect, the Fund's
internal control over financial reporting.
As the Fund's manager, the complete and entire management, control and operation
of the Fund are vested in Eaton Vance. The Fund's Chief Executive Officer and
Chief Financial Officer intend to report to the Board of Directors of Eaton
Vance, Inc. (the sole trustee of Eaton Vance) 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.
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. Alexander to serve indefinitely as the Fund's Chief
Executive Officer and Chief Financial Officer, respectively, on October 16,
2002. Information about Mr. Faust appears below. Ms. Alexander, 34, 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, Belport
Capital Fund LLC and Belrose Capital Fund LLC, and as an officer of various
investment companies managed by Eaton Vance or Boston Management. Ms. Alexander
has been an employee of Eaton Vance since 1997. As members of the Eaton Vance
organization, Mr. Faust and Ms. Alexander 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 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 William M. Steul. Mr. Steul is a senior officer of Eaton Vance and, as
such, is not independent of Fund management. Information about Mr. Steul appears
below.
Boston Management is investment adviser to the Fund and the Portfolio and
manager of Belmar 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.
26
The directors of Belmar Realty are Mr. Faust, James B. Hawkes and Alan R.
Dynner, each of whom is described below. William R. Cross, Vice President of
Belmar Realty, is primarily responsible for providing research and analysis
relating to the Fund's real estate investments held through Belmar Realty. Mr.
Cross is a Vice President of Eaton Vance and Boston Management and has been
employed by the Eaton Vance organization since 1996. Mr. Faust, Mr. Cross and
Mr. Dynner serve as managers of the Real Estate Joint Venture owned by Belmar
Realty. Mr. Dynner is also Vice President and Secretary of the Real Estate Joint
Venture. Information about Mr. Dynner appears below.
As disclosed under "The Eaton Vance Organization" in Item 1, Eaton Vance and
Boston Management are indirect 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 (62) 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. (45) 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, Belport Capital Fund LLC and
Belrose Capital Fund LLC, and is an officer of various investment companies
managed by Eaton Vance or Boston Management. Mr. Faust has been employed by
Eaton Vance since 1985.
Alan R. Dynner (63) 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 (61) 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, based solely
on a review of the copies of such reports furnished to the Fund, during the year
ended December 31, 2003 all Section 16(a) filing requirements applicable to such
persons and entities were complied with for such year, except that each of James
B. Hawkes, Alan R. Dynner and William S. Steul, in their capacities as Directors
and/or executive officers of Eaton Vance, Inc., failed to file one Form 3. Each
such Form 3 reported no transactions in Fund Shares.
(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.
27
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 compensation
from the Fund for services provided to the Fund, which is 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 five percent of the Shares of the Fund.
SECURITY OWNERSHIP OF MANAGEMENT. As of March 1, 2004, Eaton Vance, the manager
of the Fund, beneficially owned 1,103.07 Shares of the Fund. The Shares owned by
Eaton Vance represent less than 1% of the outstanding Shares of the Fund as of
March 1, 2004. 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The table below sets forth the fees, paid or payable by, or allocable to, the
Fund and Belmar Realty for the years ended December 31, 2003 and 2002 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,
2003 2002
------------------------------------------------------------------------------------------------------------
Fund Advisory and Administrative Fees* $1,277,921 $1,246,862
------------------------------------------------------------------------------------------------------------
Belmar Realty Management Fees* $4,060,122 $4,553,263
------------------------------------------------------------------------------------------------------------
Fund's Allocable Portion of the Portfolio's Advisory Fees** $7,634,035 $8,125,471
------------------------------------------------------------------------------------------------------------
Fund Servicing Fees $1,658,867 $1,825,665
------------------------------------------------------------------------------------------------------------
Fund's Allocable Portion of Belvedere Company's Servicing Fees $2,617,051 $2,795,415
------------------------------------------------------------------------------------------------------------
Fund Distribution Fees* $1,711,661 $1,847,235
------------------------------------------------------------------------------------------------------------
Redemption Fee paid by Redeeming Shareholders $ 340,087 $ 293,328
------------------------------------------------------------------------------------------------------------
Aggregate Compensation Paid by the Fund to Eaton Vance and its Affiliates $7,049,704 $7,647,360
------------------------------------------------------------------------------------------------------------
|
* 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 exceeds 0.60%
of the average daily gross assets of the Fund reduced by that portion of
the advisory or management fees payable by the Portfolio and Belmar Realty
that is attributable to the value of the Fund's direct and indirect
investments therein. The amount shown reflects this waiver by Boston
Management.
** For the years ended December 31, 2003 and 2002, advisory fees paid or
payable by the Portfolio totaled $67,584,543 and $71,564,552, respectively.
For the year ended December 31, 2003, Belvedere Company's allocable portion
of that fee was $41,671,111, of which $7,634,035 was allocable to the Fund.
For the year ended December 31, 2002, Belvedere Company's allocable portion
of that fee was $41,180,870, of which $8,125,471 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 reduced by the
portion of the monthly advisory or management fees for such months payable by
the Portfolio and Belmar Realty that is attributable to the Fund's direct or
indirect investments therein (but no such reduction shall be made to the extent
that any such fee or portion thereof has been waived by Boston Management).
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 "Distribution Fees
Paid to EV Distributors" below), exceeds 1/20 of 1% of the average daily gross
28
assets of the Fund reduced by the portion of the monthly advisory or management
fees for such month payable by the Portfolio and Belmar Realty that is
attributable to the value of the Fund's direct or indirect investments therein
(but no such reduction shall be made to the extent that any such fee or portion
thereof has been waived by Boston Management). 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 controlled
subsidiaries), without reduction by any liabilities.
BELMAR REALTY'S MANAGEMENT FEE. Under the terms of Belmar 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 Belmar Realty. The term "gross assets of Belmar
Realty" means the current value of all assets of Belmar Realty, without
reduction by any liabilities.
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
29
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. No redemption fees have been imposed since November
30, 2003.
CERTAIN REAL ESTATE INVESTMENT TRANSACTIONS. During the year ended December 31,
2003, Bel Holdings issued units to Belmar Realty for approximately $35.0
million. As of December 31, 2003, each investor in Bel Holdings was a REIT
subsidiary of an investment fund managed by Eaton Vance and advised by Boston
Management. During the year ended December 31, 2003, Belmar Realty also
purchased Partnership Preference Units of two issuers from Belcrest Realty
Corporation (Belcrest), a REIT subsidiary of another investment fund managed by
Eaton Vance and advised by Boston Management, for a total of approximately $40.6
million. Belcrest recognized gains of approximately $0.6 million on the
transactions. Belmar Realty also sold Partnership Preference Units of five
issuers to Belshire Realty Corporation and Partnership Preference Units of one
issuer to Belrose Realty Corporation, REIT subsidiaries of other investment
funds managed by Eaton Vance and advised by Boston Management, for approximately
$57.0 million. In connection with such sales, the Fund realized gains of
approximately $7.2 million. The purchase and sale prices for such Partnership
Preference Units were determined in good faith by Boston Management after
consideration of factors, data and information that it considered relevant.
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, 2003 and 2002 and fees billed for other
services rendered by Deloitte & Touche LLP during those periods.
Year ended December 31, 2003 2002
----------------------------------------------------------------------------
Audit fees $ 32,656 $ 22,300
Audit related fees(1) 35,040 34,255
Tax fees(2) 109,774 231,460
All other fees(3) 4,200 4,200
--------------------
Total $181,670 $292,215
--------------------
|
(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.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) The following is a list of all financial statements filed as a part of
this report:
(i) Consolidated Portfolios of Investments as of December 31, 2003 and
December 31, 2002
Consolidated Statements of Assets and Liabilities as of December 31,
2003 and December 31, 2002
Consolidated Statements of Operations for the years ended December 31,
2003, December 31, 2002 and December 31, 2001
Consolidated Statements of Changes in Net Assets for the years ended
December 31, 2003, December 31, 2002 and December 31, 2001
30
Consolidated Statements of Cash Flows for the years ended December 31,
2003, December 31, 2002 and December 31, 2001
Financial Highlights for the years ended December 31, 2003, December
31, 2002 and December 31, 2001
Notes to Consolidated Financial Statements
Independent Auditors' Report dated March 5, 2004
(ii) Portfolio of Investments of Tax-Managed Growth Portfolio as of
December 31, 2003
Statement of Assets and Liabilities of Tax-Managed Growth Portfolio as
of December 31, 2003
Statement of Operations of Tax-Managed Growth Portfolio for the year
ended December 31, 2003
Statements of Changes in Net Assets of Tax-Managed Growth Portfolio
for the years ended December 31, 2003 and December 31, 2002
Supplementary Data of Tax-Managed Growth Portfolio for the years ended
December 31, 2003, December 31, 2002, December 31, 2001, December 31,
2000 and December 31, 1999
Notes to Financial Statements
Independent Auditors' Report dated February 20, 2004
(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 70 hereof.
31
Appendix A
Set forth below is a chart depicting the various entities in which the Fund
invested as of December 31, 2003. Defined terms used below have the meaning
ascribed to them in Item 1.
[Chart depicting (1) the Fund investing in Belvedere Company and Belmar Realty;
(2) Belvedere Company investing in the Portfolio; and (3) Belmar Realty
investing in Bel Apartments. The Fund is followed by footnote (A); Belvedere
Company is followed by footnote (B); the Portfolio is followed by footnote (C);
Belmar Realty is followed by footnote (D); and Bel Apartments is followed by
footnote (E). 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 and investment adviser of Belvedere
Company.
(C) Boston Management is the Portfolio's investment adviser.
(D) Boston Management is the manager of Belmar Realty. Belmar Realty also holds
investments in Partnership Preference Units.
(E) Belmar Realty owns a majority interest in this Real Estate Joint Venture.
32
BELMAR CAPITAL FUND LLC
CONSOLIDATED PORTFOLIOS OF INVESTMENTS
AS OF DECEMBER 31, 2003
INVESTMENT IN BELVEDERE CAPITAL FUND COMPANY LLC -- 75.8%
SECURITY SHARES VALUE
--------------------------------------------------------------------------------
Investment in Belvedere Capital Fund
Company LLC (Belvedere Capital) 12,559,085 $ 1,966,911,184
--------------------------------------------------------------------------------
TOTAL INVESTMENT IN BELVEDERE CAPITAL
(IDENTIFIED COST, $2,352,813,010) $ 1,966,911,184
--------------------------------------------------------------------------------
PARTNERSHIP PREFERENCE UNITS -- 16.4%
SECURITY UNITS VALUE
--------------------------------------------------------------------------------
Bel Holdings, LLC +(1)(2) 236,138 $ 23,872,204
Cabot Industrial Properties, L.P. (Delaware
Limited Partnership affiliate of Cabot
Industrial Trust), 8.625% Series B Cumulative
Redeemable Preferred Units, Callable
from 4/29/04+(2) 1,300,000 67,379,000
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) 2,530,000 61,377,800
Essex Portfolio, L.P. (California Limited
Partnership affiliate of Essex Property Trust,
Inc.), 7.875% Series B Cumulative
Redeemable Preferred Units, Callable
from 2/6/03+(2)(3) 325,000 15,659,215
Essex Portfolio, L.P. (California Limited
Partnership affiliate of Essex Property Trust,
Inc.), 9.30% Series D Cumulative
Redeemable Preferred Units, Callable
from 7/28/10+(2) 2,000,000 51,221,200
MHC Operating Limited Partnership (Illinois
Limited Partnership affiliate of Manufactured
Home Communities, Inc.), 9% Series D
Cumulative Redeemable Perpetual Preference
Units, Callable from 9/29/04+(2) 800,000 20,104,000
PSA Institutional Partners, L.P. (California
Limited Partnership affiliate of Public Storage,
Inc.), 9.50% Series N Cumulative Redeemable
Perpetual Preferred Units, Callable
from 3/17/05+(2) 2,555,000 66,430,000
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) 663,536 32,599,524
SECURITY SHARES VALUE
--------------------------------------------------------------------------------
Price Development Company, L.P. (Maryland
Limited Partnership affiliate of J.P. Realty, Inc.),
8.95% Series B Cumulative Redeemable Preferred
Partnership Units, Callable from 7/28/04+(2) 800,000 $ 19,648,000
Regency Centers, L.P. (Delaware Limited Partnership
affiliate of Regency Realty Corporation), 9.125%
Series D Cumulative Redeemable Preferred Units,
Callable from 9/29/04+(2) 150,000 15,349,500
Sun Communities Operating L.P. (Michigan Limited
Partnership affiliate of Sun Communities, Inc.),
8.875% Series A Cumulative Redeemable Perpetual
Preferred Units, Callable from 9/29/04+(2) 2,000,000 51,140,000
--------------------------------------------------------------------------------
TOTAL PARTNERSHIP PREFERENCE UNITS
(IDENTIFIED COST, $376,394,227) $ 424,780,443
--------------------------------------------------------------------------------
OTHER REAL ESTATE INVESTMENTS -- 7.1%
DESCRIPTION VALUE
--------------------------------------------------------------------------------
Rental property(2)(4) $ 185,138,810
--------------------------------------------------------------------------------
TOTAL OTHER REAL ESTATE INVESTMENTS
(IDENTIFIED COST, $229,939,890) $ 185,138,810
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.7%
PRINCIPAL
AMOUNT
(000'S
SECURITY OMITTED) VALUE
--------------------------------------------------------------------------------
Investors Bank & Trust Company -
Time Deposit, 1.01%, 1/2/04 $ 16,973 $ 16,973,476
--------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(AT AMORTIZED COST, $16,973,476) $ 16,973,476
--------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(IDENTIFIED COST, $2,976,120,603) $2,593,803,913
--------------------------------------------------------------------------------
|
See notes to consolidated financial statements
33
BELMAR CAPITAL FUND LLC
CONSOLIDATED PORTFOLIOS OF INVESTMENTS CONT'D
AS OF DECEMBER 31, 2002
INVESTMENT IN BELVEDERE CAPITAL FUND COMPANY LLC -- 68.6%
SECURITY SHARES VALUE
-------------------------------------------------------------------------------
Investment in Belvedere Capital Fund
Company LLC (Belvedere Capital) 12,878,595 $ 1,645,261,953
--------------------------------------------------------------------------------
TOTAL INVESTMENT IN BELVEDERE CAPITAL
(IDENTIFIED COST, $2,374,972,625) $ 1,645,261,953
--------------------------------------------------------------------------------
PARTNERSHIP PREFERENCE UNITS -- 22.9%
SECURITY UNITS VALUE
--------------------------------------------------------------------------------
Cabot Industrial Properties, L.P.
(Delaware Limited Partnership affiliate
of Cabot Industrial Trust), 8.625%
Series B Cumulative Redeemable Preferred
Units, Callable from 4/29/04+(2) 1,300,000 $ 61,404,200
Camden Operating, L.P. (Delaware Limited
Partnership affiliate of Camden Property
Trust), 8.50% Series B Cumulative
Redeemable Perpetual Preferred Units,
Callable from 2/23/04+(2) 2,730,000 70,062,720
CP Limited Partnership (Maryland Limited
Partnership affiliate of Chateau
Communities, Inc.), 8.125% Series A
Cumulative Redeemable Preferred Units,
Callable from 4/20/03+(2) 1,500,000 65,726,700
Essex Portfolio, L.P. (California
Limited Partnership affiliate of Essex
Property Trust, Inc.), 7.875% Series B
Cumulative Redeemable Preferred Units,
Callable from 2/6/03+(2) 325,000 13,949,715
Essex Portfolio, L.P. (California
Limited Partnership affiliate of Essex
Property Trust, Inc.), 9.30% Series D
Cumulative Redeemable Preferred Units,
Callable from 7/28/04+(2) 2,000,000 49,631,200
Essex Portfolio, L.P. (California
Limited Partnership affiliate of Essex
Property Trust, Inc.), 9.125% Series C
Cumulative Redeemable Preferred Units,
Callable from 11/24/03+(2) 80,000 3,895,864
Kilroy Realty, L.P. (Delaware Limited
Partnership affiliate of Kilroy Realty
Corporation), 8.075% Series A Cumulative
Redeemable Preferred Units, Callable
from 2/6/03+(2) 724,000 29,365,223
Kilroy Realty, L.P. (Delaware Limited
Partnership affiliate of Kilroy Realty
Corporation), 9.375% Series C Cumulative
Redeemable Preferred Units, Callable
from 11/24/03+(2) 700,000 32,328,730
SECURITY UNITS VALUE
--------------------------------------------------------------------------------
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) 2,555,000 $ 69,508,775
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) 963,536 41,308,715
Regency Centers, L.P. (Delaware Limited
Partnership affiliate of Regency Realty
Corporation), 8.125% Series A Cumulative
Redeemable Preferred Units, Callable
from 6/25/03+(2) 1,000,000 49,064,000
Regency Centers, L.P. (Delaware Limited
Partnership affiliate of Regency Realty
Corporation), 9.125% Series D Cumulative
Redeemable Preferred Units, Callable
from 9/29/04+(2) 150,000 15,769,050
Sun Communities Operating L.P. (Michigan
Limited Partnership affiliate of Sun
Communities, Inc.), 8.875% Series A
Cumulative Redeemable Perpetual
Preferred Units, Callable
from 9/29/04+(2) 2,000,000 48,338,000
--------------------------------------------------------------------------------
TOTAL PARTNERSHIP PREFERENCE UNITS
(IDENTIFIED COST, $489,643,924) $ 550,352,892
--------------------------------------------------------------------------------
OTHER REAL ESTATE INVESTMENTS -- 8.5%
DESCRIPTION VALUE
--------------------------------------------------------------------------------
Rental Property(2)(4) $ 203,940,755
--------------------------------------------------------------------------------
TOTAL OTHER REAL ESTATE INVESTMENTS
(IDENTIFIED COST, $228,372,139) $ 203,940,755
--------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(IDENTIFIED COST, $3,092,988,688) $ 2,399,555,600
--------------------------------------------------------------------------------
|
+ Security exempt from registration under the Securities Act of 1933. At
December 31, 2003 and 2002, the value of these securities totaled
$424,780,443 and $550,352,892, or 22.1% and 34.0% of net assets,
respectively.
(1) The sole investment of Bel Holdings, LLC is as follows: Vornado Realty, LP
(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 Belmar Realty Corporation.
(3) On January 8, 2004 the call date was changed to 12/31/09.
(4) Rental property represents nineteen multi-family residential properties
located in eight states. None of the individual properties represent more
than 5% of net assets.
See notes to consolidated financial statements
34
BELMAR CAPITAL FUND LLC
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
Assets DECEMBER 31, 2003 DECEMBER 31, 2002
-------------------------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $2,976,120,603 and $3,092,988,688, $ 2,593,803,913 $ 2,399,555,600
respectively)
Cash 6,605,096 6,149,096
Escrow deposits -- restricted 3,817,390 4,583,810
Open interest rate swap agreements, at value 2,090,845 -
Distributions and interest receivable 1,960,318 2,456,370
Receivable for securities sold - 29,285,540
Other assets 3,661,857 3,608,880
-------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,611,939,419 $ 2,445,639,296
-------------------------------------------------------------------------------------------------------------------------
Liabilities
-------------------------------------------------------------------------------------------------------------------------
Loan payable -- Credit Facility $ 513,000,000 $ 596,500,000
Mortgages payable 161,157,192 162,461,900
Payable for Fund Shares redeemed 1,361,403 -
Distributions payable to minority shareholders 16,800 -
Open interest rate swap contracts, at value - 47,057,312
Security deposits 744,420 776,772
Swap interest payable 242,283 1,696,469
Notes payable to minority shareholder 565,972 565,972
Accrued expenses:
Interest expense 1,423,780 2,487,473
Property taxes 3,281,589 3,143,437
Other expenses and liabilities 1,586,790 1,601,191
Minority interests in controlled subsidiaries 7,947,333 9,118,965
-------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 691,327,562 $ 825,409,491
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 1,920,611,857 $ 1,620,229,805
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' CAPITAL $ 1,920,611,857 $ 1,620,229,805
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
FUND SHARES OUTSTANDING 22,261,334 23,190,678
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE (NOTE 4) $ 86.28 $ 69.87
-------------------------------------------------------------------------------------------------------------------------
|
See notes to consolidated financial statements
35
BELMAR CAPITAL FUND LLC
CONSOLIDATED FINANCIAL STATEMENTS CONT'D
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
INVESTMENT INCOME 2003 2002 2001
------------------------------------------------------------------------------------------------------------------------------------
Dividends allocated from Belvedere Capital (net of foreign taxes,
$301,745, $230,203 and $134,644, respectively) $ 25,889,334 $ 23,452,669 $ 21,962,872
Interest allocated from Belvedere Capital 410,423 677,946 1,989,423
Expenses allocated from Belvedere Capital (10,585,603) (11,284,744) (13,243,972)
------------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from Belvedere Capital $ 15,714,154 $ 12,845,871 $ 10,708,323
Distributions from Partnership Preference Units 44,949,869 52,071,790 56,985,356
Rental income 33,969,790 34,819,869 35,254,627
Interest 272,669 77,305 541,419
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME $ 94,906,482 $ 99,814,835 $ 103,489,725
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
------------------------------------------------------------------------------------------------------------------------------------
Investment advisory and administrative fees $ 7,049,704 $ 7,647,360 $ 8,765,260
Property management fees 1,342,305 1,375,915 1,393,781
Distribution and servicing fees 3,370,528 3,672,900 4,363,435
Interest expense on mortgages 14,303,813 14,882,677 15,534,277
Interest expense on Credit Facility 8,670,248 13,623,896 29,913,110
Property and maintenance expenses 11,853,270 11,756,824 12,800,802
Property taxes and insurance 4,696,646 4,734,164 4,422,120
Miscellaneous 1,171,780 797,636 1,751,272
------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES $ 52,458,294 $ 58,491,372 $ 78,944,057
------------------------------------------------------------------------------------------------------------------------------------
Deduct--
Reduction of investment advisory and administrative fees $ 1,711,661 $ 1,847,235 $ 2,189,875
------------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES $ 50,746,633 $ 56,644,137 $ 76,754,182
------------------------------------------------------------------------------------------------------------------------------------
Net investment income before minority interests in net income of
controlled subsidiary $ 44,159,849 $ 43,170,698 $ 26,735,543
Minority interests in net income of controlled subsidiary (435,830) (424,054) (220,372)
------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 43,724,019 $ 42,746,644 $ 26,515,171
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)--
Investment transactions from Belvedere Capital (identified cost basis) $ 22,323,706 $ (1,023,197) $ (10,371,348)
Investment transactions (identified cost basis) - (763,095) -
Investment transactions in other investment (identified cost basis) - (2,338,586) -
Investment transactions in Partnership Preference Units
(identified cost basis) 39,965,989 5,116,279 68,908
Investment transactions in other real estate (net of minority interest
in realized loss of controlled subsidiary of $0, $476,023 and $0,
respectively) - (1,782,650) 428,905
Interest rate swap agreements (56,378,606) (40,731,435) (26,082,186)
------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) $ 5,911,089 $ (41,522,684) $ (35,955,721)
------------------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)--
Investment in Belvedere Capital (identified cost basis) $ 343,808,846 $(424,007,010) $ (250,476,623)
Investments in Partnership Preference Units (identified cost basis) (12,322,752) 17,761,335 26,517,504
Investment in other real estate (net of minority interest in unrealized
loss of controlled subsidiary of $(1,889,589), $(3,723,223) and
$(14,273,650), respectively) (18,480,109) (8,518,155) 2,083,646
Interest rate swap agreements 49,148,157 (2,818,002) (8,800,152)
------------------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) $ 362,154,142 $(417,581,832) $ (230,675,625)
------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) $ 368,065,231 $(459,104,516) $ (266,631,346)
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 411,789,250 $(416,357,872) $ (240,116,175)
------------------------------------------------------------------------------------------------------------------------------------
|
See notes to consolidated financial statements
36
BELMAR CAPITAL FUND LLC
CONSOLIDATED FINANCIAL STATEMENTS CONT'D
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2001
------------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 43,724,019 $ 42,746,644 $ 26,515,171
Net realized gain (loss) from investment transactions 5,911,089 (41,522,684) (35,955,721)
Net change in unrealized appreciation (depreciation) of investments 362,154,142 (417,581,832) (230,675,625)
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 411,789,250 $ (416,357,872) $ (240,116,175)
------------------------------------------------------------------------------------------------------------------------------------
Transactions in Fund Shares--
Net asset value of Fund Shares issued to Shareholders in
payment of distributions declard $ 18,603,373 $ - $ 7,580,098
Net asset value of Fund Shares redeemed (90,690,145) (72,096,456) (95,708,530)
------------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS $ (72,086,772) $ (72,096,456) $ (88,128,432)
------------------------------------------------------------------------------------------------------------------------------------
Distributions--
Distributions to Shareholders $ (39,320,426) $ - $ (19,000,496)
Special Distributions to Shareholders - - (1,786,192)
------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (39,320,426) $ - $ (20,786,688)
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS $ 300,382,052 $ (488,454,328) $ (349,031,295)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
AT BEGINNING OF YEAR $ 1,620,229,805 $ 2,108,684,133 $ 2,457,715,428
------------------------------------------------------------------------------------------------------------------------------------
AT END OF YEAR $ 1,920,611,857 $ 1,620,229,805 $ 2,108,684,133
------------------------------------------------------------------------------------------------------------------------------------
|
See notes to consolidated financial statements
37
BELMAR CAPITAL FUND LLC
CONSOLIDATED FINANCIAL STATEMENTS CONT'D
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN CASH 2003 2002 2001
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From (For) Operating Activities -
Net increase (decrease) in net assets from operations $ 411,789,250 $ (416,357,872) $ (240,116,175)
Adjustments to reconcile net increase (decrease) in net assets from operations
to net cash flows from operating activities -
Net investment income allocated from Belvedere Capital (15,714,154) (12,845,871) (10,708,323)
Decrease in escrow deposits 766,420 1,251,018 7,952,532
Decrease in receivable for investments sold 29,285,540 - -
(Increase) decrease in other assets (52,977) 372,239 1,190,433
Decrease in distributions and interest receivable 496,052 2,478,889 401,744
(Decrease) increase in interest payable for open swap agreements (1,454,186) 248,825 1,089,802
Decrease in security deposits, accrued interest and accrued other expenses
and liabilities (1,110,446) (1,104,644) (1,831,012)
Increase in accrued property taxes 138,152 108,785 506,404
Proceeds from sales of Partnership Preference Units 228,888,304 60,076,602 17,712,076
Purchases of Partnership Preference Units (75,672,618) - -
Proceeds from sale of common stock - 90,874,505 -
Purchases of other investments - (67,401,013) -
Proceeds from other investments - 65,062,425 -
Payments for investments in other real estate - - (48,651,593)
Proceeds from sales of investments in other real estate - - 49,080,499
Improvements to rental property (1,567,752) (1,963,230) (11,444,721)
Increase in minority interest - - 210,000
Decrease in cash due to sale of one multifamily real estate property - (17,946) -
Net (increase) decrease in investment in Belvedere Capital (25,866,250) (116,904,831) 12,759,457
Interest incurred on interest rate swap agreements (29,626,765) (40,731,435) (26,082,186)
Payment for termination of interest rate swap agreements (26,751,841) - -
(Increase) decrease in short-term investments (16,973,476) 3,919,805 137,573
Minority interests in net income of controlled subsidiary 435,830 424,054 220,372
Net realized (gain) loss from investment transactions (5,911,089) 41,522,684 35,955,721
Net change in unrealized (appreciation) depreciation of investments (362,154,142) 417,581,832 230,675,625
------------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 108,943,852 $ 26,594,821 $ 19,058,228
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From (For) Financing Activities -
Repayment of Credit Facility $ (83,500,000) $ (17,000,000) $ -
Payments on mortgages (1,304,708) (1,237,423) (1,176,953)
Payments for Fund Shares redeemed (3,265,017) (3,715,985) (5,937,177)
Payment on notes payable to minority shareholder - (134,028) -
Proceeds from notes payable to minority shareholder - - 700,000
Distributions paid to Shareholders (20,717,053) - (13,206,590)
Distributions paid to minority shareholders - (16,800) (35,165)
Capital contributed to controlled subsidiary 298,926 - -
------------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FOR FINANCING ACTIVITIES $ (108,487,852) $ (22,104,236) $ (19,655,885)
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH $ 456,000 $ 4,490,585 $ (597,657)
------------------------------------------------------------------------------------------------------------------------------------
CASH AT BEGINNING OF YEAR $ 6,149,096 $ 1,658,511 $ 2,256,168
------------------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 6,605,096 $ 6,149,096 $ 1,658,511
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE AND NON-CASH
INVESTING AND FINANCING ACTIVITIES
------------------------------------------------------------------------------------------------------------------------------------
Interest paid on loan - Credit Facility $ 8,248,335 $ 11,186,341 $ 28,671,325
Interest paid on mortgages $ 13,933,726 $ 14,515,550 $ 15,208,814
Interest paid on swap agreements $ 31,080,951 $ 40,482,610 $ 24,992,384
Market value of securities distributed in payment of redemptions $ 86,063,725 $ 68,380,471 $ 92,989,437
Market value of common stock received from Belvedere Capital $ - $ 120,923,140 $ -
Market value of real property and other assets, net of current liabilities,
disposed of in conjunction with the sale of one multifamily property
in other real estate investments $ - $ 10,281,661 $ -
Mortgage disposed of in conjunction with the sale of one multifamily property
in other real estate investments $ - $ 11,776,683 $ -
Market value of real property and other assets, net of current liabilities,
assumed in conjunction with the acquisition of other real estate investments $ - $ - $ 207,457,491
Mortgage assumed in conjunction with the acquisition of other real
estate investments $ - $ - $ 143,800,000
Market value of real property and other assets, net of current liabilities,
disposed of in conjunction with the sale of other real estate investments $ - $ - $ 207,457,491
Mortgage disposed of in conjunction with the sale of other real estate investments $ - $ - $ 143,800,000
|
See notes to consolidated financial statements
38
BELMAR CAPITAL FUND LLC
CONSOLIDATED FINANCIAL STATEMENTS CONT'D
FINANCIAL HIGHLIGHTS YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001
------------------------------------------------------------------------------------------------------------------------------------
Net asset value - Beginning of year $ 69.870 $ 87.370 $ 97.830
------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
Net investment income (6) $ 1.905 $ 1.803 $ 1.077
Net realized and unrealized gain (loss) 16.205 (19.303) (10.674)
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM OPERATIONS $ 18.110 $ (17.500) $ (9.597)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
------------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders $ (1.700) $ - $ (0.790)
Special Distributions to Shareholders - - (0.073)
------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (1.700) $ - $ (0.863)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF YEAR $ 86.280 $ 69.870 $ 87.370
------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (1) 26.48% (20.03)% (9.90)%
------------------------------------------------------------------------------------------------------------------------------------
RATIOS AS A PERCENTAGE OF AVERAGE NET ASSETS (5)
------------------------------------------------------------------------------------------------------------------------------------
Expenses of Consolidated Real Property Subsidiary
Interest and other borrowing costs (7) 0.58% 0.64% 0.55%
Operating expenses (7) 0.74% 0.78% 0.67%
Belmar Capital Fund LLC Expenses
Interest and other borrowing costs (4)(8) 0.51% 0.74% 1.36%
Investment advisory and administrative fees,
servicing fees and other Fund operating expenses (3)(4) 1.17% 1.16% 1.16%
-----------------------------------------------------
Total expenses 3.00% 3.32% 3.74%
Net investment income 2.55% 2.32% 1.21%
------------------------------------------------------------------------------------------------------------------------------------
RATIOS AS A PERCENTAGE OF AVERAGE GROSS ASSETS (2)(5)
------------------------------------------------------------------------------------------------------------------------------------
Expenses of Consolidated Real Property Subsidiary
Interest and other borrowing costs (7) 0.41% 0.45% 0.40%
Operating expenses (7) 0.52% 0.54% 0.48%
Belmar Capital Fund LLC Expenses
Interest and other borrowing costs (4)(8) 0.35% 0.52% 0.98%
Investment advisory and administrative fees,
servicing fees and other Fund operating expenses (3)(4) 0.82% 0.82% 0.85%
-----------------------------------------------------
Total expenses 2.10% 2.33% 2.71%
Net investment income 1.79% 1.63% 0.87%
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $ 1,920,612 $ 1,620,230 $ 2,108,684
Portfolio turnover of Tax-Managed Growth Portfolio (the Portfolio) 15% 23% 18%
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested.
(2) Average Gross Assets is defined as the average daily amount of all assets
of Belmar Capital Fund LLC (Belmar Capital) (including Belmar Capital's
interest in Belvedere Capital Fund Company LLC (Belvedere Capital) and
Belmar 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 Belmar Realty Corporation's (Belmar Realty)
controlled subsidiary are reduced by the proportionate interests therein of
investors other than Belmar Realty.
(3) Includes Belmar Capital's share of Belvedere Capital's allocated expenses,
including those expenses allocated from the Portfolio.
(4) Includes the expenses of Belmar Capital and Belmar Realty. Does not include
expenses of the real estate subsidiary majority-owned by Belmar Realty.
(5) For the purpose of calculating ratios, the income and expenses of Belmar
Realty's controlled subsidiary are reduced by the proportionate interests
therein of investors other than Belmar Realty.
(6) Calculated using average shares outstanding.
(7) Includes Belmar Realty's proportional share of expenses incurred by its
majority-owned subsidiary.
(8) Ratios do not include interest incurred in connection with the interest
rate swap agreements. Had such amounts been included, ratios would be
higher.
See notes to consolidated financial statements
39
BELMAR CAPITAL FUND LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 ORGANIZATION
A INVESTMENT OBJECTIVE -- Belmar Capital Fund LLC (Belmar 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 Belmar Capital is to achieve
long-term, after-tax returns for Belmar Capital shareholders
(Shareholders). Belmar 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. Belmar Capital maintains its
investment in the Portfolio by investing in Belvedere Capital Fund Company
LLC (Belvedere Capital), a separate Massachusetts limited liability company
that invests exclusively in the Portfolio. The performance of Belmar
Capital and Belvedere Capital is directly and substantially affected by the
performance of the Portfolio. Separate from its investment in the Portfolio
through Belvedere Capital, Belmar Capital invests in real estate assets
through a controlled subsidiary, Belmar Realty Corporation (Belmar 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
an interest in real properties held through a joint venture that is a
controlled subsidiary of Belmar Realty.
B SUBSIDIARIES -- Belmar Capital invests in real estate through its
subsidiary, Belmar Realty. Belmar Realty invests directly and indirectly in
Partnership Preference Units and indirectly in real property through a
controlled subsidiary, Bel Alliance Apartments, LLC (Bel Apartments).
Belmar Realty's investments in Partnership Preference Units are held
directly except for its indirect investment in Partnership Preference Units
of Vornado Realty, LP (a Delaware Limited Partnership) which is held
through its 29.6% investment in Bel Holdings, LLC at December 31, 2003.
Vornado Realty, LP is the sole investment of Bel Holdings, LLC.
Belmar Realty -- Belmar Capital owns 100% of the common stock issued by
Belmar Realty and intends to hold all of Belmar Realty's common stock at
all times. Additionally, 2,100 shares of preferred stock of Belmar Realty
are outstanding at December 31, 2003 and 2002. The preferred stock has a
par value of $0.01 per share and is redeemable by Belmar 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 Apartments -- Bel Apartments, a majority-owned subsidiary of Belmar
Realty since September 2000, owns 19 multi-family residential properties
consisting of 5,403 units (collectively, the Bel Apartments Properties)
located in eight states (South Carolina, Texas, Florida, North Carolina,
Missouri, Georgia, Virginia and Nevada). The average occupancy rate was
approximately 90% at December 31, 2003. Belmar Realty owns 100% of the
Class A Units of Bel Apartments, representing 60% of the voting interests
in Bel Apartments, and a minority shareholder (the Bel Apartments Minority
Shareholder) owns 100% of the Class B units, representing 40% of the voting
interests in Bel Apartments. 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. Belmar Realty has priority in
distributions and has greater voting rights than the holder of the Class B
units. Pursuant to a buy/sell agreement entered into at the time Bel
Apartments was established, either Belmar Realty or the Bel Apartments
Minority Shareholder can give notice on or after September 8, 2010 either
to buy the other's equity interest in Bel Apartments or to sell its own
equity interest in Bel Apartments.
Bel Multifamily -- Bel Multifamily Property Trust (Bel Multifamily), a
majority-owned subsidiary of Belmar Realty, was acquired in February 2001.
Belmar Realty subsequently sold its interest in Bel Multifamily in March
2001. Bel Multifamily owned 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). Belmar Realty owned 100% of the Class A units
of Bel Multifamily, representing 75% of the voting interests in Bel
Multifamily, and a minority shareholder (the Bel Multifamily Minority
Shareholder) owned 100% of the Class B units, representing 25% of the
voting interests in Bel Multifamily. The primary distinctions between the
two classes of shares were the distribution priority and voting rights.
Belmar Realty had priority in distributions and had greater voting rights
than the holders of the Class B units. Belmar Realty did not own an
interest in Bel Multifamily at December 31, 2001 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 Belmar Capital and its majority owned subsidiaries.
Belmar Capital and Belmar Realty consolidate all investments in affiliates
in which their ownership exceeds 50 percent. The accompanying consolidated
financial statements include the accounts of Belmar Capital, Belmar Realty
Bel Apartments and Bel Multifamily (for the period during which Belmar
Realty maintained an interest in Bel Multifamily) (collectively, the Fund).
All material intercompany accounts and transactions have been eliminated.
40
B BASIS OF PRESENTATION -- Belmar 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 in exchange for cash and a minority interest in the controlled
subsidiary. Upon receipt of common stock from Shareholders, Belmar Capital
immediately exchanged the contributed securities into Belvedere Capital for
shares thereof, and Belvedere Capital, in turn, immediately thereafter
exchanged the contributed securities into the Portfolio for an interest in
the Portfolio. The 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 Capital 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
investments purchased by the Fund is the purchase cost. The initial cost at
which the Fund's investment in real estate contributed is carried in the
consolidated financial statements is the market value on contribution date.
The initial tax basis of real estate investments contributed is the
contributor's tax basis at the time of contribution or the fair 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 Capital, Partnership Preference Units, real property
investments and short-term debt securities. Belvedere Capital's only
investment is an interest in the Portfolio, the value of which is derived
from a proportional interest therein. Additionally, the Fund has entered
into interest rate swap agreements (Note 7). The valuation policy followed
by the Fund, Belvedere Capital 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 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. 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. 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. The Portfolio may rely on an independent fair valuation service
in adjusting the valuations of foreign securities. Foreign securities and
currencies are valued in U.S. dollars, based on foreign currency exchange
rate quotations supplied by an independent quotation service. Investments
held by the Portfolio for which valuations or market quotations are
unavailable are valued at fair value using methods determined in good faith
by or at the direction of the Trustees of the Portfolio considering
relevant factors, data and information including the market value of freely
tradeable 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 and Research (Boston Management), as Investment
Adviser of Belmar 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 the joint venture) 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 Belmar
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
41
information from dealers and similar firms with knowledge of such issues
and the prices of comparable preferred equity securities and other fixed or
adjustable rate instruments having similar investment characteristics. Real
estate investments, other than Partnership Preference Units, are valued
based upon independent valuations, that represent the amount at which 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. The value of real estate investments in
the joint venture is estimated using a financial model that considers the
(i) 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 used in the independent valuations. Interim valuations reflect
results of operations and distributions, and may be adjusted if there has
been a significant change in economic circumstances since the most recent
independent valuation. 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.
A mortgage note payable may be adjusted to the estimated amount at which
the mortgage note could be settled in a current transaction. If the rental
property securing such mortgage note payable has a value lower than the
outstanding principal balance, is operating at a deficit and financial
resources are not expected to be provided to fund such deficit, then the
mortgage note payable may be adjusted to the estimated fair value of the
property securing the mortgage note.
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 -- Belmar Capital has entered into interest rate swap
agreements with respect to its borrowings and real estate investments.
Pursuant to these agreements, Belmar Capital makes periodic payments to the
counterparty at predetermined fixed rates in exchange for floating-rate
payments from the counterparty at a predetermined spread to 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 Statements of Operations. Belmar 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 Apartments are
leased to residents generally for terms of one year or less, with monthly
payments due in advance. The apartment units held by Bel Multifamily were
leased to residents generally for a term of one year or less.
The mortgage escrow accounts consist of deposits for real estate taxes,
insurance, reserve for replacements and capital repairs that are required
under the mortgage agreements. The mortgage escrow accounts are held by
financial institutions and controlled by the mortgage lenders (Note 8).
Costs incurred in connection with acquisitions of properties have been
capitalized. Significant betterments and improvements are capitalized as
part of real property.
G INCOME -- Dividend income 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 Capital's net investment income or loss consists of Belvedere
Capital's pro rata share of the net investment income or loss of the
Portfolio, less all actual or accrued expenses of Belvedere Capital,
determined in accordance with accounting principles generally accepted in
the United States of America. The Fund's net investment income or loss
consists of the Fund's pro rata share of the net investment income or loss
of Belvedere Capital, 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 -- Costs incurred by Belmar Capital in connection with its
organization have been expensed as incurred. Mortgage origination expenses
incurred in connection with the financing of Bel Apartments 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
interest expense in the accompanying consolidated financial statements.
I INCOME TAXES -- Belmar Capital, Belvedere Capital and the Portfolio are
treated as partnerships for federal income tax purposes. As a result,
Belmar Capital, Belvedere Capital and the Portfolio do not incur federal
income tax liability, and the shareholders and partners thereof are
individually responsible for taxes on items of partnership income, gain,
loss and deduction. The policy of Belmar Realty, Bel Apartments and Bel
Multifamily (for the period Belmar Realty owned an interest in Bel
Multifamily) is to comply with the Internal Revenue Code of 1986, as
amended, applicable to REITs. Belmar Realty and Bel Apartments 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 a REIT.
42
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 contributed, 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 Belmar Capital's Limited Liability Company
Agreement, Belmar Capital's officers, its manager, investment adviser, and
any affiliate, associate, officer, employee or trustee thereof, and any
manager, director, officer or employee of Belmar 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 Belmar
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
Belmar Capital intends to distribute at the end of each year, or shortly
thereafter, all of its net investment income for the year, if any, and
approximately 18% 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, Belmar 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) will be made solely to the Shareholders to whom such
realized precontribution gain is allocated. There were no Special
Distributions paid or accrued during the years ended December 31, 2003 and
2002. During the year ended December 31, 2001, Special Distributions of
$1,786,192 were paid or accrued.
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, Belmar Realty and Bel Apartments intend to distribute
substantially all of their taxable income earned by the respective entities
during the year.
Distributions made to Shareholders electing the Fund's Estate Freeze
feature (Note 4) will be paid, first, to holders of Preferred Shares to the
extent of the unpaid cumulative annual priority return of the Preferred
Shares and, second, to the holders of the associated Common Shares.
Distributions made in respect of any realized precontribution gains and
associated supplemental distributions will be apportioned between Preferred
Shares and Common Shares consistent with the allocation to the Preferred
Shares and Common Shares of such realized precontribution gains. It is
expected that substantially all Belmar Capital distributions in respect of
Estate Freeze Shares will be paid to holders of Preferred Shares rather
than holders of Common Shares. Distributions on Estate Freeze Shares may be
reinvested in Belmar Capital to purchase undivided Fund Shares at the
Fund's net asset value per share on the date of reinvestment.
4 SHAREHOLDER TRANSACTIONS
Belmar 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,
2003 2002 2001
--------------------------------------------------------------------------------
Issued to Shareholders electing to
receive payment of distributions
in Fund Shares 253,148 - 86,413
Redemptions (1,182,492) (943,826) (1,074,220)
--------------------------------------------------------------------------------
NET DECREASE (929,344) (943,826) (987,807)
--------------------------------------------------------------------------------
|
43
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 Belmar Capital on behalf of the redeeming Shareholder. No
charge is levied on redemptions of Fund Shares acquired through the
reinvestment of distributions, Fund Shares redeemed in connection with a
tender offer or other extraordinary corporate event or Fund Shares redeemed
following the death of all of the initial holders of the Fund Shares
redeemed. In addition, no fee applies to redemptions made pursuant to a
Systematic Redemption Plan, whereby a Shareholder can redeem up to 2% of
Fund Shares held on a quarterly basis. For the years ended December 31,
2003, 2002 and 2001, EV Distributors received $340,087, $293,328 and
$628,375 in redemption fees, respectively.
Shareholders in Belmar 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 Shares, plus any returns thereon in excess of the
fixed annual priority of the Preferred Shares. At December 31, 2003 and
2002, the Preferred Shares were valued at $86.28 and $69.87, respectively,
and the Common Shares had no value. The existence of restructured Fund
Shares does not adversely affect Shareholders who do not make an 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.
5 INVESTMENT TRANSACTIONS
The following table summarizes the Fund's investment transactions for the
years ended December 31, 2003 and 2002:
YEAR ENDED YEAR ENDED
INVESTMENT TRANSACTION DECEMBER 31, 2003 DECEMBER 31, 2002
Increases in investment in Belvedere Capital $ 25,000,000 $246,297,586
Decreases in investment in Belvedere
Capital(1) $ 85,197,475 $318,696,366
Sale of other investments(2) $ - $ 65,062,425
Purchases of Partnership Preference Units(3) $ 75,672,618 $ -
Sales of Partnership Preference Units(4) $228,888,304 $ 60,076,602
Sale of common stock(1) $ - $120,160,045
--------------------------------------------------------------------------------
|
(1) Included in decreases in investment in Belvedere Capital for the year ended
December 31, 2002 is the receipt of common stock through a redemption
in-kind of $120,923,140. Belmar Capital subsequently sold the common stock
during the year ended December 31, 2002 recognizing a loss of $763,095 on
the transaction.
(2) During the year ended December 31,2002, Belmar capital purchased
$67,401,012 of other investments and subsequently sold the investments
recognizing a loss of $2,338,586.
(3) Purchases of Partnership Preference Units for the year ended December 31,
2003 include purchases of Partnership Preference Units from other funds
sponsored by Eaton Vance Management (Eaton Vance) and the investment in Bel
Holdings, LLC (Note 1B) in the amount of $35,042,618.
(4) Sales of Partnership Preference Units for the years ended December 31, 2003
and 2002 include Partnership Preference Units sold to other funds sponsored
by Eaton Vance for which gains of $7,239,933 and $5,116,279 were
recognized, respectively.
In June 2002, a multifamily residential property owned by bel Apartments
was sold to an affiliate of the Bel Apartments Minority Shareholder. Belmar
Capital recognized a loss of $1,782,650, net of the minority interest in
such loss, of $476,023.
6 INDIRECT INVESTMENT IN PORTFOLIO
The following table summarizes the Fund's investment in the Portfolio
through Belvedere Capital, for the years ended December 31, 2003, 2002 and
2001, 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, 2003 DECEMBER 31, 2002 DECEMBER 31, 2001
-------------------------------------------------------------------------------------------------------------------------------
Belvedere Capital's interest in the Portfolio (1) $ 11,100,012,615 $ 8,753,268,522 $ 10,334,131,781
The Fund's investment in Belvedere Capital (2) $ 1,966,911,184 $ 1,645,261,953 $ 2,129,845,069
Income allocated to Belvedere Capital from the Portfolio $ 143,671,130 $ 123,096,851 $ 105,790,876
Income allocated to the Fund from Belvedere Capital $ 26,299,757 $ 24,130,615 $ 23,952,295
Expenses allocated to Belvedere Capital from the Portfolio $ 43,085,940 $ 42,648,896 $ 43,414,135
Expenses allocated to the Fund from Belvedere Capital (3) $ 10,585,603 $ 11,284,744 $ 13,243,972
Net realized gain (loss) allocated to Belvedere Capital
from the Portfolio $ 128,352,887 $ (2,190,956) $ (56,383,991)
Net realized gain (loss) allocated to the Fund from Belvedere Capital $ 22,323,706 $ (1,023,197) $ (10,371,348)
Change in unrealized appreciation (depreciation)
allocated to Belvedere Capital from the Portfolio $ 1,892,271,872 $ (2,139,304,336) $ (1,001,620,479)
Change in unrealized appreciation (depreciation)
allocated to the Fund from Belvedere Capital $ 343,808,846 $ (424,007,010) $ (250,476,623)
-------------------------------------------------------------------------------------------------------------------------------
|
(1) As of December 31, 2003, 2002 and 2001, the value of Belvedere Capital's
interest in the Portfolio represents 63.0%, 60.1% and 56.4% of the
Portfolio's net assets, respectively.
(2) As of December 31, 2003, 2002 and 2001, the Fund's investment in Belvedere
Capital represents 17.7%, 18.8% and 20.6% of Belvedere Capital's net
assets, respectively.
(3) Allocated expenses include $7,893,121, $8,418,124 and $9,841,531 of
expenses from the Portfolio, operating expenses of $75,431, $71,205 and
$87,269 and service fees of $2,617,051, $2,795,415 and $3,315,172 for the
years ended December 31, 2003, 2002 and 2001, respectively (Note 9).
44
7 INTEREST RATE SWAP AGREEMENTS
Belmar 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, Belmar 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, 2003 and
2002 are listed below.
NOTIONAL INITIAL
AMOUNT OPTIONAL FINAL UNREALIZED UNREALIZED
EFFECTIVE (000'S FIXED FLOATING TERMINATION TERMINATION APPRECIATION DEPRECIATION
DATE OMITTED) RATE RATE DATE DATE AT DECEMBER 31, 2003 AT DECEMBER 31, 2002
------------------------------------------------------------------------------------------------------------------------------
10/03 $ 58,363 4.95% LIBOR + 0.20% 02/04 06/10 $ 133,207 $ -
10/03 55,831 4.875% LIBOR + 0.20% 04/04 06/10 154,214 -
10/03 43,010 4.755% LIBOR + 0.20% 07/04 06/10 163,545 -
10/03 56,978 4.695% LIBOR + 0.20% 09/04 06/10 232,978 -
10/03 64,418 4.565% LIBOR + 0.20% 03/05 06/10 316,702 -
10/03 110,068 3.9725% LIBOR + 0.20% - 06/10 1,090,199 -
03/00 27,500 8.96% LIBOR + 0.40% 03/05 03/30 - (3,589,811)
03/00 19,146 9.09% LIBOR + 0.40% 04/04 03/30 - (1,721,750)
03/00 43,181 9.20% LIBOR + 0.40% 06/03 03/30 - (1,544,077)
03/00 21,766 9.24% LIBOR + 0.40% 04/03 03/30 - (491,825)
03/00 38,102 9.11% LIBOR + 0.40% 02/04 03/30 - (3,020,889)
03/00 20,659 9.13% LIBOR + 0.40% 11/03 03/30 - (1,317,687)
03/00 23,027 9.05% LIBOR + 0.40% 07/04 03/30 - (2,366,994)
05/00 10,773 9.54% LIBOR + 0.40% 04/03 03/30 - (253,235)
05/00 12,984 9.50% LIBOR + 0.40% 06/03 03/30 - (483,956)
05/00 9,608 9.46% LIBOR + 0.40% 11/03 03/30 - (647,043)
05/00 13,274 9.42% LIBOR + 0.40% 02/04 03/30 - (1,111,586)
05/00 12,063 9.38% LIBOR + 0.40% 04/04 03/30 - (1,145,024)
05/00 10,799 9.35% LIBOR + 0.40% 07/04 03/30 - (1,178,045)
05/00 41,185 9.31% LIBOR + 0.40% 09/04 03/30 - (4,841,445)
05/00 7,255 9.26% LIBOR + 0.40% 03/05 03/30 - (1,013,121)
07/00 22,982 9.17% LIBOR + 0.40% 02/03 03/30 - (163,553)
07/00 28,305 9.15% LIBOR + 0.40% 04/03 03/30 - (631,854)
07/00 32,404 9.13% LIBOR + 0.40% 06/03 03/30 - (1,146,899)
07/00 3,383 9.08% LIBOR + 0.40% 11/03 03/30 - (213,883)
07/00 12,062 9.00% LIBOR + 0.40% 02/04 03/30 - (936,025)
07/00 24,622 8.985% LIBOR + 0.40% 04/04 03/30 - (2,167,107)
07/00 9,184 8.97% LIBOR + 0.40% 07/04 03/30 - (927,854)
07/00 13,454 8.93% LIBOR + 0.40% 09/04 03/30 - (1,459,523)
07/00 17,888 8.87% LIBOR + 0.40% 03/05 03/30 - (2,283,727)
09/00 39,407 7.46% LIBOR + 0.40% - 09/10 - (8,423,378)
11/00 11,776 8.34% LIBOR + 0.40% 03/05 03/30 - (1,287,360)
11/00 2,338 8.41% LIBOR + 0.40% 09/04 03/30 - (220,542)
11/00 23,636 8.48% LIBOR + 0.40% 02/04 03/30 - (1,623,935)
11/00 20,265 8.60% LIBOR + 0.40% 06/03 03/30 - (655,632)
11/00 28,629 8.66% LIBOR + 0.40% 02/03 03/30 - (189,552)
-----------------------------------------------------------------------------------------------------------------------------
Total $ 2,090,845 $ (47,057,312)
------------------------------------------------------------------------------------------------------------------------------
|
On October 1, 2003, new interest rate swap agreements were entered into to
fix a portion of the cost of Belmar Capital's borrowings under the Credit
Facility (as defined in Note 8B) established on June 30, 2003.
Concurrently, all interest rate swap agreements outstanding on September
30, 2003 were terminated, resulting in realized losses of $26,751,841.
8 DEBT
A MORTGAGES -- Rental property held by Bel Apartments is financed through
mortgages. The mortgages are secured by the rental property, mortgage loan
deposit accounts, including all subaccounts thereunder, and an assignment
of certain leases and rents, and are without recourse to Belmar Capital and
Belmar Realty. The estimated fair value of the aggregate rental property
securing the loans was $185,138,810 and $203,940,755 at December 31, 2003
and 2002, respectively. Balances outstanding at December 31, 2003 and 2002
are as follows:
MONTHLY
ANNUAL PRINCIPAL AND BALANCE AT BALANCE AT
INTEREST INTEREST DECEMBER 31, DECEMBER 31,
MATURITY DATE RATE PAYMENT 2003 2002
--------------------------------------------------------------------------------
October 1, 2010 8.58% $ 165,866 $ 20,950,165 $ 21,110,511
October 1, 2010 8.54% 458,550 58,120,436 58,569,564
October 1, 2010 8.54% 207,681 26,323,618 26,526,990
October 1, 2010 8.55% 364,480 46,158,028 46,513,766
October 1, 2027 7.68% 73,293 9,604,945 9,741,069
--------------------------------------------------------------------------------
$1,269,870 $161,157,192 $162,461,900
--------------------------------------------------------------------------------
|
Scheduled repayments of mortgages, for the years subsequent to December 31,
2003 are as follows:
YEAR ENDING DECEMBER 31, AMOUNT
--------------------------------------------------
2004 $ 1,382,577
2005 1,544,087
2006 1,681,676
2007 1,831,540
2008 1,944,207
Thereafter 152,773,105
--------------------------------------------------
$ 161,157,192
--------------------------------------------------
|
The estimated market value of the mortgage notes payable was approximately
$182,000,000 and $186,000,000 at December 31, 2003 and 2002, 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.
45
B CREDIT FACILITY -- On June 30, 2003, Belmar Capital refinanced its credit
facility with Citicorp North America, Inc. with two new credit arrangements
(collectively, the Credit Facility). The Credit Facility has a seven-year
maturity and will expire on June 25, 2010. Belmar Capital's obligations
under the Credit Facility are secured by a pledge of its assets, excluding
the assets of Bel Apartments.
At the date the agreement was entered into, Belmar Capital borrowed
$581,500,000 with DrKW Holdings, Inc. Borrowings under this credit
arrangement accrue interest at a rate of one-month LIBOR plus 0.20% per
annum.
The $118,500,000 credit arrangement with Merrill Lynch Mortgage Capital,
Inc. includes 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. Belmar Capital pays all fees associated with issuing the
letters of credit. As of December 31, 2003 and 2002 there were no letters
of credit issued.
Borrowings under the Credit Facility have been used to purchase the Fund's
interests in real estate investments, to pay organizational costs and
selling expenses, and to provide for the short-term liquidity needs of the
Fund. Additional borrowings under the Credit Facility may be made in the
future for these purposes.
The following table summarizes Belmar Capital's Credit Facility.
AT DECEMBER 31, 2003 AT DECEMBER 31, 2002(1)
Total Credit Facility $ 631,500,000 $ 700,000,000
Borrowings outstanding $ 513,000,000 $ 596,500,000
--------------------------------------------------------------------------------
|
(1) At December 31, 2002 Belmar Capital had a revolving securitization facility
with two affiliated special purpose commercial paper issuers and Citicorp
North America, Inc. This facility was supported by a committed liquidity
facility provided by Citibank, N.A. under which there were no outstanding
borrowings during the year ended December 31, 2002. Additionally, Citibank,
N.A. provided up to $10,000,000 for use of letters of credit. Interest on
borrowed funds was based on the commercial paper issuers' cost of funding
plus a margin and certain administrative and other fees. Such fees amounted
to approximately 0.32% of the borrowings. In addition, Belmar Capital paid
a commitment fee of 0.15% of the unused portion of the liquidity facility.
C NOTES PAYABLE -- The Bel Apartments Minority Shareholder loaned $600,000
and $100,000 to Bel Apartments in November and December 2001, respectively.
Interest on the notes is payable at a rate of 10% per annum. The remaining
principal balance of the notes plus accrued interest thereon is due in
August 2004 and December 2004. At December 31, 2003 and 2002, the aggregate
principal amount outstanding under the notes is $565,972. At December 31,
2003 and 2002, total interest payable to the Bel Apartments Minority
Shareholder is $101,403 and $44,020, respectively.
Belmar Realty loaned $900,000 and $150,000 to Bel Apartments in August and
December 2001, respectively. Interest on the notes is payable at a rate of
10% per annum. The remaining principal balance of the notes plus accrued
interest thereon is due in August 2004 and December 2004. At December 31,
2003 and 2002, the aggregate principal amount outstanding under the notes
is $866,708. At December 31, 2003 and 2002, total interest payable to
Belmar Realty is $155,286 and $67,411, respectively. All balances and
transactions related to the notes made by Belmar Realty have been
eliminated through consolidation of the financial statements.
9 MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Belmar 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.
For the years ended December 31, 2003, 2002 and 2001 the advisory fee
applicable to the Portfolio was 0.44%, 0.44% and 0.43% 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 Belmar Capital. The
term "gross assets" with respect to Belmar Capital is defined to include
the current value of all of Belmar Capital's assets (including Belmar
Capital's interest in Belvedere Capital and Belmar Capital's ratable share
of the assets of its directly and indirectly controlled subsidiaries),
without reduction by any liabilities. Belmar 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 Belmar Realty. The term
"gross assets" with respect to Belmar Realty is defined to include the
current value of all assets of Belmar Realty, including Belmar Realty's
ratable share of the assets of its controlled subsidiary, without reduction
by any liabilities. For this purpose, the assets of Belmar Realty's
controlled subsidiary are reduced by the proportionate interests therein of
investors other than Belmar Realty.
Eaton Vance and Boston Management do not receive separate compensation for
serving as Manager of Belmar Capital and Manager of Belvedere Capital,
respectively.
As compensation for its services as Placement Agent, Belmar Capital pays EV
Distributors a monthly distribution fee at a rate of 1/120 of 1%
46
(equivalent to 0.10% annually) of Belmar 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 Belmar 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 Belmar Capital (as defined above). Payments
subject to the monthly fee cap are the distribution fee paid to EV
Distributors, Belmar Capital's attributable share of the advisory and
management fees paid by the Portfolio and Belmar Realty, and Belmar
Capital's advisory and administrative fee. Boston Management has agreed to
waive a portion of the monthly advisory and administrative fee otherwise
payable by Belmar Capital as necessary to comply with the monthly fee cap.
Pursuant to a servicing agreement between Belvedere Capital and EV
Distributors, Belvedere Capital pays a servicing fee to EV Distributors for
providing certain services and information to Shareholders. The servicing
fee is paid on a quarterly basis at an annual rate of 0.15% of Belvedere
Capital's average daily net assets. Pursuant to a servicing agreement
between Belmar Capital and EV Distributors, Belmar Capital pays a servicing
fee to EV Distributors on a quarterly basis at an annual rate of 0.25% of
Belmar Capital's average daily net assets, less Belmar Capital's allocated
share of the servicing fee payable by Belvedere Capital.
Management services for the real property held by Bel Apartments and Bel
Multifamily (for the period Belmar Realty owned an interest in Bel
Multifamily) 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 for 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 Belmar Realty for the years ended December 31, 2003 and 2002
and 2001 in connection with the services rendered by Eaton Vance, its
affiliates and affiliates of Belmar Realty's controlled subsidiaries.
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2001
-------------------------------------------------------------------------------------------------------------------------------
Advisory fee allocated to Belvedere Capital from the Portfolio $ 41,671,111 $ 41,180,780 $ 42,233,575
Advisory fee allocated to the Fund from Belvedere Capital $ 7,634,035 $ 8,125,471 $ 9,584,860
Advisory and administrative fee and management fee $ 7,049,704 $ 7,647,360 $ 8,765,260
Distribution fees $ 1,711,661 $ 1,847,235 $ 2,189,875
Reduction of advisory and administrative fees $ 1,711,661 $ 1,847,235 $ 2,189,875
Servicing fees allocated to Belvedere Capital from the Portfolio $ 14,288,579 $ 14,167,556 $ 14,628,710
Servicing fees allocated to the Fund from Belvedere Capital $ 2,617,051 $ 2,795,415 $ 3,315,172
Servicing fees $ 1,658,867 $ 1,825,665 $ 2,173,560
Servicing fees paid or accrued to subagents $ 4,268,598 $ 4,606,555 $ 2,382,621
|
10 SEGMENT INFORMATION
Belmar Capital pursues its investment objective primarily by investing
indirectly in the Portfolio through Belvedere Capital. The Portfolio is a
diversified investment company that emphasizes investments in common stocks
of domestic and foreign growth companies that are considered to be high in
quality and attractive in their long-term investment prospects. Separate
from its investment in Belvedere Capital, Belmar Capital invests in real
estate assets through its subsidiary Belmar Realty. Belmar Realty invests
directly and indirectly in Partnership Preference Units and indirectly in
real property through controlled subsidiaries, Bel Apartments and Bel
Multifamily (for the period during which Belmar Realty maintained an
interest in Bel Multifamily) (Note 1).
Belmar 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), net realized gain
(loss) and unrealized appreciation (depreciation). The accounting policies
of the reportable segments are the same as those for Belmar Capital 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, 2003 PORTFOLIO* ESTATE TOTAL
-------------------------------------------------------------------------------------------------
Revenue $ 15,714,154 $ 78,922,925 $ 94,637,079
Interest expense on mortgages -- (14,303,813) (14,303,813)
Interest expense on
Credit Facility (1,040,430) (7,109,603) (8,150,033)
Operating expenses (1,277,920) (22,735,245) (24,013,165)
Minority interest in net income
of controlled subsidiary -- (435,830) (435,830)
-------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 13,395,804 $ 34,338,434 $ 47,734,238
Net realized gain (loss) 22,323,706 (16,412,617) 5,911,089
Change in unrealized
appreciation (depreciation) 343,808,846 18,345,296 362,154,142
-------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS OF
REPORTABLE SEGMENTS $ 379,528,356 $ 36,271,113 $ 415,799,469
-------------------------------------------------------------------------------------------------
TAX-MANAGED
FOR THE YEAR ENDED GROWTH REAL
DECEMBER 31, 2002 PORTFOLIO* ESTATE TOTAL
-------------------------------------------------------------------------------------------------
Revenue $ 12,845,871 $ 86,920,215 $ 99,766,086
Interest expense on mortgages -- (14,882,677) (14,882,677)
Interest expense on
Credit Facility (136,239) (12,806,462) (12,942,701)
Operating expenses (1,246,862) (22,848,604) (24,095,466)
Minority interest in net income
of controlled subsidiary -- (424,054) (424,054)
-------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 11,462,770 $ 35,958,418 $ 47,421,188
Net realized (loss) gain (1,786,292) (37,397,806) (39,184,098)
Change in unrealized
appreciation (depreciation) (424,007,010) 6,425,178 (417,581,832)
-------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN
NET ASSETS FROM OPERATIONS
OF REPORTABLE SEGMENTS $ (414,330,532) $ 4,985,790 $ (409,344,742)
-------------------------------------------------------------------------------------------------
TAX-MANAGED
FOR THE YEAR ENDED GROWTH REAL
DECEMBER 31, 2001 PORTFOLIO* ESTATE TOTAL
-------------------------------------------------------------------------------------------------
Revenue $ 10,708,323 $ 92,392,775 $ 103,101,098
Interest expense on mortgages -- (15,534,277) (15,534,277)
Interest expense on
Credit Facility -- (29,314,848) (29,314,848)
Operating expenses (1,894,261) (24,679,654) (26,573,915)
Minority interest in net income
of controlled subsidiary -- (220,372) (220,372)
-------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 8,814,062 $ 22,643,624 $ 31,457,686
Net realized loss (10,371,348) (25,584,373) (35,955,721)
Change in unrealized
appreciation (depreciation) (250,476,623) 19,800,998 (230,675,625)
-------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN
NET ASSETS FROM OPERATIONS
OF REPORTABLE SEGMENTS $ (252,033,909) $ 16,860,249 $ (235,173,660)
-------------------------------------------------------------------------------------------------
|
The following tables reconcile the segment information reported above to
the consolidated financial statements for the periods indicated:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2001
-------------------------------------------------------------------------------------------------------------------------------
Revenue:
Revenue from reportable segments $ 94,637,079 $ 99,766,086 $ 103,101,098
Unallocated amounts:
Interest earned on cash not invested in the
Portfolio or in subsidiaries 269,403 48,749 388,627
-------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 94,906,482 $ 99,814,835 $ 103,489,725
-------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations:
Net increase (decrease) in net assets from operations of
reportable segments $ 415,799,469 $(409,344,742) $(235,173,660)
Unallocated amounts:
Interest earned on cash not invested in the
Portfolio or in subsidiaries 269,403 48,749 388,627
Unallocated amounts(1):
Realized loss -- (2,338,586) --
Distribution and servicing fees (3,370,528) (3,672,900) (4,363,435)
Interest expense on Credit Facility (520,215) (681,195) (598,262)
Audit, tax and legal fees (279,016) (242,914) (250,506)
Other operating expenses (109,863) (126,284) (118,939)
-------------------------------------------------------------------------------------------------------------------------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 411,789,250 $(416,357,872) $(240,116,175)
-------------------------------------------------------------------------------------------------------------------------------
|
(1) Unallocated amounts represent expenses incurred that pertain to the overall
operation of Belmar Capital, and do not pertain to either operating
segment.
TAX-MANAGED
GROWTH REAL
AT DECEMBER 31, 2003 PORTFOLIO* ESTATE TOTAL
--------------------------------------------------------------------------------
Segment assets $1,966,911,184 $623,035,741 $2,589,946,925
Segment liabilities 87,378,722 549,380,252 636,758,974
--------------------------------------------------------------------------------
NET ASSETS OF REPORTABLE SEGMENTS $1,879,532,462 $ 73,655,489 $1,953,187,951
--------------------------------------------------------------------------------
|
AT DECEMBER 31, 2002
Segment assets** $1,674,547,493 $766,408,400 $2,440,955,893
Segment liabilities 61,010,849 754,088,495 815,099,344
--------------------------------------------------------------------------------
NET ASSETS OF REPORTABLE SEGMENTS $1,613,536,644 $ 12,319,905 $1,625,856,549
--------------------------------------------------------------------------------
|
* Belmar Capital invests indirectly in Tax-Managed Growth Portfolio through
Belvedere Capital.
** Includes $29,285,500 of accounts receivable for investments sold.
47
The following table reconciles the segment information reported above to
the consolidated financial statements for the periods indicated:
DECEMBER 31, 2003 DECEMBER 31, 2002
Net Assets:
Net assets of reportable segments $ 1,953,187,951 $ 1,625,856,549
Unallocated cash(1) 5,019,018 4,683,403
Short-term investments(1) 16,973,476 --
Loan payable - Credit Facility(2) (54,357,683) (10,176,876)
Other liabilities (210,905) (133,271)
--------------------------------------------------------------------------------
TOTAL NET ASSETS $ 1,920,611,857 $ 1,620,229,805
--------------------------------------------------------------------------------
|
(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 EVENTS (UNAUDITED)
On January 14, 2004, the Fund made a distribution of $1.15 per Share to
Shareholders of record on January 13, 2004.
In January 2004, Belmar Realty purchased an indirect investment in real
property through a controlled subsidiary, Bel Stamford Investors LLC (Bel
Stamford) in the net amount of $16,058,060. Bel Stamford holds an indirect
interest in leasehold improvements of an office building and attached
facilities in Stamford, Connecticut. At the date of the transaction, the
value of the real property is $242,750,000. The real property is leased to
a single tenant on a triple net lease basis pursuant to a non-cancelable,
fixed term operating lease expiring in December 2017, with options to
extend for renewal periods extending no later than December 2057. The real
property is 100% occupied at December 31, 2003. The future minimum rents to
be received during the current terms of the lease as of December 31, 2003,
are approximately $16,532,774 in 2004, $18,161,031 in 2005 through 2008 and
$142,261,407 thereafter through December 2017. During the initial lease
term the rent from the lease is expected to equal the payments due under
the mortgage.
The real property is financed through a mortgage secured by the rental
property and an assignment of rents and is generally without recourse to
the other assets of Belmar Capital and Belmar Realty. The mortgage loan
balance assumed at the date of the transaction is $229,674,914 and accrues
interest at a fixed rate of 6.0% per annum through the stated maturity
date, October 11, 2016. Principal and interest payments of $1,513,419 are
due monthly and scheduled principal payments of $3,923,177 in 2004,
$4,554,040 in 2005, $4,838,934 in 2006, $5,141,649 in 2007, $5,426,600 in
2008 and $205,790,514 thereafter.
In February 2004, Belmar Realty sold (or experienced scheduled redemptions
of) certain Partnership Preference Units totaling $213,463,963, recognizing
gains of $30,459,656 (including sales to other funds sponsored by Eaton
Vance).
48
BELMAR CAPITAL FUND LLC
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS OF
BELMAR CAPITAL FUND LLC AND SUBSIDIARIES:
We have audited the accompanying consolidated statements of assets and
liabilities, including the consolidated portfolio of investments, of Belmar
Capital Fund LLC and subsidiaries (collectively, the Fund) as of December 31,
2003 and 2002, and the related consolidated statements of operations, changes in
net assets, cash flows and the financial highlights for each of the three years
in the period ended December 31, 2003. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 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, 2003 and 2002 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund as of December 31, 2003 and 2002 and 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, 2003 in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 5, 2004
49
TAX-MANAGED GROWTH PORTFOLIO as of December 31, 2003
PORTFOLIO OF INVESTMENTS
COMMON STOCKS -- 99.2%
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 2.5%
Boeing Company (The) 797,051 $ 33,587,729
General Dynamics 735,000 66,436,650
Honeywell International, Inc. 275,998 9,226,613
Northrop Grumman Corp. 1,684,522 161,040,303
Raytheon Company 313,599 9,420,514
Rockwell Collins, Inc. 203,032 6,097,051
Teledyne Technologies Incorporated(1) 6,117 115,305
United Technologies Corp. 1,582,098 149,935,427
------------------------------------------------------------------------------------------------------
$ 435,859,592
------------------------------------------------------------------------------------------------------
AIR FREIGHT AND LOGISTICS -- 2.6%
FedEx Corporation 2,106,578 $ 142,194,015
Robinson (C.H.) Worldwide, Inc. 1,186,638 44,985,447
United Parcel Service, Inc. Class B 3,549,425 264,609,634
------------------------------------------------------------------------------------------------------
$ 451,789,096
------------------------------------------------------------------------------------------------------
AIRLINES -- 0.0%
Southwest Airlines, Inc. 126,393 $ 2,039,983
------------------------------------------------------------------------------------------------------
$ 2,039,983
------------------------------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.2%
ArvinMeritor, Inc. 33,635 $ 811,276
Borg-Warner Automotive, Inc. 203,981 17,352,664
Dana Corp. 25,000 458,750
Delphi Automotive Systems Corp. 6,338 64,711
Johnson Controls, Inc. 114,364 13,279,948
Visteon Corp. 10,226 106,453
------------------------------------------------------------------------------------------------------
$ 32,073,802
------------------------------------------------------------------------------------------------------
AUTOMOBILES -- 0.1%
DaimlerChrysler AG 7,000 $ 323,540
Ford Motor Co. 145,884 2,334,144
General Motors Corp. 13,896 742,046
Harley-Davidson, Inc. 137,700 6,544,881
Honda Motor Co. Ltd. ADR 20,000 450,000
------------------------------------------------------------------------------------------------------
$ 10,394,611
------------------------------------------------------------------------------------------------------
BEVERAGES -- 3.9%
Anheuser-Busch Companies, Inc. 3,381,243 $ 178,123,881
Coca-Cola Company (The) 3,177,651 161,265,788
Coca-Cola Enterprises, Inc. 1,729,424 $ 37,822,503
PepsiCo., Inc. 6,531,299 304,489,159
------------------------------------------------------------------------------------------------------
$ 681,701,331
------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.7%
Amgen, Inc.(1) 3,861,137 $ 238,618,267
Applera Corp. - Celera Genomics Group(1) 26,000 361,660
Genzyme Corp. - General Division(1) 464,926 22,939,449
Gilead Sciences, Inc.(1) 39,362 2,288,507
Incyte Pharmaceuticals, Inc.(1) 14,294 97,771
Invitrogen Corp.(1) 467,551 32,728,570
Vertex Pharmaceuticals, Inc.(1) 13,000 132,990
------------------------------------------------------------------------------------------------------
$ 297,167,214
------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS -- 0.9%
American Standard Companies, Inc.(1) 331,609 $ 33,393,026
CRH plc 329,450 6,752,716
Masco Corporation 4,145,436 113,626,401
Water Pik Technologies(1) 2,141 26,270
------------------------------------------------------------------------------------------------------
$ 153,798,413
------------------------------------------------------------------------------------------------------
CAPITAL MARKETS -- 3.8%
Affiliated Managers Group(1) 13,680 $ 951,991
Bank of New York Co., Inc. (The) 441,413 14,619,599
Bear Stearns Companies, Inc. 83,352 6,663,992
Credit Suisse Group 155,136 5,676,090
Federated Investors, Inc. 1,634,947 48,002,044
Franklin Resources, Inc. 1,508,429 78,528,814
Goldman Sachs Group, Inc. 9,627 950,474
Investors Financial Services Corp. 475,402 18,260,191
Knight Trading Group, Inc.(1) 1,750,000 25,620,000
Legg Mason, Inc. 17,641 1,361,532
Lehman Brothers Holdings, Inc. 57,486 4,439,069
Mellon Financial Corporation 221,912 7,125,594
Merrill Lynch & Co., Inc. 1,761,959 103,338,895
Morgan (J.P.) Chase & Co. 394,005 14,471,804
Morgan Stanley Dean Witter & Co. 4,770,551 276,071,786
Northern Trust Corp. 261,505 12,139,062
Nuveen Investments Class A 150,000 3,999,000
Price (T. Rowe) Group, Inc. 171,434 8,127,686
Raymond James Financial, Inc. 98,225 3,703,082
Schwab (Charles) & Co. 946,055 11,201,291
|
See notes to financial statements.
50
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
CAPITAL MARKETS (CONTINUED)
State Street Corp. 328,000 $ 17,082,240
UBS AG 49,812 3,386,718
Waddell & Reed Financial, Inc., Class A 271,320 6,365,167
------------------------------------------------------------------------------------------------------
$ 672,086,121
------------------------------------------------------------------------------------------------------
CHEMICALS -- 1.0%
Airgas, Inc. 389,753 $ 8,371,894
Arch Chemicals, Inc. 4,950 127,017
Bayer AG ADR 40,000 1,176,400
Dow Chemical Co. (The) 267,064 11,101,850
DuPont (E.I.) de Nemours & Co. 1,302,039 59,750,570
Ecolab, Inc. 318,168 8,708,258
MacDermid, Inc. 61,937 2,120,723
Monsanto Company 28,797 828,778
Olin Corp. 9,900 198,594
PPG Industries, Inc. 23,542 1,507,159
Rohm and Haas, Co. 2,601 111,089
RPM, Inc. 88,338 1,454,043
Sigma-Aldrich Corp. 630,897 36,074,690
Solutia Inc.(1) 20,293 7,407
Valspar Corp. 818,316 40,441,177
------------------------------------------------------------------------------------------------------
$ 171,979,649
------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS -- 8.3%
AmSouth Bancorporation 812,145 $ 19,897,552
Associated Banc-Corp. 749,148 31,951,162
Bank of America Corporation 2,257,529 181,573,057
Bank of Hawaii Corp. 49,425 2,085,735
Bank of Montreal 269,166 11,116,556
Bank One Corp. 1,786,768 81,458,753
Banknorth Group, Inc. 50,125 1,630,566
BB&T Corp. 1,276,393 49,319,826
Charter One Financial, Inc. 251,993 8,706,358
City National Corp. 273,260 16,974,911
Colonial Bancgroup, Inc. (The) 253,936 4,398,172
Comerica, Inc. 241,725 13,551,103
Commerce Bancshares, Inc. 147,766 7,243,489
Community First Bancshares, Inc. 360,184 10,423,725
Compass Bancshares, Inc. 358,352 14,086,817
Fifth Third Bancorp 1,209,520 71,482,632
First Citizens BancShares, Inc. 43,651 5,304,906
First Financial Bancorp. 47,933 764,531
First Midwest Bancorp, Inc. 815,329 $ 26,424,813
First Tennessee National Corporation 157,089 6,927,625
FleetBoston Financial Corporation 715,716 31,241,003
Hibernia Corp. Class A 187,345 4,404,481
HSBC Holdings PLC ADR 608,017 47,923,900
Huntington Bancshares, Inc. 578,423 13,014,517
Keycorp 625,951 18,352,883
M&T Bank Corp. 37,734 3,709,252
Marshall & Ilsley Corp. 683,798 26,155,273
National City Corp. 1,598,288 54,245,895
National Commerce Financial Corp. 1,113,055 30,364,140
North Fork Bancorporation, Inc. 53,534 2,166,521
PNC Bank Corp. 156,003 8,538,044
Popular, Inc. 716 32,177
Regions Financial Corp. 1,624,786 60,442,039
Royal Bank of Scotland Group PLC 50,837 1,497,956
S&T Bancorp, Inc. 100,000 2,990,000
SouthTrust Corp. 506,253 16,569,661
Southwest Bancorporation of Texas, Inc.(1) 815,601 31,686,099
SunTrust Banks, Inc. 425,640 30,433,260
Synovus Financial Corp. 1,345,581 38,914,203
TCF Financial Corporation 28,000 1,437,800
U.S. Bancorp 4,150,861 123,612,641
Union Planters Corp. 703,729 22,160,426
Valley National Bancorp 202,293 5,906,956
Wachovia Corp. 1,901,325 88,582,732
Wells Fargo & Company 3,129,623 184,303,498
Westamerica Bancorporation 268,474 13,343,158
Whitney Holding Corp. 353,200 14,477,668
Zions Bancorporation 252,271 15,471,780
------------------------------------------------------------------------------------------------------
$ 1,457,300,252
------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES -- 2.4%
Allied Waste Industries, Inc.(1) 1,674,390 $ 23,240,533
Apollo Group, Inc. Class A(1) 7,599 516,732
Arbitron, Inc.(1) 30,885 1,288,522
Avery Dennison Corp. 1,350,977 75,681,732
Banta Corp. 42,341 1,714,810
Block (H&R), Inc. 732,354 40,550,441
Bowne & Company 172,640 2,340,998
Cendant Corp.(1) 549,359 12,234,225
Century Business Services, Inc.(1) 370,000 1,653,900
Cintas Corp. 1,326,202 66,482,506
|
See notes to financial statements.
51
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES (CONTINUED)
Consolidated Graphics, Inc.(1) 70,215 $ 2,217,390
Deluxe Corporation 32,000 1,322,560
Donnelley (R.R.) & Sons Co. 200,521 6,045,708
Equifax, Inc. 85,724 2,100,238
Gevity HR, Inc. 78,125 1,737,500
Harland (John H.) Co. 51,540 1,407,042
HON Industries, Inc. 1,552,470 67,253,000
Hudson Highland Group, Inc.(1) 11,581 276,207
Imagistics International Inc.(1) 2,482 93,075
Manpower, Inc. 112,000 5,272,960
Miller (Herman) Inc. 541,800 13,149,486
Monster Worldwide Inc.(1) 154,426 3,391,195
Navigant Consulting, Inc.(1) 463,017 8,732,501
Pitney Bowes, Inc. 89,799 3,647,635
ServiceMaster Co. 1,318,302 15,358,218
Steelcase Inc. 123,000 1,766,280
Sylvan Learning Systems, Inc.(1) 538,458 15,502,206
United Rentals, Inc.(1) 401,179 7,726,708
Waste Management, Inc. 1,255,659 37,167,506
------------------------------------------------------------------------------------------------------
$ 419,871,814
------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.3%
3Com Corp.(1) 873,949 $ 7,140,163
ADC Telecommunications, Inc.(1) 370,286 1,099,749
Advanced Fibre Communication, Inc.(1) 15,000 302,250
Alcatel S.A. ADR(1) 43,728 561,905
Avaya, Inc.(1) 56,960 737,062
Ciena Corp.(1) 380,378 2,525,710
Cisco Systems, Inc.(1) 3,441,441 83,592,602
Comverse Technology, Inc.(1) 386,378 6,796,389
Corning, Inc.(1) 651,520 6,795,354
Enterasys Networks, Inc.(1) 55,945 209,794
JDS Uniphase Corp.(1) 52,451 191,446
Lucent Technologies, Inc.(1) 555,464 1,577,518
McData Corp., Class A(1) 18,562 176,896
Motorola, Inc. 741,114 10,427,474
Nokia Corp., Class A, ADR 4,870,478 82,798,126
Nortel Networks Corp.(1) 1,306,729 5,527,464
Qualcomm, Inc. 344,112 18,557,960
Riverstone Networks, Inc.(1) 28,706 31,864
Tellabs, Inc.(1) 118,404 998,146
------------------------------------------------------------------------------------------------------
$ 230,047,872
------------------------------------------------------------------------------------------------------
COMPUTERS AND PERIPHERALS -- 3.1%
Dell, Inc.(1) 4,305,989 $ 146,231,386
EMC Corp.(1) 1,104,455 14,269,559
Gateway, Inc.(1) 99,407 457,272
Hewlett-Packard Co. 1,197,265 27,501,177
International Business Machines Corp. 2,286,121 211,877,694
Lexmark International Group, Inc.(1) 1,704,885 134,072,156
Network Appliance, Inc.(1) 488,000 10,018,640
Palmone, Inc.(1) 65,230 766,453
Sun Microsystems, Inc.(1) 370,670 1,664,308
------------------------------------------------------------------------------------------------------
$ 546,858,645
------------------------------------------------------------------------------------------------------
CONSTRUCTION AND ENGINEERING -- 0.1%
Dycom Industries, Inc.(1) 151,725 $ 4,069,264
Jacobs Engineering Group, Inc.(1) 354,741 17,031,115
------------------------------------------------------------------------------------------------------
$ 21,100,379
------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS -- 0.0%
Vulcan Materials Company 184,512 $ 8,777,236
------------------------------------------------------------------------------------------------------
$ 8,777,236
------------------------------------------------------------------------------------------------------
CONSUMER FINANCE -- 0.9%
American Express Co. 521,715 $ 25,162,314
Capital One Financial Corp. 1,245,321 76,325,724
MBNA Corporation 456,002 11,331,650
Providian Financial Corp.(1) 457,296 5,322,925
SLM Corp. 905,499 34,119,202
------------------------------------------------------------------------------------------------------
$ 152,261,815
------------------------------------------------------------------------------------------------------
CONTAINERS AND PACKAGING -- 0.1%
Bemis Co. 207,593 $ 10,379,650
Caraustar Industries, Inc.(1) 192,532 2,656,942
Sealed Air Corp.(1) 37,014 2,003,938
Sonoco Products Co. 160,690 3,956,188
Temple-Inland, Inc. 57,962 3,632,479
------------------------------------------------------------------------------------------------------
$ 22,629,197
------------------------------------------------------------------------------------------------------
DEPARTMENT STORES -- 0.0%
Neiman Marcus Group, Inc. (The)(1) 27,117 $ 1,355,850
------------------------------------------------------------------------------------------------------
$ 1,355,850
------------------------------------------------------------------------------------------------------
|
See notes to financial statements.
52
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
DISTILLERS AND VINTNERS -- 0.1%
Brown-Forman Corp. Class A 154,012 $ 14,931,463
------------------------------------------------------------------------------------------------------
$ 14,931,463
------------------------------------------------------------------------------------------------------
DISTRIBUTORS -- 0.0%
Genuine Parts Company 188,609 $ 6,261,819
------------------------------------------------------------------------------------------------------
$ 6,261,819
------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 1.6%
Citigroup Inc. 4,030,512 $ 195,641,052
Finova Group, Inc.(1) 175,587 114,132
ING groep, N.V. ADR 216,111 5,059,159
Moody's Corp. 47,543 2,878,729
Royal Bank of Canada 321,353 15,322,111
Societe Generale 809,647 71,487,377
------------------------------------------------------------------------------------------------------
$ 290,502,560
------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.3%
Alltel Corp. 1,488,598 $ 69,338,895
AT&T Corp. 473,645 9,614,993
BCE, Inc. 4,500,000 100,620,000
BellSouth Corp. 457,572 12,949,288
Cincinnati Bell Inc.(1) 169,013 853,516
Citizens Communications Co.(1) 14,252 177,010
Deutsche Telekom AG(1) 1,956,790 35,476,603
PTEK Holdings, Inc.(1) 28,000 246,680
Qwest Communications International, Inc.(1) 59,924 258,872
RSL Communications Ltd.(1) 247,161 2,472
SBC Communications, Inc. 1,493,660 38,939,716
Sprint Corp. - FON Group 167,078 2,743,421
Talk America Holdings, Inc.(1) 42,372 488,125
Telefonos de Mexico ADR 3,000,000 99,090,000
Verizon Communications 954,938 33,499,225
WorldCom, Inc.(1) 98,634 1,302
WorldCom, Inc. - MCI Group(1) 42,805 2,097
------------------------------------------------------------------------------------------------------
$ 404,302,215
------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.2%
Ameren Corp. 5,000 $ 230,000
American Electric Power, Inc. 960 29,290
Dominion Resources, Inc. 10,464 667,917
Exelon Corp. 500,000 33,180,000
PG&E Corp.(1) 47,705 1,324,768
TECO Energy, Inc. 35,511 $ 511,714
TXU Corp. 250,196 5,934,649
Wisconsin Energy Corp. 9,576 320,317
------------------------------------------------------------------------------------------------------
$ 42,198,655
------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.6%
American Power Conversion Corp. 36,671 $ 896,606
Baldor Electric Co. 149,060 3,406,021
Emerson Electric Co. 1,309,555 84,793,686
Rockwell International Corp. 179,520 6,390,912
Thomas & Betts Corp. 114,600 2,623,194
------------------------------------------------------------------------------------------------------
$ 98,110,419
------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 0.9%
Agilent Technologies, Inc.(1) 599,247 $ 17,521,982
Arrow Electronics, Inc.(1) 8,750 202,475
Flextronics International Ltd.(1) 282,653 4,194,571
Jabil Circuit, Inc.(1) 2,127,971 60,221,579
Molex, Inc., Class A 112,582 3,305,408
National Instruments Corp. 490,458 22,301,125
PerkinElmer, Inc. 300,081 5,122,383
Plexus Corp.(1) 209,946 3,604,773
Roper Industries, Inc. 23,122 1,138,990
Sanmina Corp.(1) 1,164,972 14,690,297
Solectron Corporation(1) 1,818,848 10,749,392
Waters Corp.(1) 165,841 5,499,288
X-Rite Incorporated 361,707 4,094,523
------------------------------------------------------------------------------------------------------
$ 152,646,786
------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT AND SERVICES -- 0.5%
Baker Hughes, Inc. 520,182 $ 16,729,053
Core Laboratories N.V.(1) 109,787 1,832,345
Grant Prideco, Inc.(1) 124,234 1,617,527
Halliburton Company 481,502 12,519,052
National-Oilwell, Inc.(1) 686,929 15,359,732
Schlumberger Ltd. 484,178 26,494,220
Smith International, Inc.(1) 140,000 5,812,800
Transocean Sedco Forex, Inc.(1) 6,315 151,623
------------------------------------------------------------------------------------------------------
$ 80,516,352
------------------------------------------------------------------------------------------------------
FOOD AND STAPLES RETAILING -- 2.3%
Albertson's, Inc. 1,172,238 $ 26,551,191
|
See notes to financial statements.
53
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
FOOD AND STAPLES RETAILING (CONTINUED)
Casey's General Stores, Inc. 91,201 $ 1,610,610
Costco Wholesale Corp.(1) 1,220,435 45,375,773
CVS Corp. 177,839 6,423,545
Kroger Co. (The)(1) 1,201,784 22,245,022
Safeway, Inc.(1) 1,270,912 27,845,682
Sysco Corp. 1,601,774 59,634,046
Sysco Corp.(2)(3) 32,036 1,190,911
Walgreen Co. 665,292 24,203,323
Wal-Mart Stores, Inc. 3,674,877 194,952,225
Winn-Dixie Stores, Inc. 225,735 2,246,063
------------------------------------------------------------------------------------------------------
$ 412,278,391
------------------------------------------------------------------------------------------------------
FOOD PRODUCTS -- 2.3%
Archer-Daniels-Midland Co. 316,652 $ 4,819,443
Campbell Soup Co. 1,243,047 33,313,660
Conagra Inc. 1,638,964 43,252,260
Dean Foods Co.(1) 504,216 16,573,580
Del Monte Foods, Co.(1) 103,109 1,072,334
General Mills, Inc. 286,539 12,980,217
Heinz (H.J.) Co. 298,859 10,887,433
Hershey Foods Corp. 244,744 18,842,841
JM Smucker Co. 19,265 872,512
Kellogg Co. 69,795 2,657,794
Kraft Foods, Inc. 165 5,316
McCormick & Co., Inc. 219,798 6,615,920
Nestle SA 200,000 49,969,679
Riviana Foods, Inc. 250,000 6,847,500
Sara Lee Corp. 2,601,502 56,478,608
Smithfield Foods, Inc.(1) 4,207,530 87,095,871
Tyson Foods, Inc. 315,272 4,174,201
Wrigley (Wm.) Jr. Company Class A 933,873 52,493,001
------------------------------------------------------------------------------------------------------
$ 408,952,170
------------------------------------------------------------------------------------------------------
GAS UTILITIES -- 0.6%
Kinder Morgan, Inc. 1,781,672 $ 105,296,815
------------------------------------------------------------------------------------------------------
$ 105,296,815
------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT AND SUPPLIES -- 1.4%
Advanced Medical Optics(1) 3,744 $ 73,570
Bausch & Lomb, Inc. 29,250 1,518,075
Baxter International, Inc. 201,413 6,147,125
Becton & Dickinson and Co. 64,173 $ 2,640,077
Biomet, Inc. 411,340 14,976,889
Boston Scientific Corporation(1) 1,083,970 39,846,737
Dentsply International, Inc. 11,325 511,550
Edwards Lifesciences Corp.(1) 15,420 463,834
Guidant Corp. 54,692 3,292,458
Hillenbrand Industries, Inc. 638,072 39,598,748
Lumenis Ltd.(1) 100,000 135,000
Medtronic, Inc. 2,259,696 109,843,823
Millipore Corporation(1) 70,000 3,013,500
St. Jude Medical, Inc.(1) 10,014 614,359
Steris Corp.(1) 19,538 441,559
VISX, Inc.(1) 50,000 1,157,500
Zimmer Holdings, Inc.(1) 251,155 17,681,312
------------------------------------------------------------------------------------------------------
$ 241,956,116
------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS AND SERVICES -- 2.0%
AmerisourceBergen Corp. 104,493 $ 5,867,282
Andrx Group(1) 393,772 9,466,279
Beverly Enterprises, Inc.(1) 357,143 3,067,858
Cardinal Health, Inc. 1,837,836 112,402,050
Cigna Corp. 11,836 680,570
Express Scripts, Inc.(1) 14,002 930,153
HCA Inc. 253,450 10,888,212
Health Management Associates, Inc., Class A 1,036,833 24,883,992
IDX Systems Corp.(1) 60,000 1,609,200
IMS Health, Inc. 280,530 6,973,976
McKesson HBOC, Inc. 101,169 3,253,595
Medco Health Solutions, Inc.(1) 131,480 4,469,005
Parexel International Corp.(1) 35,000 569,100
Quest Diagnostics, Inc. 8,750 639,712
Renal Care Group, Inc.(1) 371,007 15,285,488
Schein (Henry), Corp.(1) 1,272,548 85,998,794
Service Corp. International(1) 142,389 767,477
Stewart Enterprises, Inc.(1) 114,000 647,520
Sunrise Assisted Living, Inc.(1) 144,000 5,578,560
Tenet Healthcare Corp.(1) 3,961 63,574
UnitedHealth Group, Inc. 184,976 10,761,904
Ventiv Health, Inc.(1) 160,833 1,471,622
Wellpoint Health Networks(1) 404,000 39,183,960
------------------------------------------------------------------------------------------------------
$ 345,459,883
------------------------------------------------------------------------------------------------------
|
See notes to financial statements.
54
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS AND LEISURE -- 1.6%
Brinker International, Inc.(1) 459,469 $ 15,235,992
Carnival Corporation 559,353 22,223,095
CBRL Group, Inc. 62,047 2,373,918
Darden Restaurants Inc. 184,714 3,886,383
Evans (Bob) Farms, Inc. 51,662 1,676,949
Gaylord Entertainment Co.(1) 428,482 12,790,188
International Game Technology 400,000 14,280,000
International Speedway Corporation 118,344 5,285,243
Jack in the Box, Inc.(1) 500,000 10,680,000
Lone Star Steakhouse & Saloon, Inc. 145,981 3,383,840
Marriott International, Inc. 332,298 15,352,168
McDonald's Corp. 1,176,299 29,207,504
MGM Grand, Inc.(1) 94,445 3,552,076
Navigant International, Inc.(1) 44,278 613,250
Outback Steakhouse, Inc. 1,641,207 72,557,761
Papa John's International, Inc.(1) 199,488 6,658,909
Royal Caribbean Cruises Ltd. 500,000 17,395,000
Sonic Corp.(1) 106,510 3,261,336
Starbucks Corp.(1) 1,255,994 41,523,162
Yum! Brands, Inc.(1) 241,659 8,313,070
------------------------------------------------------------------------------------------------------
$ 290,249,844
------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.5%
Blyth Industries, Inc. 742,373 $ 23,919,258
Department 56, Inc.(1) 255,162 3,342,622
Fortune Brands Inc. 142,143 10,161,803
Helen of Troy Ltd.(1) 20,000 463,000
Interface, Inc. Class A(1) 75,467 417,333
Leggett & Platt, Inc. 1,581,019 34,197,441
Maytag Corp. 27,073 753,983
Newell Rubbermaid, Inc. 438,432 9,983,097
Snap-On, Inc. 51,429 1,658,071
------------------------------------------------------------------------------------------------------
$ 84,896,608
------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.8%
Clorox Co. (The) 53,688 $ 2,607,089
Colgate-Palmolive Co. 676,711 33,869,386
Energizer Holdings(1) 168,981 6,346,926
Kimberly-Clark Corp. 1,535,512 90,733,404
Procter & Gamble Co. 1,877,616 187,536,286
------------------------------------------------------------------------------------------------------
$ 321,093,091
------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 1.9%
3M Co. 564,132 $ 47,968,144
General Electric Co. 8,283,871 256,634,324
Teleflex, Inc. 47,559 2,298,526
Tyco International Ltd. 1,176,566 31,178,999
------------------------------------------------------------------------------------------------------
$ 338,079,993
------------------------------------------------------------------------------------------------------
INSURANCE -- 6.3%
21st Century Insurance Group 70,700 $ 972,125
Aegon N.V. ADR 5,311,829 78,615,069
AFLAC Corp. 2,092,063 75,690,839
Allstate Corp. (The) 188,362 8,103,333
American International Group, Inc. 5,434,795 360,218,213
AON Corp. 826,887 19,795,675
Berkshire Hathaway, Inc., Class A(1) 393 33,110,250
Berkshire Hathaway, Inc., Class B(1) 40,126 112,954,690
Chubb Corporation 3,901 265,658
Commerce Group, Inc. 120,000 4,740,000
Delphi Financial Group Inc. 9,672 348,192
Gallagher (Arthur J.) and Co. 991,627 32,217,961
Hartford Financial Services Group, Inc. 11,800 696,554
Jefferson-Pilot Corp. 211,013 10,687,808
Kansas City Life Insurance Co. 70,800 3,270,960
Lincoln National Corp. 52,903 2,135,694
Manulife Financial Corp. 74,958 2,421,143
Marsh & McLennan Cos., Inc. 1,830,750 87,674,617
MetLife, Inc. 1,969,700 66,319,799
Old Republic International Corp. 195,360 4,954,330
Progressive Corp. 1,855,100 155,067,809
Safeco Corp. 177,122 6,895,359
St. Paul Companies, Inc. (The) 325,275 12,897,154
Torchmark Corp. 440,119 20,043,019
Travelers Property Casualty - Class A 196,364 3,294,988
Travelers Property Casualty - Class B 403,442 6,846,411
UICI(1) 43,597 578,968
UnumProvident Corp. 53,710 847,007
XL Capital Ltd., Class A 79,232 6,144,442
------------------------------------------------------------------------------------------------------
$ 1,117,808,067
------------------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES -- 0.0%
McLeodUSA(1) 35,538 $ 52,596
------------------------------------------------------------------------------------------------------
$ 52,596
------------------------------------------------------------------------------------------------------
|
See notes to financial statements.
55
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
INTERNET AND CATALOG RETAIL -- 0.4%
eBay, Inc(1)(2)(3) 200,000 $ 12,909,926
eBay, Inc.(1) 89,632 5,789,331
eBay, Inc.(1)(2)(3) 318,000 20,534,485
InterActiveCorp.(1) 806,192 27,354,095
School Specialty Corp.(1) 49,197 1,673,190
------------------------------------------------------------------------------------------------------
$ 68,261,027
------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE AND SERVICES -- 0.0%
Retek, Inc.(1) 150,348 $ 1,395,229
------------------------------------------------------------------------------------------------------
$ 1,395,229
------------------------------------------------------------------------------------------------------
IT SERVICES -- 3.1%
Accenture Ltd.(1) 3,638,000 $ 95,752,160
Acxiom Corp.(1) 647,804 12,029,720
Affiliated Computer Services(1) 200,654 10,927,617
Automatic Data Processing, Inc. 2,223,695 88,080,559
BISYS Group, Inc. (The)(1) 280,492 4,173,721
Ceridian Corp.(1) 166,750 3,491,745
Certegy, Inc. 42,862 1,405,874
Computer Sciences Corp.(1) 388,302 17,174,597
Concord EFS, Inc.(1) 267,810 3,974,300
CSG Systems International, Inc.(1) 41,116 513,539
DST Systems, Inc.(1) 391,034 16,329,580
eFunds Corp.(1) 17,645 306,141
Electronic Data Systems Corp. 157,712 3,870,252
First Data Corp. 4,920,602 202,187,536
Gartner Group, Inc., Class A(1) 4,811 54,412
Gartner Group, Inc., Class B(1) 92,416 1,005,486
Keane, Inc.(1) 52,404 767,195
Paychex, Inc. 1,379,399 51,313,643
Perot Systems Corp.(1) 726,775 9,796,927
Safeguard Scientifics, Inc.(1) 26,579 107,379
SunGard Data Systems, Inc.(1) 822,160 22,782,054
------------------------------------------------------------------------------------------------------
$ 546,044,437
------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT AND PRODUCTS -- 0.0%
Eastman Kodak Co. 150,547 $ 3,864,541
Mattel, Inc. 9,739 187,671
------------------------------------------------------------------------------------------------------
$ 4,052,212
------------------------------------------------------------------------------------------------------
MACHINERY -- 3.0%
Caterpillar, Inc. 27,255 $ 2,262,710
Danaher Corporation 2,015,985 $ 184,966,624
Deere & Co. 3,450,000 224,422,500
Dionex Corp.(1) 139,750 6,431,295
Donaldson Company, Inc. 40,220 2,379,415
Dover Corp. 375,527 14,927,198
Federal Signal Corp. 283,471 4,966,412
Illinois Tool Works, Inc. 756,502 63,478,083
ITT Industries, Inc. 4,214 312,721
Nordson Corporation 163,978 5,662,160
Parker-Hannifin Corporation 33,842 2,013,599
Tecumseh Products Co., Class A 156,420 7,575,421
Wabtec 232,061 3,954,319
------------------------------------------------------------------------------------------------------
$ 523,352,457
------------------------------------------------------------------------------------------------------
MEDIA -- 7.0%
ADVO, Inc. 794,552 $ 25,234,972
Belo (A.H.) Corp. 542,924 15,386,466
Cablevision Systems Corp.(1) 207,410 4,851,320
Catalina Marketing Corp.(1) 89,203 1,798,332
Clear Channel Communications, Inc. 424,444 19,876,713
Comcast Corp. Class A(1) 4,466,124 146,801,496
Comcast Corp. Class A Special(1) 2,280,622 71,337,856
Cox Communications, Inc., Class A(1) 1,265,627 43,600,850
Disney (Walt) Company 6,250,933 145,834,267
EchoStar Communications, Class A(1) 35,150 1,195,100
Entercom Communications Corp.(1) 220,000 11,651,200
Gannett Co., Inc. 1,447,727 129,079,339
Havas Advertising, S.A. ADR 3,142,938 18,417,617
Hughes Electronics Corp.(1) 24 397
Interpublic Group of Companies., Inc.(1) 1,520,905 23,726,118
KnightRidder, Inc. 18,123 1,402,177
Lamar Advertising Co.(1) 243,271 9,078,874
Liberty Media Corp. Class A(1) 965,499 11,479,783
Liberty Media Corp. Class B(1) 32,876 453,689
MacClatchy Co. (The) 48,066 3,306,941
McGraw-Hill Companies, Inc. (The) 246,964 17,267,723
Meredith Corp. 190,000 9,273,900
New York Times Co. (The), Class A 282,204 13,486,529
News Corporation Ltd. 93,967 2,842,502
Omnicom Group, Inc. 2,334,382 203,861,580
Proquest Company(1) 115,000 3,386,750
Publicis Groupe SA 367,533 11,914,205
Reuters Holdings plc ADR 1,431 36,319
|
See notes to financial statements.
56
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
MEDIA (CONTINUED)
Scripps (The E.W) Company 25,533 $ 2,403,677
Time Warner Inc.(1) 3,754,241 67,538,796
Tribune Co. 1,501,683 77,486,843
Univision Communications, Inc.(1) 917,233 36,404,978
Viacom, Inc., Class A 29,774 1,318,095
Viacom, Inc., Class B 1,383,821 61,413,976
Vivendi Universal S.A. ADR(1) 490,725 11,914,803
Washington Post Co. (The) 14,970 11,847,258
Westwood One, Inc.(1) 122,400 4,187,304
WPP Group plc 139,450 1,369,256
WPP Group plc ADR 209,454 10,294,664
------------------------------------------------------------------------------------------------------
$ 1,232,762,665
------------------------------------------------------------------------------------------------------
METALS AND MINING -- 0.2%
Alcoa, Inc. 558,287 $ 21,214,906
Allegheny Technologies, Inc. 21,408 283,014
Nucor Corp. 221,462 12,401,872
Phelps Dodge Corp.(1) 14,862 1,130,850
Steel Dynamics, Inc.(1) 311,800 7,324,182
Worthington Industries, Inc. 147,466 2,658,812
------------------------------------------------------------------------------------------------------
$ 45,013,636
------------------------------------------------------------------------------------------------------
MULTILINE RETAIL -- 1.8%
99 Cents Only Stores(1) 1,142,232 $ 31,102,977
Dollar General Corp. 101,456 2,129,561
Dollar Tree Stores, Inc.(1) 813,306 24,447,978
Family Dollar Stores, Inc. 2,618,411 93,948,587
Kohls Corp.(1) 55 2,472
May Department Stores Co. (The) 632,760 18,394,333
Nordstrom, Inc. 65,692 2,253,236
Penney (J.C.) Company, Inc. 529,169 13,906,561
Sears, Roebuck & Co. 16,950 771,055
Target Corp. 3,576,019 137,319,130
------------------------------------------------------------------------------------------------------
$ 324,275,890
------------------------------------------------------------------------------------------------------
MULTI-UTILITIES AND UNREGULATED POWER -- 0.1%
AES Corporation(1) 49,542 $ 467,676
Duke Energy Corp. 419,154 8,571,699
Dynegy, Inc.(1) 63,525 271,887
El Paso Corp. 175,909 1,440,695
National Fuel Gas Co. 4,000 97,760
Williams Companies. Inc. (The) 222,833 $ 2,188,220
------------------------------------------------------------------------------------------------------
$ 13,037,937
------------------------------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.0%
Ikon Office Solutions, Inc. 83,040 $ 984,854
Xerox Corp.(1) 20,000 276,000
Zebra Technologies Corp., Class A(1) 9,000 597,330
------------------------------------------------------------------------------------------------------
$ 1,858,184
------------------------------------------------------------------------------------------------------
OIL AND GAS -- 5.9%
Amerada Hess Corp. 18,947 $ 1,007,412
Anadarko Petroleum Corp. 2,557,003 130,432,723
Apache Corporation 1,035,690 83,994,459
Ashland, Inc. 85,716 3,776,647
BP plc ADR 5,056,838 249,554,955
Burlington Resources, Inc. 2,130,802 118,003,815
ChevronTexaco Corporation 123,875 10,701,561
ConocoPhillips 1,790,067 117,374,693
Devon Energy Corp. 507,678 29,069,642
Exxon Mobil Corp. 5,811,941 238,289,581
Kerr - McGee Corp. 267,327 12,428,032
Marathon Oil Corp. 1,450 47,980
Murphy Oil Corporation 13,200 862,092
Newfield Exploration Company(1) 60,000 2,672,400
Royal Dutch Petroleum Co. 96,661 5,064,070
Total Fina Elf SA ADR 400,000 37,004,000
Valero Energy Corp. 51,510 2,386,973
------------------------------------------------------------------------------------------------------
$ 1,042,671,035
------------------------------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 0.2%
Georgia-Pacific Corp. 647,002 $ 19,843,551
International Paper Co. 232,175 10,009,064
Louisiana-Pacific Corp.(1) 70,750 1,265,010
MeadWestvaco Corp. 84,358 2,509,651
Weyerhaeuser Co. 119,608 7,654,912
------------------------------------------------------------------------------------------------------
$ 41,282,188
------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 1.4%
Avon Products, Inc. 186,700 $ 12,600,383
Gillette Company 3,929,412 144,327,303
Lauder (Estee) Companies, Inc. 2,092,312 82,144,169
------------------------------------------------------------------------------------------------------
$ 239,071,855
------------------------------------------------------------------------------------------------------
|
See notes to financial statements.
57
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 7.0%
Abbott Laboratories 2,482,012 $ 115,661,759
Allergan, Inc. 38,840 2,983,300
Bristol-Myers Squibb Company 3,201,708 91,568,849
Elan Corp., PLC ADR(1) 31,838 219,364
Forest Laboratories, Inc.(1) 656,800 40,590,240
GlaxoSmithKline plc 433,759 20,221,845
Johnson & Johnson 2,917,570 150,721,666
King Pharmaceuticals, Inc.(1) 1,481,117 22,601,845
Lilly (Eli) & Co. 3,173,638 223,201,961
Merck & Co., Inc. 1,611,471 74,449,960
Mylan Laboratories, Inc. 27,992 707,078
Novo Nordisk ADR 292,277 11,971,666
Pfizer, Inc. 7,799,066 275,541,002
Schering AG ADR 25,000 1,277,500
Schering-Plough Corp. 2,478,438 43,100,037
Sepracor, Inc.(1) 4,000 95,720
Teva Pharmaceutical Industries Ltd. ADR 1,200,000 68,052,000
Watson Pharmaceuticals, Inc.(1) 951,175 43,754,050
Wyeth Corp. 974,196 41,354,620
------------------------------------------------------------------------------------------------------
$ 1,228,074,462
------------------------------------------------------------------------------------------------------
REAL ESTATE -- 0.2%
AvalonBay Communities, Inc. 55,000 $ 2,629,000
Catellus Development Corp. 441,282 10,643,722
Jones Lang Lasalle, Inc.(1) 154,567 3,204,174
Plum Creek Timber Co., Inc. 198,791 6,053,186
Trammell Crow Co.(1) 804,200 10,655,650
------------------------------------------------------------------------------------------------------
$ 33,185,732
------------------------------------------------------------------------------------------------------
ROAD AND RAIL -- 0.2%
ANC Rental Corporation(1) 459,525 $ 46
Burlington Northern Santa Fe Corp. 203,594 6,586,266
CSX Corporation 38,134 1,370,536
Florida East Coast Industries, Inc. 121,978 4,037,472
Heartland Express, Inc. 435,436 10,533,197
Kansas City Southern Industries, Inc.(1) 15,215 217,879
Norfolk Southern Corp. 3,990 94,364
Union Pacific Corp. 92,772 6,445,799
------------------------------------------------------------------------------------------------------
$ 29,285,559
------------------------------------------------------------------------------------------------------
SEMICONDUCTORS AND SEMICONDUCTOR
EQUIPMENT -- 2.6%
Agere Systems, Inc.(1) 6,495 $ 19,810
Agere Systems, Inc., Class B(1) 159,398 462,254
Altera Corp.(1) 66,116 1,500,833
Analog Devices, Inc.(1) 555,525 25,359,716
Applied Materials, Inc.(1) 418,392 9,392,900
Applied Materials, Inc.(1)(2)(3) 543,250 12,183,767
Broadcom Corp.(1) 234,000 7,977,060
Conexant Systems, Inc.(1) 134,174 666,845
Cypress Semiconductor Corporation(1) 152,742 3,262,569
Intel Corp. 9,103,378 293,128,772
KLA-Tencor Corp.(1) 108,382 6,358,772
KLA-Tencor Corp.(1)(2)(3) 50,000 2,929,100
Linear Technologies Corp. 87,760 3,692,063
LSI Logic Corporation(1) 132,810 1,178,025
Maxim Integrated Products Co. 274,351 13,662,680
Mindspeed Technologies Inc.(1) 44,724 306,359
Skyworks Solutions, Inc.(1) 98,685 858,560
Taiwan Semiconductor ADR(1) 1,000,000 10,240,000
Teradyne, Inc.(1) 27,996 712,498
Texas Instruments, Inc. 1,970,330 57,888,295
Xilinx, Inc.(1) 68,518 2,654,387
------------------------------------------------------------------------------------------------------
$ 454,435,265
------------------------------------------------------------------------------------------------------
SOFTWARE -- 2.5%
Adobe Systems, Inc. 261,994 $ 10,296,364
BMC Software, Inc.(1) 27,000 503,550
Cadence Design Systems, Inc.(1) 900,000 16,182,000
Cognos, Inc.(1) 77,000 2,357,740
Computer Associates International, Inc. 33,070 904,134
Compuware Corp.(1) 150,944 911,702
Fair, Isaac and Co., Inc. 707,571 34,784,190
Henry (Jack) & Associates 201,006 4,136,703
I2 Technologies, Inc.(1) 233,752 388,028
Intuit, Inc.(1) 1,108,389 58,644,862
Microsoft Corp. 9,489,802 261,349,147
Oracle Corp.(1) 737,178 9,730,750
PalmSource, Inc.(1) 20,208 440,332
Parametric Technology Corp.(1) 94,600 372,724
PeopleSoft, Inc.(1) 300,680 6,855,504
Reynolds & Reynolds, Co. 451,043 13,102,799
Siebel Systems, Inc.(1) 816,061 11,318,766
Symantec Corporation(1) 30,450 1,055,093
|
See notes to financial statements.
58
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
SOFTWARE (CONTINUED)
VERITAS Software Corp.(1) 43,942 $ 1,632,885
Wind River Systems, Inc.(1) 91,910 805,132
------------------------------------------------------------------------------------------------------
$ 435,772,405
------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.2%
Abercrombie & Fitch Co.(1) 14,915 $ 368,550
AutoNation, Inc.(1) 3,744,851 68,792,913
Best Buy Co., Inc. 313,610 16,382,986
Boise Cascade Corporation 2,192 72,029
Burlington Coat Factory Warehouse Corp. 609,010 12,886,652
Carmax, Inc.(1) 67,797 2,096,961
Circuit City Stores, Inc. 216,000 2,188,080
Gap, Inc. (The) 541,012 12,556,889
Home Depot, Inc. (The) 3,469,933 123,147,922
Limited Brands, Inc. 813,017 14,658,697
Lowe's Companies 963,356 53,360,289
Office Depot, Inc.(1) 238,664 3,988,075
Payless Shoesource, Inc.(1) 23,100 309,540
Pep Boys - Manny, Moe & Jack (The) 83,415 1,907,701
Pier 1 Imports, Inc. 44,982 983,307
RadioShack Corp. 677,904 20,798,095
Sherwin-Williams Co. (The) 80,569 2,798,967
Staples, Inc.(1) 92,500 2,525,250
Tiffany & Co. 88,000 3,977,600
TJX Companies, Inc. (The) 2,016,834 44,471,190
Too, Inc.(1) 38,284 646,234
------------------------------------------------------------------------------------------------------
$ 388,917,927
------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL AND LUXURY GOODS -- 0.5%
Coach, Inc.(1) 365,720 $ 13,805,930
Nike Inc., Class B 1,079,222 73,883,538
Unifi, Inc.(1) 42,921 276,840
------------------------------------------------------------------------------------------------------
$ 87,966,308
------------------------------------------------------------------------------------------------------
THRIFTS AND MORTGAGE FINANCE -- 0.8%
Countrywide Financial Corp. 133,333 $ 10,113,308
Fannie Mae 406,147 30,485,394
Freddie Mac 135,586 7,907,376
Golden West Financial Corporation 21,845 2,254,186
GreenPoint Financial Corp. 1,081,474 38,197,662
MGIC Investment Corp. 85,000 4,839,900
Radian Group, Inc. 30,800 1,501,500
Sovereign Bancorporation, Inc. 23,766 $ 564,443
Washington Mutual, Inc. 1,204,074 48,307,449
------------------------------------------------------------------------------------------------------
$ 144,171,218
------------------------------------------------------------------------------------------------------
TOBACCO -- 0.2%
Altria Group Inc. 593,732 $ 32,310,895
UST, Inc. 439 15,668
------------------------------------------------------------------------------------------------------
$ 32,326,563
------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.1%
AT&T Wireless Services, Inc.(1) 1,321,244 $ 10,556,740
Nextel Communications, Inc., Class A(1) 73,122 2,051,803
Sprint Corp. - PCS Group(1) 19,754 111,017
Telephone and Data Systems, Inc. 70,844 4,431,292
Vodafone Group plc ADR 116,617 2,920,090
------------------------------------------------------------------------------------------------------
$ 20,070,942
------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $14,558,336,419) $ 17,461,971,848
------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 0.0%
MULTI-UTILITIES AND UNREGULATED POWER -- 0.0%
Enron Corp.(1)(2) 11,050 $ 8,448
------------------------------------------------------------------------------------------------------
$ 8,448
------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $4,500,777) $ 8,448
------------------------------------------------------------------------------------------------------
PREFERRED STOCKS -- 0.0%
COMMERCIAL BANKS -- 0.0%
Wachovia Corp. (Dividend Equalization Preferred Shares)(1) 166,518 $ 832
------------------------------------------------------------------------------------------------------
$ 832
------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $39,407) $ 832
------------------------------------------------------------------------------------------------------
RIGHTS -- 0.0%
BANKS -- 0.0%
Bank United Corp. (Litigation Contingent Payment Rights)(1) 102,072 $ 12,249
------------------------------------------------------------------------------------------------------
$ 12,249
------------------------------------------------------------------------------------------------------
|
See notes to financial statements.
59
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
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) $ 12,249
------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.3%
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
------------------------------------------------------------------------------------------------------
Investors Bank & Trust Company -
Time Deposit, 1.01%, 1/2/04 $ 47,415 $ 47,415,330
------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(AT AMORTIZED COST, $47,415,330) $ 47,415,330
------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 0.4%
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
------------------------------------------------------------------------------------------------------
Old Line Funding Corp., 1.09%, 1/9/04 $ 25,000 $ 24,993,944
Transamerica Finance Corp., 1.07%, 1/9/04 50,000 49,988,111
------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(AT AMORTIZED COST, $74,982,055) $ 74,982,055
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.9%
(IDENTIFIED COST $14,685,324,584) $ 17,584,390,762
------------------------------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES -- 0.1% $ 25,198,243
------------------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 17,609,589,005
------------------------------------------------------------------------------------------------------
|
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 restricted from resale for a period not exceeding two years. At
December 31, 2003, the value of these securities totaled $49,748,189 or
0.3% of net assets.
See notes to financial statements.
60
TAX-MANAGED GROWTH PORTFOLIO as of December 31, 2003
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 2003
ASSETS
Investments, at value
(identified cost, $14,685,324,584) $ 17,584,390,762
Cash 5,669
Receivable for investments sold 2,552,453
Dividends and interest receivable 22,326,200
Tax reclaim receivable 578,423
------------------------------------------------------------------------------
TOTAL ASSETS $ 17,609,853,507
------------------------------------------------------------------------------
LIABILITIES
Payable to affiliate for Trustees' fees $ 8,252
Accrued expenses 256,250
------------------------------------------------------------------------------
TOTAL LIABILITIES $ 264,502
------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS' INTEREST IN PORTFOLIO $ 17,609,589,005
------------------------------------------------------------------------------
SOURCES OF NET ASSETS
Net proceeds from capital contributions and withdrawals $ 14,710,453,882
Net unrealized appreciation (computed on the basis of
identified cost) 2,899,135,123
------------------------------------------------------------------------------
TOTAL $ 17,609,589,005
------------------------------------------------------------------------------
|
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
INVESTMENT INCOME
Dividends (net of foreign taxes, $2,599,762) $ 229,304,460
Interest 3,621,452
------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME $ 232,925,912
------------------------------------------------------------------------------
EXPENSES
Investment adviser fee $ 67,584,543
Trustees' fees and expenses 30,403
Custodian fee 1,909,174
Legal and accounting services 85,806
Miscellaneous 270,270
------------------------------------------------------------------------------
TOTAL EXPENSES $ 69,880,196
------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 163,045,716
------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 73,809,988
Securities sold short (2,985,249)
Foreign currency transactions 85,031
------------------------------------------------------------------------------
NET REALIZED GAIN $ 70,909,770
------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 3,174,871,573
Securities sold short (203,701)
Foreign currency 41,238
------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) $ 3,174,709,110
------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $ 3,245,618,880
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 3,408,664,596
------------------------------------------------------------------------------
|
See notes to financial statements.
61
STATEMENTS OF CHANGES IN NET ASSETS
INCREASE (DECREASE) YEAR ENDED YEAR ENDED
IN NET ASSETS DECEMBER 31, 2003 DECEMBER 31, 2002
------------------------------------------------------------------------------
From operations --
Net investment income $ 163,045,716 $ 139,150,041
Net realized gain (loss) 70,909,770 (459,996,840)
Net change in unrealized
appreciation (depreciation) 3,174,709,110 (3,312,547,564)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM OPERATIONS $ 3,408,664,596 $ (3,633,394,363)
------------------------------------------------------------------------------
Capital transactions --
Contributions $ 1,351,483,956 $ 2,786,165,872
Withdrawals (1,722,081,135) (2,917,114,901)
------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
FROM CAPITAL TRANSACTIONS $ (370,597,179) $ (130,949,029)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS $ 3,038,067,417 $ (3,764,343,392)
------------------------------------------------------------------------------
NET ASSETS
At beginning of year $ 14,571,521,588 $ 18,335,864,980
------------------------------------------------------------------------------
AT END OF YEAR $ 17,609,589,005 $ 14,571,521,588
------------------------------------------------------------------------------
|
See notes to financial statements.
62
SUPPLEMENTARY DATA
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratios (As a percentage of average
daily net assets):
Expenses 0.45% 0.45% 0.45% 0.45% 0.46%
Net investment income 1.05% 0.85% 0.64% 0.67% 0.72%
Portfolio Turnover 15% 23% 18% 13% 11%
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(1) 23.88% (19.52)% (9.67)% -- --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S OMITTED) $ 17,609,589 $ 14,571,522 $ 18,335,865 $ 18,385,069 $ 15,114,649
-----------------------------------------------------------------------------------------------------------------------------------
|
(1) Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
See notes to financial statements.
63
TAX-MANAGED GROWTH PORTFOLIO as of December 31, 2003
NOTES TO FINANCIAL STATEMENTS
1 SIGNIFICANT ACCOUNTING POLICIES
Tax-Managed Growth Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Portfolio, which was organized as a
trust under the laws of the State of New York on December 1, 1995, seeks to
provide long-term after-tax returns by investing in a diversified portfolio
of equity securities. The Declaration of Trust permits the Trustees to
issue interests in the Portfolio. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the
preparation of its financial statements. The policies are in conformity
with accounting principles generally accepted in the United States of
America.
A INVESTMENT VALUATIONS -- Marketable securities, including options, that
are listed on foreign or U.S. securities exchanges are valued at closing
sale prices on the exchange where such securities are principally traded.
Marketable securities listed in the NASDAQ National Market System are
valued at the NASDAQ official closing price. Unlisted or listed securities
for which closing sale prices are not available are generally valued at the
mean between the latest bid and asked prices. 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, which approximates fair value. Other fixed income
and debt securities, including listed securities and securities for which
price quotations are available, will normally be valued on the basis of
valuations furnished by a pricing service. Over-the-counter options are
normally valued at the mean between the latest bid and asked price.
Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
B INCOME TAXES -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes
on any taxable income of the Portfolio because each investor in the
Portfolio is ultimately responsible for the payment of any taxes on its
share of such taxable income. Since some of the Portfolio's investors are
regulated investment companies that invest all or substantially all of
their assets in the Portfolio, the Portfolio normally must satisfy the
applicable source of income and diversification requirements (under the
Internal Revenue Code) in order for its investors to satisfy them. The
Portfolio will allocate, at least annually among its investors, each
investor's distributive share of the Portfolio's net investment income, net
realized capital gains 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 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 recorded when the security is delivered
64
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 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 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. For the year ended December 31, 2003, the
advisory fee was 0.44% of the Portfolio's average daily net assets. Except
for Trustees of the Portfolio who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services
to the Portfolio out of such investment adviser fee. Trustees of the
Portfolio who are not affiliated with the Investment Adviser may elect to
defer receipt of all or a percentage of their annual fees in accordance
with the terms of the Trustees' Deferred Compensation Plan. For the year
ended December 31, 2003, 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, 2003, purchases and sales of investments,
other than short-term obligations, aggregated $2,315,531,044 and
$2,601,576,258, respectively. In addition, investments having an aggregate
market value of $701,210,532 at dates of withdrawal were distributed in
payment for capital withdrawals. During the year ended December 31, 2003,
investors contributed securities with a value of $789,740,742.
4 FEDERAL INCOME TAX BASIS OF UNREALIZED APPRECIATION (DEPRECIATION)
The cost and unrealized appreciation (depreciation) in value of the
investments owned at December 31, 2003 as computed on a federal income tax
basis, were as follows:
AGGREGATE COST $ 5,191,822,303
-------------------------------------------------------------------------
Gross unrealized appreciation $ 12,396,006,523
Gross unrealized depreciation (3,438,064)
-------------------------------------------------------------------------
NET UNREALIZED APPRECIATION $ 12,392,568,459
-------------------------------------------------------------------------
65
|
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, 2003.
6 LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR
and EVM and its affiliates in a $150 million unsecured line of credit
agreement with a group of banks. Borrowings will be made by the Portfolio
solely to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Interest is charged to each participating
portfolio or fund based on its borrowings at an amount above either the
Eurodollar rate or Federal Funds rate. In addition, a fee computed at an
annual rate of 0.10% on the daily unused portion of the line of credit is
allocated among the participating portfolios and funds at the end of each
quarter. The Portfolio did not have any significant borrowings or allocated
fees during the year ended December 31, 2003.
7 RESTRICTED SECURITIES
At December 31, 2003, the Portfolio owned the following securities
(representing 0.3% of net assets) which were restricted as to public resale
and not registered under the Securities Act of 1933. The securities are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
DATE OF
DESCRIPTION ACQUISITION SHARES COST FAIR VALUE
------------------------------------------------------------------------------------
Applied Materials, Inc. 12/17/03 543,250 $ 11,575,935 $ 12,183,767
eBay, Inc 5/13/03 200,000 9,466,769 12,909,926
eBay, Inc. 2/19/03 318,000 12,143,667 20,534,485
KLA-Tencor Corp. 12/17/03 50,000 2,744,377 2,929,100
Sysco Corp. 12/17/03 32,036 1,157,644 1,190,911
------------------------------------------------------------------------------------
$ 37,088,392 $ 49,748,189
------------------------------------------------------------------------------------
|
66
TAX-MANAGED GROWTH PORTFOLIO as of December 31, 2003
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS
OF TAX-MANAGED GROWTH PORTFOLIO:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tax-Managed Growth Portfolio (the Portfolio) as
of December 31, 2003, and the related statement of operations for the year then
ended, the statements of changes in net assets for the two years in the period
then ended and the supplementary data for each of the five years ended 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and supplementary data are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 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 financial statements and supplementary data present fairly,
in all material respects, the financial position of Tax-Managed Growth Portfolio
at December 31, 2003, 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 20, 2004
67
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 AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
68
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on June 30, 2004.
BELMAR CAPITAL FUND LLC
(Registrant)
By: /s/ Michelle A. Alexander
-----------------------------
Michelle A. Alexander
Duly Authorized Officer and
Principal Accounting Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
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: June 30, 2004
By: /s/ Michelle A. Alexander
-----------------------------
Michelle A. Alexander
Chief Financial Officer
Date: June 30, 2004
|
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
----------- -----------
3 Copy of Limited Liability Company Agreement of the Fund dated
March 17, 2000 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 year ended December 31, 2003
and incorporated herein by reference.
4.1 Copy of Loan and Security Agreement between the Fund and DrKW
Holdings, Inc., as lender, dated June 25, 2003 filed as Exhibit
4.1 to the Fund's Report on Form 10-Q for the period ended June
30, 2003 and incorporated herein by reference.
4.2 Copy of Loan and Security Agreement between the Fund and MLMC, as
Agent, and MLCS dated June 25, 2003 filed as Exhibit 4.2 to the
Fund's Report on Form 10-Q for the period ended June 30, 2003 and
incorporated herein by reference.
9 Not applicable and not filed.
10(1) Copy of Investment Advisory and Administration Agreement between
the Fund and Boston Management and Research dated March 10, 2000
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 Belmar Realty Corporation
and Boston Management and Research dated March 10, 2000 filed as
Exhibit 10(2) to the Fund's Initial Registration Statement on
Form 10 and incorporated herein by reference.
10(2)(a) Copy of Amendment No. 1 to Management Agreement between Belmar
Realty Corporation and Boston Management and Research dated as of
January 2, 2001 filed as Exhibit 10(2)(a) to the Fund's Report on
Form 10-Q for the period ended September 30, 2001 and
incorporated herein by reference.
10(3) Copy of Investor Servicing Agreement between the Fund and Eaton
Vance Distributors, Inc. dated December 15, 1999 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 15, 1999 filed
as Exhibit 10(4) to the Fund's Initial Registration Statement on
Form 10 and incorporated herein by reference.
11 Not applicable and not filed.
12 Not applicable and not filed.
21 List of Subsidiaries of the Fund filed as Exhibit 21 to the
Fund's Report on Form 10-K for the year ended December 31, 2003
and incorporated herein by reference.
24 Not applicable and not filed.
31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
99.3 Form N-CSR of Eaton Vance Tax-Managed Growth Portfolio (File No.
811-7409) for its year ended December 31, 2003 filed
electronically with the Securities and Exchange Commission under
the Investment Company Act of 1940 on March 8, 2004 (incorporated
herein by reference pursuant to Rule 12b-32).
|
EXHIBIT 31.1
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Thomas E. Faust Jr., certify that:
1. I have reviewed this Form 10-K/A of Belmar Capital Fund LLC;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: June 30, 2004
/s/ Thomas E. Faust Jr.
-----------------------
Thomas E. Faust Jr.
Chief Executive Officer
|
EXHIBIT 31.2
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Michelle A. Alexander, certify that:
1. I have reviewed this Form 10-K/A of Belmar Capital Fund LLC;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: June 30, 2004
/s/ Michelle A. Alexander
-------------------------
Michelle A. Alexander
Chief Financial Officer
|
EXHIBIT 32.1
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies in his capacity as Chief Executive Officer of
Belmar Capital Fund LLC (the "Fund"), that:
(a) the Annual Report of the Fund on Form 10-K/A for the year ended December
31, 2003 (the "Report") fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934, as amended; and
(b) the information contained in the Report fairly presents, in all material
respects, the financial condition and the results of operations of the Fund
for such period.
Date: June 30, 2004
/s/ Thomas E. Faust Jr.
-----------------------
Thomas E. Faust Jr.
Chief Executive Officer
|
EXHIBIT 32.2
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies in her capacity as Chief Financial Officer of
Belmar Capital Fund LLC (the "Fund"), that:
(a) the Annual Report of the Fund on Form 10-K/A for the year ended December
31, 2003 (the "Report") fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934, as amended; and
(b) the information contained in the Report fairly presents, in all material
respects, the financial condition and the results of operations of the Fund
for such period.
Date: June 30, 2004
/s/ Michelle A. Alexander
-------------------------
Michelle A. Alexander
Chief Financial Officer
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