Attached files
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EX-31.1 - EX-31.1 SECTION 302 CERTIFICATION OF C.E.O. - BELCREST CAPITAL FUND LLC | b90052a1exv31w1.htm |
EX-32.2 - EX-32.2 SECTION 906 CERTIFICATION OF C.F.O. - BELCREST CAPITAL FUND LLC | b90052a1exv32w2.htm |
EX-32.1 - EX-32.1 SECTION 906 CERTIFICATION OF C.E.O. - BELCREST CAPITAL FUND LLC | b90052a1exv32w1.htm |
EX-31.2 - EX-31.2 SECTION 302 CERTIFICATION OF C.F.O. - BELCREST CAPITAL FUND LLC | b90052a1exv31w2.htm |
EX-4.3(C) - EX-4.3(C) MASTER CREDIT AGREEMENT - BELCREST CAPITAL FUND LLC | b90052a1exv4w3xcy.htm |
EX-21 - EX-21 LIST OF SUBSIDIARIES - BELCREST CAPITAL FUND LLC | b90052a1exv21.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(THE ACT) For the Fiscal Year Ending December 31, 2011 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
ACT For the transition period from _________ to ________ |
Commission file number 000-30509
Belcrest Capital Fund LLC (the Fund)
(Exact Name of Registrant as Specified in Its Charter)
Massachusetts | 04-3453080 | |
(State of Organization) | (I.R.S. Employer Identification No.) | |
Two International Place | ||
Boston, Massachusetts 02110 | 617-482-8260 | |
(Address and Zip Code of Principal Executive Offices) | (Registrants telephone number, including area code) |
Securities
registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Liability Company Interests in
the Fund (Shares)
Indicate by check mark if Registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act of 1933. þ Yes o No
Indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. o Yes þ No
Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Act during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. þ Yes o No
Indicate by check whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post
such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Act.
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (do not check if a smaller company is reporting) | Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
Aggregate market value of the Shares held by non-affiliates of Registrant,
based on the closing net asset value on June 30, 2011 was $681,480,492. Calculation of holdings by
non-affiliates is based upon the assumption, for these purposes only, that the Registrants
manager, its executive officers and directors and persons holding 10% or more of the Registrants
Shares are affiliates.
Incorporations by Reference: None.
The Exhibit Index is located on page 79.
Belcrest Capital Fund LLC
Index to Form 10-K
Index to Form 10-K
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APPENDIX A | 36 | |||||||
FINANCIAL STATEMENTS | 37 | |||||||
SIGNATURES | 78 | |||||||
EXHIBIT INDEX | 79 |
4
PART I
Item 1. Business.
Fund Overview.
Belcrest Capital Fund LLC (the Fund) is a private investment company organized by
Eaton Vance Management (Eaton Vance) to provide diversification and tax-sensitive investment
management to investors holding large and concentrated positions in equity securities of selected
public companies. The Funds investment objective is to achieve long-term, after-tax returns for
persons who have invested in the Fund (Shareholders). The Fund, a Massachusetts limited liability
company, commenced its investment operations on November 24, 1998. Limited liability company
interests of the Fund (Shares) were issued to Shareholders at seven closings during 1998 and 1999.
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 October 22, 1999 and, while the Fund
is not prohibited from doing so, no future offering is anticipated. As of December 31, 2011, the
Fund had net assets of approximately $633.0 million.
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 Funds assets (calculated in the manner prescribed) may consist of stocks and
securities as defined in the Code. To meet this requirement, the Fund normally invests at least
20% of its assets as so determined in certain real estate investments (see The Funds Real Estate
Investments below). The Fund invests up to 80% of its assets in a diversified portfolio of common
stocks (see The Funds Investment in Belvedere Capital Fund Company LLC and Tax-Managed Growth
Portfolio below). The Fund may also invest cash on a temporary basis in short-term instruments
including in a pooled investment vehicle advised by an affiliate of Eaton Vance (the EV money
market fund). The Fund acquires 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 Funds Investment in Belvedere Capital Fund Company LLC and Tax-Managed
Growth Portfolio below.
There is no trading market for the Funds Shares. As described further under Redemption of Fund
Shares in Item 5(a), Fund Shares generally 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 at the end of each year, or shortly thereafter, an amount
approximately equal to the taxes payable on its net investment income allocated to Shareholders.
The Fund also intends to make annual capital gain distributions to such Shareholders equal to approximately 18% of the amount of its net realized capital gains, if any,
other than certain precontribution gains. The Funds 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 Funds 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 (GAAP). See Note 2 to the Funds consolidated financial
statements. The Fund intends to pay any distributions on the last business day of each fiscal year
of the Fund (which concludes on December 31) or shortly thereafter. See Distributions in Item
5(c).
Fund Management.
The manager of the Fund is Eaton Vance, a Massachusetts business trust registered
as an investment adviser under the Investment Advisers Act of 1940, as amended (the Advisers Act).
Eaton Vance and its subsidiary, Boston Management and Research (Boston Management), provide
management and advisory services to the Fund, its real estate subsidiary and the investment
portfolio in which the Fund invests. Boston Management is also registered as an investment adviser
under the Advisers Act. Eaton Vance and Boston Management provide advisory, administration and/or
management services to over 150 investment companies, as well as separate accounts managed for
individual and institutional investors. As of December 31, 2011, Eaton Vance and its affiliates
5
managed over $184.5 billion on behalf of clients. The fees payable to the Eaton Vance
organization, as well as other fees payable by the Fund, are described in Item 13. The Eaton Vance
organization is subject to certain conflicts of interest in providing services to the Fund, its
subsidiaries and the investment portfolio in which the Fund invests. See The Eaton Vance
Organization Conflicts of Interest below.
The Funds Offering.
Shares of the Fund were privately offered and sold only to accredited
investors as defined in Rule 501(a) under the Securities Act of 1933, as amended (the Securities
Act), who were qualified purchasers (as defined in Section 2(a)(51)(A) of the Investment Company
Act of 1940, as amended (the 1940 Act)). The offering was conducted by Eaton Vance Distributors,
Inc. (EV Distributors), an affiliate of Eaton Vance, as placement agent and by certain subagents
appointed by EV Distributors. The Shares were offered and sold in reliance upon an exemption from
registration provided by Rule 506 under the Securities Act. The Fund issued Shares to Shareholders
at closings taking place on November 24, 1998, February 23, 1999, April 29, 1999, July 28, 1999,
September 7, 1999, September 29, 1999 and October 22, 1999. At the seven closings, an aggregate of
33,519,482 Shares were issued in exchange for Shareholder contributions totaling approximately $3.6
billion.
The Fund is registered under the 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
1-202-551-8690 for information on the operation of the public reference room); on the EDGAR
Database on the SECs Internet site (http://www.sec.gov); or, upon payment of copying fees, by
writing to the SECs public reference section, 100 F Street, NE, 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 Funds consolidated
financial statements, audited by the Funds independent registered public accounting firm in the
case of the annual report.
The Funds Investment in
Belvedere Capital Fund Company LLC and Tax-Managed Growth Portfolio. At
each Fund closing, all of the securities accepted for contribution to the Fund were contributed by
the Fund to Belvedere Capital Fund Company LLC (Belvedere Company), a Massachusetts limited
liability company, in exchange for shares of Belvedere Company. Belvedere Company, in turn,
immediately thereafter contributed the securities received from the Fund to Tax-Managed Growth
Portfolio (the Portfolio) in exchange for an interest in the Portfolio. The Portfolio is a
diversified, open-end management investment company registered under the 1940 Act with net assets
of approximately $8.1 billion as of December 31, 2011. As of December 31, 2011, the Funds
investment in the Portfolio through Belvedere Company had a value of approximately $618.0 million
(equal to approximately 86.7% of the Funds total assets on a
consolidated GAAP 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, 2011, the investment
assets of Belvedere Company consisted exclusively of an interest in the Portfolio with a value of
approximately $5.8 billion. As of such date, the Fund owned approximately 10.7% of Belvedere
Companys outstanding shares. As of December 31, 2011, the other investors in Belvedere Company
included ten 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 (NYSE), the NYSE Amex, the NASDAQ Global or Global Select Market (NASDAQ) or a
major foreign exchange, (ii) had a trading price during the last twelve months of at least $10.00
per share and (iii) are issued by issuers having an equity market capitalization of at least $500
million. Because Belvedere Company only accepts contributions of diversified baskets of securities
(as described below), it is not subject to the requirement that not more than 80% of its assets
consist of stocks and securities as defined in the Code. For investors that own a diversified
basket of securities, investing in Belvedere Company (rather than in the Fund) avoids the costs and
risks of investing in real estate and the associated financial leverage to which the Fund is
subject. See Risks of Real Estate
Investments and Risks of Leverage in Item 7A(b).
Belvedere Company provides a vehicle through which investment fund and non-investment fund
investors contributing a diversified basket of securities can acquire an indirect interest in the
Portfolio. A diversified basket of securities means a group of securities that is diversified
such that not more than 25% of the value of the securities are investments in the securities of any
one issuer and not more than 50% of the value of the securities are investments in the securities
of five or fewer issuers. The securities contributed to Belvedere Company at each Fund closing
constituted a diversified basket of securities. Because the Fund is required to hold a percentage
of its investments in non-Portfolio assets in order to meet certain tax requirements (see
Structure of the Fund above and The Funds Real Estate Investments below), it does not satisfy
the conditions of the 1940 Act for investing directly in the Portfolio.
6
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, 2011, investors in the Portfolio included five investors in addition to
Belvedere Company and Tax-Managed Growth 1.0, each of which acquired or is acquiring on a
continuous basis interests in the Portfolio with cash. All investors in the Portfolio are sponsored
by or affiliated with Eaton Vance. As of December 31, 2011, Belvedere Company owned approximately
71.4% of the Portfolios net assets.
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
ending December 31, 2011 are included in Item 8 of this Annual Report on Form 10-K. The Portfolios
audited financial statements include information about the assets and liabilities of the Portfolio,
including Portfolio income and expenses. For a discussion of the Portfolios performance for the
year ending December 31, 2011, see Performance of the Portfolio in Item 7(a). For a description
of the investment advisory fee payable by the Portfolio, see The Portfolios Investment Advisory
Fee in Item 13.
The Portfolios Investment Objective and Policies.
The investment objective of the Portfolio is to
achieve long-term, after-tax returns for its investors by investing in a diversified portfolio of
equity securities. The Portfolio invests primarily in common stocks of domestic and foreign growth
companies that are considered by its investment adviser to be high in quality and attractive in
their long-term investment prospects. The Portfolio seeks to invest in a broadly diversified
portfolio of stocks and to invest primarily in established companies with characteristics of
above-average growth, predictability and stability that are acquired with the expectation of being
held for a period of years. Under normal market conditions, the Portfolio invests primarily in
common stocks. The Portfolio has acquired securities through contributions from Belvedere Company,
Tax-Managed Growth 1.0 and Eaton Vance Tax-Managed Growth Fund 1.1, and through purchases of
securities with cash invested in the Portfolio by certain of these and 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 up to 100% of
its assets in cash and cash equivalents, including such investments held through the EV money
market fund. The Portfolios holdings represent a number of different industries. Not more than 25%
of the Portfolios 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 Portfolios 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 Portfolios 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 minimizing the sale of securities holdings with large accumulated capital gains. The
Portfolio generally seeks to avoid net realized short-term capital gains.
When the Portfolio decides to sell a particular appreciated security, the Portfolio will select for
sale the share lots resulting in the most favorable tax treatment, generally those with holding
periods sufficient to qualify for long-term capital gain treatment that have the highest cost
basis. The Portfolio may, when deemed prudent by its investment adviser, sell securities to realize
capital losses that can be used to offset realized gains. While the Portfolio generally retains the
securities contributed to the Portfolio by Belvedere Company, the Portfolio has the flexibility to sell contributed securities. Securities acquired by
the Portfolio with cash may be sold in accordance with its management strategies. 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 appreciated securities through its practice of settling redemptions by
investors in the Portfolio that contributed securities primarily by distributing securities as
described in Item 5(a) under Redemption of Fund Shares. The Portfolio may also settle redemptions
by investors with distributions of securities upon request. As described in Item 5(a), settling
redemptions with appreciated securities can result in certain tax benefits to the Portfolio,
Belvedere Company, the Fund and the redeeming Shareholder.
To reduce its exposure to adverse price movements in individual securities or groups of securities
holdings with large accumulated gains, the Portfolio may use various investment techniques,
including, but not limited to, the purchase or sale of futures contracts on stocks and stock
indexes and options thereon, the purchase of put options and sale of call options on securities
held, covered short sales (on individual securities held or an index or basket securities whose
constituents are held in whole or in part), equity collars,
7
equity swap agreements, forward sales of stocks, and the purchase and sale of forward currency
exchange contracts and currency options. By using these techniques rather than selling such
securities, the Portfolio can, within certain limits, reduce its exposure to price declines in the
securities without realizing substantial capital gains under current tax law.
The Portfolios ability to utilize covered short sales, certain equity swaps, forward sales,
futures contracts and certain equity collar strategies as a tax-efficient management technique with
respect to holdings of appreciated securities is limited to circumstances in which the hedging
transaction is closed out within 30 days after the end of the Portfolios taxable year in which the
hedging transaction was initiated and the underlying appreciated securities position is held
unhedged for at least the next 60 days after such hedging transaction is closed. In addition,
dividends received on stock for which the Portfolio is obligated to make related payments (pursuant
to a short sale or otherwise) with respect to positions in substantially similar or related
property are subject to federal income tax at ordinary rates and do not qualify for favorable tax
treatment. Also, the holding periods required to receive tax-advantaged treatment of qualified
dividends on a stock are suspended whenever the Portfolio has an option (other than a qualified
covered call option not in the money when written) or contractual obligation to sell or an open
short sale of substantially identical stock, is the grantor of an option (other than a qualified
covered call option not in the money when written) to buy substantially identical stock or has
diminished risk of loss in such stock by holding positions with respect to substantially similar or
related property. The use of these investment techniques may require the Portfolio to commit or
make available cash and, therefore, may not be available at such times as the Portfolio has limited
holdings of cash. The Portfolio did not employ any of the techniques described above on securities
holdings during the year ending December 31, 2011. See Risks of Certain Investment Techniques in
Item 7A(b).
The Funds Real Estate Investments.
Separate from its investment in the Portfolio through Belvedere
Company, the Fund invests in certain real estate investments through Belcrest Realty Corporation
(Belcrest Realty). The ownership structure of Belcrest Realty is described below under
Organization of Belcrest Realty. 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, 2011, the real estate investments of Belcrest Realty totaled approximately $93.4 million and
represented 13.1% of the Funds total assets. The Fund acquires its real estate investments with
borrowed funds, as described below under Fund Borrowings. The Fund seeks a return on its real
estate investments over the long term that exceeds the cost of the borrowings incurred to acquire
such investments. For a description of material real estate investment transactions during the year
ending December 31, 2011, see Performance of Real Estate Investments in Item 7(a).
At December 31, 2011, Belcrest Realty held investments in: one real estate joint venture (Real
Estate Joint Venture), Lafayette Real Estate LLC (Lafayette), in which Belcrest Realty owns a
majority economic interest; a tenancy-in-common interest in real property (Co-owned Property), Bel
Stamford I LLC (Bel Stamford I ); and preferred equity interests in real estate operating
partnerships (Partnership Preference Units) affiliated with publicly traded real estate investment
trusts (REITs). Certain of the Partnership Preference Units are held indirectly through Bel
Holdings LLC (Bel Holdings). Bel Holdings is a Delaware limited liability company formed in 2003
and treated as a partnership for tax purposes. At December 31, 2011, Bel Holdings sole investment
was Partnership Preference Units issued by Vornado Realty L.P. At December 31, 2011, Belcrest
Realty owned 15% of Bel Holdings outstanding units. Information included herein about Belcrest
Realtys Partnership Preference Units includes the Partnership Preference Units held directly
through Belcrest Realty and indirectly through Bel Holdings. As of December 31, 2011, approximately
81.0% of the real estate investments of the Fund consisted of its investments in Lafayette,
approximately 2.1% was the investment in Co-owned Property and approximately 16.9% was investments
in Partnership Preference Units.
In the future, Belcrest Realty may invest in other types of real estate investments, including one
or more wholly owned real properties (Wholly Owned Property) and other real property investments
held directly or indirectly through affiliates. Real Estate Joint Ventures, Co-owned Property and
Wholly Owned Property are sometimes referred to herein as Subsidiary Real Estate Investments.
Belcrest Realty may
purchase real estate investments from, and sell them to, real estate investment affiliates of other
investment funds advised by Boston Management. See Certain Real Estate Investment Transactions in
Item 13.
Boston Management serves as manager of Belcrest Realty. In that capacity, Boston Management manages
the investment and reinvestment of Belcrest Realtys assets and administers its affairs. See
Belcrest Realtys Management Fee in Item 13 for a description of the management fee payable by
Belcrest Realty to Boston Management.
Real Estate Joint Venture Investments.
At December 31, 2011, Belcrest Realty owned a majority
economic interest in the Real Estate Joint Venture, Lafayette.
8
A board of managers controls the business of Lafayette. Each of Belcrest Realty and the
unaffiliated minority investor of Lafayette (the Operating Partner) has representation on the board
and the unanimous consent of the board is required for all major decisions (which include such
actions as: (i) capital transactions (i.e., acquisitions, dispositions or financings); (ii)
organizational events (i.e., mergers or liquidation); and (iii) operating plans (i.e., annual
budgets)). The board of Lafayette has delegated the day-to-day administration of Lafayette and the
day-to-day management of its real properties to the Operating Partner. Through its control of the
day-to-day operations of Lafayette and its properties, as well as its required consent to all major
decisions affecting Lafayette, the Operating Partner has significant participating rights and
responsibilities with respect to Lafayette. The Operating Partner receives management-related fees
from Lafayette and, in addition, is reimbursed for certain payroll and other direct expenses
incurred.
At December 31, 2011, the assets of Lafayette consisted of 12 office properties located in one
state (Virginia). At December 31, 2011, the average occupancy rate of the properties owned by
Lafayette was approximately 94%. The properties held by Lafayette were acquired from or in
conjunction with the Operating Partner. Distributable cash flows from operations of Lafayette are
allocated per the Real Estate Joint Venture agreement in a manner that provides Belcrest Realty: 1)
a priority 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 Belcrest
Realty and the subordinated preferred return of the Operating Partner. Distributable cash flows
from dispositions of real properties or liquidation of Lafayette are allocated on a pro rated basis
up until the return of Belcrest Realty and the Operating Partners contributed capital with any
excess allocated in a manner similar to that of cash flows from operations.
Financing for Lafayette consists of fixed-rate mortgage notes secured by the real properties held
by Lafayette that are without recourse to Fund Shareholders and generally without recourse to
Belcrest Realty and the Fund, as described under Risks of Real Estate Investments in Item 7A(b).
Lafayettes mortgage notes mature between March 2017 and January 2020. Both Belcrest Realty and the
Operating Partner invested equity in Lafayette. Belcrest Realtys equity in Lafayette was acquired
using the proceeds of Fund borrowings.
The Operating Partner of Lafayette also serves as an operating partner of another Real Estate Joint
Venture in which a real estate investment affiliate of another investment fund advised by Boston
Management holds a majority economic interest. The persons serving as managers of Lafayette on
behalf of Belcrest Realty are employees or affiliates of Boston Management. See Directors,
Executive Officers and Corporate Governance in Item 10. No director of Belcrest Realty or manager
of Lafayette is a Shareholder of the Fund. No company in the Eaton Vance organization has a
material financial interest in Lafayette.
The Operating Partner of Lafayette is Duke Realty Limited Partnership (Duke), a subsidiary of Duke
Realty Corporation. Duke Realty Corporation is a publicly owned REIT traded on the NYSE under the
symbol DRE. Pursuant to an agreement with Duke, Lafayette may be liquidated at any time upon the
unanimous consent of the board or after December 5, 2016 by either Belcrest Realty or Duke.
The sale to Belcrest Realty by Duke of its interest in Lafayette would not affect the REIT
qualification of Lafayette. If Belcrest Realty were to dispose of its interest in Lafayette
pursuant to a liquidation agreement or otherwise, it may acquire an interest in a different real
estate investment to replace the investment sold.
Co-owned Property. At December 31, 2011, Belcrest Realty owned Co-owned Property through its
subsidiary, Bel Stamford I . Bel Stamford I owns a 10% tenancy-in-common interest in an office
property located in Connecticut. The other investors in the Co-owned Property are real estate
investment affiliates of other investment funds advised by Boston Management. The Co-owned Property
is financed through a fixed-rate mortgage note secured by the real property held by Bel Stamford I
that is without recourse to Fund Shareholders and generally without recourse to Belcrest Realty and
the Fund as described under Risks of Real Estate Investments in Item 7A(b). Belcrest Realtys
equity in the Co-owned Property was acquired using the proceeds of Fund borrowings.
The Bel Stamford I property is leased on a net basis through December 2017 (with the option to
extend the lease for eight option periods of five years each) to a single tenant that is obligated
to make specified rental
payments and to bear all costs and expenses associated with the operation and maintenance of the
property, including real estate taxes, repairs and insurance.
Partnership Preference Units.
At December 31, 2011, Belcrest Realty held investments in Partnership
Preference Units. The assets of the partnerships that issued the Partnership Preference Units owned
by Belcrest Realty consisted primarily of direct or indirect ownership interests in real
properties, including office and industrial properties. The Partnership Preference Units owned by
Belcrest Realty as of December 31, 2011 are listed in Item 7A(a) and in the consolidated portfolio
of investments included in the Funds consolidated financial statements in Section 8 of this Annual
Report on Form 10-K. Eaton Vance is not involved in the management
9
or operation of the real estate operating partnerships that issued the Partnership Preference Units
owned by Belcrest Realty.
The Partnership Preference Units held by Belcrest 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 an affiliated public company. The
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 Belcrest Realty normally pays regular quarterly
distributions at fixed rates from the net profits or gross income of the issuing partnership, with
preferential rights over common and other subordinated units. None of the Partnership Preference
Units is or will be registered under the Securities Act and each issue is thus subject to
restrictions on transfer.
Organization of Belcrest Realty. Belcrest Realty operates in such a manner as to qualify for
taxation as a REIT under the Code. As a REIT, Belcrest Realty generally is not subject to federal
income tax on that portion of its ordinary income or taxable gain that is distributed to
stockholders each year. The Fund owns 100% of the common stock issued by Belcrest Realty, and
intends to hold all of the common stock at all times.
Belcrest Realty also has issued preferred shares to satisfy certain provisions of the Code, which
require that a REIT be beneficially owned in the aggregate by 100 or more persons. The preferred
shares of Belcrest Realty are owned by not less than 100 charitable organizations that received the
preferred shares as gifts. Each charitable organization that received a preferred share was an
accredited investor (as defined in the Securities Act) with total assets in excess of $5 million
at the time the organization received the preferred shares. Eaton Vance selected the charitable
organizations from the charities for which it has matched employee contributions and/or based on
suggestions from its employees. As of December 31, 2011, the total value of the preferred shares
outstanding of Belcrest Realty was $210,000. Dividends on preferred shares are cumulative and
payable annually at a dividend rate of 8%. The dividends paid on preferred shares have priority
over payments on common shares. For the year ending December 31, 2011, Belcrest Realty paid
distributions to preferred shareholders in the amount of $16,800.
Fund Borrowings. The Fund has entered into a credit arrangement with Bank of America (the Credit
Facility) to purchase its interests in real estate investments, to pay selling commissions and
organizational expenses, and to provide for the liquidity needs of the Fund.
As of December 31, 2011, the lenders total commitment under the Credit Facility was $135.0
million. The principal amount outstanding under the Credit Facility was $78.0 million as of
December 31, 2011. The unused commitment amount totaled $57.0 million as of December 31, 2011.
The Credit Facility may be terminated by the lender on or after March 25, 2013 provided 180 days
notice is given. The Fund may terminate the Credit Facility upon 30 days notice. The Fund pays a
rate of interest equal to the three-month London Interbank Offered Rate (LIBOR) plus 1.25% per
annum on outstanding borrowings under the Credit Facility. A commitment fee is paid on the unused
commitment amount equal to 0.25% per annum. The Fund will incur an additional fee if outstanding
borrowings fall below certain levels.
Obligations under the Credit Facility are without recourse to Fund Shareholders. The Fund is
required under the Credit Facility to maintain at all times a specified asset coverage ratio. The
rights of the lender to receive payments of interest on and repayments of principal of borrowings
are senior to the rights of Shareholders. Under the terms of the Credit Facility, the Fund is not
permitted to make distributions of cash or securities while there is outstanding any event of
default under the Credit Facility. During such periods, the Fund would not be able to honor
redemption requests or make cash distributions. The Credit Facility is secured by a pledge of the
Funds assets, excluding the Funds real estate investments.
As described above, financing for the Subsidiary Real Estate Investments consists primarily of
fixed-rate mortgage notes secured by the real properties held by the Subsidiary Real Estate
Investments that are without recourse to Fund Shareholders and generally without recourse to
Belcrest Realty and the Fund. See Risks of Real Estate Investments in Item 7A(b).
Interest Rate Swap Agreement. The Fund has entered into an interest rate swap agreement with
Merrill Lynch Capital Services, Inc. (MLCS) to fix the cost of a portion of its borrowings under
the Credit Facility. Pursuant to the agreement, the Fund makes periodic payments to the
counterparty at a predetermined fixed rate in exchange for floating rate payments that fluctuate
with the one-month LIBOR. The interest rate swap agreement currently in effect extends until July
10, 2015, and provides for the Fund to make payments to MLCS at a fixed rate of 6.29%. The variable
floating rate payment from MLCS was 0.60% on December 31, 2011. See Note 10 to
10
the Funds consolidated financial statements included in this Annual Report on Form 10-K.
The Eaton Vance Organization. The Eaton Vance organization sponsors the Fund. Eaton Vance serves
as the Funds manager. Boston Management serves as the Funds investment adviser and as manager of
Belcrest Realty. EV Distributors served as the Funds placement agent. The Funds business affairs
are conducted by Eaton Vance (as its manager) and its investment operations are conducted by Boston
Management (as its investment adviser). The Funds officers are employees of Eaton Vance. Eaton
Vance, Boston Management and EV Distributors are wholly owned subsidiaries of Eaton Vance Corp., a
publicly traded holding company that, through its affiliates and subsidiaries, engages primarily in
investment management, administration and marketing activities.
As described above, the Fund pursues its objective primarily by investing in Belvedere Company.
Belvedere Company invests exclusively in the Portfolio. Boston Management acts as investment
adviser of the Portfolio and manager of Belvedere Company. EV Distributors acts as placement agent
for Belvedere Company and the Portfolio. As of December 31, 2011, the assets of the Fund
represented approximately 0.39% 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 Two
International Place, Boston, Massachusetts 02110.
Conflicts of Interest. Boston Management and other Eaton Vance affiliates are subject to certain
conflicts of interest in their dealings with the Fund, Belcrest Realty, Belvedere Company and the
Portfolio, as well as with other investment companies advised by Boston Management that invest in
the Portfolio. Eaton Vance and Boston Management have determined and will determine which of their
sponsored investment companies invest in the Portfolio, the securities each of them contributes to
the Portfolio when making an investment therein and, subject to the rights of redeeming investors
in the Portfolio, the securities and/or cash received in redemptions from the Portfolio. Such
determinations are inherently subject to potential conflicts of interest. In addition, Portfolio
management activities with respect to securities contributed to the Portfolio may have different
tax consequences for the contributing investor in the Portfolio than for other investors in the
Portfolio. Gains and losses on sales of other securities may also be allocated disproportionately.
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.
Belcrest Realty may purchase real estate investments from real estate investment affiliates of
other investment funds advised by Boston Management. Belcrest Realty may also co-invest with such
entities in real estate investments and sell real estate investments to such entities. In any such
transaction, the assets purchased and sold will be valued in good faith by Boston Management, after
consideration of factors, data and information that Boston Management considers relevant.
Transaction prices generally will include an allocation of the original costs incurred in creating
and acquiring the transferred real estate investments. Real estate investments are often difficult
to value and others could in good faith arrive at valuations different from those of Boston
Management. See Critical Accounting Estimates in Item 7(e).
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 Portfolios, and hence
the Funds, 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. The Fund is
also subject to risks associated with real estate investments and certain other risks, which are
described under Qualitative Information About Market Risk in Item 7A(b).
None.
The Fund does not own any physical properties, other than indirectly through Belcrest Realtys
investments as described in The Funds Real Estate Investments in Item 1 above.
11
Although in the ordinary course of business the Fund and its subsidiaries may become involved in
legal proceedings, the Fund is not aware of any material pending legal proceedings to which they
are subject.
This Item and other Items in this report contain summaries of certain provisions contained in the
Amended and Restated Operating Agreement of the Fund as amended from time to time (the LLC
Agreement). The LLC Agreement and all amendments thereto have been filed as exhibits to the Funds
registration statement on Form 10 and/or periodic reports on Forms 10-Q and 10-K. All such
summaries are qualified in their entirety by the actual provisions of the LLC Agreement, which are
incorporated by reference herein.
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 without the consent of Eaton Vance. Eaton Vances consent to a transfer may be
withheld in its sole discretion for any reason or for no reason.
The Shares have not been and will not be registered under the Securities Act, and may not be resold
unless an exemption from such registration is available. Shareholders have no right to require
registration of the Shares and the Fund does not intend to register the Shares under the Securities
Act or take any action to cause an exemption (whether pursuant to Rule 144 of the Securities Act or
otherwise) to be available.
The Fund is not and will not be registered under the 1940 Act, and no transfer of Shares may be
made if, as determined by Eaton Vance or counsel to the Fund, such transfer would result in the
Fund being required to be registered under the 1940 Act. In addition, no transfer of Shares may be
made unless, in the opinion of counsel to the Fund, such transfer would not result in termination
of the Fund for purposes of Section 708 of the Code or result in the classification of the Fund as
an association or a publicly traded partnership taxable as a corporation under the Code.
In no event shall all or any part of a Shareholders 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 generally be redeemed on any business day. The
redemption price will be based on the net asset value next computed after receipt by the Fund of a
written redemption request from a Shareholder, including a proper form of signature guarantee and
such other documentation the Fund and the transfer agent may then require. The Fund may, at its
discretion, accept redemption requests submitted by facsimile transmission, although an original
letter of instruction and supporting documents must be delivered before proceeds are delivered.
Once accepted, a redemption request may not be revoked without the consent of the Fund. Settlement
of redemptions will ordinarily occur within five business days of receipt by the Funds transfer
agent of the original redemption request in good order, and (if applicable) promptly following
registration and processing of stock certificates by the transfer agent of the issuer of the
distributed securities. The right to redeem is available to all Shareholders and all outstanding
Fund Shares generally are eligible for redemption. During each month in the quarter ending December
31, 2011, the total number of Shares redeemed and the average price paid per Share were as follows:
12
Month Ending | Total No. of Shares Redeemed(1) | Average Price Paid Per Share | ||
October |
16,390.665 | $96.40 | ||
November |
19,022.889 | $100.61 | ||
December |
36,470.921 | $102.29 | ||
Total |
71,884.475 | $101.03 |
(1) | All Shares redeemed during the periods were redeemed at the option of Shareholders pursuant to the Funds redemption policy. The Fund has not announced any plans or programs to repurchase Shares other than at the option of Shareholders. |
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.
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 will 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 Shareholders tax basis in Fund Shares. Shareholders should consult
their tax advisors about the tax consequences of redeeming Fund Shares.
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, 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. The selection of individual securities
will be made by Boston Management in its sole discretion. No interests in Subsidiary Real Estate
Investments, Partnership Preference Units or other real property investments will be distributed to
meet a redemption request, and restricted securities will be distributed only to the Shareholder
who contributed such securities or such Shareholders successor in interest. The Fund will not
provide a redeeming Shareholder with a diversified basket of securities if such a distribution is
expected to cause, directly or indirectly, any other Shareholder, any investor in Belvedere Company
or any investor in the Portfolio to realize taxable gain.
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. One or more foreign securities may be distributed to
settle a redemption. 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 Funds Credit Facility prohibits
the Fund from honoring redemption requests while there is any event of default outstanding under
the Credit Facility.
The Fund may compulsorily redeem all or a portion of the Shares of a Shareholder if the Fund has
determined that such redemption is necessary or appropriate to avoid registration of the Fund or
Belvedere Company under the 1940 Act, or to avoid adverse tax or other consequences to the
Portfolio, Belvedere Company, the Fund or Shareholders including those redemptions arising as the
result of applicable anti-money laundering requirements.
The right of a Shareholder to redeem can be suspended and the payment of the redemption price may
be deferred while there is an outstanding event of default under the Credit Facility (see Item
7A(b)), when the NYSE is closed, during periods when trading on the NYSE is restricted or during
any emergency as
determined by the SEC, at any time when it is impracticable for the Portfolio or the Fund to
dispose of or value its assets, or during any other period permitted by order of the SEC for the
protection of investors.
A capital account for each Shareholder is maintained on the books of the Fund. The account reflects
the value of such Shareholders interest in the Fund, which is adjusted for profits, liabilities
and distributions allocable to such account in accordance with Article 6 of the Funds LLC
Agreement.
13
Determining Net Asset Value.
Boston Management, as investment adviser, is responsible for
determining the value of the Funds assets. The Funds custodian, State Street Bank and Trust
Company, calculates the value of the assets of the Fund, Belvedere Company, the Portfolio and the
EV money market fund each day that the NYSE is open for trading, as of the close of regular trading
on the NYSE. The Funds net asset value per Share is calculated by dividing the value of the Funds
total assets, less its liabilities, by the number of Shares outstanding.
The Funds net assets are valued in accordance with the Funds valuation procedures and reflect the
value of its directly held assets, including its interests in the EV money market fund, if any, and
liabilities, as well as the net asset value of the Funds investment in the Portfolio held through
Belvedere Company and in real estate investments held through Belcrest Realty. The trustees of the
Portfolio have established procedures for the valuation of the Portfolios 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 generally are valued
at the NASDAQ official closing price. Unlisted or listed securities for which closing sale prices
are not available are valued at the mean between the last available bid and asked prices or by a
third party pricing service. Exchange-traded options are valued at the last sale price for the day
of valuation as quoted on the principal exchange or board of trade on which the options are traded,
or in the absence of a sale on such day, at the mean between the latest bid and asked prices
therefor. Futures positions on securities or currencies are generally valued at closing settlement
prices. Short-term debt securities with a remaining maturity of 60 days or less are valued at
amortized cost. 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 EV money market fund generally values its investment securities
utilizing the amortized cost valuation technique permitted by Rule 2a-7 under the 1940 Act. This
technique involves initially valuing a portfolio security at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium. If amortized cost is determined not
to approximate fair value, the EV money market fund may value its investment securities based on
available market quotations provided by a third party pricing service.
Foreign securities and currencies held by the Portfolio are valued in U.S. dollars, as calculated
by the Portfolios custodian based on foreign currency exchange rate quotations supplied by a third
party pricing service. Valuation of foreign securities may be adjusted from prices in effect at the
close of trading on foreign exchanges to more accurately reflect their fair value as of the close
of regular trading on the NYSE. In adjusting the value of foreign equity securities the Portfolio
may rely on a third party pricing service. Investments for which valuations or market quotations
are not readily available are valued at fair value as determined in good faith by or at the
direction of the Portfolios trustees, considering relevant factors, data and information
including, in the case of restricted securities, the market value of freely tradable securities of
the same class in the principal market on which such securities are normally traded.
The Funds real estate investments are valued each day as determined in good faith by Boston
Management after consideration of relevant factors, data and information. The procedures for
valuing real estate investments are described under Critical Accounting Estimates in Item 7(e).
The Funds interest rate swap agreement is normally valued by a third party pricing service. Fixed
liabilities of the Fund generally are stated at amounts payable.
Historic Net Asset Values.
Set forth below are the high and low net asset values per Share (NAVs)
of the Fund for each quarter during the two years ending December 31, 2011 and 2010, the closing
NAV on the last business day of each quarter, and the percentage change in NAV during each such
quarter.
14
Quarterly % | ||||||||
NAV at | Change | |||||||
Quarter Ending | High NAV | Low NAV | Quarter End | in NAV(1) | ||||
12/31/11 |
$104.10 | $89.74 | $102.44 | 11.18% | ||||
9/30/11 |
$108.33 | $90.27 | $92.14 | -12.77% | ||||
6/30/11 |
$106.98 | $100.07 | $105.63 | 2.23% | ||||
3/31/11 |
$103.84 | $97.74 | $103.33 | 6.38% | ||||
12/31/10 |
$97.29 | $85.41 | $97.13 | 13.30% | ||||
9/30/10 |
$86.23 | $74.18 | $85.73 | 14.80% | ||||
6/30/10 |
$87.61 | $74.57 | $74.68 | -11.87% | ||||
3/31/10 |
$84.99 | $76.18 | $84.74 | 5.49% |
(1) | Shares, when redeemed, may be worth more or less than their original cost. Changes in NAV are historical. Data is for the stated time period only. For information about the performance of the Fund, see Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in Item 7(a). |
As of February 3, 2012, there were 309 record holders of Shares of the Fund.
Income and Capital Gain Distributions.
The Fund intends to distribute each year, or shortly
thereafter, an amount approximately equal to the taxes payable on its net investment income
allocated to Shareholders. The Fund also intends to make annual capital gain distributions to such
Shareholders equal to approximately 18% of the amount of its net realized capital gains, if any,
other than certain precontribution gains allocated to a Shareholder in connection with a taxable
tender offer or other taxable corporate event for a security contributed to the Fund by that
Shareholder or that Shareholders predecessor in interest. The Funds net investment income and net
realized gains include the Funds allocated share of the net investment income and net realized
gains of Belvedere Company and, indirectly, the Portfolio, as well as income and capital gains, if
any, distributed by Belcrest Realty. The Funds 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 Funds 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 GAAP. The amount of
the Funds distributions may be adjusted in the future to reflect changes in effective tax rates.
In determining the funds capital gain distributions for any year, the net capital gains realized
by the Fund for that year will be reduced by the cumulative amount of any Fund capital losses from
prior years not previously applied against net realized capital gains for distribution purposes.
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 Funds distribution rates with
respect to realized gains may be adjusted in the future to reflect changes in the effective maximum
marginal individual federal tax rate applicable to long-term capital gains.
Shareholder distributions with respect to net investment income, realized post-contribution gains
and certain other realized gains are made pro rata in proportion to the number of Shares held as of
the record date of the distribution. All income and capital gain distributions are paid by the Fund
in cash or, at the election of the Shareholder, are reinvested in Fund Shares at the net asset
value as of the date of reinvestment. Distributions are generally not taxable to the recipient
Shareholder unless the distributions exceed the recipient Shareholders tax basis in Fund Shares.
The Funds Credit Facility prohibits the Fund from making any distribution to Shareholders while
there is any event of default outstanding under the Credit Facility (see Item 7A(b)).
On January 24, 2012, the Fund paid a distribution of $0.45 per Share to Shareholders of record on
January 20, 2012. On January 20, 2011, the Fund paid a distribution of $0.40 per Share to
Shareholders of record on January 18, 2011. On January 27, 2010, the Fund paid a distribution of
$0.25 per Share to Shareholders of record on January 26, 2010.
Special Distributions.
In addition to the pro rata income and capital gain distributions described
above, the Fund also makes distributions to Shareholders of allocated precontribution gain (other
than certain precontribution gains allocated to a Shareholder in
15
connection with a taxable tender offer or other taxable corporate event involving a security
contributed by such Shareholder or such Shareholders predecessor in interest) (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 on income specially allocated in connection with the precontribution gain and
Special Distributions. Special Distributions are paid by the Fund in cash and are made solely to
the Shareholders to whom the precontribution gain is allocated. The Fund does not intend to make
Special
Distributions to a Shareholder in respect of realized precontribution gain allocated to a
Shareholder or such Shareholders predecessor in interest in connection with a taxable tender offer
or other taxable corporate event involving a security contributed by such Shareholder or such
Shareholders predecessor in interest. There were no Special Distributions paid or accrued during
the years ending December 31, 2011 and 2010. Special Distributions of $1,044,908 were accrued
during the year ending December 31, 2008, and subsequently paid during the year ending December 31,
2009.
Table of Selected Financial Data.
The consolidated data referred to below reflects the Funds
historical results for the years ending December 31, 2011, 2010, 2009, 2008 and 2007. The following
information should be read in conjunction with all of the consolidated financial statements and
related notes included in this Annual Report on Form 10- K. The other consolidated data referred to
below is as of each year end.
Year Ending | |||||||||||||||||||
December 31, | Year Ending | Year Ending | Year Ending | Year Ending | |||||||||||||||
2011 | December 31, 2010 | December 31, 2009 | December 31, 2008 | December 31, 2007 | |||||||||||||||
Total investment income |
$ | 19,307,403 | $ | 31,313,705 | $ | 37,034,877 | $ | 52,905,639 | $ | 62,784,512 | |||||||||
Interest expense |
$ | 2,165,128 | $ | 3,874,651 | $ | 1,624,286 | $ | 15,958,913 | $ | 39,563,027 | |||||||||
Net expenses
(including interest
expense) |
$ | 5,641,676 | $ | 8,916,506 | $ | 7,158,753 | $ | 24,499,274 | $ | 50,756,115 | |||||||||
Net investment income |
$ | 13,665,727 | $ | 22,397,199 | $ | 29,876,124 | $ | 28,406,365 | $ | 12,028,397 | |||||||||
Net realized gain
(loss) |
$ | 21,145,140 | $ | (137,648,888 | ) | $ | (83,700,939 | ) | $ | (57,972,820 | ) | $ | 90,888,612 | ||||||
Net change in
unrealized
appreciation
(depreciation) |
$ | 2,191,701 | $ | 234,813,836 | $ | 97,581,241 | $ | (666,744,381) | $ | (25,034,956 | ) | ||||||||
Net increase
(decrease) in net
assets
from operations |
$ | 37,002,568 | $ | 119,562,147 | $ | 43,756,426 | $ | (696,310,836) | $ | 77,882,053 | |||||||||
Total assets |
$ | 712,663,498 | $ | 795,318,287 | $ | 852,749,058 | $ | 1,137,207,908 | $ | 2,365,720,320 | |||||||||
Loan payable-Credit
Facility |
$ | 78,000,000 | $ | 144,000,000 | $ | 194,500,000 | $ | 316,000,000 | $ | 542,000,000 | |||||||||
Net assets |
$ | 633,024,154 | $ | 648,036,131 | $ | 652,677,231 | $ | 808,881,477 | $ | 1,820,458,058 | |||||||||
Shares outstanding |
6,179,628 | 6,671,766 | 8,125,199 | 10,826,294 | 13,707,598 | ||||||||||||||
Net asset value and
redemption price
per Share |
$ | 102.44 | $ | 97.13 | $ | 80.33 | $ | 74.71 | $ | 132.81 | |||||||||
Net increase
(decrease) in net
assets
from operations per
Share |
$ | 5.71 | $ | 17.05 | $ | 6.85 | $ | (55.82) | $ | 4.51 | |||||||||
Distribution paid per
Share(1)(2) |
$ | 0.40 | $ | 0.25 | $ | 1.23 | $ | 2.20 | $ | 2.02 |
(1) | The Fund makes Special Distributions which are not made on a pro rata basis. See Item 5(c). Special Distributions made during the year ending December 31, 2008 amounted to $0.084 per Share. There were no Special Distributions made during the years ending December 31, 2011, 2010, 2009 and 2007. | |
(2) | Distributions of net investment income and net realized capital gains are normally paid at the end of each year, or shortly thereafter, to Shareholders of record on the record date. See Distributions in Item 5(c). |
16
The information in this report contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Act. 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 Funds 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.
The following discussion should be read in conjunction with the Funds consolidated financial
statements and related notes which are included in this Annual Report on Form 10-K.
Increases and decreases in the Funds net asset value per share are based on net investment income
or loss and realized and unrealized gains and losses on investments. The Funds net investment
income or loss is determined by subtracting the Funds total expenses from its investment income.
The Funds investment income generally includes the net investment income allocated to the Fund
from Belvedere Company, net investment income allocated to the Fund from the Real Estate Joint
Ventures and Co-owned Property, distribution income from the Partnership Preference Units and
interest earned on the Funds short-term investments, including investments in the EV money market
fund. The net investment income of Belvedere Company allocated to the Fund includes dividends,
interest and expenses allocated to Belvedere Company by the Portfolio less the expenses of
Belvedere Company allocated to the Fund. The Funds total expenses generally include the Funds
investment advisory and administrative fees, servicing fee, interest expense on the Funds Credit
Facility and other miscellaneous expenses. The Funds realized and unrealized gains and losses are
the result of transactions in, or changes in value of, security investments held through the Funds
indirect interest (through Belvedere Company) in the Portfolio, real estate investments held
through Belcrest Realty, the Funds interest rate swap agreements and any other direct investments
of the Fund, as well as periodic payments made by the Fund pursuant to interest rate swap
agreements.
Realized and unrealized gains and losses on investments have the most significant impact on the
Funds net asset value per share and result primarily from sales of such investments and changes in
their underlying value. The investments of the Portfolio consist primarily of common stocks of
domestic and foreign growth companies that are considered by its investment adviser to be high in
quality and attractive in their long-term investment prospects. Because the securities holdings of
the Portfolio are broadly diversified, the performance of the Portfolio cannot be attributed to one
particular stock or one particular industry or market sector. The performance of the Portfolio and
the Fund are substantially influenced by the overall performance of the U.S. stock market, as well
as by the relative performance versus the overall market of specific stocks and classes of stocks
in which the Portfolio maintains large positions.
Performance of the Fund.
The Funds investment objective is to achieve long-term, after-tax returns
for Shareholders. Eaton Vance, as the Funds manager, measures the Funds success in achieving its
objective based on the investment returns of the Fund, using the S&P 500 Index (the Index) as the
Funds primary performance benchmark. The Index is an unmanaged index of large-cap stocks commonly
used as a measure of U.S. stock market performance. Eaton Vances primary focus in pursuing total
return is on the Funds common stock portfolio, which consists of its indirect interest in the
Portfolio. The Fund invests in the Portfolio through its interest in Belvedere Company. The Funds
performance will differ from that of the Portfolio primarily due to its investments outside the
Portfolio. In measuring the performance of the Funds real estate investments, Eaton Vance
considers whether, through current
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. Total returns are historical and are calculated by determining the percentage change in net asset value with all distributions reinvested except for special distributions. Performance is for the stated time period only; due to market volatility, current performance of the Fund and of the Portfolio may be lower or higher than the quoted return. The performance of the Fund and the Portfolio is compared to that of their benchmark, the S&P 500 Index. It is not possible to invest directly in an index. |
17
returns and changes in valuation, the real estate investments achieve returns that over the
long-term exceed the cost of the borrowings incurred to acquire such investments and thereby add to
Fund returns.
The Funds total return for the year ending December 31, 2011 was 5.89%. This return reflects an
increase in the Funds net asset value per Share from $97.13 to $102.44 and a distribution of $0.40
per Share during the period. For comparison, the Index had a total return of 2.11% over the same
period. The combined impact on performance of the Funds investment activities outside of the
Portfolio was positive for the year ending December 31, 2011.
The Fund had a total return of 21.26% for the year ending December 31, 2010. This return reflected
an increase in the Funds net asset value per Share from $80.33 to $97.13 and a distribution of
$0.25 per Share during the period. For comparison, the Index had a total return of 15.06% over the
same period.
Performance of the Portfolio.
For the year ending December 31, 2011, the Portfolio had a total
return of 0.80%. By comparison, the Index had a total return of 2.11% over the same period.
Amid widespread volatility in global markets, U.S. equity markets posted mixed results for the year
ending December 31, 2011, with early- and late-year gains helping to offset mid-year losses. In the
early months of the period, investor sentiment for U.S. equities was running high as U.S. and
global economic conditions reaccelerated and corporate earnings results generally continued to beat
consensus expectations. These and other factors enabled U.S. stocks to register broad-based gains
through the first four months of the year. As the year progressed, however, U.S. stock returns
first moderated and then faltered. From July 2011 to the market bottom on October 3, 2011, U.S.
stocks registered broad-based declines as U.S. corporate profit growth slowed, the eurozones debt
crisis worsened, and global economic activity decelerated. Investor confidence also was eroded by
U.S. lawmakers partisan bickering over the federal debt ceiling and Standard & Poors resulting
decision to downgrade the countrys long-term credit rating. At the same time, discouraging U.S.
economic data raised the possibility of another recession. By the end of October 2011, the market
had reversed course again, with the Index recording one of its best calendar months in several
decades. Investors seemed to be encouraged by Europes plan to combat Greeces debt problems,
expand a eurozone bailout fund, and recapitalize the regions banks. The U.S. economy also
displayed signs of improvement in the fourth quarter, most notably a slight decline in the
unemployment rate. The October market rally helped the Index gain roughly 10% during the fourth
quarter and end the year in positive territory. For the year ending December 31, 2011, growth
stocks outperformed value stocks across most market capitalizations, and large-cap stocks outpaced
their small-cap counterparts.
The Portfolio underperformed the Index primarily as a result of security selection, which was
partially offset by positive sector allocations during the period. The strongest gain for the Index
came from the utilities sector, followed by the consumer staples and health care sectors, each of
which delivered returns in excess of 10%. Financials and materials posted the lowest 12-month
returns within the Index. The Portfolios security selection within the energy and consumer staples
sectors detracted the most from performance relative to the Index. In addition, an underweight in
the utilities sector hurt returns. The Portfolios underweight to high-dividend-paying tobacco, oil
and gas, and utilities companies detracted from performance during the period. On the positive
side, security selection within the consumer discretionary and materials sectors contributed to
relative performance during the period. In addition, underweights in the financials and materials
sectors helped lift relative returns.
Performance of Real Estate Investments.
The Funds real estate investments are held through
Belcrest Realty. As of December 31, 2011, real estate investments included: a Real Estate Joint
Venture (Lafayette); a Co-owned Property (Bel Stamford I); and Partnership Preference Units.
Lafayette owns office properties. Bel Stamford I owns an interest in an office property leased to a
single tenant.
The Funds real estate investments produced positive returns during the year ending December 31,
2011, due principally to an increase in the fair value of Lafayette, the sale of Partnership
Preference Units, and net investment income generated during the period. The pace of recovery of
the commercial real estate sector was scaled back during the second half of the year as investors,
lenders, and tenants pulled back on activity given concerns over the slowdown in the U.S. economic
recovery and increased financial market volatility. Despite these
concerns, transaction volumes and leasing activity outpaced prior year levels and well-located core
property values continue to be supported by a low cost of financing environment. Going forward, the
outlook for commercial real estate fundamentals and property values
remains largely dependent on
the economy, job growth and the availability of attractive debt financing. The fair value of the
Funds continuing investments in Partnership Preference Units
slightly increased during the period.
During the
year ending December 31, 2011, Belcrest Realty generated approximately $67.3 million in net proceeds from the sales of Partnership
Preference Units, which were used to pay down a portion of the Funds credit facility.
18
During the year ending December 31, 2011, the Funds net investment income from real estate
investments held through Belcrest Realty was approximately $10.5 million compared to approximately
$23.0 million for the year ending December 31, 2010, a decrease of $12.5 million or 54%. The
decrease was principally due to the sale of Belcrest Realtys interest in a Real Estate Joint
Venture, Allagash Property Trust (Allagash), in November 2010, as well as lower distributions from
investments in Partnership Preference Units principally due to fewer average holdings of
Partnership Preference Units during the period.
The fair value of the Funds real estate investments was approximately $93.4 million at December
31, 2011 compared to approximately $130.7 million at December 31, 2010, a net decrease of $37.3
million or 29%. This net decrease was principally due to the sale of Partnership Preference Units
during the period, partially offset by an increase in the fair value of Belcrest Realtys
investment in Lafayette.
Performance of the Fund.
The Fund had a total return of 21.26% for the year ending December 31,
2010. This return reflected an increase in the Funds net asset value per Share from $80.33 to
$97.13 and a distribution of $0.25 per Share during the period. For comparison, the Index had a
total return of 15.06% over the same period. The combined impact on performance of the Funds
investment activities outside of the Portfolio was positive for the year ending December 31, 2010.
The Fund had a total return of 9.51% for the year ending December 31, 2009. This return reflected
an increase in the Funds net asset value per Share from $74.71 to $80.33 and a distribution of
$1.23 per Share during the period. For comparison, the Index had a total return of 26.47% over the
same period.
Performance of the Portfolio.
For the year ending December 31, 2010 the Portfolio had a total
return of 12.86%. The Portfolio underperformed the Index, which had a total return of 15.06% over
the same period.
The year ending December 31, 2010 was bracketed by solid quarters at both ends, with some weakness
in the middle. The weakness came as a variety of concerns including a stubborn European credit
crisis, a devastating oil spill in the Gulf of Mexico and growing political uncertainties in the
U.S. caused a spike in the volatility at mid-year, taking many markets down. The year ended on a
decidedly higher note, however, as equity investors seemed encouraged by the continued modest
growth of the U.S. economy and by ongoing signs of improvements in corporate business fundamentals.
For the year ending December 31, 2010, the Portfolio posted double-digit returns but underperformed
the Index, due to industry allocation and security selection. The consumer discretionary
and industrials sectors, followed by materials and energy, all of which saw returns in excess of
20%, recorded the strongest gains for the Index, while the health care and utilities sectors posted
the lowest returns.
Relative to the Index, the Portfolios overweight and stock selection in the health sector
detracted the most from performance. Selection in pharmaceuticals, in particular, was detrimental
to performance. Although an underweight in the underperforming financials sector was positive, this
was offset by the weak performance of the Portfolios holdings in commercial banks and a lack of
exposure to REITs. In energy, one of the top-performing sectors for the Index, the Portfolios
underweight and stock selection combined to have a negative impact on performance.
On the positive side, an overweight in industrials made a positive contribution, as did an
underweight in the lagging utilities sector. Portfolio investments within the machinery and
electrical equipment industries positively contributed to returns, along with holdings in textiles,
apparel and luxury goods, software, insurance, diversified financial services, and computers and
peripherals industries.
Performance of Real Estate Investments.
As of December 31, 2010, real estate investments included:
Lafayette, Bel Stamford I, and a portfolio of
Partnership Preference Units. Lafayette owns office properties. Bel Stamford I owns an interest in
an office property leased to a single tenant.
During the year ending December 31, 2010, Belcrest Realty sold its interest in a Real Estate Joint
Venture, Allagash, to a third party for approximately $42.3 million. The sale resulted in a gain of
$14.8 million as compared to the fair value at December 31, 2009, but a $137.6 million loss against
the financial reporting cost basis of the investment as the decline in the fair value was
recognized in prior periods. The net proceeds from the sale were used to pay down a portion of the
Funds Credit Facility.
19
The Funds real estate investments produced positive returns for the year ending December 31, 2010,
due principally to the net investment income generated during the period and the increases in the
fair value of Lafayette and sale of Allagash. The return of investor interest and increased capital
allocations to commercial real estate have helped to ease the value declines that began in 2008 and
produced positive value increases in certain segments. Commercial real estate fundamentals have
also begun to stabilize and several asset classes have shown early signs of improvement in
performance. Transaction activity increased in 2010, more than doubling 2009 levels. However, the
volume is still well below historical pre-recession levels and continues to be focused generally on
high quality properties concentrated in certain core markets. Significant uncertainty remains on
commercial real estate investment values and a further recovery will be largely dependent on
continued recovery of the economy, job growth, and the availability and attractiveness of debt
financing.
The fair value of Partnership Preference Units increased from December 31, 2009 due to a tightening
of credit spreads, as the general market and demand for preferred and other fixed income securities
improved during the period.
During the year ending December 31, 2010, the Funds net investment income from real estate
investments held through Belcrest Realty was approximately $23.0 million compared to approximately
$24.7 million for the year ending December 31, 2009, a decrease of $1.7 million or 7%. The decrease
was due to lower distributions from investments in Partnership Preference Units principally due to
fewer average holdings of Partnership Preference Units during the period, and to decreases in the
net investment income from Real Estate Joint Ventures, due to the sale of Allagash during the year.
The fair value of the Funds real estate investments was approximately $130.7 million at December
31, 2010 compared to approximately $144.2 million at December 31, 2009, a net decrease of $13.5
million or 9%. This net decrease was principally due to the sale of Allagash during the year,
partially offset by an increase in the fair value of Belcrest Realtys investments in Lafayette and
Partnership Preference Units.
Outstanding Borrowings.
The Fund has entered into a Credit Facility with Bank of America. The
Credit Facility may be terminated by the lender on or after March 25, 2013 provided 180 days
notice is given. The Fund may terminate the Credit Facility upon 30 days notice. In the event the
lender exercises its ability to terminate the Credit Facility, the Fund will seek alternative
financing arrangements.
In March 2011, the Fund amended the Credit Facility to decrease its total commitment by $65.0
million to an aggregate amount available for borrowing of $135.0 million.
The Fund pays a rate of interest equal to three-month LIBOR plus 1.25% per annum, reduced from
1.50% and 1.75% in August and March 2011, respectively, on outstanding borrowings under the Credit
Facility. A commitment fee is paid on the unused commitment amount equal to 0.25% per annum,
reduced from 0.40% in March 2011. The Fund will incur an additional fee if outstanding borrowings
fall below certain levels.
As of December 31, 2011, the Fund had outstanding borrowings under the Credit Facility of $78.0
million. The unused portion of the Credit Facility totaled $57.0 million as of December 31, 2011.
Obligations under the Credit Facility are without recourse to Shareholders. The Fund is required
under the Credit Facility to maintain at all times a specified asset coverage ratio. To comply with
the terms of the Credit Facility, the Fund may be required to dispose of assets on unfavorable
terms if market fluctuations or other factors reduce the required asset coverage to less than the
prescribed amount. The rights of the lender under the Credit Facility to receive payments of
interest on and repayments of principal of borrowings 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 outstanding any event of default under the Credit Facility. During such
periods, the Fund would not be able to honor redemption requests or make cash distributions. The
Credit Facility is secured by a pledge of the Funds assets, excluding the
Funds real estate investments. Following an event of default under the Credit Facility, the lender
could elect to sell pledged assets of the Fund without regard to the tax or other consequences of
such action for the Shareholders.
Liquidity.
The Funds investment in Belvedere Company is redeemable on a daily basis at its net
asset value subject to certain restrictions of the Belvedere Company operating agreement. During
the year ending December 31, 2011, Fund redemptions from Belvedere Company included redemptions of
shares of Belvedere Company for cash in the amount of $1.0 million. Such proceeds were used to pay
down outstanding debt under the Credit Facility. Both Belvedere Company and the Portfolio normally
follow the practice of satisfying redemptions primarily by distributing securities drawn from the
Portfolio. Belvedere Company and the Portfolio may also satisfy redemptions by distributing cash.
As of December 31, 2011, the Portfolio had cash and short-term investments in the
20
amount of $70.8 million. The Portfolio participates in a $600.0 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. Because the
line of credit is not available exclusively to the Portfolio, it may be unable to borrow some or
all of its requested amounts at any particular time. The Portfolio had no outstanding borrowings at
December 31, 2011. 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, 2011, the Portfolio held no
illiquid assets.
The liquidity of Belcrest Realtys investment in Lafayette is extremely limited and relies
principally upon a liquidation agreement with the Operating Partner that is described in Real
Estate Joint Venture Investments under The Funds Real Estate Investments in Item 1. A transfer
of Belcrest Realtys interest in Lafayette to a party other than the Operating Partner is
restricted by the terms of the operative agreements of Lafayette and lender consent requirements.
Belcrest Realtys interest in Co-owned Property is generally illiquid. The Partnership Preference
Units held by Belcrest Realty are not registered under the Securities Act and are subject to
substantial restrictions on transfer. As such, they are considered illiquid.
The Fund does not have any relationships with unconsolidated entities that have been established
solely for the purpose of facilitating off-balance sheet arrangements.
The following table sets forth the amounts of payments due under the specified contractual
obligations outstanding as of December 31, 2011:
Payments due: | ||||||||||||||||||||
More than 5 | ||||||||||||||||||||
Type of Obligation | Total | Less than 1 Year | 1-3 Years | 3-5 Years | Years | |||||||||||||||
Long-Term Debt: |
||||||||||||||||||||
Borrowings
under Credit Facility(1) |
$ | 78,000,000 | $ | | $ | 78,000,000 | $ | | $ | | ||||||||||
Service Agreements(2) |
||||||||||||||||||||
Other Long-Term Liabilities: |
||||||||||||||||||||
Interest Rate Swap
Agreement(3) |
$ | 857,649 | $ | 243,423 | $ | 486,846 | $ | 127,380 | $ | | ||||||||||
Total |
$ | 78,857,649 | $ | 243,423 | $ | 78,486,846 | $ | 127,380 | $ | | ||||||||||
(1) | The Fund has entered into a Credit Facility, as described in Liquidity and Capital Resources above. The Credit Facility is secured by a pledge of the Funds assets, excluding the Funds real estate investments. The Credit Facility is primarily used to finance the Funds equity in its real estate investments and to satisfy the liquidity needs of the Fund. Amount does not reflect interest. The Fund pays a rate of interest equal to three-month LIBOR plus 1.25% per annum on outstanding borrowings under the Credit Facility. Because the Credit Facility may be terminated by the lender in 2013 and the spread and underlying index may be subject to change, it is not possible to specify the dollar amounts payable in the future. For the year ending December 31, 2011, the Fund incurred interest expense of approximately $1.7 million for borrowings under the Credit Facility. | |
(2) | The Fund and Belcrest Realty have entered into agreements with certain service providers pursuant to which the Fund and Belcrest 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 Belcrest Realty (as applicable) or the service provider. For the year ending December 31, 2011, fees paid to Eaton Vance and its affiliates equaled approximately 1.06% of the Funds average net assets. Because these fees are based on the Funds assets (which will fluctuate over time) it is not possible to specify the dollar amounts payable in the future. | |
(3) | The Fund has entered into an interest rate swap agreement to fix the cost of a portion of its borrowings under the Credit Facility. Pursuant to the agreement, the Fund makes payments to the counterparty, MLCS, at a predetermined fixed rate in exchange for floating rate payments that fluctuate with the 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 agreement reduce the fixed interest cost to the Fund. The swap agreement expires on July 10, 2015. |
The Funds consolidated financial statements are prepared in accordance with GAAP. The preparation
of these financial statements
21
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
Funds financial condition, changes in financial condition or results of operations. The Funds
significant accounting policies are discussed in Note 2 of the notes to the consolidated financial
statements; critical estimates inherent in these accounting policies are discussed in the following
paragraphs.
The Fund has determined that the valuation of the Funds real estate investments involve critical
estimates. The Funds investments in real estate are an important component of its total investment
program. Market prices for these investments are not readily available and therefore the
investments are stated in the Funds consolidated financial statements at fair value.
The fair
value of an investment represents the amount at which Boston Management believes the investment
could be sold in a current transaction between market participants in an orderly disposition, that
is, other than in a forced liquidation or distressed sale. Boston
Management makes valuation determinations in accordance with the Funds valuation procedures. The
Fund reports the fair value of its real estate investments on its consolidated statements of assets
and liabilities, with any changes to fair value recorded as unrealized appreciation or depreciation
in the Funds consolidated statements of operations.
The need to fair value the Funds real estate investments introduces uncertainty into the Funds
reported financial condition and performance because:
| such assets are, by their nature, difficult to value and fair 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 fair value of the Funds real estate investments depend on estimates of future operating results and supply and demand assumptions that may not reflect actual current market conditions and full consideration of all factors relevant to valuations; | ||
| property appraisals and other factors used to determine the fair value of the Funds 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, 2011, the fair value of the Funds real estate investments represented 13.1% of
the Funds total assets.
Valuations of the Funds Partnership Preference Units and Subsidiary Real Estate Investments are
inherently uncertain because they involve the use of assumptions and estimates. If the assumptions
and estimates used in the valuations were to change, it could materially impact the fair value of
the Funds holdings of Partnership Preference Units and Subsidiary Real Estate Investments.
The fair value of property held by the Funds Subsidiary Real Estate Investments is based on appraisals
provided by independent, licensed appraisers (Appraisers) and valuations, if applicable, prepared
by Boston Management. Appraisers may perform other valuation services for the Fund.
The appraisals of properties are conducted by Appraisers on at least an annual basis. Appraisals of
properties may be conducted more frequently than once a year if Boston Management determines that
significant changes in economic circumstances, that may materially impact fair values, have
occurred since the most recent appraisal. Each appraisal is conducted in accordance with the
Uniform Standards of Professional Appraisal Practices (as well as other relevant standards). Boston
Management reviews the appraisal of each property and generally relies on the assumptions and
estimates made by the Appraiser when determining fair value.
In deriving the fair 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 credit quality, property condition, change in market or
submarket conditions, 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.
22
Property appraisals are inherently uncertain because they apply assumed discount rates,
capitalization rates, growth rates and inflation rates to the Appraisers estimated stabilized cash
flows, and due to the unique characteristics of a property. If the assumptions and estimates used
by the Appraisers to determine the value of the properties owned by the Subsidiary Real Estate
Investments were to change, it could materially impact the fair value of the Subsidiary Real Estate
Investments.
For those properties not appraised by Appraisers in a given quarter, Boston Management will review
the fair values of such properties and, if Boston Management believes it is warranted based on the
appraisals of appraised properties or for other reasons, Boston Management may prepare a valuation
of such properties considering results of operations, market conditions, significant changes in
economic circumstances, recent independent appraisals of similar properties and/or other relevant
facts or circumstances. In determining valuations, Boston Management follows a process consistent
with industry practice and the practice of Appraisers, as described above. Valuations may occur
more frequently than quarterly if it is determined by Boston Management that the current property
valuation has changed materially since the most recent appraisal or valuation.
Boston Management determines the fair value of the Funds equity interest in a Real Estate Joint
Venture based on an estimate of the allocation of equity interests between Belcrest Realty and the
Operating Partner. This allocation is generally calculated by a third party specialist, using
current valuations of the properties owned by the Real Estate Joint Venture. The specialist uses a
financial model that considers (i) the terms of the joint venture agreement relating to allocation
of distributable cash flow, (ii) the expected duration of the joint venture, and (iii) the
projected property values and cash flows from the properties based on estimates used in the
property valuations. The estimated allocation of equity interests between Belcrest Realty and the
Operating Partner of a Real Estate Joint Venture is prepared quarterly and reviewed by Boston
Management. Interim allocations of equity interests may be conducted more frequently than quarterly
if Boston Management determines that significant changes in economic circumstances that may
materially impact the allocation of equity interests have occurred since the most recent
allocation.
Boston Management determines the fair value of the Funds interest in Co-owned Property by applying
the Funds ownership interest to the net asset value of the Co-owned Property.
Mortgage notes payable, if applicable, which are generally without recourse to the Fund and
Belcrest Realty, are generally stated at the amounts payable. A mortgage note payable may be
adjusted to the fair value of the real property securing the mortgage note if the fair value of the
real property is less than the outstanding principal balance.
The fair value of the Partnership Preference Units is based on analysis and calculations performed
on at least 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 adjusted to take such occurrences into
account. Boston Management reviews the analysis and calculations performed by the service provider.
Boston Management generally relies on the assumptions and estimates made by the service provider
when determining the fair value of the Partnership Preference Units.
Interest Rate Risk.
The Funds primary exposure to interest rate risk arises from its real estate
investments that are financed by the Fund with floating rate borrowings under the Credit Facility
and by fixed-rate mortgage notes secured by the real property of the Subsidiary Real Estate
Investments. Partnership Preference Units are fixed rate instruments whose values will generally
decrease when interest rates rise and increase when interest rates fall. The interest rates on
borrowings under the Credit Facility are reset at regular intervals based on the three-month LIBOR.
The Fund has entered into an interest rate swap agreement to fix the cost of a portion of its
borrowings under the Credit Facility. Pursuant to the agreement, the Fund makes periodic payments
to the counterparty at predetermined fixed rates in exchange for floating rate payments that
fluctuate with the one-month LIBOR. The Funds interest rate swap agreement 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.
23
The following table summarizes the contractual maturities and weighted-average interest rates
associated with the Funds 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 10 and 11 to the Funds consolidated financial statements included in this
Annual Report on Form 10-K.
Interest Rate Sensitivity
Cost, Principal (Notional) Amount
by Contractual Maturity and Callable Date
for the Twelve Months Ending December 31,*
Cost, Principal (Notional) Amount
by Contractual Maturity and Callable Date
for the Twelve Months Ending December 31,*
Fair Value as of | ||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total | December 31, 2011 | |||||||||||||||||
Rate sensitive
liabilities: |
||||||||||||||||||||||||
Long-term debt: |
||||||||||||||||||||||||
Variable-rate Credit Facility |
$ | 78,000,000 | $ | 78,000,000 | $78,000,000 | |||||||||||||||||||
Average interest
rate |
1.83 | % | 1.83 | % | ||||||||||||||||||||
Rate
sensitive derivative financial
instruments: |
||||||||||||||||||||||||
Pay
fixed/receive variable interest rate swap agreement |
$3,870,000 | $ | 3,870,000 | $(714,319) | ||||||||||||||||||||
Average pay rate |
6.29 | % | 6.29 | % | ||||||||||||||||||||
Average receive rate |
0.60 | % | 0.60 | % | ||||||||||||||||||||
Rate sensitive investments: |
||||||||||||||||||||||||
Fixed-rate
Partnership Preference Units: |
||||||||||||||||||||||||
Liberty
Property Limited Partnership, 7.45% Series B Cumulative Redeemable Preferred Units, Callable 8/31/09, Current
Yield: 8.40% |
$ | 6,250,000 | $ | 6,250,000 | $5,542,500 | |||||||||||||||||||
Vornado Realty L.P., 7% Series D-10 Cumulative Redeemable Preferred Units, Callable 11/17/08, Current Yield: 8.17%(1) |
$ | 7,325,696 | $ | 7,325,696 | $10,277,210 |
* | The amounts listed reflect the Funds positions as of December 31, 2011. The Funds current positions may differ. | |
(1) | Belcrest Realtys interest in these Partnership Preference Units is held through Bel Holdings. |
Risks Associated with Equity Investing.
The Fund invests primarily in a diversified portfolio of
common stocks and is thereby subject to general stock market risk. There can be no assurance that
the performance of the Fund will match that of the U.S. stock market or that of other equity funds.
In managing the Portfolio for long-term, after-tax returns, Boston Management generally seeks to
avoid or minimize sales of securities with large accumulated capital gains, including contributed
securities. Such securities constitute a substantial portion of the assets of the Portfolio.
Although the Portfolio may utilize certain management strategies in lieu of selling appreciated
securities, the Portfolios, and hence the Funds, exposure to losses during stock market declines
may nonetheless be higher than funds that do not follow a general policy of avoiding sales of
highly appreciated securities.
24
Risks of Investing in Foreign Securities.
The Portfolio invests in securities issued by foreign
companies and the Fund may acquire foreign investments. Foreign investments involve considerations
and possible risks not typically associated with investing in the United States. The value of
foreign investments to U.S. investors may be adversely affected by changes in currency rates.
Foreign brokerage commissions, custody fees and other costs of investing are generally higher than
in the United States, and foreign investments may be less liquid, more volatile and subject to more
government regulation than in the United States. Foreign investments could be adversely affected by
other factors not present in the United States, including expropriation, confiscatory taxation,
lack of uniform accounting and auditing standards, armed conflict, and potential difficulty in
enforcing contractual obligations. These risks can be more significant for investments in emerging
markets.
Risks of Certain Investment Techniques.
In managing the Portfolio, Boston Management may purchase
or sell derivative instruments (which derive their value by reference to other securities, indexes,
instruments or currencies) to hedge against securities price declines and currency movements, to
add investment exposure to individual securities and groups of securities and to enhance returns.
Such transactions may include, without limitation, the purchase and sale of futures contracts on
stocks and stock indexes and options thereon, the purchase of put options and the sale of call
options on securities held, equity swaps, forward sales of stocks, and the purchase and sale of
forward currency exchange contracts and currency futures. The Portfolio may engage in short sales
of individual securities held and short sales of index or basket securities whose constituents are
held in whole or in part. The Portfolio may enter into private contracts for the forward sale of
stock held and may also lend portfolio securities.
The use of these investment techniques is a specialized activity that may be considered speculative
and which can expose the Fund and the Portfolio to significant risk of loss. Successful use of
these investment techniques is subject to the ability and performance of the investment adviser.
The Funds and the Portfolios 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 Portfolios 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 Portfolios taxable year in which the hedging transaction was initiated and
the underlying appreciated securities position is held unhedged for at least the next 60 days after
such hedging transaction is closed. In addition, dividends received on stock for which the
Portfolio is obligated to make related payments (pursuant to a short sale or otherwise) with
respect to positions in substantially similar or related property are subject to federal income
taxation at ordinary rates and do not qualify for favorable tax treatment. Also, holding periods
required to receive tax-advantaged treatment of qualified dividends on a stock are suspended
whenever the Portfolio has an option (other than a qualified covered call option not in the money
when written) or contractual obligation to sell or an open short sale of substantially identical
stock, is the grantor of an option (other than a qualified covered call option not in the money
when written) to buy substantially identical stock or has diminished risk of loss in such stock by
holding positions with respect to substantially similar or related property. There can be no
assurance that counterparties will at all times be willing to enter into covered short sales,
forward sales of stocks, interest rate hedges, equity swaps and other derivative instrument
transactions on terms satisfactory to the Fund or the Portfolio. The Funds and the Portfolios
ability to enter into such transactions may also be limited by covenants under the Funds Credit
Facility, the federal margin regulations and other laws and regulations. The Portfolios 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 the Funds real estate investments depends in part
on many factors related to the real estate market. These factors include, without limitation,
general economic conditions, the supply and demand for different types of real properties, the
financial health of tenants, changing transportation and logistics patterns (in the case of
industrial distribution properties), the timing of lease expirations and terminations, fluctuations
in rental rates and operating costs, exposure to adverse
25
environmental conditions and losses from casualty or condemnation, fluctuations in interest rates,
availability and cost of financing, managerial performance, government rules and regulations, and
acts of God (whether or not insured against). There can be no assurance that Belcrest Realtys
ownership of real estate investments will be an economic success.
Interests in the Real Estate Joint Venture, Co-owned Property and Partnership Preference Units are
not registered under the federal securities laws and are subject to restrictions on transfer. Due
to their illiquidity, they may be difficult to value and the ongoing value of the investments is
uncertain. See Critical Accounting Estimates in Item 7(e).
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
submarkets 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 has an economic incentive to
maximize the prices at which it sells 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 other
properties in which it holds an interest than to managing 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.
Belcrest Realtys investment in the Real Estate Joint Venture may be significantly concentrated in
terms of geographic regions, property types and operators, increasing the Funds exposure to
regional, property type and operator-specific risks. Given a lack of stand-alone operating history,
limited diversification and relatively high financial leverage, the Real Estate Joint Venture is
not equivalent in quality to real estate companies whose preferred equity or senior debt securities
are rated investment grade.
Distributable cash flows from the Real Estate Joint Venture may not be sufficient for Belcrest
Realty to receive its fixed annual preferred return, or any returns in excess thereof.
The debt of Lafayette is fixed-rate, secured by its underlying properties and without recourse to
Fund Shareholders and generally without recourse to Belcrest Realty and the Fund. Belcrest 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, breach of material covenants
or liabilities arising from environmental conditions involving or affecting Real Estate Joint
Venture properties. To the extent practicable, the Fund and Belcrest 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 Lafayette
normally cannot be refinanced prior to maturity without substantial penalties.
The ongoing value of Belcrest Realtys investments in Lafayette is substantially uncertain. The
real property held through Lafayette is stated at the fair value as described in Item 7(e). The
policies for estimating the fair value of 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, fair values may differ
from amounts ultimately realized.
Belcrest Realtys investments in Wholly Owned Property will be subject to general real estate
market risks similar to those of an investment in a Real Estate Joint Venture. In addition,
investments in Wholly Owned Property will be subject to risks specific to these types of
investments, including a concentration of risk
exposure to specific real estate submarkets and individual properties and tenants. Principal among
the risks of investing in the Wholly Owned Property is the risk that a major tenant fails to
satisfy its lease obligations due to financial distress or other reasons. A major tenants failure
to meet its lease obligations would expose Belcrest Realty to substantial loss of income without a
commensurate reduction in debt service costs and other expenses, and may transfer to Belcrest
Realty all the costs, expenses and liabilities of property ownership and management borne by the
tenant under the terms of the lease. Re-leasing a property could involve considerable time and
expense. Re-leasing opportunities may be limited by the nature and location of the property, which
may not be well suited to the needs of other possible tenants. Even if a property is re-leased, the
property may not generate sufficient rental income to cover debt service and other expenses.
Wholly Owned Property is generally illiquid, and the ongoing value of Belcrest Realtys investments
in Wholly Owned Property will be substantially uncertain. Wholly Owned Property held generally will
be stated at fair value as described in Item 7(e). Because the value of Wholly Owned Property will
reflect in part the creditworthiness of its tenant(s), any change in the financial status of a
major tenant could affect the appraised value of a property and the value realized upon the
disposition of such property. Tenants may hold
26
rights to renew or extend expiring leases, and exercise of such rights would extend Belcrest
Realtys risk exposure to a particular tenant beyond the initial lease term. Tenants may also
hold options to purchase properties, including options to purchase at below market levels. A default
by a major tenant could materially reduce the value of a Wholly Owned Property. The value received
upon the disposition of Wholly Owned Property will depend on real estate market conditions, lease
and mortgage terms, tenant credit quality, tenant purchase options, lender approvals and other factors
affecting valuation as may then apply. Since valuations of Wholly Owned Property assume an orderly disposition
of assets, amounts realized in a distressed sale may differ substantially from stated values.
The leveraged nature of most anticipated Wholly
Owned Property investments means that a relatively small
decline in the value of a property could result in the loss by
Belcrest Realty of all or a substantial portion of its equity in such property. Because the mortgage debt
obligations of Wholly Owned Property will be without recourse to Shareholders and generally without recourse to Belcrest Realty and
the Fund (except certain liabilities associated with fraud, misrepresentation, misappropriation of funds, or breach of material
covenants or liabilities arising from environmental conditions involving or affecting the property), the potential loss from Wholly
Owned Property is normally limited to the amount of equity invested in such property by Belcrest Realty. Mortgage debt associated with
Wholly Owned Property generally cannot be refinanced prior to maturity without substantial penalties. The terms of the outstanding lease
and mortgage debt obligations and restrictions on refinancing such debt may limit Belcrest Realtys ability to dispose of Wholly Owned
Property.
Substantially all of the rental payments on certain Wholly Owned Property that is leased on a net basis may be dedicated to servicing the
associated mortgage debt, in which case significant amounts of cash would not be available to offset operating expenses and the cost of
Fund borrowings used to finance Belcrest Realtys equity in the properties. Such costs and expenses generally must be provided from other
sources of cash flow for Belcrest Realty and the Fund, which may include additional Fund borrowings under the Credit Facility. Realized
returns on investments in net leased property may be deferred until the property is re-leased following the initial lease term or sold.
The risks of investing in Co-owned Property are substantially the same as investing in Wholly Owned Property, as well as certain
additional risks relating to the ownership of real properties as tenants-in-common. Included in these risks are the inability to make
independent decisions regarding the property and the risk that other owners may not properly perform their obligations relating to the
property.
The Co-owned Property is financed through mortgage notes. The mortgage notes are secured by the real property and are generally
without recourse to Belcrest Realty and the Fund, except that there may be recourse for certain liabilities arising from actions such
as fraud, misrepresentation, misappropriation of funds or breach of material covenants and liabilities arising from environmental conditions.
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.
Investments in Partnership Preference Units are valued primarily by referencing market trading prices for comparable preferred equity
securities or other fixed-rate instruments having similar investment characteristics. The valuations of Partnership Preference Units
fluctuate over time to reflect, among other factors, changes in interest rates, changes in the perceived riskiness of such units (including
call risk), changes in the perceived riskiness of comparable or similar securities trading in the public market and the relationship between
supply and demand for comparable or similar securities trading in the public market. The valuation of Partnership Preference Units will be
adversely affected by increases in interest rates and increases in the perceived riskiness of such units or comparable or similar
securities. 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.
Changes in the fair value of real estate investments and other factors will cause the performance of the Fund to deviate from
the performance of the Portfolio. Over time, the performance of the Fund can be expected to be more volatile than the performance
of the Portfolio.
Risks of Interest Rate Swap Agreements.
Interest rate swap agreements are subject to changes in valuation caused principally
by movements in interest rates. Interest rate swap agreements are private contracts in which there is a risk of loss in the event of
a default on an obligation to pay by the counterparty. Interest rate swap agreements may be difficult to value and may be illiquid.
Fluctuations in the value of Partnership Preference Units derived from changes in general interest rates can be expected to be offset
in part (but not entirely) by changes in the value of interest rate swap agreements applying to those Partnership Preference Units for
which they were purchased, or other interest rate hedges that may be entered into by the Fund with respect to its borrowings. The risks
of interest rate swap agreements include changes in market conditions that will affect the value of the agreement or the cash
27
flows and the possible inability of the counterparty to fulfill its obligations under the
agreement. The Funds maximum risk of loss from counterparty credit risk is the discounted net
value of the cash flows to be received from/paid to the counterparty over the agreements remaining
life, to the extent that amount is positive.
Risks of Leverage.
Although intended to add to returns, the borrowing of funds to purchase real
estate investments exposes the Fund to the risk that the returns achieved on the real estate
investments will be lower than the cost of borrowing to purchase such assets and that the
leveraging of the Fund to buy such assets will therefore diminish the returns achieved by the Fund
as a whole. In addition, there is a risk that the availability of financing will be interrupted at
some future time, requiring the Fund to sell assets to repay outstanding borrowings or a portion
thereof. It may be necessary to make such sales at unfavorable prices. The Funds obligations under
the Credit Facility are secured by a pledge of its assets, excluding the Funds real estate
investments. 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 a default or 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 mortgage notes used to finance Subsidiary Real Estate
Investments are senior to Belcrest Realtys right to receive cash distributions from the Subsidiary
Real Estate Investments.
28
The consolidated financial statements required by
Item 8 begin on page 37 of this Annual Report on
Form 10-K. The following is a summary of unaudited quarterly results of operations of the Fund for
the years ending December 31, 2011 and 2010.
2011 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Investment income |
$ | 5,357,487 | $ | 4,958,865 | $ | 4,206,607 | $ | 4,784,444 | ||||||||
Net investment income |
$ | 3,576,339 | $ | 3,637,400 | $ | 2,908,798 | $ | 3,543,190 | ||||||||
Net increase (decrease) in
net assets from operations |
$ | 43,805,338 | $ | 15,090,361 | $ | (86,100,758 | ) | $ | 64,207,627 | |||||||
Per share data(1) : |
||||||||||||||||
Investment income |
$ | 0.81 | $ | 0.76 | $ | 0.66 | $ | 0.77 | ||||||||
Net investment income |
$ | 0.54 | $ | 0.56 | $ | 0.46 | $ | 0.57 | ||||||||
Net increase (decrease) in
net assets from operations |
$ | 6.59 | $ | 2.32 | $ | (13.55 | ) | $ | 10.32 |
2010 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Investment income |
$ | 7,949,443 | $ | 8,511,368 | $ | 8,290,427 | $ | 6,562,467 | ||||||||
Net investment income |
$ | 6,076,732 | $ | 6,106,968 | $ | 5,749,297 | $ | 4,464,202 | ||||||||
Net increase (decrease) in
net assets from operations |
$ | 30,722,748 | $ | (68,113,307 | ) | $ | 79,194,029 | $ | 77,758,677 | |||||||
Per share data(1) : |
||||||||||||||||
Investment income |
$ | 1.00 | $ | 1.14 | $ | 1.16 | $ | 0.96 | ||||||||
Net investment income |
$ | 0.76 | $ | 0.82 | $ | 0.80 | $ | 0.65 | ||||||||
Net increase (decrease) in
net assets from operations |
$ | 3.87 | $ | (9.11 | ) | $ | 11.07 | $ | 11.39 |
(1) | Based on average Shares outstanding. |
There have been no changes in, or disagreements with, accountants on accounting and financial
disclosure.
Fund Governance.
As the Funds manager, the complete and entire management, control and operation
of the Fund are vested in Eaton Vance. The Funds Chief Executive Officer and Chief Financial
Officer intend to report to the Audit Committee of 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 Funds 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 Funds internal control over
financial reporting.
Disclosure Controls and Procedures.
Eaton Vance, as the Funds manager, evaluated the effectiveness
of the Funds disclosure controls and procedures (as defined by Rule 13a-15(e) of the Act) as of
the end of the period covered by this report, with the participation of the Funds Chief Executive
Officer and Chief Financial Officer. The Funds disclosure controls and procedures are the controls
and other procedures that the Fund designed to ensure that information required to be disclosed by
the issuer in the reports that it files or submits under the Act is recorded, processed, summarized
and reported, within the time periods
specified in the SECs rules and forms. Based on that evaluation, the Funds Chief Executive
Officer and Chief Financial Officer concluded that, as of December 31, 2011, the Funds disclosure
controls and procedures were effective.
Internal Control Over Financial Reporting.
The Funds Chief Executive Officer and Chief Financial
Officer have established and maintain internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) of the Act.
29
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Eaton Vance Management (Eaton Vance), as manager of Belcrest Capital Fund LLC (the Fund), with
the participation of the Funds Chief Executive Officer and Chief Financial Officer (collectively
referred to in this report as management), is responsible for establishing and maintaining adequate
internal control over financial reporting. The Funds internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Funds internal control over financial reporting as of
December 31, 2011. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework. Based on its assessment and those criteria, management believes that the Fund maintained
effective internal control over financial reporting as of December 31, 2011.
The Funds independent registered public accounting firm has issued an attestation report on the
Funds internal control over financial reporting. That report appears on the following page.
March 7, 2012.
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of Belcrest Capital Fund LLC and Subsidiaries
We have audited the internal control over financial reporting of Belcrest Capital Fund LLC and
subsidiaries (the Fund) as of December 31, 2011, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Funds management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Funds internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Fund maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2011, based on the criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements and financial highlights as of and for
the year ended December 31, 2011 of the Fund and our report
dated March 7, 2012 expressed an
unqualified opinion on those financial statements and financial highlights.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 7, 2012
Boston, Massachusetts
March 7, 2012
31
None.
Pursuant to the Funds LLC Agreement, the Funds manager, Eaton Vance, has the authority to conduct
the Funds business. Eaton Vance appointed Thomas E. Faust Jr. to serve indefinitely as the Funds
Chief Executive Officer on October 16, 2002. Eaton Vance appointed Andrew C. Frenette to serve
indefinitely as the Funds Chief Financial Officer on January 22, 2007. Information about Messrs.
Faust and Frenette appears below. As members of the Eaton Vance organization, Messrs. Faust and
Frenette 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 Audit Committee of the Board of Directors of Eaton Vance, Inc., the sole trustee of Eaton
Vance, oversees the accounting and financial reporting processes of the Fund, audits of the Funds
financial statements and otherwise serves as the Funds audit committee. The Fund has no nominating
or compensation committee. The members of the Audit Committee of the Board of Directors of Eaton
Vance, Inc. are Frederick S. Marius and Robert J. Whelan. The Funds audit committee financial
expert (as that term is defined in Item 7(d)(3)(iv) of Schedule 14A under the Act) is Mr. Whelan.
Messrs. Marius and Whelan are senior officers of Eaton Vance and, as such, are not independent of
Fund management. Information about Messrs. Marius and Whelan appears below.
Boston Management is investment adviser to the Fund and the Portfolio and manager of Belcrest
Realty. The Co-Portfolio Managers of the Fund and of the Portfolio are Duncan W. Richardson, Lewis
R. Piantedosi, Yana S. Barton and Michael A. Allison. Mr. Richardson is Executive Vice President
and Chief Equity Investment Officer of Eaton Vance, Boston Management and Eaton Vance Corp. and a
Director of Eaton Vance Corp. Mr. Richardson has been employed by Eaton Vance since 1987. Messrs.
Piantedosi and Allison and Ms. Barton are each a Vice President of Eaton Vance and Boston
Management. Mr. Piantedosi became Co-Portfolio Manager of the Fund and of the Portfolio on May 1,
2006, has been employed by the Eaton Vance organization since 1993 and manages other Eaton Vance
portfolios. Ms. Barton and Mr. Allison became Co-Portfolio Managers of the Fund and of the
Portfolio on March 1, 2008, have been employed by the Eaton Vance organization since 1997 and 2000,
respectively, and manage other Eaton Vance portfolios. Boston Management has an experienced team of
analysts that provides Messrs. Richardson, Piantedosi, Allison and Ms. Barton with research and
recommendations on investments.
The directors of Belcrest Realty are Messrs. Faust and Frenette. Mr. Frenette (37) is the President
and portfolio manager of Belcrest Realty and the head of Boston Managements real estate investment
group, which has primary responsibility for providing research and analysis relating to the Funds
real estate investments held through Belcrest Realty. Mr. Frenette is a Vice President of Eaton
Vance and Boston Management and has been employed by the Eaton Vance organization since 2006. Prior
to joining Eaton Vance, Mr. Frenette was Manager of Finance Investments and Acquisitions for GE
Real Estate, a business unit of GE Commercial Finance. A majority of Mr. Frenettes time is spent
managing the real estate investments of Belcrest Realty and the real estate investment affiliates
of other investment funds advised by Boston Management. Mr. Frenette serves on the board of
managers of Lafayette. Other officers of Eaton Vance and Boston Management also serve as officers
and/or directors of Lafayette. As disclosed under The Eaton Vance Organization in Item 1, Eaton
Vance and Boston Management are wholly owned subsidiaries of Eaton Vance Corp. The non-voting
common stock of Eaton Vance Corp. is listed and traded on the NYSE. All shares of the voting common
stock of Eaton Vance Corp. are held in a voting trust, the voting trustees of which are senior
officers of the Eaton Vance organization. Eaton Vance, Inc., a wholly owned subsidiary of Eaton
Vance Corp., is the sole trustee of Eaton Vance and of Boston Management, each of which is a
Massachusetts business trust. The names of the executive officers and the directors of
Eaton Vance, Inc. and their ages and principal occupations (in addition to their responsibilities
described above) are set forth below.
Thomas E. Faust Jr. (53) is Chief Executive Officer and President of Eaton Vance Corp., President
and Director of Eaton Vance, Inc., Chief Executive Officer and President of Eaton Vance and Boston
Management, and Director of EV Distributors. He is also an officer of various other investment
companies managed by Eaton Vance or Boston Management. Mr. Faust has been employed by Eaton Vance
since 1985.
Frederick S. Marius (48) is Vice President, Secretary and Chief Legal Officer of Eaton Vance,
Boston Management, Eaton Vance Corp., EV Distributors and Eaton Vance, Inc. and a Director of 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 2004.
32
Robert J. Whelan (50) is Vice President and Treasurer of Eaton Vance, Boston Management, Eaton
Vance Corp. and Eaton Vance, Inc. and a Director of Eaton Vance, Inc. He is also the Chief
Financial Officer of Eaton Vance Corp. and Eaton Vance, Inc. and Vice President and Director of EV
Distributors. He has been employed by Eaton Vance since 2007. Prior to joining Eaton Vance, Mr.
Whelan was Executive Vice President and Chief Financial Officer for Boston Private Wealth
Management Group from December 2004 to April 2007.
Section 16(a) of the Act requires the Funds officers and directors and persons who own more than
ten percent of the Funds Shares to file forms reporting their affiliation with the Fund and
reports of ownership and changes in ownership of the Funds 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 Funds knowledge, during the year ending December 31, 2011 no Section 16(a) filings were
required by such persons or entities.
The Fund has adopted a Code of Ethics that applies to the principal executive officer and principal
financial officer (who is also the Funds principal accounting officer). A copy of the Code of
Ethics is available at no cost by request to the Funds Chief Financial Officer, Two International
Place, Boston, MA 02110 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.
As noted in Item 10, the officers of the Fund receive no compensation from the Fund (nor does any
other officer of Belcrest Realty or a Subsidiary Real Estate Investment of the Fund performing
policy making functions for the Fund). The Funds manager, Eaton Vance, and its affiliates receive
certain fees from the Fund for services provided to the Fund, which are described in Item 13 below.
Security Ownership of Certain Beneficial Owners.
As of February 3, 2012, the following person
beneficially owned the percentage of Fund Shares indicated:
Name and Address of | ||||
Beneficial Owner | Percent of Class | |||
Jeff Broad & Cindy Quane Trust |
Los Angeles, CA | 14.70% | ||
SCA Investment Co. Ltd. as
pledged to Merrill Lynch
Bank USA as Pledgee |
Salt Lake City, UT | 5.93% | ||
Acuitya Mutual Insurance Company |
Sheboygan, WI | 5.71% |
To the knowledge of the Fund, no other person beneficially owned more than 5% of the Shares of the
Fund as of December 31, 2011.
Security Ownership of Management.
As of February 3, 2012, Eaton Vance, the manager of the Fund,
beneficially owned 114 Shares of the Fund. The Shares owned by Eaton Vance represent less than 1%
of the outstanding Shares of the Fund as of February 3, 2012. 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.
Messrs. Faust and Frenette are currently the only related persons of the Fund (as that term is
defined in Regulation S-K under the Securities Act and the Act). The Fund has instituted written
policies and procedures to determine the existence of a reportable transaction under Item 404(a) of
Regulation S-K. In accordance with such policies and procedures, Eaton Vance circulates an
Executive Officer Questionnaire to each related person annually to determine the existence of a
potential reportable transaction. Any transaction, or proposed transaction, in which the Fund was
or is to be a participant and the amount of which exceeds $120,000 (and
33
in which a related person had or will have a direct or indirect material interest) is required to
be reviewed by the Audit Committee of the Board of Directors of Eaton Vance, Inc. The Fund did not
have any reportable transactions under Item 404(a) of Regulation S-K during the year ending
December 31, 2011.
The table below sets forth the fees paid or payable by, or allocable to, the Fund and Belcrest
Realty for the years ending December 31, 2011 and 2010 in connection with services rendered by
Eaton Vance and its affiliates. Each fee is described in the following table.
Year ending | Year ending | |||||
December | December 31, | |||||
31, 2011 | 2010 | |||||
Fund Advisory and Administrative Fees* |
$ | 941,076 | $ | 947,890 | ||
Belcrest Realty Management Fees |
$ | 1,694,674 | $ | 3,253,258 | ||
Funds Allocable Portion of the Portfolios Advisory Fees** |
$ | 2,939,950 | $ | 2,988,131 | ||
Fund Servicing Fees |
$ | 330,646 | $ | 245,133 | ||
Funds Allocable Portion of Belvedere Companys Servicing Fees |
$ | 964,892 | $ | 983,166 | ||
Aggregate Compensation Paid by the Fund to Eaton Vance and its
Affiliates |
$ | 2,635,750 | $ | 4,201,148 |
* | The advisory fee payable to Boston Management in respect of the Funds indirect investment in the Portfolio is credited towards the Funds advisory and administrative fee payment, reducing the amount of such fee that would otherwise be payable by the Fund. | |
** | For the years ending December 31, 2011 and 2010, advisory fees paid or payable by the Portfolio totaled $39,558,185 and $40,626,632, respectively. For the year ending December 31, 2011, Belvedere Companys allocable portion of that fee was $28,163,565 of which $2,939,950 was allocable to the Fund. For the year ending December 31, 2010, Belvedere Companys allocable portion of that fee was $28,742,601, of which $2,988,131 was allocable to the Fund. |
The Funds Investment Advisory and Administrative Fee.
Under the terms of the Funds investment
advisory and administrative agreement, Boston Management is entitled to receive a monthly advisory
and administrative fee at the rate of 1/20 of 1% (equivalent to 0.60% annually) of the average
daily gross investment assets of the Fund. The term gross investment assets as used in the
agreement means the value of all assets of the Fund other than the Funds investment in Belcrest
Realty minus the sum of the Funds liabilities other than the principal amount of money borrowed.
The advisory fee payable to Boston Management in respect of the Funds indirect investment in the
Portfolio is credited towards the Funds advisory and administrative fee payment, reducing the
amount of such fee that would otherwise be payable by the Fund.
Belcrest Realtys Management Fee.
Under the terms of Belcrest Realtys 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 investment assets of Belcrest Realty. The
term gross investment assets as used in the agreement means the value of all assets of Belcrest
Realty minus the sum of Belcrest Realtys liabilities other than the principal amount of money
borrowed. For this purpose, the assets and liabilities of Belcrest Realty includes its ratable
share of the assets and liabilities of its direct and indirect subsidiaries, real estate joint
ventures, and co-owned real property investments.
The Portfolios Investment Advisory Fee.
Under the terms of the Portfolios investment advisory
agreement with Boston Management, Boston Management receives a monthly advisory fee as follows:
Average Daily Net Assets for the | Annual Fee Rate | |
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 but less than $20 billion |
0.4000% | |
$20 billion but less than $25 billion |
0.3900% | |
$25 billion and over |
0.3800% |
34
In accordance with the terms of the 1940 Act, the Portfolios Board of Trustees considers the
continuation of the Portfolios 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 0.20% of the Funds 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 Funds allocated share of the servicing fee paid by Belvedere Company is credited
toward the Funds 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 Companys
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
Companys servicing fee. The servicing fee payable in respect of the Funds investment in Belvedere
Company is credited toward the Funds servicing fee described above.
Certain Real Estate Investment Transactions.
During the year ending December 31, 2011, Belcrest
Realty did not enter into any real estate investment transactions with affiliates.
The following table presents fees for the professional audit services rendered by Deloitte & Touche
LLP for the audit of the Funds annual financial statements for the years ending December 31, 2011
and 2010 and fees billed for other services rendered by Deloitte & Touche LLP during those periods,
including fees charged by Deloitte & Touche LLP to the Funds consolidated subsidiaries.
Year ending December 31, | ||||||||
2011 | 2010 | |||||||
Audit fees |
$ | 73,758 | $ | 88,443 | ||||
Tax fees (1) |
$ | 225,417 | $ | 183,500 | ||||
Total |
$ | 299,175 | $ | 271,943 | ||||
(1) | Tax fees consist of the aggregate fees billed for professional services rendered by Deloitte Tax LLP for tax compliance, tax advice and tax planning. |
The Audit Committee of the Board of Directors of Eaton Vance, Inc. reviews all audit,
audit-related, tax and other fees at least annually. The Audit Committee of the Board of Directors
of Eaton Vance, Inc., pre-approved all audit and tax services for the years ending December 31,
2011 and 2010. The Audit Committee of the Board of Directors of Eaton Vance, Inc. has concluded
that the provision of the tax services listed above is compatible with maintaining the independence
of Deloitte & Touche LLP.
(a)
|
Please see the Funds consolidated financial statements which begin on page 37 of this Annual Report on Form 10-K. Please see the Portfolios financial statements which begin on page 62 of this Annual Report on Form 10-K. | |
For fiscal year 2011, the Lafayette Real Estate Joint Venture was deemed significant to the Fund under Rule 3-09 of Regulation S-X, and as such the financial statements of Lafayette are required to be filed as financial statement schedules herein within 90 days of its fiscal year end. Accordingly, the financial statements of Lafayette will be filed via an amendment to this Annual Report on Form 10-K on or before March 30, 2012, provided that the Funds duty to file reports under Section 13(a) of the Act has not been suspended pursuant to Rule 12g-4(a)(1). | ||
(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 79 hereof. |
35
Belcrest Capital Fund LLCs (The Fund) Investment Structure as of
December 31, 2011
December 31, 2011
(A)
|
The Fund is a Massachusetts limited liability company. Eaton Vance Management is the manager of the Fund; Boston Management and Research (Boston Management) is the Funds investment adviser. | |
(B)
|
Belvedere Capital Fund Company LLC (Belvedere Company) is a Massachusetts limited liability company. Boston Management is the manager of Belvedere Company. | |
(C)
|
Tax-Managed Growth Portfolio (the Portfolio) is a Massachusetts trust. Boston Management is the investment adviser of the Portfolio. | |
(D)
|
Belcrest Realty Corporation (Belcrest Realty) is a Delaware corporation. Boston Management is the manager of Belcrest Realty. Belcrest Realty also holds direct investments in partnership preference units. | |
(E)
|
Lafayette Real Estate LLC is a Delaware limited liability company. Belcrest Realty owns a majority economic interest in this real estate joint venture. | |
(F)
|
Bel Holdings LLC (Bel Holdings) is a Delaware limited liability company. Belcrest Realty owns a minority interest in Bel Holdings, which owns partnership preference units issued by Vornado Realty L.P. | |
(G)
|
Bel Stamford I LLC (Bel Stamford I) is a Delaware limited liability company. Bel Stamford I is a wholly owned subsidiary of Belcrest Realty and owns a tenancy-in-common interest in real property. |
36
Belcrest Capital Fund LLC | December 31, 2011 |
Consolidated
Portfolios of Investments
Investment in Belvedere Capital Fund Company LLC 97.6% and 101.8% | ||||||||||||||||||
December 31, 2011 | December 31, 2010 | |||||||||||||||||
Security | Shares | Value | Shares | Value | ||||||||||||||
Investment in Belvedere Capital Fund Company LLC (Belvedere Company)(1) | 3,392,394 | $ | 618,043,582 | 3,634,344 | $ | 659,946,022 | ||||||||||||
Total
Investment in Belvedere Company
|
||||||||||||||||||
(identified
cost, $280,162,061 and $294,300,162)
|
$ | 618,043,582 | $ | 659,946,022 | ||||||||||||||
Partnership Preference Units 2.5% and 11.2% | ||||||||||||||||||
Security | Units | Value | Units | Value | ||||||||||||||
Bel Holdings LLC(2)(3)(4) | 62,772 | $ | 10,277,210 | 68,002 | $ | 9,799,658 | ||||||||||||
Essex Portfolio, L.P. (California Limited Partnership affiliate of Essex Property Trust, Inc.), 7.875% Series B Cumulative Redeemable Preferred Units, Callable from 12/31/09(2) | | | 300,000 | 13,272,660 | ||||||||||||||
Liberty Property Limited Partnership (Pennsylvania Limited Partnership affiliate of Liberty Property Trust), 7.45% Series B Cumulative Redeemable Preferred Units, Callable from 8/31/09(2) | 250,000 | 5,542,500 | 250,000 | 5,352,500 | ||||||||||||||
MHC Operating Limited Partnership (Illinois Limited Partnership affiliate of Equity Lifestyle Properties, Inc.), 8.0625% Series D Cumulative Redeemable Perpetual Preference Units, Callable from 3/24/10(2) | | | 1,500,000 | 30,240,000 | ||||||||||||||
MHC Operating Limited Partnership (Illinois Limited Partnership affiliate of Equity Lifestyle Properties, Inc.), 7.95% Series F Cumulative Redeemable Perpetual Preference Units, Callable from 6/30/10(2) | | | 700,000 | 13,916,000 | ||||||||||||||
Total
Partnership Preference Units
|
||||||||||||||||||
(identified
cost, $13,575,696 and $84,395,363)
|
$ | 15,819,710 | $ | 72,580,818 | ||||||||||||||
Real Estate Joint Venture 12.0% and 8.5% | ||||||||||||||||||
Description | Value | Value | ||||||||||||||||
Investment in Lafayette Real Estate LLC (a majority economic interest of 66.3% and 65.7% in Lafayette Real Estate LLC which invests in 12 office properties located in one state)(2)(4) | $ | 75,598,042 | $ | 55,149,311 | ||||||||||||||
Total
Real Estate Joint Venture
|
||||||||||||||||||
(identified
cost, $85,883,059 and $82,935,329)
|
$ | 75,598,042 | $ | 55,149,311 | ||||||||||||||
Co-owned Property 0.3% and 0.5% | ||||||||||||||||||
Description | Value | Value | ||||||||||||||||
Bel Stamford I LLC (a single member LLC with a 10.0% tenancy-in-common interest in an office property)(2)(4) | $ | 1,956,437 | $ | 2,926,700 | ||||||||||||||
Total
Co-owned Property
|
||||||||||||||||||
(identified
cost, $9,257,569 and $8,627,832)
|
$ | 1,956,437 | $ | 2,926,700 | ||||||||||||||
See notes to consolidated financial
statements
37
37
Belcrest Capital Fund LLC | December 31, 2011 |
Consolidated
Portfolios of Investments (continued)
Short-Term Investment 0.2% and 0.5% | ||||||||||||||||||
December 31, 2011 | December 31, 2010 | |||||||||||||||||
Interest |
Interest |
|||||||||||||||||
(000s |
(000s |
|||||||||||||||||
Description | omitted) | Value | omitted) | Value | ||||||||||||||
Eaton Vance Cash Reserves Fund, LLC, 0.06% and 0.22%(1)(4)(5) | 1,127 | $ | 1,126,681 | 3,231 | $ | 3,230,918 | ||||||||||||
Total
Short-Term Investment
|
||||||||||||||||||
(identified
cost, $1,126,681 and $3,230,918)
|
$ | 1,126,681 | $ | 3,230,918 | ||||||||||||||
Total
Investments 112.6% and 122.5%
|
||||||||||||||||||
(identified
cost, $390,005,066 and $473,489,604)
|
$ | 712,544,452 | $ | 793,833,769 | ||||||||||||||
Other
Assets, Less Liabilities (12.6)% and (22.5)%
|
$ | (79,520,298 | ) | $ | (145,797,638 | ) | ||||||||||||
Net
Assets 100.0% and 100.0%
|
$ | 633,024,154 | $ | 648,036,131 | ||||||||||||||
| Security exempt from registration under the Securities Act of 1933. At December 31, 2011 and 2010, the value of these securities totaled $15,819,710 and $72,580,818 or 2.5% and 11.2% of net assets, respectively. | |
(1) | Investment has been pledged as collateral for the Credit Facility (Note 11A). | |
(2) | Investment valued at fair value using methods determined in good faith by or at the direction of the manager of Belcrest Realty Corporation. | |
(3) | The sole investment of Bel Holdings LLC is as follows: Vornado Realty L.P. (Delaware limited partnership affiliate of Vornado Realty Trust), 7% Series D-10 Cumulative Redeemable Preferred Units, callable from 11/17/08. This security is exempt from registration under the Securities Act of 1933. | |
(4) | Investment is presented as other affiliated investments in the Consolidated Statements of Assets and Liabilities. | |
(5) | Affiliated investment company available to Eaton Vance portfolios and funds, which invests in high quality, U.S. dollar denominated money market instruments. The rate shown is the annualized seven-day yield as of December 31, 2011 and 2010, respectively. |
See notes to consolidated financial
statements
38
38
Belcrest Capital Fund LLC | December 31, 2011 |
Consolidated
Financial Statements
Consolidated Statements of
Assets and Liabilities
December 31, | ||||||||||
Assets | 2011 | 2010 | ||||||||
Investment in Belvedere Company, at value
(identified cost, $280,162,061 and $294,300,162,
respectively)
|
$ | 618,043,582 | $ | 659,946,022 | ||||||
Other affiliated investments, at value
(identified cost, $103,593,005 and $102,730,352,
respectively)
|
88,958,370 | 71,106,587 | ||||||||
Unaffiliated investments, at value
(identified cost, $6,250,000 and $76,459,090,
respectively)
|
5,542,500 | 62,781,160 | ||||||||
Cash
|
118,979 | 1,222,976 | ||||||||
Interest receivable from affiliated investment
|
67 | 663 | ||||||||
Other assets
|
| 260,879 | ||||||||
Total assets
|
$ | 712,663,498 | $ | 795,318,287 | ||||||
Liabilities | ||||||||||
Loan payable Credit Facility
|
$ | 78,000,000 | $ | 144,000,000 | ||||||
Payable for Fund shares redeemed
|
| 1,546,143 | ||||||||
Interest payable for open interest rate swap agreements
|
2,449 | 1,848 | ||||||||
Open interest rate swap agreements, at value
|
714,321 | 710,801 | ||||||||
Payable to affiliate for investment advisory and administrative
fees
|
211,943 | 238,957 | ||||||||
Payable to affiliate for servicing fee
|
83,367 | 70,992 | ||||||||
Other accrued expenses:
|
||||||||||
Interest expense
|
52,223 | 137,324 | ||||||||
Other expenses and liabilities
|
575,041 | 576,091 | ||||||||
Total liabilities
|
$ | 79,639,344 | $ | 147,282,156 | ||||||
Net Assets
|
$ | 633,024,154 | $ | 648,036,131 | ||||||
Shareholders
Capital
|
$ | 633,024,154 | $ | 648,036,131 | ||||||
Shares
Outstanding (unlimited number of shares authorized)
|
6,179,628 | 6,671,766 | ||||||||
Net
Asset Value and Redemption Price per Share
|
$ | 102.44 | $ | 97.13 | ||||||
See notes to consolidated financial
statements
39
39
Belcrest Capital Fund LLC | December 31, 2011 |
Consolidated
Financial Statements (continued)
Consolidated Statements of
Operations
Year Ended December 31, | ||||||||||||||
Investment Income | 2011 | 2010 | 2009 | |||||||||||
Dividends allocated from Belvedere Company
(net of foreign taxes, $203,506, $150,341 and $222,476, respectively) |
$ | 12,887,592 | $ | 12,472,682 | $ | 16,798,122 | ||||||||
Interest allocated from Belvedere Company
|
7,155 | 10,225 | 53,352 | |||||||||||
Expenses allocated from Belvedere Company
|
(4,048,792 | ) | (4,127,587 | ) | (4,525,297 | ) | ||||||||
Net investment income allocated from Belvedere Company
|
$ | 8,845,955 | $ | 8,355,320 | $ | 12,326,177 | ||||||||
Net investment income allocated from Real Estate Joint Ventures
|
8,111,750 | 16,300,186 | 17,706,930 | |||||||||||
Distributions from Partnership Preference Units
|
1,713,648 | 6,061,563 | 6,447,403 | |||||||||||
Net investment income allocated from Co-owned Property
|
628,336 | 589,670 | 552,265 | |||||||||||
Interest
|
| 240 | 256 | |||||||||||
Interest allocated from affiliated investments
|
8,465 | 7,475 | 13,581 | |||||||||||
Expenses allocated from affiliated investments
|
(751 | ) | (749 | ) | (11,735 | ) | ||||||||
Total investment income
|
$ | 19,307,403 | $ | 31,313,705 | $ | 37,034,877 | ||||||||
Expenses | ||||||||||||||
Investment advisory and administrative fees
|
$ | 2,635,750 | $ | 4,201,148 | $ | 4,634,392 | ||||||||
Servicing fee
|
330,646 | 245,133 | 237,556 | |||||||||||
Interest expense on Credit Facility
|
2,165,128 | 3,874,651 | 1,624,286 | |||||||||||
Audit and tax services
|
304,912 | 290,798 | 362,815 | |||||||||||
Custodian and transfer agent fee
|
55,810 | 48,644 | 60,946 | |||||||||||
Miscellaneous
|
149,830 | 256,187 | 238,758 | |||||||||||
Total expenses
|
$ | 5,642,076 | $ | 8,916,561 | $ | 7,158,753 | ||||||||
Deduct
|
||||||||||||||
Reduction of custodian and transfer agent fee
|
$ | 400 | $ | 55 | $ | | ||||||||
Net expenses
|
$ | 5,641,676 | $ | 8,916,506 | $ | 7,158,753 | ||||||||
Net investment income
|
$ | 13,665,727 | $ | 22,397,199 | $ | 29,876,124 | ||||||||
See notes to consolidated financial
statements
40
40
Belcrest Capital Fund LLC | December 31, 2011 |
Consolidated
Financial Statements (continued)
Consolidated Statements of
Operations (continued)
Year Ended December 31, | ||||||||||||||
Realized and Unrealized Gain (Loss) | 2011 | 2010 | 2009 | |||||||||||
Net realized gain (loss)
|
||||||||||||||
Investment and foreign currency transactions allocated from
Belvedere Company (identified cost
basis)(1)
|
$ | 22,750,145 | $ | 2,770,704 | $ | (59,270,474 | ) | |||||||
Investment transactions in Partnership Preference Units
(identified cost basis)
|
(2,706,609 | ) | 119,339 | (12,744,455 | ) | |||||||||
Investment transactions in Real Estate Joint Ventures
|
1,327,381 | (137,644,457 | ) | (2,033,278 | ) | |||||||||
Investment transactions allocated from affiliated investments
|
200 | 383 | 1,947 | |||||||||||
Interest rate swap
agreements(2)
|
(225,977 | ) | (2,894,857 | ) | (9,654,679 | ) | ||||||||
Net realized gain (loss)
|
$ | 21,145,140 | $ | (137,648,888 | ) | $ | (83,700,939 | ) | ||||||
Change in unrealized appreciation (depreciation)
|
||||||||||||||
Investments and foreign currency allocated from Belvedere
Company (identified cost basis)
|
$ | (27,764,339 | ) | $ | 66,398,339 | $ | 176,008,259 | |||||||
Investment in Partnership Preference Units (identified cost
basis)
|
14,058,559 | 4,004,778 | 30,733,258 | |||||||||||
Investment in Real Estate Joint Ventures
|
17,501,001 | 161,879,938 | (112,627,913 | ) | ||||||||||
Investment in Co-owned Property
|
(1,600,000 | ) | | (2,799,999 | ) | |||||||||
Interest rate swap agreements
|
(3,520 | ) | 2,530,781 | 6,267,636 | ||||||||||
Net change in unrealized appreciation (depreciation)
|
$ | 2,191,701 | $ | 234,813,836 | $ | 97,581,241 | ||||||||
Net realized and unrealized gain
|
$ | 23,336,841 | $ | 97,164,948 | $ | 13,880,302 | ||||||||
Net increase in net assets from operations
|
$ | 37,002,568 | $ | 119,562,147 | $ | 43,756,426 | ||||||||
(1) | Amounts include net realized gain (loss) from redemptions in-kind of $18,193,166, $6,775,108 and $(19,875,475), respectively. | |
(2) | Amounts include net interest incurred in connection with periodic settlement of interest rate swap agreements of $225,977, $2,894,857 and $7,958,380, respectively (Note 2F). |
See notes to consolidated financial
statements
41
41
Belcrest Capital Fund LLC | December 31, 2011 |
Consolidated
Financial Statements (continued)
Consolidated Statements of
Changes in Net Assets
Year Ended December 31, | ||||||||||||||
Increase (Decrease) in Net Assets | 2011 | 2010 | 2009 | |||||||||||
From operations
|
||||||||||||||
Net investment income
|
$ | 13,665,727 | $ | 22,397,199 | $ | 29,876,124 | ||||||||
Net realized gain (loss) from investment transactions, foreign
currency transactions and interest rate swap agreements
|
21,145,140 | (137,648,888 | ) | (83,700,939 | ) | |||||||||
Net change in unrealized appreciation (depreciation) of
investments, foreign currency and interest rate swap agreements
|
2,191,701 | 234,813,836 | 97,581,241 | |||||||||||
Net increase in net assets from operations
|
$ | 37,002,568 | $ | 119,562,147 | $ | 43,756,426 | ||||||||
Transactions in Fund shares
|
||||||||||||||
Net asset value of Fund shares issued to Shareholders in payment
of distributions declared
|
$ | 843,077 | $ | 600,452 | $ | 4,083,889 | ||||||||
Net asset value of Fund shares redeemed
|
(50,191,808 | ) | (122,796,610 | ) | (190,776,429 | ) | ||||||||
Net decrease in net assets from Fund share transactions
|
$ | (49,348,731 | ) | $ | (122,196,158 | ) | $ | (186,692,540 | ) | |||||
Distributions
|
||||||||||||||
Distributions to Shareholders
|
$ | (2,665,814 | ) | $ | (2,007,089 | ) | $ | (13,268,132 | ) | |||||
Total distributions
|
$ | (2,665,814 | ) | $ | (2,007,089 | ) | $ | (13,268,132 | ) | |||||
Net decrease in net assets
|
$ | (15,011,977 | ) | $ | (4,641,100 | ) | $ | (156,204,246 | ) | |||||
Net Assets | ||||||||||||||
At beginning of year
|
$ | 648,036,131 | $ | 652,677,231 | $ | 808,881,477 | ||||||||
At end of year
|
$ | 633,024,154 | $ | 648,036,131 | $ | 652,677,231 | ||||||||
See notes to consolidated financial
statements
42
42
Belcrest Capital Fund LLC | December 31, 2011 |
Consolidated
Financial Statements (continued)
Consolidated Statements of Cash
Flows
Year Ended December 31, | ||||||||||||||
Increase (Decrease) in Cash | 2011 | 2010 | 2009 | |||||||||||
Cash Flows From Operating Activities
|
||||||||||||||
Net increase in net assets from operations
|
$ | 37,002,568 | $ | 119,562,147 | $ | 43,756,426 | ||||||||
Adjustments to reconcile net increase in net assets from
operations to net cash flows provided by operating
activities
|
||||||||||||||
Net investment income allocated from Belvedere Company
|
(8,845,955 | ) | (8,355,320 | ) | (12,326,177 | ) | ||||||||
Net investment income allocated from Real Estate Joint Ventures
|
(8,111,750 | ) | (16,300,186 | ) | (17,706,930 | ) | ||||||||
Payments from Real Estate Joint Ventures
|
6,491,401 | 15,679,809 | 13,716,564 | |||||||||||
Net investment income allocated from Co-owned Property
|
(628,336 | ) | (589,670 | ) | (552,265 | ) | ||||||||
Payments to Co-owned Property
|
(1,401 | ) | (1,167 | ) | (2,063 | ) | ||||||||
Amortization of deferred loan costs Credit Facility
|
256,879 | 310,466 | | |||||||||||
(Increase) decrease in affiliated investment and interest
receivable from affiliated investment
|
2,105,033 | (1,893,186 | ) | (636,352 | ) | |||||||||
(Increase) decrease in other assets
|
4,000 | (4,000 | ) | (567,345 | ) | |||||||||
Increase (decrease) in interest payable for open interest rate
swap agreements
|
601 | (60,004 | ) | (21,917 | ) | |||||||||
Decrease in payable to affiliate for investment advisory and
administrative fees
|
(27,014 | ) | (128,204 | ) | (81,218 | ) | ||||||||
Increase (decrease) in payable to affiliate for servicing fee
|
12,375 | 14,783 | (17,506 | ) | ||||||||||
Increase (decrease) in accrued interest and other accrued
expenses and liabilities
|
(69,351 | ) | 28,444 | 634,697 | ||||||||||
Increases in Partnership Preference Units
|
(7,003 | ) | (6,151 | ) | (7,997 | ) | ||||||||
Proceeds from sales of Partnership Preference Units
|
68,120,061 | 824,087 | 23,224,548 | |||||||||||
Proceeds from sale of investment in Real Estate Joint Venture
|
| 42,281,891 | | |||||||||||
Net (increases) decreases in investment in Belvedere Company
|
(6,000,000 | ) | 1,500,000 | 106,100,000 | ||||||||||
Payment for termination of interest rate swap agreement
|
| | (1,696,299 | ) | ||||||||||
Net interest incurred on interest rate swap agreements
|
(225,977 | ) | (2,894,857 | ) | (7,958,380 | ) | ||||||||
Net realized (gain) loss from investment transactions, foreign
currency transactions and interest rate swap agreements
|
(21,145,140 | ) | 137,648,888 | 83,700,939 | ||||||||||
Net change in unrealized (appreciation) depreciation of
investments, foreign currency and interest rate swap agreements
|
(2,191,701 | ) | (234,813,836 | ) | (97,581,241 | ) | ||||||||
Net cash flows provided by operating activities
|
$ | 66,739,290 | $ | 52,803,934 | $ | 131,977,484 | ||||||||
Cash Flows From Financing Activities
|
||||||||||||||
Proceeds from Credit Facility
|
$ | | $ | 193,000,000 | $ | | ||||||||
Repayments of Credit Facility
|
(66,000,000 | ) | (243,500,000 | ) | (121,500,000 | ) | ||||||||
Payment for deferred loan costs Credit Facility
|
| (575,000 | ) | | ||||||||||
Payments for Fund shares redeemed
|
(3,750 | ) | (295,453 | ) | (758,965 | ) | ||||||||
Distributions paid to Shareholders
|
(1,822,737 | ) | (1,406,637 | ) | (9,205,776 | ) | ||||||||
Payment of Special Distributions
|
| | (1,044,908 | ) | ||||||||||
Distributions paid to minority investors
|
(16,800 | ) | (16,800 | ) | (16,800 | ) | ||||||||
Net cash flows used in financing activities
|
$ | (67,843,287 | ) | $ | (52,793,890 | ) | $ | (132,526,449 | ) | |||||
Net increase (decrease) in cash
|
$ | (1,103,997 | ) | $ | 10,044 | $ | (548,965 | ) | ||||||
Cash at beginning of year
|
$ | 1,222,976 | $ | 1,212,932 | $ | 1,761,897 | ||||||||
Cash at end of year
|
$ | 118,979 | $ | 1,222,976 | $ | 1,212,932 | ||||||||
Supplemental Disclosure and Non-cash Operating and Financing Activities | ||||||||||||||
Interest paid on loan Credit Facility
|
$ | 1,993,350 | $ | 3,497,625 | $ | 1,594,785 | ||||||||
Interest paid on interest rate swap agreements, net
|
$ | 225,376 | $ | 2,954,861 | $ | 7,980,297 | ||||||||
Reinvestment of distributions paid to Shareholders
|
$ | 843,077 | $ | 600,452 | $ | 4,083,889 | ||||||||
Market value of securities distributed in payment of redemptions
|
$ | 51,734,201 | $ | 121,523,266 | $ | 189,935,247 | ||||||||
See notes to consolidated financial
statements
43
43
Belcrest Capital Fund LLC | December 31, 2011 |
Consolidated
Financial Statements (continued)
Financial Highlights
Year Ended December 31, | ||||||||||||||
2011 | 2010 | 2009 | ||||||||||||
Net asset value Beginning of year
|
$ | 97.130 | $ | 80.330 | $ | 74.710 | ||||||||
Income (loss) from operations | ||||||||||||||
Net investment
income(1)
|
$ | 2.126 | $ | 3.048 | $ | 3.134 | ||||||||
Net realized and unrealized gain
|
3.584 | 14.002 | 3.716 | |||||||||||
Total income from operations
|
$ | 5.710 | $ | 17.050 | $ | 6.850 | ||||||||
Distributions | ||||||||||||||
Distributions to Shareholders
|
$ | (0.400 | ) | $ | (0.250 | ) | $ | (1.230 | ) | |||||
Total distributions
|
$ | (0.400 | ) | $ | (0.250 | ) | $ | (1.230 | ) | |||||
Net asset value End of year
|
$ | 102.440 | $ | 97.130 | $ | 80.330 | ||||||||
Total
Return(2)
|
5.89 | % | 21.26 | % | 9.51 | % | ||||||||
Ratios as a percentage of average net assets | ||||||||||||||
Investment advisory and administrative fees, servicing fee and
other operating
expenses(3)(4)
|
1.16 | % | 1.50 | % | 1.52 | % | ||||||||
Interest and other borrowing
costs(3)(5)
|
0.34 | % | 0.63 | % | 0.25 | % | ||||||||
Total expenses
|
1.50 | % | 2.13 | % | 1.77 | % | ||||||||
Net investment
income(5)
|
2.11 | % | 3.66 | % | 4.53 | % | ||||||||
Ratios as a percentage of average gross assets(6) | ||||||||||||||
Investment advisory and administrative fees, servicing fee and
other operating
expenses(3)(4)
|
0.81 | % | 0.77 | % | 0.77 | % | ||||||||
Interest and other borrowing
costs(3)(5)
|
0.23 | % | 0.32 | % | 0.12 | % | ||||||||
Total expenses
|
1.04 | % | 1.09 | % | 0.89 | % | ||||||||
Net investment
income(5)
|
1.47 | % | 1.87 | % | 2.26 | % | ||||||||
Supplemental Data | ||||||||||||||
Net assets, end of year (000s omitted)
|
$ | 633,024 | $ | 648,036 | $ | 652,677 | ||||||||
Portfolio turnover of Tax-Managed Growth Portfolio
|
2 | % | 2 | % | 3 | % | ||||||||
(1) | Calculated using average shares outstanding. | |
(2) | Returns are historical and are calculated by determining the percentage change in net asset value with all distributions reinvested. | |
(3) | Includes the expenses of Belcrest Capital Fund LLC (Belcrest Capital) and Belcrest Realty Corporation (Belcrest Realty). | |
(4) | Includes Belcrest Capitals share of Belvedere Capital Fund Company LLCs allocated expenses, including those expenses allocated from Tax-Managed Growth Portfolio. | |
(5) | Ratios do not include net interest earned or incurred in connection with interest rate swap agreements. Had such amounts been included, ratios would be lower or higher. | |
(6) | Average gross assets means the average daily amount of the value of all assets of Belcrest Capital (not including its investment in Belcrest Realty) plus all assets of Belcrest Realty minus the sum of their liabilities other than the principal amount of money borrowed. For this purpose, the assets and liabilities of Belcrest Realty include its ratable share of the assets and liabilities of its direct and indirect subsidiaries, real estate joint ventures and co-owned real property investments. |
See notes to consolidated financial
statements
44
44
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements
1 Organization
Belcrest Capital Fund LLC (Belcrest Capital) is a
Massachusetts 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 Belcrest Capital is to achieve long-term, after-tax
returns for Belcrest Capital shareholders (Shareholders).
Belcrest 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 1940
Act). The Portfolio is organized as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts.
Belcrest Capital maintains its investment in the Portfolio by
investing in Belvedere Capital Fund Company LLC (Belvedere
Company), a separate Massachusetts limited liability company
that invests exclusively in the Portfolio. The performance of
Belcrest Capital and Belvedere Company is directly and
substantially affected by the performance of the Portfolio. 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.
Separate from its investment in the Portfolio through Belvedere
Company, Belcrest Capital invests in real estate investments
through a controlled subsidiary, Belcrest Realty Corporation
(Belcrest Realty). Such investments include preferred equity
interests in real estate operating partnerships (Partnership
Preference Units) affiliated with publicly traded real estate
investment trusts (REITs), an investment in a real estate joint
venture (Real Estate Joint Venture) and a
tenancy-in-common
interest in real property (Co-owned Property). In
November 2010, Belcrest Realty sold its interest in the
Allagash Property Trust (Allagash) Real Estate Joint Venture.
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 (GAAP).
Management has evaluated all subsequent events and transactions
through March 7, 2012, the date the consolidated
financial statements were issued, for possible adjustment to
and/or
disclosure in the consolidated financial statements.
A Principles of
Consolidation. The
consolidated financial statements include the accounts of
Belcrest Capital and its subsidiaries (collectively, the Fund).
All material intercompany accounts and transactions have been
eliminated.
Investments in which the Fund cannot exercise a majority voting
interest, but in which the Fund has the ability to exercise
significant influence over operating and financial policies, are
presented using the equity method and stated at fair value
(Note 2E). The Real Estate Joint Venture and Co-owned
Property are presented using the equity method. Under the equity
method, the Real Estate Joint Venture and Co-owned Property are
initially recognized in the Consolidated Statements of Assets
and Liabilities at cost (provided such cost is indicative of
fair value) and are subsequently adjusted to reflect the
Funds proportionate share of the net increase (decrease)
in net assets from operations of the Real Estate Joint Venture
and Co-owned Property. The Real Estate Joint Venture and
Co-owned Property are also adjusted to reflect distributions,
contributions, advances in the form of loans, interest earned on
advances and certain other adjustments, as appropriate.
B Basis of
Presentation. Belcrest
Capital is an investment company and, as such, presents its
assets at fair value. Fixed liabilities are generally stated at
amounts payable.
C Cash. The
Fund considers deposits in banks that can be liquidated without
prior notice or penalty to be cash.
45
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
D Investment
Costs. The financial
reporting cost basis of the Funds investment in Belvedere
Company is the aggregate initial fair value of all securities
contributed to Belvedere Company by the Fund adjusted for the
estimated allocation of the Funds share of net investment
income or loss and net realized gain or loss of Belvedere
Company as well as other adjustments including the value of
securities and cash contributed to Belvedere Company and
received from Belvedere Company for redemptions or
distributions. The tax cost basis of the Funds investment
in Belvedere Company is the aggregate tax cost basis of all
securities contributed to Belvedere Company by the Fund adjusted
for the Funds share of income or loss and net realized
capital gain or loss of Belvedere Company determined in
accordance with federal income tax regulations as well as other
adjustments including, but not limited to, basis adjustments
determined in accordance with federal income tax regulations,
and the tax cost basis of securities and cash contributed to
Belvedere Company and received from Belvedere Company for
redemptions or distributions.
The financial reporting cost basis of the Funds
Partnership Preference Units purchased by the Fund is the
purchase cost. The financial reporting cost basis of the
Funds real estate investments accounted for using the
equity method is the purchase cost adjusted to reflect the
Funds proportionate share of the net investment income or
loss and net realized gain or loss of such real estate
investment as well as other adjustments, as appropriate,
including cash contributions and distributions. The tax cost
basis of the Funds real estate investments purchased by
the Fund is typically the purchase cost adjusted for certain
items including depreciation of real estate assets and
distributions treated as a return of capital for tax purposes.
E Investment and Other
Valuations. The Fund
invests in shares of Belvedere Company, Partnership Preference
Units, a Real Estate Joint Venture and Co-owned Property. The
Real Estate Joint Venture and Co-owned Property are referred to
herein collectively as Subsidiary Real Estate Investments. The
Fund may also invest cash on a temporary basis in Eaton Vance
Cash Reserves Fund, LLC (Cash Reserves Fund). Cash Reserves Fund
is an affiliated investment company managed by Eaton Vance
Management (Eaton Vance). Additionally, Belcrest Capital has
entered into interest rate swap agreements (Note 10).
Belvedere Companys only investment is an interest in the
Portfolio, the value of which is derived from a proportional
interest therein. Valuation of securities by the Portfolio is
discussed in Note 1A of the Portfolios Notes to
Financial Statements, which are included elsewhere in this
report. Boston Management and Research (Boston Management), a
subsidiary of Eaton Vance, makes valuation determinations in
accordance with the Funds policies. The valuation policies
followed by the Fund are as follows:
Market prices for the Funds investments in Partnership
Preference Units and Subsidiary Real Estate Investments are not
readily available. Such investments are stated in the
Funds consolidated financial statements at fair value
which represents the amount at which Boston Management, as
manager of Belcrest Realty, believes would be received to sell
an asset in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants
under current market conditions. In valuing these investments,
Boston Management considers relevant factors, data and
information.
Valuations of the Funds Partnership Preference Units and
Subsidiary Real Estate Investments are inherently uncertain
because they involve the use of assumptions and estimates. If
the assumptions and estimates used in the valuations were to
change, it could materially impact the fair value of the
Funds holdings of Partnership Preference Units and
Subsidiary Real Estate Investments.
The fair value of property held by the Funds Subsidiary
Real Estate Investments is based on appraisals provided by
independent, licensed appraisers (Appraisers) and valuations, if
applicable, prepared by Boston Management.
The appraisals of properties are conducted by Appraisers on at
least an annual basis. Appraisals of properties may be conducted
more frequently than once a year if Boston Management determines
that significant changes in economic circumstances, that may
materially impact fair values, have occurred since the most
recent appraisal.
46
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
Each appraisal is conducted in accordance with the Uniform
Standards of Professional Appraisal Practices (as well as other
relevant standards). Boston Management reviews the appraisal of
each property and generally relies on the assumptions and
estimates made by the Appraiser when determining fair value.
In deriving the fair 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.
For those properties not appraised by Appraisers in a given
quarter, Boston Management will review the fair values of such
properties and, if Boston Management believes it is warranted
based on the appraisals of appraised properties or for other
reasons, Boston Management may prepare a valuation of such
properties considering results of operations, market conditions,
significant changes in economic circumstances, recent
independent appraisals of similar properties
and/or other
relevant facts or circumstances. In determining valuations,
Boston Management follows a process consistent with industry
practice and the practice of Appraisers, as described above.
Valuations may occur more frequently than quarterly if it is
determined by Boston Management that the current property
valuation has changed materially since the most recent appraisal
or valuation.
Boston Management determines the fair value of the Funds
equity interest in a Real Estate Joint Venture based on an
estimate of the allocation of equity interests between Belcrest
Realty and the unaffiliated minority investor of the Real Estate
Joint Venture (the Operating Partner). This allocation is
generally calculated by a third party specialist, using current
valuations of the properties owned by the Real Estate Joint
Venture. The specialist uses a financial model that considers
(i) the terms of the joint venture agreement relating to
allocation of distributable cash flow, (ii) the expected
duration of the joint venture, and (iii) the projected
property values and cash flows from the properties based on
estimates used in the property valuations. The estimated
allocation of equity interests between Belcrest Realty and the
Operating Partner of a Real Estate Joint Venture is prepared
quarterly and reviewed by Boston Management. Interim allocations
of equity interests may be conducted more frequently than
quarterly if Boston Management determines that significant
changes in economic circumstances that may materially impact the
allocation of equity interests have occurred since the most
recent allocation.
Boston Management determines the fair value of the Funds
interest in Co-owned Property by applying the Funds
ownership interest to the net asset value of the Co-owned
Property.
The fair value of the Partnership Preference Units is based on
analysis and calculations performed on at least 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 adjusted to take such occurrences into account.
Boston Management reviews the analysis and calculations
performed by the service provider. Boston Management generally
relies on the assumptions and estimates made by the service
provider when determining the fair value of the Partnership
Preference Units.
Cash Reserves Fund generally values its investment securities
utilizing the amortized cost valuation technique in accordance
with
Rule 2a-7
under the 1940 Act. This technique involves initially valuing a
portfolio security at its
47
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
cost and thereafter assuming a constant amortization to maturity
of any discount or premium. If amortized cost is determined not
to approximate fair value, Cash Reserves Fund may value its
investment securities based on available market quotations
provided by a third party pricing service.
Interest rate swap agreements are normally valued on the basis
of valuations furnished daily by a third party pricing service.
The valuations are based on the present value of fixed and
projected floating rate cash flows over the term of the
agreement. Future cash flows are discounted to their present
value using swap quotations provided by electronic data services
or by broker-dealers.
Changes in the fair value of the Funds investments are
recorded as unrealized appreciation (depreciation) in the
Consolidated Statements of Operations.
F Interest Rate
Swaps. Belcrest
Capital has entered into interest rate swap agreements to fix
the cost of a portion of its borrowings under the Credit
Facility (Note 11A). Pursuant to the agreements, Belcrest
Capital makes periodic payments to the counterparty at
predetermined fixed rates in exchange for floating rate payments
that fluctuate with the
one-month
London Interbank Offered Rate (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.
G Income. Belvedere
Companys net investment income or loss consists of
Belvedere Companys pro rata share of the net investment
income or loss of the Portfolio, less all expenses of Belvedere
Company, determined in accordance with GAAP.
The Funds net investment income or loss consists of the
Funds pro rata share of the net investment income or loss
of Belvedere Company, the Funds pro rata share of the net
investment income or loss of Cash Reserves Fund and Cash
Management Portfolio (Cash Management), an affiliated investment
company managed by Boston Management in which the Fund
previously invested through February 2010, plus all net
investment income earned on the Funds real estate
investments, less all expenses of the Fund, determined in
accordance with GAAP.
Distributions from Partnership Preference Units are recorded on
the ex-dividend date or on the date the Fund is informed of the
distribution. Income or loss from the Real Estate Joint Venture
and Co-owned Property is recorded based on the Funds
proportional interest in the net investment income or loss
earned or incurred by the Real Estate Joint Venture and Co-owned
Property.
Interest income is recorded on the accrual basis.
H Deferred Loan
Costs. Deferred loan
costs are amortized over the term of the related debt and are
included in other assets. Amortization expense of deferred loan
costs is included in interest expense. Unamortized loan costs
are expensed when debt is retired before the maturity date.
I Income
Taxes. Belcrest
Capital, Belvedere Company and the Portfolio are treated as
partnerships for federal income tax purposes. As a result,
Belcrest Capital, Belvedere Company and the Portfolio do not
incur federal income tax liability, and the Shareholders and
partners thereof are individually responsible for taxes on items
of partnership income, gain, loss and deduction. The policy of
Belcrest Realty is to comply with the provisions of the Internal
Revenue Code of 1986, as amended, applicable to REITs. Belcrest
Realty will generally not be subject to federal income tax to
the extent that it distributes its taxable income to its
stockholders each year and maintains its qualification as a
REIT. Subsidiaries of Belcrest Realty are generally treated as
pass-through entities for federal income tax purposes.
In the event the Fund recognizes an uncertain tax position,
related interest expense and penalties will be recognized as tax
expense when incurred.
48
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
Net investment income and capital gains determined in accordance
with income tax regulations may differ from such amounts
determined in accordance with GAAP. Such differences could be
significant and are primarily due to differences in the cost
basis of securities and other contributed investments,
depreciation of real estate assets, periodic payments made or
received in connection with interest rate swap agreements and
the character of distributions received from Belcrest Realty and
real estate investments thereof.
The Fund files numerous tax returns. With few exceptions,
the Fund is not subject to U.S. federal, state or local tax
examinations by taxing authorities for years prior to 2008.
J Investment
Transactions. Investment
transactions for financial statement purposes are accounted for
on a trade date basis. Realized gains and losses on investments
sold are determined on the basis of identified cost.
K Expense
Reduction. State
Street Bank and Trust Company (SSBT) serves as custodian
and transfer agent of the Fund. Pursuant to the custodian and
transfer agent agreement, SSBT receives a fee reduced by
credits, which are determined based on the average daily cash
balance the Fund maintains with SSBT. All credit balances used
to reduce the Funds custodian and transfer agent fees are
reported as a reduction of expenses in the Consolidated
Statements of Operations.
L Use of
Estimates. The
preparation of financial statements in conformity with GAAP
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.
M Indemnifications and
Guarantees. Under
Belcrest Capitals operating agreement, Belcrest
Capitals officers, its manager, investment adviser, and
any affiliate, associate, officer, employee or trustee thereof,
and any manager, director, officer or employee of Belcrest
Realty or any other 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 Belcrest Capital. Additionally,
in the normal course of business, the Fund enters into
agreements with service providers, lenders and counterparties
that may contain indemnification or guarantee clauses. The
Funds maximum exposure under these arrangements is
unknown, as this would involve possible future claims that may
be made against the Fund that have not yet occurred.
3 Fair
Value Measurements
GAAP establishes a
three-tier
hierarchy to prioritize the assumptions, referred to as inputs,
used in valuation techniques to measure fair value. The three
levels of the fair value hierarchy are described below.
| Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
| Level 2 Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly; |
| Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
In determining the fair value of its investments, the Fund uses
appropriate valuation techniques based on available inputs. The
Fund maximizes its use of observable inputs and minimizes the
use of unobservable inputs when measuring fair value. If market
data is not readily available, fair value is based upon other
significant unobservable inputs such as inputs that reflect the
Funds own assumptions about the inputs market participants
would use in valuing the investment. Investments valued using
unobservable inputs are classified to the lowest level of any
input
49
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
that is significant to the valuation. Thus, a valuation may be
classified as Level 3 even though the valuation may include
significant inputs that are readily observable. The Funds
assets classified as Level 3 as of December 31, 2011
and 2010 represent 13.1% and 16.4% of the Funds total
assets, respectively.
The following tables present for each of the hierarchy levels,
the Funds assets and liabilities that are measured at fair
value as of December 31, 2011 and 2010.
Fair Value Measurements at December 31, 2011 | ||||||||||||||||||
Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||
Assets
|
||||||||||||||||||
Investment in Belvedere
Company(1)
|
$ | 618,043,582 | $ | | $ | 618,043,582 | $ | | ||||||||||
Partnership Preference Units
|
15,819,710 | | | 15,819,710 | ||||||||||||||
Real Estate Joint Venture
|
75,598,042 | | | 75,598,042 | ||||||||||||||
Co-owned Property
|
1,956,437 | | | 1,956,437 | ||||||||||||||
Short-term investment
|
1,126,681 | | 1,126,681 | | ||||||||||||||
Total
|
$ | 712,544,452 | $ | | $ | 619,170,263 | $ | 93,374,189 | ||||||||||
Liabilities
|
||||||||||||||||||
Interest rate swap agreements
|
$ | 714,321 | $ | | $ | 714,321 | $ | | ||||||||||
Fair Value Measurements at December 31, 2010 | ||||||||||||||||||
Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||
Assets
|
||||||||||||||||||
Investment in Belvedere
Company(1)
|
$ | 659,946,022 | $ | | $ | 659,946,022 | $ | | ||||||||||
Partnership Preference Units
|
72,580,818 | | | 72,580,818 | ||||||||||||||
Real Estate Joint Venture
|
55,149,311 | | | 55,149,311 | ||||||||||||||
Co-owned Property
|
2,926,700 | | | 2,926,700 | ||||||||||||||
Short-term investment
|
3,230,918 | | 3,230,918 | | ||||||||||||||
Total
|
$ | 793,833,769 | $ | | $ | 663,176,940 | $ | 130,656,829 | ||||||||||
Liabilities
|
||||||||||||||||||
Interest rate swap agreements
|
$ | 710,801 | $ | | $ | 710,801 | $ | | ||||||||||
(1)
|
Belvedere Companys only investment is an interest in the Portfolio, a management investment company registered under the 1940 Act that invests primarily in a diversified portfolio of equity securities. Belvedere Companys investment in the Portfolio is classified as Level 1. However, because the Fund invests in the Portfolio through Belvedere Company, which is not registered under the 1940 Act, the Funds investment in Belvedere Company is classified as Level 2. |
50
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
The following tables present the changes in the Level 3
fair value category for the years ended December 31, 2011,
2010 and 2009.
Level 3 Fair Value Measurements for the |
||||||||||||||||||
Year Ended December 31, 2011 | ||||||||||||||||||
Partnership |
Real Estate |
|||||||||||||||||
Preference |
Joint |
Co-owned |
||||||||||||||||
Units | Venture | Property | Total | |||||||||||||||
Beginning balance as of December 31, 2010
|
$ | 72,580,818 | $ | 55,149,311 | $ | 2,926,700 | $ | 130,656,829 | ||||||||||
Net realized loss
|
(2,706,609 | ) | | | (2,706,609 | ) | ||||||||||||
Net change in unrealized appreciation (depreciation)
|
14,058,559 | 17,501,001 | (1,600,000 | ) | 29,959,560 | |||||||||||||
Cost of purchases
|
7,003 | | | 7,003 | ||||||||||||||
Proceeds from sales
|
(68,120,061 | ) | | | (68,120,061 | ) | ||||||||||||
Net investment
income(1)
|
| 8,111,750 | 628,336 | 8,740,086 | ||||||||||||||
Other(2)
|
| (5,164,020 | ) | 1,401 | (5,162,619 | ) | ||||||||||||
Ending balance as of December 31, 2011
|
$ | 15,819,710 | $ | 75,598,042 | $ | 1,956,437 | $ | 93,374,189 | ||||||||||
Net change in unrealized appreciation (depreciation) from
investments still held at December 31, 2011
|
$ | 1,420,812 | $ | 17,501,001 | $ | (1,600,000 | ) | $ | 17,321,813 | |||||||||
Level 3 Fair Value Measurements for the |
||||||||||||||||||
Year Ended December 31, 2010 | ||||||||||||||||||
Partnership |
Real Estate |
|||||||||||||||||
Preference |
Joint |
Co-owned |
||||||||||||||||
Units | Ventures | Property | Total | |||||||||||||||
Beginning balance as of December 31, 2009
|
$ | 69,274,637 | $ | 72,575,344 | $ | 2,335,863 | $ | 144,185,844 | ||||||||||
Net realized gain (loss)
|
119,339 | (137,644,457 | ) | | (137,525,118 | ) | ||||||||||||
Net change in unrealized appreciation (depreciation)
|
4,004,778 | 161,879,938 | | 165,884,716 | ||||||||||||||
Net sales
|
(817,936 | ) | (42,281,891 | ) | | (43,099,827 | ) | |||||||||||
Net investment
income(1)
|
| 16,300,186 | 589,670 | 16,889,856 | ||||||||||||||
Other(2)
|
| (15,679,809 | ) | 1,167 | (15,678,642 | ) | ||||||||||||
Ending balance as of December 31, 2010
|
$ | 72,580,818 | $ | 55,149,311 | $ | 2,926,700 | $ | 130,656,829 | ||||||||||
Net change in unrealized appreciation (depreciation) from
investments still held at December 31, 2010
|
$ | 4,054,780 | $ | 9,711,775 | $ | | $ | 13,766,555 | ||||||||||
51
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
Level 3 Fair Value Measurements for the |
||||||||||||||||||
Year Ended December 31, 2009 | ||||||||||||||||||
Partnership |
Real Estate |
|||||||||||||||||
Preference |
Joint |
Co-owned |
||||||||||||||||
Units | Ventures | Property | Total | |||||||||||||||
Beginning balance as of December 31, 2008
|
$ | 74,502,385 | $ | 183,246,169 | $ | 4,581,534 | $ | 262,330,088 | ||||||||||
Net realized loss
|
(12,744,455 | ) | (2,033,278 | ) | | (14,777,733 | ) | |||||||||||
Net change in unrealized appreciation (depreciation)
|
30,733,258 | (112,627,913 | ) | (2,799,999 | ) | (84,694,654 | ) | |||||||||||
Net sales
|
(23,216,551 | ) | | | (23,216,551 | ) | ||||||||||||
Net investment
income(1)
|
| 17,706,930 | 552,265 | 18,259,195 | ||||||||||||||
Other(2)
|
| (13,716,564 | ) | 2,063 | (13,714,501 | ) | ||||||||||||
Ending balance as of December 31, 2009
|
$ | 69,274,637 | $ | 72,575,344 | $ | 2,335,863 | $ | 144,185,844 | ||||||||||
Net change in unrealized appreciation (depreciation) from
investments still held at December 31, 2009
|
$ | 17,322,191 | $ | (112,627,913 | ) | $ | (2,799,999 | ) | $ | (98,105,721 | ) | |||||||
(1)
|
Represents net investment income from the Real Estate Joint Ventures and Co-owned Property. | |
(2)
|
Represents net capital contributions (distributions) to (from) the Real Estate Joint Ventures and Co-owned Property. |
4 Shareholder
Transactions
Belcrest Capital may issue an unlimited number of full and
fractional Fund shares. Transactions in Fund shares were as
follows:
Year Ended December 31, | ||||||||||||||
2011 | 2010 | 2009 | ||||||||||||
Issued to Shareholders electing to receive payment of
distributions in Fund shares
|
8,535 | 7,630 | 60,075 | |||||||||||
Redemptions
|
(500,673 | ) | (1,461,063 | ) | (2,761,170 | ) | ||||||||
Net decrease
|
(492,138 | ) | (1,453,433 | ) | (2,701,095 | ) | ||||||||
At December 31, 2011, one Shareholder owned 15% of the
Funds shares outstanding.
5 Distributions
to Shareholders
Belcrest Capital intends to distribute at the end of each year,
or shortly thereafter, an amount approximately equal to the
taxes payable on its net investment income allocated to
Shareholders.
Belcrest Capital also intends to distribute at the end of each
year, or shortly thereafter, approximately 18% of its net
realized capital gains, if any, other than precontribution gains
allocated to a Shareholder in connection with a taxable tender
offer or other taxable corporate event with respect to a
security contributed by that Shareholder or such
Shareholders predecessor in interest. Whenever a
distribution in respect of a precontribution gain is made,
Belcrest Capital intends to make a supplemental distribution to
compensate Shareholders receiving such distributions for taxes
that may be due on income specially allocated in connection with
the precontribution gain and supplemental distributions. Capital
gain distributions that are made with respect to realized
precontribution gains and the associated supplemental
distributions (collectively, Special Distributions) are made
solely to the Shareholders to whom such realized precontribution
gain is allocated. There were no Special Distributions paid or
52
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
accrued during the years ended December 31, 2011 and 2010.
Special Distributions of $1,044,908 were accrued during the year
ended December 31, 2008 and subsequently paid during the
year ended December 31, 2009.
The Funds 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 Funds 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 GAAP. The amount of the Funds
distributions may be adjusted in the future to reflect changes
in effective tax rates. In determining the Funds capital
gain distributions for any year, the net capital gains realized
by the Fund for that year will be reduced by the cumulative
amount of any Fund capital losses from prior years not
previously applied against net realized capital gains for
distribution purposes.
In addition, Belcrest Realty intends to distribute to Belcrest
Capital substantially all of its taxable income earned during
the year.
6 Investment
Transactions
The following table summarizes the Funds investment
transactions, other than short-term investments, for the years
ended December 31, 2011, 2010 and 2009.
Year Ended December 31, | ||||||||||||||
Investment Transactions | 2011 | 2010 | 2009 | |||||||||||
Increases in investment in Belvedere Company
|
$ | 7,000,000 | $ | | $ | | ||||||||
Decreases in investment in Belvedere Company
|
$ | 52,734,201 | $ | 123,023,266 | $ | 296,035,247 | ||||||||
Increases in Partnership Preference Units
|
$ | 7,003 | $ | 6,151 | $ | 7,997 | ||||||||
Decreases in Partnership Preference
Units(1)
|
$ | 68,120,061 | $ | 824,087 | $ | 23,224,548 | ||||||||
Decreases in investment in Real Estate Joint Ventures
|
$ | 6,491,401 | $ | 57,961,700 | $ | 13,716,564 | ||||||||
Increases in investment in Co-owned Property
|
$ | 1,401 | $ | 1,167 | $ | 2,063 | ||||||||
(1)
|
In March 2011, Belcrest Realty exchanged Partnership Preference Units for preferred stock of the respective issuer and subsequently sold the preferred stock for $52,522,511, for which an aggregate realized loss of $2,477,489 was recognized on the transaction. The aggregate realized loss on this transaction is included in investment transactions in Partnership Preference Units in the Consolidated Statements of Operations. |
53
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
7 Indirect
Investment in the Portfolio
The following table summarizes the Funds investment in the
Portfolio through Belvedere Company for the years ended
December 31, 2011, 2010 and 2009, including allocations of
income, expenses and net realized and unrealized gains (losses).
Year Ended December 31, | ||||||||||||||
2011 | 2010 | 2009 | ||||||||||||
Belvedere Companys interest in the
Portfolio(1)
|
$ | 5,765,128,455 | $ | 6,395,233,719 | $ | 6,702,473,451 | ||||||||
The Funds investment in Belvedere
Company(2)
|
$ | 618,043,582 | $ | 659,946,022 | $ | 705,444,925 | ||||||||
Income allocated to Belvedere Company from the Portfolio
|
$ | 123,475,616 | $ | 120,267,234 | $ | 154,559,605 | ||||||||
Income allocated to the Fund from Belvedere Company
|
$ | 12,894,747 | $ | 12,482,907 | $ | 16,851,474 | ||||||||
Expenses allocated to Belvedere Company from the Portfolio
|
$ | 29,269,272 | $ | 29,967,675 | $ | 31,400,023 | ||||||||
Expenses allocated to the Fund from Belvedere
Company(3)
|
$ | 4,048,792 | $ | 4,127,587 | $ | 4,525,297 | ||||||||
Net realized gain (loss) from investment and foreign currency
transactions
allocated to Belvedere Company from the Portfolio |
$ | 160,906,953 | $ | 27,472,227 | $ | (540,322,752 | ) | |||||||
Net realized gain (loss) from investment and foreign currency
transactions
allocated to the Fund from Belvedere Company |
$ | 22,750,145 | $ | 2,770,704 | $ | (59,270,474 | ) | |||||||
Net change in unrealized appreciation (depreciation) of
investments and foreign
currency allocated to Belvedere Company from the Portfolio |
$ | (209,204,550 | ) | $ | 639,001,126 | $ | 1,646,321,220 | |||||||
Net change in unrealized appreciation (depreciation) of
investments and foreign
currency allocated to the Fund from Belvedere Company |
$ | (27,764,339 | ) | $ | 66,398,339 | $ | 176,008,259 | |||||||
(1)
|
As of December 31, 2011, 2010 and 2009, the value of Belvedere Companys interest in the Portfolio represents 71.4%, 70.7% and 70.7% of the Portfolios net assets, respectively. | |
(2)
|
As of December 31, 2011, 2010 and 2009, the Funds investment in Belvedere Company represents 10.7%, 10.3% and 10.5% of Belvedere Companys net assets, respectively. | |
(3)
|
Expenses allocated to the Fund from Belvedere Company represent: |
Year Ended December 31, | ||||||||||||||
2011 | 2010 | 2009 | ||||||||||||
Expenses allocated from the Portfolio
|
$ | 3,055,374 | $ | 3,115,773 | $ | 3,418,261 | ||||||||
Servicing fee (see Note 12)
|
$ | 964,892 | $ | 983,166 | $ | 1,081,255 | ||||||||
Operating expenses
|
$ | 28,526 | $ | 28,648 | $ | 25,781 | ||||||||
8 Investment
in Real Estate Joint Venture
At December 31, 2011 and 2010, Belcrest Realty owned a
majority economic interest in one Real Estate Joint Venture,
Lafayette Real Estate LLC (Lafayette). In November 2010,
Belcrest Realty sold its interest in Allagash to a third party
for $42,281,891.
A board of managers controls the business of the Real Estate
Joint Venture. Each of Belcrest Realty and the Operating Partner
of the Real Estate Joint Venture has representation on the board
and the unanimous consent of the board is required for all major
decisions (which include such actions as (i) capital
transactions (i.e., acquisitions, dispositions or financings);
(ii) organizational events (i.e., mergers or liquidation);
and (iii) operating plans (i.e., annual budgets)). The
board of the Real Estate Joint Venture has delegated the
day-to-day
administration of the Real Estate Joint Venture and the
day-to-day
management of its real properties to the Operating Partner.
Through its control of the
day-to-day
operations of the Real Estate Joint Venture and its properties,
as well as its required consent to all major decisions affecting
the Real Estate Joint Venture, the
54
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
Operating Partner has significant participating rights and
responsibilities with respect to the Real Estate Joint Venture.
The Operating Partner receives management-related fees from the
Real Estate Joint Venture and, in addition, is reimbursed for
certain payroll and other direct expenses incurred.
Distributable cash flows from operations of the Real Estate
Joint Venture are allocated per the Real Estate Joint Venture
agreement in a manner that provides Belcrest Realty: 1) a
priority 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 Belcrest Realty and the subordinated preferred return
of the Operating Partner. Distributable cash flows from
dispositions of real properties or liquidation of the Real
Estate Joint Venture are allocated on a pro rata basis up until
the return of Belcrest Realty and the Operating Partners
contributed capital with any excess allocated in a manner
similar to that of cash flows from operations.
The Real Estate Joint Venture is financed through mortgage notes
secured by the real property. The mortgage notes are without
recourse to Fund Shareholders and generally without
recourse to Belcrest Capital and Belcrest Realty.
Lafayettes mortgage notes mature between March 2017
and January 2020.
Pursuant to an agreement with the Lafayette Operating Partner,
Lafayette may be liquidated at any time upon unanimous consent
of the board or after December 5, 2016 by either Belcrest
Realty or the Lafayette Operating Partner.
Combined and condensed financial data of the Real Estate Joint
Ventures is presented below.
December 31, | ||||||||||
2011 | 2010 | |||||||||
Investment in real estate
|
$ | 364,000,000 | $ | 336,400,000 | ||||||
Other assets
|
9,486,364 | 8,048,778 | ||||||||
Total assets
|
$ | 373,486,364 | $ | 344,448,778 | ||||||
Mortgage notes payable, at
face(1)
|
$ | 254,501,804 | $ | 255,408,696 | ||||||
Other liabilities
|
4,710,364 | 4,848,969 | ||||||||
Total liabilities
|
$ | 259,212,168 | $ | 260,257,665 | ||||||
Shareholders equity
|
$ | 114,274,196 | $ | 84,191,113 | ||||||
Total liabilities and shareholders equity
|
$ | 373,486,364 | $ | 344,448,778 | ||||||
Year Ended December 31, | ||||||||||||||
2011 | 2010(2) | 2009 | ||||||||||||
Revenues
|
$ | 40,799,745 | $ | 74,421,093 | $ | 80,016,600 | ||||||||
Expenses
|
28,564,828 | 52,763,919 | 57,573,784 | |||||||||||
Net investment income before realized and unrealized gain (loss)
|
$ | 12,234,917 | $ | 21,657,174 | $ | 22,442,816 | ||||||||
Realized loss
|
| | (2,435,063 | ) | ||||||||||
Change in net unrealized appreciation (depreciation)
|
24,871,748 | 15,463,028 | (149,782,397 | ) | ||||||||||
Net increase (decrease) in net assets resulting from
operations
|
$ | 37,106,665 | $ | 37,120,202 | $ | (129,774,644 | ) | |||||||
(1)
|
The mortgage notes payable generally cannot be prepaid or otherwise disposed of without incurring a substantial prepayment penalty. The Real Estate Joint Venture generally has no current plans to prepay or otherwise dispose of the mortgage notes payable without the sale of the related real property. | |
(2)
|
Includes the results of operations of Allagash through the date of sale in November 2010. |
55
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
9 Investment
in Co-owned Property
At December 31, 2011 and 2010, Belcrest Realty held an
investment in Co-owned Property through Bel Stamford I LLC.
The other investors in the Co-owned Property are real estate
investment affiliates of other investment funds advised by
Boston Management. The Co-owned Property is financed through a
mortgage note secured by the real property. The mortgage note is
generally without recourse to Belcrest Capital and Belcrest
Realty, except that there may be recourse for certain
liabilities arising from actions such as fraud,
misrepresentation, misappropriation of funds or breach of
material covenants and liabilities arising from environmental
conditions.
10 Interest
Rate Swap Agreements
Belcrest Capital has entered into interest rate swap agreements
with Merrill Lynch Capital Services, Inc. to fix the cost of a
portion of its borrowings under the Credit Facility
(Note 11A). Pursuant to the agreements, Belcrest Capital
makes periodic payments to the counterparty at predetermined
fixed rates in exchange for floating rate payments that
fluctuate with
one-month
LIBOR. The notional or contractual amounts of these instruments
may not necessarily represent the amounts potentially subject to
risk. The measurement of the risks associated with these
investments is meaningful only when considered in conjunction
with all related assets, liabilities and agreements. The risks
of interest rate swap agreements include changes in market
conditions that will affect the value of the agreement or the
cash flows and the possible inability of the counterparty to
fulfill its obligations under the agreement. Belcrest
Capitals maximum risk of loss from counterparty credit
risk is the discounted net value of the cash flows to be
received from/paid to the counterparty over the agreements
remaining life, to the extent that the amount is positive. See
Note 2 for additional accounting and valuation policies.
The following table summarizes Belcrest Capitals interest
rate swap agreements.
Liability Derivatives at December 31, | ||||||||||
Derivatives Not Designated as Hedging Instruments | 2011 | 2010 | ||||||||
Notional amount
|
$ | 3,870,000 | $ | 3,870,000 | ||||||
Average notional amount during the respective period
|
$ | 3,870,000 | $ | 82,554,000 | ||||||
Weighted average fixed interest rate
|
6.29% | 6.29% | ||||||||
Floating rate
|
LIBOR + 0.30% | LIBOR + 0.30% | ||||||||
Final termination date
|
7/2015 | 7/2015 | ||||||||
Fair value
|
$ | (714,321 | ) | $ | (710,801 | ) | ||||
11 Debt
A Credit
Facility. Belcrest
Capital has a credit arrangement with Bank of America (the
Credit Facility). The Credit Facility may be terminated by the
lender on or after March 25, 2013 provided
180 days notice is given. Belcrest Capital may
terminate the Credit Facility upon 30 days notice.
In March 2011, Belcrest Capital amended the Credit Facility
to decrease its total commitment by $65,000,000 to an aggregate
amount available for borrowing of $135,000,000. At
December 31, 2011, Belcrest Capital had outstanding
borrowings under the Credit Facility of $78,000,000. The fair
value of the Credit Facility approximates its carrying value at
December 31, 2011 and 2010.
Belcrest Capital pays a rate of interest equal to
three-month
LIBOR plus 1.25% per annum, reduced from 1.50% and 1.75% in
August and March 2011, respectively, on outstanding
borrowings under the Credit Facility. A commitment fee is paid
on the unused commitment amount equal to 0.25% per annum,
reduced from 0.40% in March 2011. Belcrest Capital will
incur an additional fee if outstanding borrowings fall below
certain levels.
56
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
Obligations under the Credit Facility are without recourse to
Shareholders. Belcrest Capital is required under the Credit
Facility to maintain at all times a specified asset coverage
ratio. The rights of the lender to receive payments of interest
on and repayments of principal of borrowings are senior to the
rights of Shareholders. Under the terms of the Credit Facility,
Belcrest Capital is not permitted to make distributions of cash
or securities while there is outstanding any event of default
under the Credit Facility. During such periods, Belcrest Capital
would not be able to honor redemption requests or make cash
distributions. The Credit Facility is secured by a pledge of
Belcrest Capitals assets, excluding the Funds real
estate investments.
Borrowings under the Credit Facility have been used to purchase
the Funds interests in real estate investments, to pay
selling commissions and organizational expenses and to provide
for the liquidity needs of the Fund. Additional borrowings under
the Credit Facility may be made in the future for these purposes.
B Average Borrowings and
Average Interest
Rate. During the year
ended December 31, 2011, the average balance of borrowings
under the Credit Facility was approximately $93,800,000 with a
weighted average interest rate of 2.31%. The weighted average
interest rate includes all costs of borrowings under the Credit
Facility.
12 Management
Fee and Other Transactions with Affiliates
Belcrest 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 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, 2011, 2010 and 2009, the advisory
fee applicable to the Portfolio was 0.46%, 0.46% and 0.45% of
average daily net assets, respectively.
Belcrest Capital pays Boston Management a monthly advisory and
administrative fee of 1/20 of 1% (equivalent to 0.60% annually)
of the average daily gross investment assets of Belcrest
Capital. The term gross investment assets means the
value of all assets of Belcrest Capital, other than Belcrest
Capitals investment in Belcrest Realty, minus the sum of
Belcrest Capitals liabilities other than the principal
amount of money borrowed. The advisory fee payable to Boston
Management in respect of Belcrest Capitals indirect
investment in the Portfolio is credited towards Belcrest
Capitals advisory and administrative fee payment, reducing
the amount of such fee that would otherwise be payable by
Belcrest Capital. Belcrest 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 investment assets of
Belcrest Realty. The term gross investment assets
means the value of all assets of Belcrest Realty minus the sum
of Belcrest Realtys liabilities other than the principal
amount of money borrowed. For this purpose, the assets and
liabilities of Belcrest Realty include its ratable share of the
assets and liabilities of its direct and indirect subsidiaries,
real estate joint ventures and co-owned real property
investments.
Eaton Vance and Boston Management do not receive separate
compensation for serving as manager of Belcrest Capital and
manager of Belvedere Company, respectively. Eaton Vance does not
currently receive a fee for advisory services provided to Cash
Reserves Fund. Cash Managements advisory and
administrative fees paid to Boston Management in respect of
Belcrest Capitals investment therein was credited towards
Belcrest Capitals advisory and administrative fee
payments, reducing the amount of such fees otherwise paid by
Belcrest Capital.
Pursuant to a servicing agreement between Belvedere Company and
Eaton Vance Distributors, Inc. (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
Companys average daily net assets. Pursuant to a servicing
agreement between Belcrest Capital and EV Distributors, Belcrest
Capital pays a servicing fee to EV Distributors on a quarterly
basis at an annual rate of 0.20% of Belcrest Capitals
average daily net assets. Belcrest Capitals allocated
share of the servicing fee payable by Belvedere Company is
credited towards Belcrest Capitals servicing fee payment,
57
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
reducing the amount of such fee that would otherwise be payable
by Belcrest Capital. With respect to Shareholders who subscribe
through a subagent, EV Distributors has assigned servicing
responsibilities and fees to the applicable subagent.
The table below sets forth the fees paid or payable by, or
allocable to, the Fund for the years ended December 31,
2011, 2010 and 2009 in connection with the services rendered by
Eaton Vance and its affiliates.
Year Ended December 31, | ||||||||||||||
2011 | 2010 | 2009 | ||||||||||||
Advisory fee allocated to Belvedere Company from the Portfolio
|
$ | 28,163,565 | $ | 28,742,601 | $ | 29,752,815 | ||||||||
Advisory fee allocated to the Fund from Belvedere Company
|
$ | 2,939,950 | $ | 2,988,131 | $ | 3,238,375 | ||||||||
Advisory fee allocated to the Fund from Cash Management
|
$ | | $ | 274 | $ | 11,100 | ||||||||
Advisory and administrative fees incurred directly by the Fund
|
$ | 2,635,750 | $ | 4,201,148 | $ | 4,634,392 | ||||||||
Servicing fee of Belvedere Company
|
$ | 9,242,889 | $ | 9,457,376 | $ | 9,934,858 | ||||||||
Servicing fee allocated to the Fund from Belvedere
Company(1)
|
$ | 964,892 | $ | 983,166 | $ | 1,081,255 | ||||||||
Servicing fee incurred directly by the
Fund(1)
|
$ | 330,646 | $ | 245,133 | $ | 237,556 | ||||||||
(1)
|
Amounts include servicing fee paid or accrued to subagents of $1,295,515, $1,228,281 and $1,318,795, respectively. |
13 Segment
Information
Belcrest Capital pursues its investment objective primarily by
investing indirectly in the Portfolio through Belvedere Company.
The Portfolio is a diversified investment company that
emphasizes investments in common stocks of domestic and foreign
growth companies that are considered by its investment adviser
to be high in quality and attractive in their long-term
investment prospects. The Funds investment income includes
the Funds pro rata share of Belvedere Companys net
investment income. Separate from its investment in Belvedere
Company, Belcrest Capital invests in real estate investments
through Belcrest Realty (Note 1). The Funds
investment income from real estate investments primarily
consists of distribution income from Partnership Preference
Units, and net investment income from the Real Estate Joint
Ventures and Co-owned Property.
Belcrest 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 the net
change in unrealized appreciation (depreciation).
The Funds Credit Facility borrowings and related interest
expense are centrally managed by the Fund. A portion of the
Credit Facility borrowings and related interest expense have
been approximated and allocated to the real estate segment for
presentation purposes herein. Credit Facility borrowings
allocated to the real estate segment primarily represent
estimated net amounts borrowed to purchase the Funds
interests in real estate investments. The Funds interest
rate swap agreement balances are presented as part of the real
estate segment for presentation purposes
58
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
herein. The accounting policies of the reportable segments are
the same as those for Belcrest Capital on a consolidated basis
(Note 2). No reportable segments have been aggregated.
Reportable information by segment is as follows:
Year Ended December 31, | ||||||||||||||
2011 | 2010 | 2009 | ||||||||||||
Investment income
|
||||||||||||||
The Portfolio*
|
$ | 8,845,955 | $ | 8,355,320 | $ | 12,326,177 | ||||||||
Real estate
|
10,453,734 | 22,951,419 | 24,706,598 | |||||||||||
Unallocated
|
7,714 | 6,966 | 2,102 | |||||||||||
Total investment income
|
$ | 19,307,403 | $ | 31,313,705 | $ | 37,034,877 | ||||||||
Interest expense
|
||||||||||||||
The Portfolio*
|
$ | | $ | | $ | | ||||||||
Real estate
|
1,753,754 | 3,487,186 | 1,494,343 | |||||||||||
Unallocated(1)
|
411,374 | 387,465 | 129,943 | |||||||||||
Total interest expense
|
$ | 2,165,128 | $ | 3,874,651 | $ | 1,624,286 | ||||||||
Net realized gain (loss)
|
||||||||||||||
The Portfolio*
|
$ | 22,750,145 | $ | 2,770,704 | $ | (59,270,474 | ) | |||||||
Real estate
|
(1,605,205 | ) | (140,419,975 | ) | (24,432,412 | ) | ||||||||
Unallocated
|
200 | 383 | 1,947 | |||||||||||
Total net realized gain (loss)
|
$ | 21,145,140 | $ | (137,648,888 | ) | $ | (83,700,939 | ) | ||||||
Net change in unrealized appreciation (depreciation)
|
||||||||||||||
The Portfolio*
|
$ | (27,764,339 | ) | $ | 66,398,339 | $ | 176,008,259 | |||||||
Real estate
|
29,956,040 | 168,415,497 | (78,427,018 | ) | ||||||||||
Unallocated
|
| | | |||||||||||
Total net change in unrealized appreciation (depreciation)
|
$ | 2,191,701 | $ | 234,813,836 | $ | 97,581,241 | ||||||||
Net increase (decrease) in net assets from operations
|
||||||||||||||
The Portfolio*
|
$ | 2,890,685 | $ | 76,576,473 | $ | 128,066,691 | ||||||||
Real estate
|
35,134,237 | 43,868,256 | (83,552,151 | ) | ||||||||||
Unallocated(2)
|
(1,022,354 | ) | (882,582 | ) | (758,114 | ) | ||||||||
Net increase in net assets from operations
|
$ | 37,002,568 | $ | 119,562,147 | $ | 43,756,426 | ||||||||
59
Belcrest Capital Fund LLC | December 31, 2011 |
Notes
to Consolidated Financial Statements (continued)
December 31, | ||||||||||
2011 | 2010 | |||||||||
Segment assets
|
||||||||||
The Portfolio*
|
$ | 618,043,582 | $ | 659,946,022 | ||||||
Real estate
|
93,374,189 | 130,892,020 | ||||||||
Unallocated(3)
|
1,245,727 | 4,480,245 | ||||||||
Segment assets
|
$ | 712,663,498 | $ | 795,318,287 | ||||||
Net assets
|
||||||||||
The Portfolio*
|
$ | 617,971,475 | $ | 658,320,276 | ||||||
Real estate
|
29,107,809 | 528,030 | ||||||||
Unallocated(4)
|
(14,055,130 | ) | (10,812,175 | ) | ||||||
Net assets
|
$ | 633,024,154 | $ | 648,036,131 | ||||||
*
|
Belcrest Capital invests indirectly in the Portfolio through Belvedere Company. | |
(1)
|
Unallocated interest expense represents interest incurred on unallocated Credit Facility borrowings. Such borrowings are used to finance ongoing operations of the Fund and are not allocable to reportable segments. | |
(2)
|
Unallocated amounts pertain to the overall operation of Belcrest Capital and do not pertain to either segment. Primarily included in these amounts are the following expenses: |
Year Ended December 31, | ||||||||||||||
2011 | 2010 | 2009 | ||||||||||||
Interest expense on Credit Facility
|
$ | 411,374 | $ | 387,465 | $ | 129,943 | ||||||||
Servicing fee
|
$ | 330,646 | $ | 245,133 | $ | 237,556 | ||||||||
Audit expense
|
$ | 218,695 | $ | 206,391 | $ | 292,815 | ||||||||
(3)
|
Primarily includes cash held by the Fund and the Funds investment in Cash Reserves Fund. | |
(4)
|
Amounts include unallocated liabilities, net of unallocated assets. Unallocated liabilities primarily consist of outstanding Credit Facility borrowings that are used to finance ongoing operations of the Fund and are not allocable to reportable segments. As of December 31, 2011 and 2010, such borrowings totaled approximately $14,989,000. |
14 Subsequent
Event
On January 24, 2012, the Fund paid a distribution of $0.45
per share to Shareholders of record on January 20, 2012.
60
Belcrest Capital Fund LLC | December 31, 2011 |
Report
of Independent Registered Public Accounting Firm
To the Shareholders
of Belcrest Capital Fund LLC and Subsidiaries
We have audited the accompanying consolidated statements of
assets and liabilities of Belcrest Capital Fund LLC and
subsidiaries (collectively, the Fund), including the
consolidated portfolios of investments, as of December 31,
2011 and 2010, 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, 2011. These financial statements and financial
highlights are the responsibility of the Funds management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. Our procedures
included confirmation of securities owned as of
December 31, 2011 and 2010, by correspondence with the
custodian and the transfer agent. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and
financial highlights referred to above present fairly, in all
material respects, the financial position of Belcrest Capital
Fund LLC and subsidiaries as of December 31, 2011 and
2010, the results of their operations, the changes in their net
assets, their cash flows, and the financial highlights for each
of the three years in the period ended December 31, 2011,
in conformity with accounting principles generally accepted in
the United States of America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Funds internal control over financial reporting as of
December 31, 2011, based on the criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 7, 2012 expressed an
unqualified opinion on the Funds internal control over
financial reporting.
DELOITTE &
TOUCHE LLP
Boston, Massachusetts
March 7, 2012
61
Tax-Managed Growth Portfolio | December 31, 2011 |
Portfolio
of Investments
As of December 31, 2011
As of December 31, 2011
Common Stocks 98.8% | ||||||||||
Security | Shares | Value | ||||||||
Aerospace & Defense 3.8% | ||||||||||
Boeing Co. (The) | 934,567 | $ | 68,550,489 | |||||||
General Dynamics Corp. | 473,021 | 31,413,324 | ||||||||
Honeywell International, Inc. | 290,022 | 15,762,696 | ||||||||
Huntington Ingalls Industries, Inc.(1) | 2,546 | 79,639 | ||||||||
Lockheed Martin Corp. | 16,042 | 1,297,798 | ||||||||
Northrop Grumman Corp. | 15,277 | 893,399 | ||||||||
Precision Castparts Corp. | 4,749 | 782,588 | ||||||||
Raytheon Co. | 53,403 | 2,583,637 | ||||||||
Rockwell Collins, Inc. | 166,153 | 9,199,892 | ||||||||
Textron, Inc. | 33,277 | 615,292 | ||||||||
United Technologies Corp. | 2,449,740 | 179,051,496 | ||||||||
$ | 310,230,250 | |||||||||
Air Freight & Logistics 0.6% | ||||||||||
C.H. Robinson Worldwide, Inc. | 2,207 | $ | 154,005 | |||||||
FedEx Corp. | 265,004 | 22,130,484 | ||||||||
United Parcel Service, Inc., Class B | 383,848 | 28,093,835 | ||||||||
$ | 50,378,324 | |||||||||
Auto Components 0.3% | ||||||||||
Johnson Controls, Inc. | 744,539 | $ | 23,274,289 | |||||||
$ | 23,274,289 | |||||||||
Automobiles 0.0%(2) | ||||||||||
Daimler AG | 17,284 | $ | 758,076 | |||||||
Harley-Davidson, Inc. | 800 | 31,096 | ||||||||
$ | 789,172 | |||||||||
Beverages 5.6% | ||||||||||
Beam, Inc. | 88,199 | $ | 4,518,435 | |||||||
Brown-Forman Corp., Class B | 54,061 | 4,352,451 | ||||||||
Coca-Cola Co. (The) | 2,651,563 | 185,529,863 | ||||||||
Coca-Cola Enterprises, Inc. | 31,501 | 812,096 | ||||||||
Molson Coors Brewing Co., Class B | 186,000 | 8,098,440 | ||||||||
PepsiCo, Inc. | 3,719,529 | 246,790,749 | ||||||||
$ | 450,102,034 | |||||||||
Biotechnology 2.4% | ||||||||||
Amgen, Inc. | 2,819,831 | $ | 181,061,349 | |||||||
Biogen Idec, Inc.(1) | 3,543 | 389,907 | ||||||||
Gilead Sciences, Inc.(1) | 238,742 | 9,771,710 | ||||||||
$ | 191,222,966 | |||||||||
Building Products 0.0%(2) | ||||||||||
Fortune Brands Home & Security, Inc.(1) | 11,600 | $ | 197,548 | |||||||
$ | 197,548 | |||||||||
Capital Markets 3.3% | ||||||||||
Ameriprise Financial, Inc. | 188,681 | $ | 9,366,125 | |||||||
Bank of New York Mellon Corp. (The) | 846,256 | 16,848,957 | ||||||||
Charles Schwab Corp. (The) | 684,916 | 7,712,154 | ||||||||
E*TRADE Financial Corp.(1) | 4,593 | 36,560 | ||||||||
Franklin Resources, Inc. | 539,468 | 51,821,296 | ||||||||
Goldman Sachs Group, Inc. (The) | 520,182 | 47,040,058 | ||||||||
Legg Mason, Inc. | 96,941 | 2,331,431 | ||||||||
Morgan Stanley | 2,543,994 | 38,490,629 | ||||||||
Northern Trust Corp. | 709,098 | 28,122,827 | ||||||||
State Street Corp. | 759,119 | 30,600,087 | ||||||||
T. Rowe Price Group, Inc. | 492,243 | 28,033,239 | ||||||||
UBS AG(1) | 29,488 | 348,843 | ||||||||
Waddell & Reed Financial, Inc., Class A | 273,635 | 6,777,939 | ||||||||
$ | 267,530,145 | |||||||||
Chemicals 1.5% | ||||||||||
Air Products and Chemicals, Inc. | 7,660 | $ | 652,555 | |||||||
Ashland, Inc. | 30,391 | 1,737,150 | ||||||||
Dow Chemical Co. (The) | 152,627 | 4,389,552 | ||||||||
E.I. Du Pont de Nemours & Co. | 926,356 | 42,408,578 | ||||||||
Ecolab, Inc. | 445,515 | 25,755,222 | ||||||||
Monsanto Co. | 492,901 | 34,537,573 | ||||||||
PPG Industries, Inc. | 109,400 | 9,133,806 | ||||||||
$ | 118,614,436 | |||||||||
Commercial Banks 2.7% | ||||||||||
Bank of Montreal | 26,370 | $ | 1,445,340 | |||||||
BB&T Corp. | 881,417 | 22,185,266 | ||||||||
Comerica, Inc. | 126,791 | 3,271,208 | ||||||||
Fifth Third Bancorp | 978,637 | 12,448,263 | ||||||||
HSBC Holdings PLC | 220,592 | 1,680,378 | ||||||||
HSBC Holdings PLC ADR | 424 | 16,154 |
See notes to financial
statements.
62
62
Tax-Managed Growth Portfolio | December 31, 2011 |
Portfolio
of Investments (continued)
Security | Shares | Value | ||||||||
Commercial Banks (continued) | ||||||||||
KeyCorp | 111,353 | $ | 856,305 | |||||||
M&T Bank Corp. | 17,293 | 1,320,148 | ||||||||
PNC Financial Services Group, Inc. | 131,464 | 7,581,529 | ||||||||
Regions Financial Corp. | 216,147 | 929,432 | ||||||||
Royal Bank of Canada | 148,562 | 7,570,719 | ||||||||
Societe Generale | 478,448 | 10,562,031 | ||||||||
SunTrust Banks, Inc. | 269,585 | 4,771,654 | ||||||||
Synovus Financial Corp. | 10,960 | 15,454 | ||||||||
Toronto-Dominion Bank | 17,915 | 1,340,221 | ||||||||
Trustmark Corp. | 102,713 | 2,494,899 | ||||||||
U.S. Bancorp | 2,567,729 | 69,457,069 | ||||||||
Wells Fargo & Co. | 2,602,025 | 71,711,809 | ||||||||
Zions Bancorporation | 38,805 | 631,745 | ||||||||
$ | 220,289,624 | |||||||||
Commercial Services & Supplies 0.1% | ||||||||||
Cintas Corp. | 56,948 | $ | 1,982,360 | |||||||
Pitney Bowes, Inc. | 15,870 | 294,230 | ||||||||
Waste Management, Inc. | 108,716 | 3,556,100 | ||||||||
$ | 5,832,690 | |||||||||
Communications Equipment 2.9% | ||||||||||
Cisco Systems, Inc. | 1,861,369 | $ | 33,653,552 | |||||||
Juniper Networks, Inc.(1) | 109,780 | 2,240,610 | ||||||||
Motorola Mobility Holdings, Inc.(1) | 44,378 | 1,721,866 | ||||||||
Motorola Solutions, Inc. | 50,718 | 2,347,736 | ||||||||
Nokia Oyj ADR | 192 | 925 | ||||||||
QUALCOMM, Inc. | 3,216,865 | 175,962,516 | ||||||||
Telefonaktiebolaget LM Ericsson, Class B ADR | 1,737,409 | 17,599,953 | ||||||||
$ | 233,527,158 | |||||||||
Computers & Peripherals 3.6% | ||||||||||
Apple, Inc.(1) | 403,206 | $ | 163,298,430 | |||||||
Dell, Inc.(1) | 3,911,409 | 57,223,913 | ||||||||
EMC Corp.(1) | 2,586,992 | 55,723,808 | ||||||||
Hewlett-Packard Co. | 83,558 | 2,152,454 | ||||||||
Lexmark International, Inc., Class A | 9,624 | 318,266 | ||||||||
NetApp, Inc.(1) | 417,589 | 15,145,953 | ||||||||
$ | 293,862,824 | |||||||||
Construction Materials 0.0%(2) | ||||||||||
Vulcan Materials Co. | 22,102 | $ | 869,714 | |||||||
$ | 869,714 | |||||||||
Consumer Finance 0.8% | ||||||||||
American Express Co. | 857,294 | $ | 40,438,558 | |||||||
Capital One Financial Corp. | 80,225 | 3,392,715 | ||||||||
Discover Financial Services | 830,375 | 19,929,000 | ||||||||
SLM Corp. | 10,200 | 136,680 | ||||||||
$ | 63,896,953 | |||||||||
Distributors 0.1% | ||||||||||
Genuine Parts Co. | 188,424 | $ | 11,531,549 | |||||||
$ | 11,531,549 | |||||||||
Diversified Consumer Services 0.0%(2) | ||||||||||
Ascent Media Corp., Class A(1) | 755 | $ | 38,293 | |||||||
H&R Block, Inc. | 22,181 | 362,216 | ||||||||
$ | 400,509 | |||||||||
Diversified Financial Services 1.8% | ||||||||||
Bank of America Corp. | 1,612,000 | $ | 8,962,720 | |||||||
CBOE Holdings, Inc. | 40,000 | 1,034,400 | ||||||||
Citigroup, Inc. | 574,558 | 15,116,621 | ||||||||
CME Group, Inc. | 22,581 | 5,502,312 | ||||||||
ING Groep NV ADR(1) | 191,170 | 1,370,689 | ||||||||
IntercontinentalExchange, Inc.(1) | 13,162 | 1,586,679 | ||||||||
JPMorgan Chase & Co. | 3,166,561 | 105,288,153 | ||||||||
Moodys Corp. | 179,602 | 6,048,996 | ||||||||
$ | 144,910,570 | |||||||||
Diversified Telecommunication Services 0.3% | ||||||||||
AT&T, Inc. | 341,172 | $ | 10,317,041 | |||||||
CenturyLink, Inc. | 4,871 | 181,201 | ||||||||
Deutsche Telekom AG ADR | 50,092 | 573,554 | ||||||||
Frontier Communications Corp. | 33,255 | 171,263 | ||||||||
Verizon Communications, Inc. | 380,097 | 15,249,492 | ||||||||
Windstream Corp. | 70,866 | 831,967 | ||||||||
$ | 27,324,518 | |||||||||
See notes to financial
statements.
63
63
Tax-Managed Growth Portfolio | December 31, 2011 |
Portfolio
of Investments (continued)
Security | Shares | Value | ||||||||
Electric Utilities 0.1% | ||||||||||
Duke Energy Corp. | 47,340 | $ | 1,041,480 | |||||||
Exelon Corp. | 9,202 | 399,091 | ||||||||
Southern Co. (The) | 68,451 | 3,168,597 | ||||||||
$ | 4,609,168 | |||||||||
Electrical Equipment 1.3% | ||||||||||
Emerson Electric Co. | 2,018,689 | $ | 94,050,721 | |||||||
Rockwell Automation, Inc. | 125,000 | 9,171,250 | ||||||||
$ | 103,221,971 | |||||||||
Electronic Equipment, Instruments & Components 0.4% | ||||||||||
Corning, Inc. | 2,468,521 | $ | 32,041,403 | |||||||
Flextronics International, Ltd.(1) | 148,554 | 840,816 | ||||||||
TE Connectivity, Ltd. | 9,230 | 284,376 | ||||||||
$ | 33,166,595 | |||||||||
Energy Equipment & Services 1.8% | ||||||||||
Baker Hughes, Inc. | 136,681 | $ | 6,648,164 | |||||||
Halliburton Co. | 1,321,851 | 45,617,078 | ||||||||
Schlumberger, Ltd. | 1,334,018 | 91,126,770 | ||||||||
Transocean, Ltd. | 75,667 | 2,904,856 | ||||||||
$ | 146,296,868 | |||||||||
Food & Staples Retailing 3.3% | ||||||||||
Costco Wholesale Corp. | 873,262 | $ | 72,760,190 | |||||||
CVS Caremark Corp. | 1,361,063 | 55,504,149 | ||||||||
Kroger Co. (The) | 35,843 | 868,117 | ||||||||
Safeway, Inc. | 94,229 | 1,982,578 | ||||||||
Sysco Corp. | 440,121 | 12,908,749 | ||||||||
Wal-Mart Stores, Inc. | 1,891,173 | 113,016,499 | ||||||||
Walgreen Co. | 222,463 | 7,354,627 | ||||||||
$ | 264,394,909 | |||||||||
Food Products 3.3% | ||||||||||
Archer-Daniels-Midland Co. | 1,490,873 | $ | 42,638,968 | |||||||
Campbell Soup Co. | 54,780 | 1,820,887 | ||||||||
ConAgra Foods, Inc. | 1,631 | 43,059 | ||||||||
General Mills, Inc. | 38,796 | 1,567,746 | ||||||||
H.J. Heinz Co. | 7,500 | 405,300 | ||||||||
Hershey Co. (The) | 499,533 | 30,861,149 | ||||||||
Kraft Foods, Inc., Class A | 197,298 | 7,371,053 | ||||||||
McCormick & Co., Inc. | 10,600 | 534,452 | ||||||||
Nestle SA | 2,750,000 | 157,914,644 | ||||||||
Sara Lee Corp. | 1,147,930 | 21,718,836 | ||||||||
Unilever NV | 4,636 | 159,339 | ||||||||
$ | 265,035,433 | |||||||||
Health Care Equipment & Supplies 0.8% | ||||||||||
Bard (C.R.), Inc. | 25,000 | $ | 2,137,500 | |||||||
Baxter International, Inc. | 218,222 | 10,797,625 | ||||||||
Becton, Dickinson and Co. | 63,708 | 4,760,262 | ||||||||
Boston Scientific Corp.(1) | 36,529 | 195,065 | ||||||||
CareFusion Corp.(1) | 70,668 | 1,795,674 | ||||||||
Covidien PLC | 190,726 | 8,584,577 | ||||||||
Intuitive Surgical, Inc.(1) | 14,000 | 6,482,140 | ||||||||
Medtronic, Inc. | 393,185 | 15,039,326 | ||||||||
St. Jude Medical, Inc. | 66,365 | 2,276,319 | ||||||||
Stryker Corp. | 131,368 | 6,530,303 | ||||||||
Zimmer Holdings, Inc.(1) | 129,314 | 6,907,954 | ||||||||
$ | 65,506,745 | |||||||||
Health Care Providers & Services 0.8% | ||||||||||
AmerisourceBergen Corp. | 473,884 | $ | 17,623,746 | |||||||
Cardinal Health, Inc. | 186,462 | 7,572,222 | ||||||||
CIGNA Corp. | 58,467 | 2,455,614 | ||||||||
Express Scripts, Inc.(1) | 281,972 | 12,601,329 | ||||||||
Henry Schein, Inc.(1) | 104,029 | 6,702,588 | ||||||||
McKesson Corp. | 2,598 | 202,410 | ||||||||
Medco Health Solutions, Inc.(1) | 125,104 | 6,993,314 | ||||||||
PharMerica Corp.(1) | 7,250 | 110,055 | ||||||||
UnitedHealth Group, Inc. | 83,696 | 4,241,713 | ||||||||
WellPoint, Inc. | 53,673 | 3,555,836 | ||||||||
$ | 62,058,827 | |||||||||
Hotels, Restaurants & Leisure 3.0% | ||||||||||
Carnival Corp. | 533,768 | $ | 17,422,188 | |||||||
International Game Technology | 459,500 | 7,903,400 | ||||||||
Interval Leisure Group, Inc.(1) | 5,349 | 72,800 | ||||||||
Marriott International, Inc., Class A | 401,544 | 11,713,038 | ||||||||
Marriott Vacations Worldwide Corp.(1) | 40,154 | 689,043 | ||||||||
McDonalds Corp. | 846,340 | 84,913,292 | ||||||||
Starbucks Corp. | 2,360,488 | 108,606,053 | ||||||||
Yum! Brands, Inc. | 210,518 | 12,422,667 | ||||||||
$ | 243,742,481 | |||||||||
See notes to financial
statements.
64
64
Tax-Managed Growth Portfolio | December 31, 2011 |
Portfolio
of Investments (continued)
Security | Shares | Value | ||||||||
Household Durables 0.2% | ||||||||||
D.R. Horton, Inc. | 417,028 | $ | 5,258,723 | |||||||
Leggett & Platt, Inc. | 250,608 | 5,774,008 | ||||||||
Newell Rubbermaid, Inc. | 37,838 | 611,084 | ||||||||
$ | 11,643,815 | |||||||||
Household Products 1.8% | ||||||||||
Clorox Co. (The) | 7,570 | $ | 503,859 | |||||||
Colgate-Palmolive Co. | 587,207 | 54,252,055 | ||||||||
Kimberly-Clark Corp. | 446,209 | 32,823,134 | ||||||||
Procter & Gamble Co. | 871,572 | 58,142,568 | ||||||||
$ | 145,721,616 | |||||||||
Independent Power Producers & Energy Traders 0.0%(2) | ||||||||||
AES Corp. (The)(1) | 1,730 | $ | 20,483 | |||||||
$ | 20,483 | |||||||||
Industrial Conglomerates 2.1% | ||||||||||
3M Co. | 842,278 | $ | 68,839,381 | |||||||
Danaher Corp. | 42,064 | 1,978,691 | ||||||||
General Electric Co. | 5,476,694 | 98,087,590 | ||||||||
Tyco International, Ltd. | 22,764 | 1,063,306 | ||||||||
$ | 169,968,968 | |||||||||
Insurance 2.7% | ||||||||||
Aegon NV ADR(1) | 5,088,862 | $ | 20,457,225 | |||||||
Aflac, Inc. | 115,848 | 5,011,584 | ||||||||
Allstate Corp. (The) | 964 | 26,423 | ||||||||
Aon Corp. | 25,900 | 1,212,120 | ||||||||
Berkshire Hathaway, Inc., Class A(1) | 620 | 71,148,100 | ||||||||
Berkshire Hathaway, Inc., Class B(1) | 939,471 | 71,681,637 | ||||||||
Chubb Corp. | 24,930 | 1,725,655 | ||||||||
Cincinnati Financial Corp. | 135,528 | 4,128,183 | ||||||||
Hartford Financial Services Group, Inc. | 10,762 | 174,883 | ||||||||
Manulife Financial Corp. | 65,344 | 693,953 | ||||||||
Progressive Corp. | 1,151,311 | 22,462,078 | ||||||||
Torchmark Corp. | 378,718 | 16,432,574 | ||||||||
Travelers Companies, Inc. (The) | 76,466 | 4,524,493 | ||||||||
$ | 219,678,908 | |||||||||
Internet & Catalog Retail 0.1% | ||||||||||
Amazon.com, Inc.(1) | 40,982 | $ | 7,093,984 | |||||||
HSN, Inc. | 1 | 37 | ||||||||
$ | 7,094,021 | |||||||||
Internet Software & Services 2.3% | ||||||||||
Akamai Technologies, Inc.(1) | 200,000 | $ | 6,456,000 | |||||||
AOL, Inc.(1) | 5,317 | 80,287 | ||||||||
eBay, Inc.(1) | 1,260,217 | 38,222,381 | ||||||||
Google, Inc., Class A(1) | 213,496 | 137,897,066 | ||||||||
IAC/InterActiveCorp | 13,368 | 569,477 | ||||||||
VeriSign, Inc. | 14,758 | 527,156 | ||||||||
$ | 183,752,367 | |||||||||
IT Services 5.9% | ||||||||||
Accenture PLC, Class A | 2,738,000 | $ | 145,743,740 | |||||||
Automatic Data Processing, Inc. | 1,124,511 | 60,734,839 | ||||||||
Broadridge Financial Solutions, Inc. | 2,002 | 45,145 | ||||||||
Fidelity National Information Services, Inc. | 63,590 | 1,690,858 | ||||||||
Fiserv, Inc.(1) | 39,943 | 2,346,252 | ||||||||
International Business Machines Corp. | 1,319,900 | 242,703,212 | ||||||||
Paychex, Inc. | 756,046 | 22,764,545 | ||||||||
Total System Services, Inc. | 32,405 | 633,842 | ||||||||
Western Union Co. | 54,638 | 997,690 | ||||||||
$ | 477,660,123 | |||||||||
Leisure Equipment & Products 0.0%(2) | ||||||||||
Mattel, Inc. | 22,565 | $ | 626,404 | |||||||
$ | 626,404 | |||||||||
Life Sciences Tools & Services 0.2% | ||||||||||
Agilent Technologies, Inc.(1) | 445,580 | $ | 15,564,109 | |||||||
Thermo Fisher Scientific, Inc.(1) | 18,700 | 840,939 | ||||||||
$ | 16,405,048 | |||||||||
Machinery 3.6% | ||||||||||
Caterpillar, Inc. | 121,309 | $ | 10,990,595 | |||||||
Deere & Co. | 2,623,301 | 202,912,332 | ||||||||
Dover Corp. | 370,952 | 21,533,764 | ||||||||
Illinois Tool Works, Inc. | 1,203,805 | 56,229,732 |
See notes to financial
statements.
65
65
Tax-Managed Growth Portfolio | December 31, 2011 |
Portfolio
of Investments (continued)
Security | Shares | Value | ||||||||
Machinery (continued) | ||||||||||
Parker Hannifin Corp. | 30,763 | $ | 2,345,679 | |||||||
WABCO Holdings, Inc.(1) | 1,156 | 50,170 | ||||||||
$ | 294,062,272 | |||||||||
Media 3.3% | ||||||||||
CBS Corp., Class B | 68,701 | $ | 1,864,545 | |||||||
Comcast Corp., Class A | 201,884 | 4,786,670 | ||||||||
Comcast Corp., Special Class A | 1,732,498 | 40,817,653 | ||||||||
DIRECTV, Class A(1) | 20,703 | 885,260 | ||||||||
Discovery Communications, Inc., Class A(1) | 7,555 | 309,528 | ||||||||
Discovery Communications, Inc., Class C(1) | 7,555 | 284,823 | ||||||||
Gannett Co., Inc. | 5,643 | 75,447 | ||||||||
Liberty Media Corp. Capital, Class A(1) | 6,999 | 546,272 | ||||||||
McGraw-Hill Cos., Inc. (The) | 86,290 | 3,880,461 | ||||||||
News Corp., Class A | 97 | 1,730 | ||||||||
Omnicom Group, Inc. | 112,077 | 4,996,393 | ||||||||
Time Warner Cable, Inc. | 94,401 | 6,001,072 | ||||||||
Time Warner, Inc. | 367,299 | 13,274,186 | ||||||||
Viacom, Inc., Class B | 49,155 | 2,232,129 | ||||||||
Walt Disney Co. (The) | 4,865,456 | 182,454,600 | ||||||||
Washington Post Co., Class B | 1,500 | 565,215 | ||||||||
WPP PLC ADR | 18,396 | 960,823 | ||||||||
$ | 263,936,807 | |||||||||
Metals & Mining 0.3% | ||||||||||
Alcoa, Inc. | 52,760 | $ | 456,374 | |||||||
Freeport-McMoRan Copper & Gold, Inc. | 450,000 | 16,555,500 | ||||||||
Nucor Corp. | 230,000 | 9,101,100 | ||||||||
$ | 26,112,974 | |||||||||
Multiline Retail 0.6% | ||||||||||
Sears Holdings Corp.(1) | 410 | $ | 13,030 | |||||||
Target Corp. | 884,162 | 45,286,777 | ||||||||
$ | 45,299,807 | |||||||||
Oil, Gas & Consumable Fuels 7.6% | ||||||||||
Anadarko Petroleum Corp. | 968,900 | $ | 73,956,137 | |||||||
Apache Corp. | 2,144,112 | 194,213,665 | ||||||||
BP PLC ADR | 192,668 | 8,234,630 | ||||||||
Chevron Corp. | 604,906 | 64,361,998 | ||||||||
ConocoPhillips | 297,410 | 21,672,267 | ||||||||
Devon Energy Corp. | 568,727 | 35,261,074 | ||||||||
Exxon Mobil Corp. | 2,191,976 | 185,791,886 | ||||||||
Hess Corp. | 224,579 | 12,756,087 | ||||||||
Marathon Oil Corp. | 175,831 | 5,146,573 | ||||||||
Marathon Petroleum Corp. | 87,915 | 2,926,690 | ||||||||
Murphy Oil Corp. | 78,679 | 4,385,568 | ||||||||
Royal Dutch Shell PLC ADR, Class A | 76,110 | 5,562,880 | ||||||||
Royal Dutch Shell PLC ADR, Class B | 9,594 | 729,240 | ||||||||
Spectra Energy Corp. | 8,313 | 255,625 | ||||||||
Williams Cos., Inc. | 2,000 | 66,040 | ||||||||
$ | 615,320,360 | |||||||||
Paper & Forest Products 0.0%(2) | ||||||||||
Neenah Paper, Inc. | 975 | $ | 21,762 | |||||||
$ | 21,762 | |||||||||
Personal Products 0.0%(2) | ||||||||||
Estee Lauder Cos., Inc. (The), Class A | 13,035 | $ | 1,464,091 | |||||||
$ | 1,464,091 | |||||||||
Pharmaceuticals 9.0% | ||||||||||
Abbott Laboratories | 2,730,986 | $ | 153,563,343 | |||||||
Allergan, Inc. | 146,962 | 12,894,446 | ||||||||
Bristol-Myers Squibb Co. | 1,500,706 | 52,884,879 | ||||||||
Eli Lilly & Co. | 1,445,042 | 60,055,945 | ||||||||
GlaxoSmithKline PLC ADR | 455,612 | 20,789,576 | ||||||||
Hospira, Inc.(1) | 3,662 | 111,215 | ||||||||
Johnson & Johnson | 2,364,918 | 155,091,322 | ||||||||
Merck & Co., Inc. | 1,125,878 | 42,445,601 | ||||||||
Novo Nordisk A/S ADR | 249,848 | 28,797,480 | ||||||||
Pfizer, Inc. | 6,015,315 | 130,171,417 | ||||||||
Teva Pharmaceutical Industries, Ltd. ADR | 1,671,886 | 67,477,319 | ||||||||
$ | 724,282,543 | |||||||||
Real Estate Investment Trusts (REITs) 0.0%(2) | ||||||||||
Weyerhaeuser Co. | 1,223 | $ | 22,833 | |||||||
$ | 22,833 | |||||||||
See notes to financial
statements.
66
66
Tax-Managed Growth Portfolio | December 31, 2011 |
Portfolio
of Investments (continued)
Security | Shares | Value | ||||||||
Road & Rail 0.2% | ||||||||||
Norfolk Southern Corp. | 24,192 | $ | 1,762,629 | |||||||
Union Pacific Corp. | 132,257 | 14,011,307 | ||||||||
$ | 15,773,936 | |||||||||
Semiconductors & Semiconductor Equipment 3.8% | ||||||||||
Analog Devices, Inc. | 560,289 | $ | 20,047,140 | |||||||
Applied Materials, Inc. | 1,065,614 | 11,412,726 | ||||||||
Broadcom Corp., Class A(1) | 897,422 | 26,348,310 | ||||||||
Cypress Semiconductor Corp.(1) | 52,742 | 890,812 | ||||||||
Intel Corp. | 8,524,340 | 206,715,245 | ||||||||
Linear Technology Corp. | 118,016 | 3,544,021 | ||||||||
Maxim Integrated Products, Inc. | 223,099 | 5,809,498 | ||||||||
NVIDIA Corp.(1) | 284,500 | 3,943,170 | ||||||||
Texas Instruments, Inc. | 897,287 | 26,120,025 | ||||||||
Xilinx, Inc. | 23,107 | 740,810 | ||||||||
$ | 305,571,757 | |||||||||
Software 3.5% | ||||||||||
Activision Blizzard, Inc. | 846,350 | $ | 10,427,032 | |||||||
Adobe Systems, Inc.(1) | 409,776 | 11,584,367 | ||||||||
CA, Inc. | 45,408 | 917,923 | ||||||||
Microsoft Corp. | 3,211,454 | 83,369,346 | ||||||||
Oracle Corp. | 6,882,809 | 176,544,051 | ||||||||
Symantec Corp.(1) | 163,117 | 2,552,781 | ||||||||
$ | 285,395,500 | |||||||||
Specialty Retail 2.9% | ||||||||||
Best Buy Co., Inc. | 143,633 | $ | 3,356,703 | |||||||
Gap, Inc. (The) | 89,138 | 1,653,510 | ||||||||
Home Depot, Inc. (The) | 2,373,586 | 99,785,555 | ||||||||
Limited Brands, Inc. | 41,877 | 1,689,737 | ||||||||
Lowes Companies, Inc. | 655,831 | 16,644,991 | ||||||||
Orchard Supply Hardware Stores Corp., Class A(1) | 19 | 0 | ||||||||
Staples, Inc. | 186,233 | 2,586,776 | ||||||||
TJX Companies, Inc. (The) | 1,701,405 | 109,825,693 | ||||||||
$ | 235,542,965 | |||||||||
Textiles, Apparel & Luxury Goods 3.7% | ||||||||||
Coach, Inc. | 10,800 | $ | 659,232 | |||||||
Hanesbrands, Inc.(1) | 198,317 | 4,335,210 | ||||||||
NIKE, Inc., Class B | 3,056,944 | 294,597,693 | ||||||||
VF Corp. | 12,000 | 1,523,880 | ||||||||
$ | 301,116,015 | |||||||||
Thrifts & Mortgage Finance 0.0%(2) | ||||||||||
Tree.com, Inc.(1) | 2 | $ | 11 | |||||||
$ | 11 | |||||||||
Tobacco 0.3% | ||||||||||
Altria Group, Inc. | 159,973 | $ | 4,743,200 | |||||||
Philip Morris International, Inc. | 231,705 | 18,184,208 | ||||||||
$ | 22,927,408 | |||||||||
Wireless Telecommunication Services 0.1% | ||||||||||
America Movil SAB de CV ADR, Series L | 61,000 | $ | 1,378,600 | |||||||
Sprint Nextel Corp.(1) | 135,160 | 316,275 | ||||||||
Vodafone Group PLC ADR | 182,074 | 5,103,534 | ||||||||
$ | 6,798,409 | |||||||||
Total
Common Stocks
|
||||||||||
(identified
cost $5,749,639,639)
|
$ | 7,979,039,473 | ||||||||
Preferred Stocks 0.0%(2) | ||||||||||
Security | Shares | Value | ||||||||
Commercial Banks 0.0%(2) | ||||||||||
Wells Fargo & Co.(3) | 166 | $ | 0 | |||||||
Specialty Retail 0.0% | ||||||||||
Orchard Supply Hardware Stores Corp. | 19 | $ | 0 | |||||||
$ | 0 | |||||||||
Total
Preferred Stocks
|
||||||||||
(identified
cost $5,018)
|
$ | 0 | ||||||||
See notes to financial
statements.
67
67
Tax-Managed Growth Portfolio | December 31, 2011 |
Portfolio
of Investments (continued)
Rights 0.0%(2) | ||||||||||
Security | Shares | Value | ||||||||
Pharmaceuticals 0.0%(2) | ||||||||||
Sanofi SA, Exp. 12/31/20(1) | 6,984 | $ | 8,381 | |||||||
Total
Rights
|
||||||||||
(identified
cost $16,440)
|
$ | 8,381 | ||||||||
Short-Term Investments 0.9% | ||||||||||
Interest |
||||||||||
Description | (000s omitted) | Value | ||||||||
Eaton Vance Cash Reserves Fund, LLC, 0.06%(4) | $ | 70,802 | $ | 70,801,999 | ||||||
Total
Short-Term Investments
|
||||||||||
(identified
cost $70,801,999)
|
$ | 70,801,999 | ||||||||
Total
Investments 99.7%
|
||||||||||
(identified
cost $5,820,463,096)
|
$ | 8,049,849,853 | ||||||||
Other
Assets, Less Liabilities 0.3%
|
$ | 22,833,617 | ||||||||
Net
Assets 100.0%
|
$ | 8,072,683,470 | ||||||||
The percentage shown for each
investment category in the Portfolio of Investments is based on
net assets.
ADR - American Depositary
Receipt
(1) | Non-income producing security. | |
(2) | Amount is less than 0.05%. | |
(3) | For fair value measurement disclosure purposes, security is categorized as Level 3 (see Note 6). | |
(4) | Affiliated investment company available to Eaton Vance portfolios and funds which invests in high quality, U.S. dollar denominated money market instruments. The rate shown is the annualized seven-day yield as of December 31, 2011. |
See notes to financial
statements.
68
68
Tax-Managed Growth Portfolio | December 31, 2011 |
Financial
Statements
Statement of Assets and
Liabilities
Assets | December 31, 2011 | |||||
Unaffiliated investments, at value
(identified cost, $5,749,661,097) |
$ | 7,979,047,854 | ||||
Affiliated investments, at value
(identified cost, $70,801,999) |
70,801,999 | |||||
Cash
|
1,078,936 | |||||
Dividends receivable
|
13,978,693 | |||||
Interest receivable from affiliated investment
|
3,290 | |||||
Receivable for investments sold
|
9,597,076 | |||||
Tax reclaims receivable
|
1,625,910 | |||||
Total assets
|
$ | 8,076,133,758 | ||||
Liabilities | ||||||
Payable to affiliates:
|
||||||
Investment adviser fee
|
$ | 3,094,439 | ||||
Trustees fees
|
12,625 | |||||
Accrued expenses
|
343,224 | |||||
Total liabilities
|
$ | 3,450,288 | ||||
Net Assets applicable to investors interest in
Portfolio
|
$ | 8,072,683,470 | ||||
Sources of Net Assets | ||||||
Net proceeds from capital contributions and withdrawals
|
$ | 5,843,155,794 | ||||
Net unrealized appreciation
|
2,229,527,676 | |||||
Total
|
$ | 8,072,683,470 | ||||
Year Ended |
||||||
Investment Income | December 31, 2011 | |||||
Dividends (net of foreign taxes, $2,757,599)
|
$ | 173,262,258 | ||||
Interest allocated from affiliated investment
|
96,694 | |||||
Expenses allocated from affiliated investment
|
(10,791 | ) | ||||
Total investment income
|
$ | 173,348,161 | ||||
Expenses | ||||||
Investment adviser fee
|
$ | 39,558,185 | ||||
Trustees fees and expenses
|
50,500 | |||||
Custodian fee
|
1,183,682 | |||||
Legal and accounting services
|
155,853 | |||||
Miscellaneous
|
152,099 | |||||
Total expenses
|
$ | 41,100,319 | ||||
Deduct
|
||||||
Reduction of custodian fee
|
$ | 49 | ||||
Total expense reductions
|
$ | 49 | ||||
Net expenses
|
$ | 41,100,270 | ||||
Net investment income
|
$ | 132,247,891 | ||||
Realized and Unrealized Gain (Loss) | ||||||
Net realized gain
|
||||||
Investment
transactions(1)
|
$ | 229,121,917 | ||||
Investment transactions allocated from affiliated investment
|
3,986 | |||||
Foreign currency transactions
|
50,322 | |||||
Net realized gain
|
$ | 229,176,225 | ||||
Change in unrealized appreciation (depreciation)
|
||||||
Investments
|
$ | (294,936,383 | ) | |||
Foreign currency
|
(20,441 | ) | ||||
Net change in unrealized appreciation (depreciation)
|
$ | (294,956,824 | ) | |||
Net realized and unrealized loss
|
$ | (65,780,599 | ) | |||
Net increase in net assets from operations
|
$ | 66,467,292 | ||||
(1) |
Includes $240,241,096 of net
realized gains from redemptions in-kind. |
See notes to financial
statements.
69
69
Tax-Managed Growth Portfolio | December 31, 2011 |
Financial
Statements (continued)
Statements of Changes in Net
Assets
Year Ended December 31, | ||||||||||
Increase
(Decrease) |
||||||||||
in Net Assets | 2011 | 2010 | ||||||||
From operations
|
||||||||||
Net investment income
|
$ | 132,247,891 | $ | 127,596,430 | ||||||
Net realized gain from investment transactions and foreign
currency transactions
|
229,176,225 | 232,540,068 | ||||||||
Net change in unrealized appreciation (depreciation) from
investments and foreign currency
|
(294,956,824 | ) | 705,390,449 | |||||||
Net increase in net assets from operations
|
$ | 66,467,292 | $ | 1,065,526,947 | ||||||
Capital transactions
|
||||||||||
Contributions
|
$ | 994,922,465 | $ | 175,936,921 | ||||||
Withdrawals
|
(2,033,923,504 | ) | (1,675,725,915 | ) | ||||||
Net decrease in net assets from capital transactions
|
$ | (1,039,001,039 | ) | $ | (1,499,788,994 | ) | ||||
Net decrease in net assets
|
$ | (972,533,747 | ) | $ | (434,262,047 | ) | ||||
Net Assets | ||||||||||
At beginning of year
|
$ | 9,045,217,217 | $ | 9,479,479,264 | ||||||
At end of year
|
$ | 8,072,683,470 | $ | 9,045,217,217 | ||||||
See notes to financial
statements.
70
70
Tax-Managed Growth Portfolio | December 31, 2011 |
Financial
Statements (continued)
Year Ended December 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||
Ratios (as a percentage of average daily net assets):
|
||||||||||||||||||||||
Expenses(1)
|
0.48 | % | 0.48 | % | 0.47 | % | 0.45 | % | 0.44 | % | ||||||||||||
Net investment income
|
1.53 | % | 1.43 | % | 1.86 | % | 1.84 | % | 1.52 | % | ||||||||||||
Portfolio Turnover
|
2 | % | 2 | % | 3 | % | 3 | % | 6 | % | ||||||||||||
Total Return
|
0.80 | % | 12.86 | % | 23.32 | % | (32.76 | )% | 4.72 | % | ||||||||||||
Net assets, end of year (000s omitted)
|
$ | 8,072,683 | $ | 9,045,217 | $ | 9,479,479 | $ | 10,602,743 | $ | 19,864,161 | ||||||||||||
(1) | Excludes the effect of custody fee credits, if any, of less than 0.005%. |
See notes to financial
statements.
71
71
Tax-Managed Growth Portfolio | December 31, 2011 |
Notes
to Financial Statements
1 Significant
Accounting Policies
Tax-Managed Growth Portfolio (the Portfolio) is a Massachusetts
business trust registered under the Investment Company Act of
1940, as amended (the 1940 Act), as a diversified, open-end
management investment company. The Portfolios investment
objective is to achieve long-term, after-tax returns for
interestholders through investing in a diversified portfolio of
equity securities. The Declaration of Trust permits the Trustees
to issue interests in the Portfolio. At December 31, 2011,
Eaton Vance Tax-Managed Growth Fund 1.0, Eaton Vance
Tax-Managed Growth Fund 1.1, Eaton Vance Tax-Managed Growth
Fund 1.2 and Eaton Vance Tax-Managed Equity Asset
Allocation held an interest of 7.4%, 14.2%, 5.6%, and 1.4%
respectively, in the Portfolio. In addition, an unregistered
fund advised by the adviser to the Portfolio held 71.4% interest
in the Portfolio.
The following is a summary of significant accounting policies of
the Portfolio. The policies are in conformity with accounting
principles generally accepted in the United States of America.
A Investment
Valuation. Equity
securities (including common shares of closed-end investment
companies) listed on a U.S. securities exchange generally are
valued at the last sale or closing 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 Global or Global Select Market generally are
valued at the NASDAQ official closing price. Unlisted or listed
securities for which closing sales prices or closing quotations
are not available are valued at the mean between the latest
available bid and asked prices or, in the case of preferred
equity securities that are not listed or traded in the
over-the-counter market, by a third party pricing service that
will use various techniques that consider factors including, but
not limited to, prices or yields of securities with similar
characteristics, benchmark yields, broker/dealer quotes, quotes
of underlying common stock, issuer spreads, as well as industry
and economic events. The value of preferred equity securities
that are valued by a pricing service on a bond basis will be
adjusted by an income factor, to be determined by the investment
adviser, to reflect the next anticipated regular dividend. The
daily valuation of exchange-traded foreign securities generally
is determined as of the close of trading on the principal
exchange on which such securities trade. Events occurring after
the close of trading on foreign exchanges may result in
adjustments to the valuation of foreign securities to more
accurately reflect their fair value as of the close of regular
trading on the New York Stock Exchange. When valuing foreign
equity securities that meet certain criteria, the
Portfolios Trustees have approved the use of a fair value
service that values such securities to reflect market trading
that occurs after the close of the applicable foreign markets of
comparable securities or other instruments that have a strong
correlation to the fair-valued securities. Foreign securities
and currencies are valued in U.S. dollars, based on foreign
currency exchange rate quotations supplied by a third party
pricing service. The pricing service uses a proprietary model to
determine the exchange rate. Inputs to the model include
reported trades and implied bid/ask spreads. Short-term debt
obligations purchased with a remaining maturity of sixty days or
less are generally valued at amortized cost, which approximates
market value. If short-term debt securities are acquired with a
remaining maturity of more than sixty days, they will be valued
by a pricing service. Investments for which valuations or market
quotations are not readily available or are deemed unreliable
are valued at fair value using methods determined in good faith
by or at the direction of the Trustees of the Portfolio in a
manner that fairly reflects the securitys value, or the
amount that the Portfolio might reasonably expect to receive for
the security upon its current sale in the ordinary course. Each
such determination is based on a consideration of relevant
factors, which are likely to vary from one pricing context to
another. These factors may include, but are not limited to, the
type of security, the existence of any contractual restrictions
on the securitys disposition, the price and extent of
public trading in similar securities of the issuer or of
comparable companies or entities, quotations or relevant
information obtained from broker/dealers or other market
participants, information obtained from the issuer, analysts,
and/or the
appropriate stock exchange (for exchange-traded securities), an
analysis of the companys or entitys financial
condition, and an
72
Tax-Managed Growth Portfolio | December 31, 2011 |
Notes
to Financial Statements (continued)
evaluation of the forces that influence the issuer and the
market(s) in which the security is purchased and sold.
The Portfolio may invest in Eaton Vance Cash Reserves Fund, LLC
(Cash Reserves Fund), an affiliated investment company managed
by Eaton Vance Management (EVM). Cash Reserves Fund generally
values its investment securities utilizing the amortized cost
valuation technique in accordance with
Rule 2a-7
under the 1940 Act. This technique involves initially valuing a
portfolio security at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium. If
amortized cost is determined not to approximate fair value, Cash
Reserves Fund may value its investment securities in the same
manner as debt obligations described above.
B Investment
Transactions. Investment
transactions for financial statement purposes are accounted for
on a trade date basis. Realized gains and losses on investments
sold are determined on the basis of identified cost.
C Income. Dividend
income is recorded on the ex-dividend date for dividends
received in cash
and/or
securities. 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. Withholding taxes on
foreign dividends, interest and capital gains have been provided
for in accordance with the Portfolios understanding of the
applicable countries tax rules and rates. Interest income
is recorded on the basis of interest accrued, adjusted for
amortization of premium or accretion of discount.
D Federal
Taxes. The Portfolio
has elected to be 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 taxable income. Since at
least one of the Portfolios investors is a regulated
investment company that invests all or substantially all of its
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 investors distributive share of
the Portfolios net investment income, net realized capital
gains and any other items of income, gain, loss, deduction or
credit.
As of December 31, 2011, the Portfolio had no uncertain tax
positions that would require financial statement recognition,
de-recognition, or disclosure. Each of the Portfolios
federal tax returns filed in the
3-year
period ended December 31, 2011 remains subject to
examination by the Internal Revenue Service.
E Expense
Reduction. State
Street Bank and Trust Company (SSBT) serves as custodian of
the Portfolio. Pursuant to the custodian agreement, SSBT
receives a fee reduced by credits, which are determined based on
the average daily cash balance the Portfolio maintains with
SSBT. All credit balances, if any, used to reduce the
Portfolios custodian fees are reported as a reduction of
expenses in the Statement of Operations.
F Foreign Currency
Translation. Investment
valuations, other assets, and liabilities initially expressed in
foreign currencies are translated each business day into U.S.
dollars based upon current exchange rates. Purchases and sales
of foreign investment securities and income and expenses
denominated in foreign currencies are translated into U.S.
dollars based upon currency exchange rates in effect on the
respective dates of such transactions. Recognized gains or
losses on investment transactions attributable to changes in
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 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
73
Tax-Managed Growth Portfolio | December 31, 2011 |
Notes
to Financial Statements (continued)
statements and the reported amounts of income and expense during
the reporting period. Actual results could differ from those
estimates.
H Indemnifications. Under
the Portfolios 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. Under Massachusetts law, if certain conditions
prevail, interestholders in the Portfolio could be deemed to
have personal liability for the obligations of the Portfolio.
However, the Portfolios Declaration of Trust contains an
express disclaimer of liability on the part of Portfolio
interestholders and the By-laws provide that the Portfolio shall
assume the defense on behalf of any Portfolio interestholder.
Moreover, the By-laws also provide for indemnification out of
Portfolio property of any interestholder held personally liable
solely by reason of being or having been an interestholder for
all loss or expense arising from such liability. Additionally,
in the normal course of business, the Portfolio enters into
agreements with service providers that may contain
indemnification clauses. The Portfolios 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.
2 Investment
Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by Boston Management and
Research (BMR), a subsidiary of EVM, as compensation for
investment advisory services rendered to the Portfolio. The fee
is computed at an annual rate of 0.625% of the Portfolios
average daily net assets up to $500 million. The advisory
fee on net assets of $500 million or more is reduced as
follows:
Annual Fee Rate |
||||||
Average Daily Net Assets For the Month | (for each level) | |||||
$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 but less than $20 billion
|
0.4000% | |||||
$20 billion but less than $25 billion
|
0.3900% | |||||
$25 billion and over
|
0.3800% |
The Portfolio invests its cash in Cash Reserves Fund. EVM
does not currently receive a fee for advisory services provided
to Cash Reserves Fund. For the year ended December 31,
2011, the Portfolios investment adviser fee amounted to
$39,558,185 or 0.46% of the Portfolios average daily net
assets.
Except for Trustees of the Portfolio who are not members of
EVMs or BMRs organizations, officers and Trustees
receive remuneration for their services to the Portfolio out of
the 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, 2011, no significant
amounts have been deferred. Certain officers and Trustees of the
Portfolio are officers of the above organizations.
3 Purchases
and Sales of Investments
Purchases and sales of investments, other than short-term
obligations, aggregated $195,346,702 and $83,136,668,
respectively, for the year ended December 31, 2011. In
addition, investors contributed securities with a value of
$18,120,479 and investments having an aggregate market value of
$1,007,799,100 at dates of withdrawal were distributed in
payment for capital withdrawals, during the year ended
December 31, 2011.
74
Tax-Managed Growth Portfolio | December 31, 2011 |
Notes
to Financial Statements (continued)
4 Federal
Income Tax Basis of Investments
The cost and unrealized appreciation (depreciation) of
investments of the Portfolio at December 31, 2011, as
determined on a federal income tax basis, were as follows:
Aggregate cost
|
$ | 1,959,767,579 | ||||
Gross unrealized appreciation
|
$ | 10,001,943,230 | ||||
Gross unrealized depreciation
|
(3,911,860,956 | ) | ||||
Net unrealized appreciation
|
$ | 6,090,082,274 | ||||
The net unrealized appreciation on foreign currency at
December 31, 2011 on a federal income tax basis was
$140,919.
5 Line
of Credit
The Portfolio participates with other portfolios and funds
managed by EVM and its affiliates in a $600 million
unsecured line of credit agreement with a group of banks.
Borrowings are made by the Portfolio solely to facilitate the
handling of unusual
and/or
unanticipated short-term cash requirements. Interest is charged
to the Portfolio 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 0.08% on the daily unused
portion of the line of credit is allocated among the
participating portfolios and funds at the end of each quarter.
Because the line of credit is not available exclusively to the
Portfolio, it may be unable to borrow some or all of its
requested amounts at any particular time. The Portfolio did not
have any significant borrowings or allocated fees during the
year ended December 31, 2011.
6 Fair
Value Measurements
Under generally accepted accounting principles for fair value
measurements, a three-tier hierarchy to prioritize the
assumptions, referred to as inputs, is used in valuation
techniques to measure fair value. The three-tier hierarchy of
inputs is summarized in the three broad levels listed below.
| Level 1 quoted prices in active markets for identical investments | |
| Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) | |
| Level 3 significant unobservable inputs (including a funds own assumptions in determining the fair value of investments) |
In cases where the inputs used to measure fair value fall in
different levels of the fair value hierarchy, the level
disclosed is determined based on the lowest level input that is
significant to the fair value measurement in its entirety. The
inputs or methodology used for valuing securities are not
necessarily an indication of the risk associated with investing
in those securities.
At December 31, 2011, the hierarchy of inputs used in
valuing the Portfolios investments, which are carried at
value, were as follows:
Asset Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks
|
||||||||||||||||
Consumer Discretionary
|
$ | 1,144,997,834 | $ | 0 | $ | | $ | 1,144,997,834 | ||||||||
Consumer Staples
|
991,730,847 | 157,914,644 | | 1,149,645,491 | ||||||||||||
Energy
|
761,617,228 | | | 761,617,228 | ||||||||||||
Financials
|
904,086,635 | 12,242,409 | | 916,329,044 | ||||||||||||
Health Care
|
1,059,476,129 | | | 1,059,476,129 | ||||||||||||
Industrials
|
949,665,959 | | | 949,665,959 | ||||||||||||
Information Technology
|
1,812,936,324 | | | 1,812,936,324 | ||||||||||||
Materials
|
145,618,886 | | | 145,618,886 | ||||||||||||
Telecommunication Services
|
34,122,927 | | | 34,122,927 | ||||||||||||
Utilities
|
4,629,651 | | | 4,629,651 | ||||||||||||
Total Common Stocks
|
$ | 7,808,882,420 | $ | 170,157,053 | * | $ | | $ | 7,979,039,473 | |||||||
Preferred Stocks
|
$ | | $ | 0 | $ | 0 | $ | 0 | ||||||||
Rights
|
8,381 | | | 8,381 | ||||||||||||
Short-Term Investments
|
| 70,801,999 | | 70,801,999 | ||||||||||||
Total Investments
|
$ | 7,808,890,801 | $ | 240,959,052 | $ | 0 | $ | 8,049,849,853 | ||||||||
*
|
Includes foreign equity securities whose values were adjusted to reflect market trading of comparable securities or other correlated instruments that occurred after the close of trading in their applicable foreign markets. |
75
Tax-Managed Growth Portfolio | December 31, 2011 |
Notes
to Financial Statements (continued)
The following is a reconciliation of Level 3 assets for
which significant unobservable inputs were used to determine
fair value:
Investments in |
||||||
Preferred Stocks | ||||||
Balance as of December 31, 2010
|
$ | | ||||
Realized gains (losses)
|
| |||||
Change in net unrealized appreciation (depreciation)*
|
(10 | ) | ||||
Cost of purchases
|
| |||||
Proceeds from sales
|
| |||||
Accrued discount (premium)
|
| |||||
Transfers to Level 3**
|
10 | |||||
Transfers from Level 3**
|
| |||||
Balance as of December 31, 2011
|
$ | 0 | ||||
Change in net unrealized appreciation (depreciation) on
investments still held as of December 31, 2011*
|
$ | (10 | ) | |||
*
|
Amount is included in the related amount on investments in the Statement of Operations. | |
**
|
Transfers are reflected at the value of the securities at the beginning of the period. Transfers to Level 3 were due to a reduction in the availability of significant observable inputs in determining the fair value of these investments. |
All Level 3 investments held at December 31, 2011 were
valued at $0.
At December 31, 2011, the value of investments transferred
between Level 1 and Level 2, if any, during the year
then ended was not significant.
7 Legal
Proceedings
In November 2010, the Portfolio was named as defendant and a
putative member of the proposed defendant class of shareholders
in the case entitled Official Committee of Unsecured
Creditors (UCC) of the Tribune Company v. FitzSimons, et al.
as a result of its ownership of shares in the Tribune
Company (Tribune) in 2007 when Tribune effected a leveraged
buyout transaction (LBO) and was converted to a privately held
company. The UCC seeks to recover payments of the proceeds of
the LBO. This adversary proceeding in the Bankruptcy Court has
been stayed pending further order of the Bankruptcy Court. The
value of the proceeds received by the Portfolio is approximately
$48,237,000 (equal to 0.60% of net assets at December 31,
2011).
In addition, on June 2, 2011, another group of Tribune creditors
filed multiple actions involving state law constructive
fraudulent conveyance claims against former Tribune
shareholders. The Portfolio also has been named in one or more
of these lawsuits.
The Portfolio cannot predict the outcome of these proceedings or
the effect, if any, on the Portfolios net asset value.
The attorneys fees and costs related to these actions will
be expensed by the Portfolio as incurred.
76
Tax-Managed Growth Portfolio | December 31, 2011 |
Report
of Independent Registered Public Accounting Firm
To the Trustees and
Investors of Tax-Managed Growth Portfolio:
We have audited the accompanying statement of assets and
liabilities of Tax-Managed Growth Portfolio (the
Portfolio), including the portfolio of investments,
as of December 31, 2011, and the related statement of
operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended,
and the supplementary data for each of the five years in the
period then ended. These financial statements and supplementary
data are the responsibility of the Portfolios management.
Our responsibility is to express an opinion on these financial
statements and supplementary data based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and
supplementary data are free of material misstatement. The
Portfolio is not required to have, nor were we engaged to
perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Portfolios internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2011, by correspondence
with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and supplementary data
referred to above present fairly, in all material respects, the
financial position of Tax-Managed Growth Portfolio as of
December 31, 2011, 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 the 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 23, 2012
77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BELCREST CAPITAL FUND LLC
(Registrant) |
||||
By: | /s/ Andrew C. Frenette | |||
Andrew C. Frenette | ||||
Duly Authorized Officer and Principal Accounting Officer | ||||
Date:
March 7, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: | /s/ Thomas E. Faust Jr. | |||
Thomas E. Faust Jr. | ||||
Chief Executive Officer |
Date:
March 7, 2012
By: | /s/ Andrew C. Frenette | |||
Andrew C. Frenette | ||||
Chief Financial Officer |
Date:
March 7, 2012
78
Exhibit No. | Description | |
3
|
Copy of Amended and Restated Operating Agreement of the Fund dated November 24, 1998 and First Amendment thereto dated September 1, 1999 filed as Exhibit 3 to the Funds Initial Registration Statement on Form 10 and incorporated herein by reference. (Note: the Operating Agreement also defines the rights of the holders of Shares of the Fund.) | |
3(a)
|
Copy of Amendment No. 2 to the Funds Amended and Restated Operating Agreement dated December 30, 2003 filed as Exhibit 3(a) to the Funds Report on Form 10-K for the period ended December 31, 2003 and incorporated herein by reference. | |
3(b)
|
Copy of Amendment No. 3 to the Funds Amended and Restated Operating Agreement dated December 21, 2009 filed as Exhibit 3(b) to the Funds Report on Form 10-K for the period ended December 31, 2009 and incorporated herein by reference. | |
4.1
|
Copy of Loan and Security Agreement between the Fund and DrKW Holdings, Inc. dated as of July 15, 2003 filed as Exhibit 4.1 to the Funds Report on Form 10-Q filed for the period ended September 30, 2003 and incorporated herein by reference. | |
4.1(a)
|
Copy of Amendment No. 1 dated March 16, 2004 to the Loan and Security Agreement between Belcrest Capital Fund LLC and DrKW Holdings, Inc. filed as Exhibit 4.1(a) to the Funds Report on Form 10-Q for the period ended March 31, 2004 and incorporated herein by reference. | |
4.1(b)
|
Copy of Amendment No. 2 dated December 15, 2005 to the Loan and Security Agreement between the Fund and DrKW Holdings, Inc. filed as Exhibit 4.1(b) to the Funds Report on Form 10-K for the period ended December 31, 2005 and incorporated herein by reference. | |
4.1(c)
|
Copy of Amendment No. 3 dated December 1, 2006 to the Loan and Security Agreement between the Fund and Dresdner Kleinwort Holdings I, Inc. (formerly, DrKW Holdings, Inc.) filed as Exhibit 4.1(c) to the Funds Report on Form 10-K for the period ended December 31, 2006 and incorporated herein by reference. | |
4.1(d)
|
Copy of Amendment No. 4 dated August 8, 2007 to the Loan and Security Agreement between the Fund and Dresdner Kleinwort Holdings I, Inc. filed as Exhibit 4.1(d) to the Funds Report on Form 10-Q for the period ended September 30, 2007 and incorporated herein by reference. | |
4.1(e)
|
Copy of Amendment No. 5 dated August 24, 2007 to the Loan and Security Agreement between the Fund and Dresdner Kleinwort Holdings I, Inc. filed as Exhibit 4.1(e) to the Funds Report on Form 10-Q for the period ended September 30, 2007 and incorporated herein by reference. | |
4.1(f)
|
Copy of Amendment No. 6 dated November 26, 2007 to the Loan and Security Agreement between the Fund and Dresdner Kleinwort Holdings I, Inc. filed as Exhibit 4.1(f) to the Funds Report on Form 10-K for the period ended December 31, 2007 and incorporated herein by reference. |
79
Exhibit No. | Description | |
4.1(g)
|
Copy of Amendment No. 7 dated June 13, 2008 to the Loan and Security Agreement between the Fund and Dresdner Kleinwort Holdings I, Inc. filed as Exhibit 4.1(g) to the Funds Report on Form 10-Q for the period ended June 30, 2008 and incorporated herein by reference. | |
4.1(h)
|
Copy of Amendment No. 8 dated October 28, 2008 to the Loan and Security Agreement between the Fund and Dresdner Kleinwort Holdings I, Inc. filed as Exhibit 4.1(g) to the Funds Report on Form 10-Q for the period ended September 30, 2008 and incorporated herein by reference. | |
4.2
|
Copy of Loan and Security Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., the lenders referred to therein and Merrill Lynch Capital Services, Inc., dated July 15, 2003 filed as Exhibit 4.2 to the Funds Report on Form 10-Q for the period ended September 30, 2003 and incorporated herein by reference. | |
4.2(a)
|
Copy of Amendment No. 1 dated March 16, 2004 to the Loan and Security Agreement between Belcrest Capital Fund LLC, Merrill Lynch Mortgage Capital, Inc., the lenders referred to therein and Merrill Lynch Capital Services, Inc. filed as Exhibit 4.2(a) to the Funds Report on Form 10-Q for the period ended March 31, 2004 and incorporated herein by reference. | |
4.2(b)
|
Copy of Amendment No. 2 dated August 3, 2004 to Loan and Security Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., as Agent, the Lenders referred to therein and Merrill Lynch Capital Services, Inc. filed as Exhibit 4.2(b) to the Funds Report on Form 10-Q for the period ended September 30, 2004 and incorporated herein by reference. | |
4.2(c)
|
Copy of Amendment No. 3 dated October 28, 2004 to Loan and Security Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., as Agent, the lenders referred to therein and Merrill Lynch Capital Services, Inc. filed as Exhibit 4.2(c) to the Funds Report on Form 10-Q for the period ended September 30, 2004 and incorporated herein by reference. | |
4.2(d)
|
Copy of Amendment No. 4 dated June 30, 2006 to the Loan and Security Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., as Agent, the lenders referred to therein and Merrill Lynch Capital Services, Inc. filed as Exhibit 4.2(d) to the Funds Report on Form 10-Q for the period ended June 30, 2006 and incorporated herein by reference. | |
4.2(e)
|
Copy of Amendment No. 5 dated December 1, 2006 to the Loan and Security Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., as Agent, the lenders referred to therein and Merrill Lynch Capital Services, Inc. filed as Exhibit 4.2(e) to the Funds Report on Form 10-K for the period ended December 31, 2006 and incorporated herein by reference. | |
4.2(f)
|
Copy of Amendment No. 6 dated May 9, 2007 to the Loan and Security Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., as Agent, the lenders referred to therein and Merrill Lynch Capital Services, Inc. filed as Exhibit 4.2(f) to the Funds Report on Form 10-Q for the period ended June 30, 2007 and incorporated herein by reference. |
80
Exhibit No. | Description | |||||||
4.2(g)
|
Copy of Amendment No. 7 dated February 6, 2009 to the Loan and Security Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., as Agent, the lenders referred to therein and Merrill Lynch Capital Services, Inc. filed as Exhibit 4.2(g) to the Funds Report on Form 10-K for the period ended December 31, 2008 and incorporated herein by reference. | |||||||
4.3
|
Copy of Master Credit Agreement dated as of December 21, 2009 among the Fund, the other borrowers thereunder, Bank of America, N.A. and each of the other lenders thereunder and Bank of America, N.A. as administrative agent filed as exhibit 4.3 to the Funds Report on Form 10-K for the period ended December 31, 2009 and incorporated herein by reference. | |||||||
4.3 (a)
|
Copy of Amendment No. 1 dated March 24, 2011 to the Master Credit Agreement dated as of December 21, 2009 among the Fund, the borrowers thereunder, Bank of America, N.A. and each of the other lenders thereunder and Bank of America, N.A. as administrative agent filed as Exhibit 4.3(a) to the Funds Report on Form 10-Q for the period ended March 31, 2011 and incorporated herein by reference. | |||||||
4.3(b)
|
Copy of Amendment No. 2 dated August 26, 2011 to the Master Credit Agreement dated as of December 21, 2009 among the Fund, the borrowers thereunder, Bank of America, N.A. and each of the other lenders thereunder and Bank of America, N.A. as administrative agent filed as Exhibit 4.3(b) to the Funds Report on Form 10-Q for the period ended September 30, 2011 and incorporated herein by reference. | |||||||
4.3(c)
|
Copy of Amendment No. 3 dated November 21, 2011 to the Master Credit Agreement dated as of December 21, 2009 among the Fund, the borrowers thereunder, Bank of America, N.A. and each of the other lenders thereunder and Bank of America, N.A. as administrative agent filed herewith. | |||||||
10(1)
|
Copy of Investment Advisory and Administration Agreement between the Fund and Boston Management and Research dated November 24, 1998 filed as Exhibit 10(1) to the Funds Initial Registration Statement on Form 10 and incorporated herein by reference. | |||||||
10(2)
|
Copy of Management Agreement between Belcrest Realty Corporation and Boston Management and Research dated November 24, 1998 filed as Exhibit 10(2) to the Funds Initial Registration Statement on Form 10 and incorporated herein by reference. | |||||||
10(2)(a)
|
Copy of Amendment No. 1 to Management Agreement between Belcrest Realty and Boston Management and Research dated as of December 28, 1999 filed as Exhibit 10(2)(a) to the Funds Report on Form 10-K for the period ended December 31, 2000 and incorporated herein by reference. | |||||||
10(3)
|
Copy of Investor Servicing Agreement between the Fund and Eaton Vance Distributors, Inc. dated August 14, 1998 filed as Exhibit 10(3) to the Funds 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 August 14, 1998 filed as Exhibit 10(4) to the Funds Initial Registration Statement on Form 10 and incorporated herein by reference. | |||||||
10(4)(a)
|
Copy of Amendment dated March 29, 2005 to Custody and Transfer Agency Agreement between the Fund and Investors Bank & Trust Company filed as Exhibit 10(4)(a) to the Funds Report on Form 10-Q for the period ended June 30, 2005 and incorporated herein by reference. |
81
Exhibit No. | Description | |
20(a)
|
Report on Form 8-K filed electronically with the Securities and Exchange Commission on January 26, 2007 and incorporated herein by reference. | |
20(b)
|
Report on Form 8-K filed electronically with the Securities and Exchange Commission on June 5, 2007 and incorporated herein by reference. | |
21
|
List of Subsidiaries of the Fund filed herewith. | |
31.1
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 filed herewith. | |
31.2
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 filed herewith. | |
32.1
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 filed herewith. | |
32.2
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 filed herewith. | |
99.3
|
Form N-CSR of Eaton Vance Tax-Managed Growth Portfolio (File No. 811-7409) for its year ended December 31, 2011 filed electronically with the Securities and Exchange Commission under the Investment Company Act of 1940 on February 25, 2012 incorporated herein by reference pursuant to Rule 12b-32. |
82