-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Szwjmu+8wIDBE6j2RU0+QyOAON1GPwtWCar/Ghkj5E2GCjOqByxb08RHKLY+iR8R aSIjv46PO0tNrRPjsEaPrw== 0000940394-02-000323.txt : 20020515 0000940394-02-000323.hdr.sgml : 20020515 20020515141857 ACCESSION NUMBER: 0000940394-02-000323 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELAIR CAPITAL FUND LLC CENTRAL INDEX KEY: 0001050816 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25767 FILM NUMBER: 02650811 BUSINESS ADDRESS: STREET 1: 24 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174828260 MAIL ADDRESS: STREET 1: 24 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 10-Q 1 belair10q.txt BELAIR CAPITAL FUND LLC 10-Q FOR PERIOD ENDED 3-31-02 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2002 Commission File No. 0002-25767 Belair Capital Fund LLC ----------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-3404037 ------------- ------------------------------------ (State of organization) (I.R.S. Employer Identification No.) The Eaton Vance Building 255 State Street, Boston, Massachusetts 02109 --------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number: 617-482-8260 --------------------- None ---- Former Name, Former Address and Former Fiscal Year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Belair Capital Fund LLC Index to Form 10Q PART I - FINANCIAL INFORMATION Page Item 1. Consolidated Financial Statements 3 Consolidated Statements of Assets and Liabilities as of March 31, 2002 (unaudited) and December 31, 2001 3 Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2002 and 2001 4 Consolidated Statements of Changes in Net Assets (unaudited) for the Three Months Ended March 31, 2002 and 2001 6 Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2002 and 2001 7 Financial Highlights (unaudited) for the Three Months Ended March 31, 2002 9 Notes to Consolidated Financial Statements as of March 31, 2002 (unaudited) 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities and Use of Proceeds 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports 15 SIGNATURES 16 2 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements - -------------------------------------------------------------------------------- BELAIR CAPITAL FUND LLC Consolidated Statements of Assets and Liabilities March 31, 2002 December 31, (Unaudited) 2001 -------------- -------------- Assets: Investment in Belvedere Capital Fund Company LLC $1,821,919,684 $1,820,021,041 Investment in Partnership Preference Units 355,117,552 376,475,922 Investment in other real estate 328,297,389 327,945,162 Short-term investments - 4,559,775 -------------- -------------- Total Investments $2,505,334,625 $2,529,001,900 Cash 6,061,732 6,540,394 Escrow deposits - restricted 4,642,726 4,637,336 Dividends receivable 7,267,155 2,547,069 Deferred expenses 91,795 118,859 Other assets 171,424 221,564 -------------- -------------- Total assets $2,523,569,457 $2,543,067,122 -------------- -------------- Liabilities: Loan payable $ 543,769,000 $ 558,769,000 Mortgage payable, net of unamortized debt issuance costs ($2,010,567 and $2,069,458, respectively) 226,469,950 226,411,059 Open interest rate swap contracts, at value 22,348,493 29,867,703 Swap interest payable 4,714,505 4,394,148 Security deposits 868,011 878,199 Accrued expenses: Interest expense 3,296,911 3,717,765 Property taxes 1,406,777 2,053,094 Other expenses and liabilities 2,094,867 1,988,505 Minority interests in controlled subsidiaries 27,604,035 27,349,823 -------------- -------------- Total liabilities $ 832,572,549 $ 855,429,296 -------------- -------------- Net assets $1,690,996,908 $1,687,637,826 -------------- -------------- Shareholders' Capital -------------- -------------- Shareholders' capital $1,690,996,908 $1,687,637,826 -------------- -------------- Shares Outstanding 14,271,530 14,376,567 -------------- -------------- Net Asset Value and Redemption Price Per Share $118.49 $117.39 -------------- -------------- See notes to consolidated financial statements 3 BELAIR CAPITAL FUND LLC Consolidated Statements of Operations (Unaudited) Three Months Three Months Ended Ended March 31, March 31, 2002 2001 -------------- -------------- Investment Income: Dividends allocated from Belvedere Capital (net of foreign taxes of $25,004 and $30,320, respectively) $ 4,644,360 $ 4,734,583 Interest allocated from Belvedere Capital 155,139 851,914 Expenses allocated from Belvedere Capital (2,686,212) (3,067,499) -------------- -------------- Net investment income allocated from Belvedere Capital $ 2,113,287 $ 2,518,998 Dividends from Partnership Preference Units 8,737,175 11,133,216 Rental income 11,507,916 5,979,865 Interest 34,146 172,994 -------------- -------------- Total investment income $ 22,392,524 $ 19,805,073 -------------- -------------- Expenses: Investment advisory and administrative fees $ 1,633,322 $ 1,738,712 Property management fees 463,247 238,841 Servicing fees 168,093 200,118 Interest expense on Credit Facility 3,390,594 10,369,359 Interest expense on mortgages 4,363,735 2,386,111 Interest expense on swap contracts 7,360,327 735,861 Property and maintenance expenses 2,611,475 1,463,057 Property taxes and insurance 1,448,970 585,744 Amortization of deferred expenses 27,064 35,649 Miscellaneous 272,146 360,103 ------------- -------------- Total expenses $ 21,738,973 $ 18,113,555 ------------- -------------- Net investment income before minority interests in net income of controlled subsidiaries $ 653,551 $ 1,691,518 Minority interests in net income of controlled subsidiaries (660,952) (334,714) -------------- -------------- Net investment income (loss) $ (7,401) $ 1,356,804 -------------- -------------- See notes to consolidated financial statements 4 BELAIR CAPITAL FUND LLC Consolidated Statements of Operations (Unaudited) (Continued) Three Months Three Months Ended Ended March 31, March 31, 2002 2001 -------------- -------------- Realized and Unrealized Gain (Loss) Net realized gain (loss) - Investment transactions from Belvedere Capital (identified cost basis) $ (11,269,064) $ 6,043,693 Investment transactions in Partnership Preference Units (identified cost basis) (2,040,040) (1,142,610) -------------- -------------- Net realized gain (loss) $ (13,309,104) $ 4,901,083 -------------- -------------- Change in unrealized appreciation (depreciation) - Investment in Belvedere Capital (identified cost basis) $ 22,404,942 $(255,144,565) Investments in Partnership Preference Units (identified cost basis) (609,987) 32,547,138 Investment in other real estate investments (net of minority interests in unrealized gain (loss) of controlled subsidiaries) (468,914) - Interest rate swap contracts 7,519,210 (14,168,209) -------------- -------------- Net change in unrealized appreciation (depreciation) $ 28,845,251 $(236,765,636) -------------- -------------- Net realized and unrealized gain (loss) $ 15,536,147 $(231,864,553) -------------- -------------- Net increase (decrease) in net assets from operations $ 15,528,746 $(230,507,749) ============== ============== See notes to consolidated financial statements 5 BELAIR CAPITAL FUND LLC Consolidated Statements of Changes in Net Assets (Unaudited) Three Months Three Months Ended Ended March 31, March 31, 2002 2001 --------------- --------------- Increase (Decrease) in Net Assets: Net investment income (loss) $ (7,401) $ 1,356,804 Net realized gain (loss) on investment transactions (13,309,104) 4,901,083 Net change in unrealized appreciation (depreciation) of investments 28,845,251 (236,765,636) --------------- --------------- Net increase (decrease) in net assets from operations $ 15,528,746 $ (230,507,749) --------------- --------------- Transactions in Fund Shares - Net asset value of Fund Shares redeemed $ (12,169,664) $ (17,411,099) --------------- --------------- Net decrease in net assets from Fund Share transactions $ (12,169,664) $ (17,411,099) --------------- --------------- Net increase (decrease) in net assets $ 3,359,082 $ (247,918,848) Net assets: At beginning of period $1,687,637,826 $2,010,997,840 --------------- --------------- At end of period $1,690,996,908 $1,763,078,992 =============== =============== See notes to consolidated financial statements 6 BELAIR CAPITAL FUND LLC Consolidated Statements of Cash Flows (Unaudited) Three Months Three Months Ended Ended March 31, March 31, 2002 2001 -------------- -------------- Cash Flows From (For) Operating Activities - Net investment income (loss) $ (7,401) $ 1,356,804 Adjustments to reconcile net investment income (loss) to net cash flows from (for) operating activities- Amortization of debt issuance costs 58,891 40,580 Amortization of deferred expenses 27,064 35,649 Net investment income allocated from Belvedere Capital (2,113,287) (2,518,998) (Increase) decrease in dividends receivable (4,720,086) 1,710,276 Increase in escrow deposits (5,390) (305,720) Decrease in other assets 50,140 226,904 Increase in interest payable for open swap contracts 320,357 1,612,197 Increase (decrease) in accrued property taxes (646,317) 167,015 Decrease in security deposits, accrued expenses and other liabilities (324,680) (4,833,401) Improvements to rental property (352,227) (311,783) Purchases of Partnership Preference Units (5,655,543) (9,386,616) Sales of Partnership Preference Units 24,363,886 9,386,616 Net (increase) decrease in investment in Belvedere Capital 929,970 (19,414,176) Decrease in minority interest (52,500) (52,500) Decrease in short-term investments 4,559,775 5,067,352 Minority interests in net income of controlled subsidiaries 660,952 334,714 -------------- -------------- Net cash flows from (for) operating activities $ 17,093,604 $ (16,885,087) Cash Flows For Financing Activities - Repayment of Credit Facility $ (15,000,000) $ (25,000,000) Payments for Fund Shares redeemed (1,749,112) (2,054,985) Distributions paid to minority shareholders (823,154) (587,028) -------------- -------------- Net cash flows used for financing activities $ (17,572,266) $ (27,642,013) Net decrease in cash $ (478,662) $ (44,527,100) Cash at beginning of period $ 6,540,394 $ 46,875,064 -------------- -------------- Cash at end of period $ 6,061,732 $ 2,347,964 ============== ============== See notes to consolidated financial statements 7 BELAIR CAPITAL FUND LLC Consolidated Statements of Cash Flows (Unaudited) (Continued) Three Months Three Months Ended Ended March 31, March 31, 2002 2001 -------------- -------------- Supplemental Disclosure and Non-cash Investing and Financing Activities- Change in unrealized appreciation (depreciation) of investments and open swap contracts $ 28,845,251 $(236,765,636) Interest paid for loan $ 3,813,353 $ 11,892,919 Interest paid for swap contracts $ 7,039,970 $ 876,336 Interest paid for mortgages $ 4,304,844 $ 2,345,531 Market value of securities distributed in payment of redemptions $ 10,420,552 $ 15,356,114 See notes to consolidated financial statements 8 Belair Capital Fund LLC as of March 31, 2002 CONSOLIDATED FINANCIAL STATEMENTS (Continued) Financial Highlights (Unaudited) For the Three Months Ended March 31, 2002 - -------------------------------------------------------------------------------- Net asset value - Beginning of period $ 117.390 - -------------------------------------------------------------------------------- Income (loss) from operations - -------------------------------------------------------------------------------- Net investment loss (5) $ (0.001) Net realized and unrealized gain 1.101 - -------------------------------------------------------------------------------- Total income from operations $ 1.100 - -------------------------------------------------------------------------------- Net asset value - End of period $ 118.490 - -------------------------------------------------------------------------------- Total Return (1) 0.94% - -------------------------------------------------------------------------------- As a Percentage As a Percentage of Average Net of Average Gross Ratios Assets (4)(8) Assets (2)(4)(8) - -------------------------------------------------------------------------------- Expenses of Consolidated Real Property Subsidiaries Interest and other borrowing costs (3) 0.79% 0.55% Operating Expenses (3) 0.83% 0.58% Belair Capital Fund LLC Expenses Interest and other borrowing cost (6) 2.62% 1.83% Investment advisory and administrative fees, servicing fees and other Fund operating expenses (6)(7) 1.15% 0.81% --------------------------------- Total expenses 5.39% 3.77% Net investment loss (0.002)% (0.001)% - -------------------------------------------------------------------------------- Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period (000's omitted) $ 1,690,997 Portfolio Turnover of Tax-Managed Growth Portfolio 5% - -------------------------------------------------------------------------------- (1) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on the last day of the period. Distributions, if any, are assumed reinvested at the net asset value on the reinvestment date. (2) Average Gross Assets is defined as the average daily amount of all assets of Belair Capital Fund LLC (not including its investment in Belair Real Estate Corporation (BREC)) plus all assets of BREC minus the sum of each entities' liabilities other than the principal amount of money borrowed. For this purpose, the assets and liabilities of BREC's controlled subsidiaries are reduced by the proportionate interests therein of investors other than BREC. (3) Ratio includes BREC's proportional share of expenses incurred by its majority-owned subsidiaries. (4) For the purpose of calculating ratios, the income and expenses of BREC's controlled subsidiaries are reduced by the proportionate interests therein of investors other than BREC. (5) Calculated using average shares outstanding. (6) Ratio includes the expenses of Belair Capital Fund LLC and BREC for which Belair Capital Fund LLC owns 100% of the outstanding common stock. The ratio does not include expenses of other real estate subsidiaries. (7) Ratio includes Belair Capital Fund LLC's share of Belvedere Capital's allocated expenses, including those expenses allocated from the Portfolio. (8) Annualized. See notes to consolidated financial statements 9 BELAIR CAPITAL FUND LLC as of March 31, 2002 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1 Basis of Presentation The condensed consolidated interim financial statements of Belair Capital Fund LLC (Belair Capital) and its subsidiaries (collectively the "Fund") have been prepared by the Fund, without audit, in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations, cash flows and financial highlights at the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the financial statements and the notes thereto included in the Fund's latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the full fiscal year. The balance sheet at December 31, 2001, has been derived from the December 31, 2001 audited financial statements but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements as permitted by the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain amounts in the prior period's consolidated financial statements have been reclassified to conform with the current year presentation. 2 Investment Transactions Increases and decreases of the Fund's investment in Belvedere Capital Fund Company LLC (Belvedere Capital) for the three months ended March 31, 2002 aggregated $27,620,268 and $38,970,790, respectively, and for the three months ended March 31, 2001 aggregated $63,122,364 and $59,064,302, respectively. Purchases and sales of Partnership Preference Units aggregated $5,655,543 and $24,363,886, respectively, for the three months ended March 31, 2002 and $9,386,616 and $9,386,616, respectively, for the three months ended March 31, 2001. For the three months ended March 31, 2002 and March 31, 2001, there were no acquisitions or sales of other real property. Purchases and sales of Partnership Preference Units during the three months ended March 31, 2002 and March 31, 2001 include amounts purchased from and sold to other funds sponsored by Eaton Vance Management. 3 Indirect Investment in Portfolio Belvedere Capital's interest in Tax-Managed Growth Portfolio (the Portfolio) at March 31, 2002 was $10,618,305,771 representing 56.5% of the Portfolio's net assets and at March 31, 2001 was $9,248,868,309 representing 54.7% of the Portfolio's net assets. The Fund's investment in Belvedere Capital at March 31, 2002 was $1,821,919,684 representing 17.2% of Belvedere Capital's net assets and 10 at March 31, 2001 was $1,890,271,327, representing 20.4% of Belvedere Capital's net assets. Investment income allocated to Belvedere Capital from the Portfolio for the three months ended March 31, 2002 totaled $27,289,011, of which $4,799,499, was allocated to the Fund. Investment income allocated to Belvedere Capital from the Portfolio for the three months ended March 31, 2001 totaled $25,944,565, of which $5,586,497 was allocated to the Fund. Expenses allocated to Belvedere Capital from the Portfolio for the three months ended March 31, 2002 totaled $11,408,561, of which $2,005,160 was allocated to the Fund. Expenses allocated to Belvedere Capital from the Portfolio for the three months ended March 31, 2001 totaled $10,657,687, of which $2,290,377 was allocated to the Fund. Belvedere Capital allocated additional expenses to the Fund of $681,052 for the three months ended March 31, 2002, representing $16,857 of operating expenses and $664,195 of service fees. Belvedere Capital allocated additional expenses to the Fund of $777,122 for the three months ended March 31, 2001, representing $19,875 of operating expenses and $757,247 of service fees. A summary of the Portfolio's Statement of Assets and Liabilities, at March 31, 2002, December 31, 2001 and March 31, 2001 and its operations for the three months ended March 31, 2002, the year ended December 31, 2001 and the three months ended March 31, 2001 follows: March 31, December 31, March 31, 2002 2001 2001 ----------------------------------------------------- Investments, at value $18,699,529,315 $18,312,992,768 $16,937,423,532 Other Assets 137,094,099 23,229,223 32,010,878 - -------------------------------------------------------------------------------- Total Assets $18,836,623,414 $18,336,221,991 $16,969,434,410 Total Liabilities 54,877,430 357,011 59,756,296 - -------------------------------------------------------------------------------- Net Assets $18,781,745,984 $18,335,864,980 $16,909,678,114 ================================================================================ Dividends and interest $ 48,561,319 $ 192,367,081 $ 48,190,173 - -------------------------------------------------------------------------------- Investment adviser fee $ 19,634,596 $ 76,812,367 $ 19,128,089 Other expenses 654,041 2,161,015 640,516 - -------------------------------------------------------------------------------- Total expenses $ 20,288,637 $ 78,973,382 $ 19,768,605 - -------------------------------------------------------------------------------- Net investment income $ 28,272,682 $ 113,393,699 $ 28,421,568 Net realized gains (losses) (111,417,095) (360,120,300) 52,532,750 Net change in unrealized gains (losses) 229,264,275 (1,605,211,090) (2,205,600,689) - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from operations $ 146,119,862 $(1,851,937,691) $(2,124,646,371) - -------------------------------------------------------------------------------- 4 Cancelable Interest Rate Swap Agreements Belair Capital has entered into cancelable interest rate swap agreements in connection with its real estate investments and the associated borrowings. Under such agreements, Belair Capital has agreed to make periodic payments at fixed rates in exchange for payments at floating rates. The notional or contractual amounts of these instruments may not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these investments is meaningful only when considered in conjunction with all related assets, liabilities and agreements. As of March 31, 2002 and December 31, 2001, Belair Capital has entered into cancelable interest rate swap agreements with Merrill Lynch Capital Services, Inc. - -------------------------------------------------------------------------------- 11
Notional Initial Unrealized Unrealized Amount Optional Depreciation Depreciation Effective (000's Fixed Floating Termination Maturity At March 31, At December 31, Date omitted) Rate Rate Date Date 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------------ 2/98 $120,000 6.715% Libor+0.45% 2/03 2/05 $(2,825,585) $ (4,036,969) 4/98 50,000 6.84% Libor+0.45% 2/03 2/05 (1,267,642) (1,789,764) 4/98 150,000 6.835% Libor+0.45% 4/03 4/05 (4,193,487) (5,769,278) 6/98 20,000 6.67% Libor+0.45% 6/03 2/05 (563,218) (780,852) 6/98 75,000 6.68% Libor+0.45% 6/03 2/05 (2,125,094) (2,943,209) 6/98 80,000 6.595% Libor+0.45% 6/03 2/05 (2,148,126) (3,002,682) 11/98 14,709 6.13% Libor+0.45% 11/03 2/05 (307,319) (455,595) 2/99 34,951 6.34% Libor+0.45% 2/04 2/05 (945,737) (1,322,041) 4/99 5,191 6.49% Libor+0.45% 2/04 2/05 (158,537) (216,372) 7/99 24,902 7.077% Libor+0.45% 7/04 2/05 (1,191,105) (1,507,472) 9/99 10,471 7.37% Libor+0.45% 9/04 2/05 (593,779) (734,425) 3/00 19,149 7.89% Libor+0.45% 2/04 2/05 (1,145,614) (1,428,015) 3/00 70,000 7.71% Libor+0.45% - 2/05 (4,883,250) (5,881,029) - ------------------------------------------------------------------------------------------------------------------------------------ Total $(22,348,493) $(29,867,703) - ------------------------------------------------------------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2002, COMPARED TO THE QUARTER ENDED MARCH 31, 2001 Belair Capital Fund LLC and its subsidiaries (collectively, the Fund) achieved a total return performance of 0.94% for the quarter ended March 31, 2002. This return reflects an increase in the Fund's net asset value per share from $117.39 to $118.49. This return is compared to the Standard & Poors 500 Index (S&P 500), an unmanaged index of large capitalization stocks commonly used as a benchmark for the U.S. equity market, which had a total return of 0.28% over the same period. For comparison, at the end of the first quarter of 2001, the Fund's net asset value per share decreased from $133.13 to $117.79, representing a -11.5% return versus S&P 500's total return of -11.9%. During the first quarter of 2002, the U.S. equity market's return was hampered by continued volatility and economic uncertainty. In this difficult environment, the performance of Tax-Managed Growth Portfolio (the Portfolio) exceeded that of the overall market. The Portfolio correctly de-emphasized the two worst performing sectors of the S&P 500: Information Technology and Telecom, which lost -7.5% and -15.9% respectively. The Portfolio held the same cautious stance on the aforementioned sectors in the first quarter of 2001. Value stocks in all capitalization ranges outperformed their growth counterparts for the quarter ending March 31, 2002. The Portfolio made a gradual shift to overweight in Capital Goods, and increased its exposure to the Consumer Discretionary area during the last year, which helped its performance. An increase in the exposure to defense and aerospace names continued to be productive for the Portfolio. In the fixed income markets, the first quarter benefited from a stable interest rate environment and narrowing credit spreads. The Federal Reserve Board left interest rates unchanged for the quarter ending March 31, 2002; the first non-action since early 2000. Changes in valuation of the Fund's holdings of Partnership Preference Units and other real estate investments had a modest positive impact on the Fund's performance during the period. 12 LIQUIDITY AND CAPITAL RESOURCES The Fund has entered into interest rate swap agreements with respect to its borrowings and real estate investments. Pursuant to these agreements, the Fund makes quarterly payments to the counterparty at predetermined fixed rates, in exchange for floating-rate payments from the counterparty at a predetermined spread to three-month LIBOR. During the terms of the outstanding swap agreements, changes in the underlying values of the swaps are recorded as unrealized gains or losses. As of March 31, 2002 and 2001, the unrealized depreciation related to the interest rate swap agreements was $(22,348,493) and $(19,002,862), respectively. CRITICAL ACCOUNTING POLICIES The Fund's discussion and analysis of its financial condition and results of operations are based upon the Fund's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Fund to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The Fund bases these estimates, judgments and assumptions on historical experience and on other various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Fund believes its more significant estimates and assumptions used in preparation of its consolidated financial statements are affected by its critical accounting policies for the Fund's investments in real estate and interest rate swap contracts. Prices are not readily available for these types of investments and therefore they are valued as determined in good faith by the Investment Adviser on an ongoing basis. In estimating the value of the Fund's investments in real estate, the Investment Adviser takes into account all relevant factors, data and information, including with respect to investments in Partnership Preference Units, information from dealers and similar firms with knowledge of such issues and the prices of comparable preferred equity securities and other fixed or adjustable rate instruments having similar investment characteristics. Real estate investments other than Partnership Preference Units are generally stated at estimated market values based upon independent valuations assuming an orderly disposition of assets. Detailed valuations are performed annually and reviewed periodically and adjusted if there has been a significant change in economic circumstances since the previous valuation. Given that such valuations include many assumptions, including but not limited to an orderly disposition of assets, values may differ from amounts ultimately realized. The Investment Adviser, in determining the value of interest rate swaps, may consider among other things, dealer and counter-party quotes and pricing models. These policies involve significant judgments made, based upon 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. The valuations of Partnership Preference Units held by the Fund through its investment in Belair Real Estate Corporation (BREC) fluctuate over time to reflect, among other factors, changes in interest rates, changes in perceived riskiness of such units (including call risk), changes in the perceived riskiness of comparable or similar securities trading 13 in the public market and the relationship between supply and demand for comparable or similar securities trading in the public market. Fluctuations in the value of real estate investments derived from changes in general interest rates can be expected to be offset in part (but not entirely) by changes in the value of interest rate swap agreements or other interest rate hedges entered into by the Fund with respect to its borrowings. Fluctuations in the value of real estate investments derived from other factors besides general interest rate movements (including issuer-specific and sector-specific credit concerns, property-specific concerns and changes in interest rate spread relationships) will not be offset by changes in the value of interest rate swap agreements or other interest rate hedges entered into by the Fund. Changes in the valuation of real estate investments not offset by changes in the valuation of interest rate swap agreements or other interest rate hedges entered into by the Fund will cause the performance of the Fund to deviate from the performance of the Portfolio. Item 3. Quantitative and Qualitative Disclosures About Market Risks The Fund's primary exposure to interest rate risk arises from investments in real estate that are financed using floating rate bank borrowings under a revolving credit facility (the Credit Facility). The interest rate on borrowings under the Fund's Credit Facility is reset at regular intervals based on a fixed and predetermined premium to LIBOR for short-term extensions of credit. The Fund utilizes cancelable interest rate swap agreements to fix the cost of its borrowings under the Credit Facility and to mitigate the impact of interest rate changes on the Fund's net asset value. Under the terms of the interest rate swap agreements, the Fund makes cash payments at fixed rates in exchange for floating rate payments that fluctuate with three-month LIBOR. The interest rate swap agreements are valued on an ongoing basis by the Investment Adviser. 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 may be considered speculative and which can expose the Fund to significant loss. The following table summarizes the contractual maturities and weighted-average interest rates associated with the Fund's significant non-trading financial instruments. The Fund has no market risk sensitive instruments held for trading purposes. This information should be read in conjunction with Notes 4 to the consolidated financial statements. Interest Rate Sensitivity Principal (Notional) Amount by Contractual Maturity For the Twelve Months Ended March 31,
2003 2004 2005 2006 2007 Thereafter Total Fair Value ----------------------------------------------------------------------------------------------------------- Rate sensitive liabilities: - ------------------ Long term debt- variable rate Credit Facility $543,769,000 $543,769,000 $543,769,000 Average interest rate 2.48% 2.48% Rate sensitive derivative financial instruments: - ------------------ Pay fixed/ Receive variable interest rate swap contracts $674,373,000 $674,373,000 $(22,348,493) Average pay rate 6.86% 6.86% Average receive rate 2.48% 2.48%
14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. - -------------------------- Although in the ordinary course of business, the Fund, BREC or the real estate investments in which BREC has equity interests may become involved in legal proceedings, the Fund is not aware of any material pending legal proceedings to which the Fund or BREC is a party or of which any of BREC's real estate investments is the subject. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. - -------------------------------------------------- None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. - ---------------------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------------------------------------------------------------ None. ITEM 5. OTHER INFORMATION. - -------------------------- None. ITEM 6. THE FOLLOWING IS A LIST OF ALL EXHIBITS FILED AS PART OF THIS FORM 10Q: - ------------------------------------------------------------------------------- (a) Exhibits 21 List of subsidiaries 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned officer of its Manager, Eaton Vance Management thereunto duly authorized on May 15, 2002. BELAIR CAPITAL FUND LLC (Registrant) By: EATON VANCE MANAGEMENT, its Manager By: /s/ James L. O'Connor -------------------------------- James L. O'Connor Vice President By: /s/ William M. Steul -------------------------------- William M. Steul Chief Financial Officer 16 EXHIBIT INDEX 21 List of subsidiaries 17 EX-99.21 3 ex21.txt BELAIR LIST OF SUBSIDIARIES EXHIBIT 21 BELAIR CAPITAL FUND LLC SUBSIDIARIES Name Jurisdiction of Incorporation ---- ----------------------------- Belair Real Estate Corporation Delaware Bel Residential Properties Trust Maryland Katahdin Property Trust, LLC Delaware -----END PRIVACY-ENHANCED MESSAGE-----