-----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, Q2JGzVfM2gEWw0g/PfWDjkgZxEnysdYx42sjaFMyyEaL8uGiEl9kSLUUEt+mk3sA i1v027UQyp5fvL6isD7gDg== 0000940394-02-000501.txt : 20020814 0000940394-02-000501.hdr.sgml : 20020814 20020814152235 ACCESSION NUMBER: 0000940394-02-000501 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 02735691 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 10Q FOR QTR ENDED 6-30-02 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 June 30, 2002 Commission File No. 000-25767 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 June 30, 2002 (Unaudited) and December 31, 2001 3 Consolidated Statements of Operations (Unaudited) for the Three Months Ended June 30, 2002 and 2001 and for the Six Months Ended June 30, 2002 and 2001 4 Consolidated Statements of Changes in Net Assets (Unaudited) for the Six Months Ended June 30, 2002 and 2001 6 Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2002 and 2001 7 Financial Highlights (Unaudited) for the Six Months Ended June 30, 2002 9 Notes to Consolidated Financial Statements as of June 30, 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 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities and Use of Proceeds 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports 16 SIGNATURES 17 2 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- BELAIR CAPITAL FUND LLC Consolidated Statements of Assets and Liabilities June 30, 2002 December 31, (Unaudited) 2001 -------------- -------------- Assets: Investment in Belvedere Capital Fund Company LLC $1,578,920,235 $1,820,021,041 Investment in Partnership Preference Units 397,035,483 376,475,922 Investment in other real estate 156,340,000 327,945,162 Short-term investments - 4,559,775 -------------- -------------- Total Investments $2,132,295,718 $2,529,001,900 Cash 2,667,977 6,540,394 Escrow deposits - restricted 1,442,792 4,637,336 Interest and dividends receivable 7,719,210 2,547,069 Other assets 1,442,053 2,409,881 -------------- -------------- Total assets $2,145,567,750 $2,545,136,580 -------------- -------------- Liabilities: Loan payable on Credit Facility $ 543,769,000 $ 558,769,000 Mortgages payable 112,630,517 228,480,517 Open interest rate swap contracts, at value 27,737,207 29,867,703 Swap interest payable 4,624,253 4,394,148 Security deposits 427,871 878,199 Accrued expenses: Interest expense 2,752,561 3,717,765 Property taxes 879,669 2,053,094 Other expenses and liabilities 789,796 1,988,505 Minority interests in controlled subsidiaries 12,467,016 27,349,823 -------------- -------------- Total liabilities $ 706,077,890 $ 857,498,754 -------------- -------------- Net assets $1,439,489,860 $1,687,637,826 -------------- -------------- Shareholders' Capital -------------- -------------- Shareholders' capital $1,439,489,860 $1,687,637,826 -------------- -------------- Shares Outstanding 13,975,989 14,376,567 -------------- -------------- Net Asset Value and Redemption Price Per Share $103.00 $117.39 -------------- -------------- See notes to consolidated financial statements 3 BELAIR CAPITAL FUND LLC Consolidated Statements of Operations (Unaudited)
Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Investment Income: Dividends allocated from Belvedere Capital (net of foreign taxes of $94,275, $31,173, $119,279 and $61,493, respectively) $ 5,276,280 $ 4,670,963 $ 9,920,640 $ 9,405,546 Interest allocated from Belvedere Capital 124,003 253,126 279,142 1,105,040 Expenses allocated from Belvedere Capital (2,576,957) (2,959,093) (5,263,169) (6,026,592) ------------ ------------ ------------ ------------ Net investment income allocated from Belvedere Capital $ 2,823,326 $ 1,964,996 $ 4,936,613 $ 4,483,994 Dividends from Partnership Preference Units 9,400,673 3,824,112 18,137,848 14,957,328 Rental income 7,626,858 8,438,058 19,134,774 14,417,923 Interest 32,686 128,241 66,832 301,235 ------------ ------------ ------------ ------------- Total investment income $19,883,543 $14,355,407 $42,276,067 $34,160,480 ------------ ------------ ------------ ------------ Expenses: Investment advisory and administrative fees $ 1,526,847 $ 1,775,246 $ 3,160,169 $ 3,513,958 Property management fees 307,859 338,301 771,106 577,142 Servicing fees 148,286 188,945 316,379 389,063 Interest expense on Credit Facility 3,324,638 8,614,967 6,715,232 18,984,326 Interest expense on mortgages 3,045,319 3,234,769 7,409,054 5,620,880 Interest expense on swap contracts 7,526,723 2,804,879 14,887,050 3,540,740 Property and maintenance expenses 1,928,651 2,073,858 4,540,126 3,536,915 Property taxes and insurance 904,025 908,140 2,352,995 1,493,884 Amortization of deferred expenses 27,365 18,780 54,429 54,429 Miscellaneous 132,364 466,144 404,510 826,247 ------------ ------------ ------------ ------------ Total expenses $18,872,077 $20,424,029 $40,611,050 $38,537,584 ------------ ------------ ------------ ------------ Net investment income (loss) before minority interests in net income of controlled subsidiaries $ 1,011,466 $(6,068,622) $ 1,665,017 $(4,377,104) Minority interests in net income of controlled subsidiaries (353,710) (492,625) (1,014,662) (827,339) ------------ ------------ ------------ ------------ Net investment income (loss) $ 657,756 $(6,561,247) $ 650,355 $(5,204,443) ------------ ------------ ------------ ------------
See notes to consolidated financial statements 4 BELAIR CAPITAL FUND LLC Consolidated Statements of Operations (Unaudited) (Continued)
Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2002 2001 2002 2001 -------------- -------------- -------------- -------------- Realized and Unrealized Gain (Loss) Net realized gain (loss) - Investment transactions from Belvedere Capital (identified cost basis) $(129,614,629) $ (7,301,594) $(140,883,693) $ (1,257,901) Investment transactions in Partnership Preference Units (identified cost basis) - - (614,855) (1,142,610) Investment transactions in other real estate investments (9,540,011) - (9,540,011) -------------- ------------- -------------- -------------- Net realized loss $(139,154,640) $ (7,301,594) $(151,038,559) $ (2,400,511) Change in unrealized appreciation (depreciation) - Investment in Belvedere Capital (identified cost basis) $ (83,763,480) $110,600,345 $ (61,358,538) $(144,544,220) Investments in Partnership Preference Units (identified cost basis) 11,429,104 12,236,705 9,393,932 44,783,843 Investment in other real estate investments (net of minority interests in unrealized gain (loss) of controlled subsidiaries of $(683,217), $491,248, $(214,303) and $491,248, respectively) (2,235,555) (2,187,232) (2,704,469) (2,187,232) Interest rate swap contracts (5,388,714) 4,461,941 2,130,496 (9,706,268) -------------- ------------- -------------- -------------- Net change in unrealized appreciation (depreciation) $ (79,958,645) $125,111,759 $ (52,538,579) $(111,653,877) -------------- ------------- -------------- -------------- Net realized and unrealized gain (loss) $(219,113,285) $117,810,165 $(203,577,138) $(114,054,388) -------------- ------------- -------------- -------------- Net increase (decrease) in net assets from operations $(218,455,529) $111,248,918 $(202,926,783) $(119.258,831) ============== ============= ============== ==============
See notes to consolidated financial statements 5 BELAIR CAPITAL FUND LLC Consolidated Statements of Changes in Net Assets (Unaudited) Six Months Six Months Ended Ended June 30, 2002 June 30, 2001 --------------- --------------- Increase (Decrease) in Net Assets: Net investment income (loss) $ 650,355 $ (5,204,443) Net realized loss on investment transactions (151,038,559) (2,400,511) Net change in unrealized appreciation (depreciation) of investments (52,538,579) (111,653,877) --------------- --------------- Net decrease in net assets from operations $ (202,926,783) $ (119,258,831) --------------- --------------- Transactions in Fund Shares - Net asset value of Fund Shares redeemed $ (45,221,183) $ (51,286,054) --------------- --------------- Net decrease in net assets from Fund Share transactions $ (45,221,183) $ (51,286,054) --------------- --------------- Net decrease in net assets $ (248,147,966) $ (170,544,885) Net assets: At beginning of period $1,687,637,826 $2,010,997,840 --------------- --------------- At end of period $1,439,489,860 $1,840,452,955 =============== =============== See notes to consolidated financial statements 6 BELAIR CAPITAL FUND LLC Consolidated Statements of Cash Flows (Unaudited)
Six Months Six Months Ended Ended June 30, June 30, 2002 2001 ------------- ------------- Cash Flows From (For) Operating Activities - Net investment income (loss) $ 650,355 $ (5,204,443) Adjustments to reconcile net investment income (loss) to net cash flows from (for) operating activities- Amortization of debt issuance costs 105,576 87,104 Amortization of deferred expenses 54,429 54,429 Net investment income allocated from Belvedere Capital (4,936,613) (4,483,994) (Increase) decrease in interest and dividends receivable (5,172,141) 7,873,443 Increase in escrow deposits (5,390) (317,545) Increase in other assets (237,693) (928,173) Increase in interest payable for open swap contracts 230,105 2,772,919 Increase (decrease) in accrued property taxes (532,664) 1,199,807 Decrease in security deposits, accrued interest and other accrued expenses and liabilities (33,954) (5,239,147) Improvements to rental property (747,548) (868,093) (Purchases) sales of investments in other real estate investments 32,965,765 (41,261,497) Cash assumed (decrease in cash) in connection with purchase (sale) of majority interest in controlled subsidiary (2,429,734) 1,745,868 Purchases of Partnership Preference Units (30,488,829) (9,386,616) Sales of Partnership Preference Units 18,708,345 9,386,616 Net (increase) decrease in investment in Belvedere Capital 1,864,615 (9,529,159) Decrease in minority interest (52,500) (52,500) (Increase) decrease in short-term investments 4,559,775 (3,303,993) Minority interests in net income of controlled subsidiaries 1,014,662 827,339 ------------- ------------- Net cash flows from (for) operating activities $ 15,516,561 $(56,627,635) Cash Flows From (For) Financing Activities - Proceeds from (repayment of) Credit Facility $(15,000,000) $ 20,000,000 Payments for Fund Shares redeemed (3,290,609) (4,338,741) Distributions paid to minority shareholders (1,098,369) (905,361) ------------- ------------- Net cash flows from (for) financing activities $(19,388,978) $ 14,755,898 Net decrease in cash $ (3,872,417) $(41,871,737) Cash at beginning of period $ 6,540,394 $ 46,875,064 ------------- ------------- Cash at end of period $ 2,667,977 $ 5,003,327 ============= =============
See notes to consolidated financial statements 7 BELAIR CAPITAL FUND LLC Consolidated Statements of Cash Flows (Unaudited) (Continued)
Six Months Six Months Ended Ended June 30, 2002 June 30, 2001 ------------- ------------- Supplemental Disclosure of Non-cash Investing and Financing Activities- Change in unrealized appreciation (depreciation) of investments and open swap contracts $(52,538,579) $(111,653,877) Interest paid for loan-Credit Facility $ 6,957,413 $ 21,159,340 Interest paid for swap contracts $ 14,656,945 $ 767,821 Interest paid for mortgages $ 7,303,478 $ 4,880,672 Market value of securities distributed in payment of redemptions $ 41,930,574 $ 43,327,870 Market value of real property and other assets, net of current liabilities, contributed to Katahdin $ - $ 170,124,083 Mortgage assumed in conjunction with acquisition of real estate investment in Katahdin $ - $ 115,850,000 Market value of real property and other assets, net of current liabilities, disposed of in conjunction with sale of real estate investment in Katahdin $169,610,451 $ - Mortgage disposed of in conjunction with sale of real estate investment in Katahdin $115,850,000 $ -
See notes to consolidated financial statements 8 BELAIR CAPITAL FUND LLC as of June 30, 2002 Consolidated Financial Statements (Continued) Financial Highlights (Unaudited) For the Six Months Ended June 30, 2002 - -------------------------------------------------------------------------------- Net asset value - Beginning of period $ 117.390 - -------------------------------------------------------------------------------- Income (loss) from operations - -------------------------------------------------------------------------------- Net investment incom (5) $ 0.046 Net realized and unrealized loss (14.436) - -------------------------------------------------------------------------------- Total loss from operations $ (14.390) - -------------------------------------------------------------------------------- Net asset value - End of period $ 103.000 - -------------------------------------------------------------------------------- Total Return(1) (12.26)% - -------------------------------------------------------------------------------- As a As a Percentage Percentage of of Average Average Gross Ratios Net Assets(4) Assets(2)(4) - -------------------------------------------------------------------------------- Expenses of Consolidated Real Property Subsidiaries Interest and other borrowing costs(3) 0.69%(8) 0.48%(8) Operating expenses(3) 0.72%(8) 0.50%(8) Belair Capital Fund LLC Expenses Interest and other borrowing costs(6) 2.69%(8) 1.88%(8) Investment advisory and administrative fees, Servicing fees and other Fund operating expenses(6)(7) 1.13%(8) 0.79%(8) ----------------------------- Total expenses 5.23%(8) 3.65%(8) Net investment income 0.08%(8) 0.06%(8) - -------------------------------------------------------------------------------- Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period (000's omitted) $1,439,490 Portfolio Turnover of Tax-Managed Growth Portfolio 13% - -------------------------------------------------------------------------------- (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 June 30, 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 Article 10 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 Article 10 of Regulation S-X. Certain amounts in the prior period's consolidated financial statements have been reclassified to conform with the current period presentation. 2 Investment Transactions Increases and decreases of the Fund's investment in Belvedere Capital Fund Company LLC (Belvedere Capital) for the six months ended June 30, 2002 aggregated $69,951,562 and $113,746,750, respectively, and for the six months ended June 30, 2001 aggregated $68,831,528 and $102,630,239, respectively. Purchases and sales of Partnership Preference Units aggregated $30,488,829 and $18,708,345 respectively, for the six months ended June 30, 2002 and $9,386,616 and $9,386,616, respectively, for the six months ended June 30, 2001. For the six months ended June 30, 2002, acquisitions and sales of other real estate investments aggregated $0 and $32,965,765, respectively. For the six months ended June 30, 2001, acquisitions and sales of other real estate investments aggregated $41,261,497 and $0, respectively. During the six months ended June 30, 2002, Belair Real Estate Corporation (BREC) sold its majority interest in Katahdin Property Trust LLC (Katahdin) to another fund sponsored by Eaton Vance Management (EVM). Purchases of Partnership Preference Units during the six months ended June 30, 2002 and purchases and sales of Partnership Preference Units during the six months ended June 30, 2001 represent amounts purchased from and sold to other funds sponsored by EVM. Sales of Partnership Preference Units during the six months ended June 30, 2002 include amounts sold to other funds sponsored by EVM for which a loss of $775,295 was recognized. 3 Indirect Investment in Portfolio Belvedere Capital's interest in Tax-Managed Growth Portfolio (the Portfolio) at June 30, 2002 was $9,414,074,868 representing 57.0% of the Portfolio's net 10 assets and at June 30, 2001 was $9,970,047,835 representing 54.6% of the Portfolio's net assets. The Fund's investment in Belvedere Capital at June 30, 2002 was $1,578,920,235 representing 16.8% of Belvedere Capital's net assets and at June 30, 2001 was $1,957,678,301, representing 19.6% of Belvedere Capital's net assets. Investment income allocated to Belvedere Capital from the Portfolio for the six months ended June 30, 2002 totaled $59,178,086, of which $10,199,782, was allocated to the Fund. Investment income allocated to Belvedere Capital from the Portfolio for the six months ended June 30, 2001 totaled $50,467,696, of which $10,510,586 was allocated to the Fund. Expenses allocated to Belvedere Capital from the Portfolio for the six months ended June 30, 2002 totaled $22,716,704, of which $3,923,271 was allocated to the Fund. Expenses allocated to Belvedere Capital from the Portfolio for the six months ended June 30, 2001 totaled $21,587,638, of which $4,485,806 was allocated to the Fund. Belvedere Capital allocated additional expenses to the Fund of $1,339,898 for the six months ended June 30, 2002, representing $32,944 of operating expenses and $1,306,954 of service fees. Belvedere Capital allocated additional expenses to the Fund of $1,540,786 for the six months ended June 30, 2001, representing $35,411 of operating expenses and $1,505,375 of service fees. A summary of the Portfolio's Statement of Assets and Liabilities, at June 30, 2002, December 31, 2001 and June 30, 2001 and its operations for the six months ended June 30, 2002, the year ended December 31, 2001 and the six months ended June 30, 2001 follows: June 30, December 31, June 30, 2002 2001 2001 --------------- --------------- ---------------- Investments, at value $16,438,266,069 $18,312,992,768 $18,239,311,489 Other Assets 258,245,026 23,229,223 19,932,030 - -------------------------------------------------------------------------------- Total Assets $16,696,511,095 $18,336,221,991 $18,259,243,519 Total Liabilities 171,302,142 357,011 463,366 - -------------------------------------------------------------------------------- Net Assets $16,525,208,953 $18,335,864,980 $18,258,780,153 ================================================================================ Dividends and interest $ 104,789,317 $ 192,367,081 $ 93,075,546 - -------------------------------------------------------------------------------- Investment adviser fee $ 38,983,369 $ 76,812,367 $ 38,822,203 Other expenses 1,249,484 2,161,015 959,382 - -------------------------------------------------------------------------------- Total expenses $ 40,232,853 $ 78,973,382 $ 39,781,585 - -------------------------------------------------------------------------------- Net investment income $ 64,556,464 $ 113,393,699 $ 53,293,961 Net realized losses (198,388,599) (360,120,300) (12,705,834) Net change in unrealized gains (losses) (1,921,047,828) (1,605,211,090) (1,238,423,587) - -------------------------------------------------------------------------------- Net decrease in net assets from operations $(2,054,879,963) $(1,851,937,691) $(1,197,835,460) - -------------------------------------------------------------------------------- 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 June 30, 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 June 30, At December 31, Date omitted) Rate Rate Date Date 2002 2001 - ------------------------------------------------------------------------------------------------------------------- 2/98 $120,000 6.715% Libor+0.45% 2/03 2/05 $ 2,968,859 $ 4,036,969 4/98 50,000 6.840% Libor+0.45% 2/03 2/05 1,282,658 1,789,764 4/98 150,000 6.835% Libor+0.45% 4/03 4/05 4,826,667 5,769,278 6/98 20,000 6.670% Libor+0.45% 6/03 2/05 727,584 780,852 6/98 75,000 6.680% Libor+0.45% 6/03 2/05 2,737,208 2,943,209 6/98 80,000 6.595% Libor+0.45% 6/03 2/05 2,839,584 3,002,682 11/98 14,709 6.130% Libor+0.45% 11/03 2/05 537,907 455,595 2/99 34,951 6.340% Libor+0.45% 2/04 2/05 1,528,488 1,322,041 4/99 5,191 6.490% Libor+0.45% 2/04 2/05 242,821 216,372 7/99 24,902 7.077% Libor+0.45% 7/04 2/05 1,625,051 1,507,472 9/99 10,471 7.370% Libor+0.45% 9/04 2/05 781,219 734,425 3/00 19,149 7.890% Libor+0.45% 2/04 2/05 1,361,947 1,428,015 3/00 70,000 7.710% Libor+0.45% - 2/05 6,277,214 5,881,029 - ------------------------------------------------------------------------------------------------------------------- Total $27,737,207 $29,867,703 - -------------------------------------------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2002, COMPARED TO THE QUARTER ENDED JUNE 30, 2001 Belair Capital Fund LLC and its subsidiaries (collectively, the Fund) achieved a total return of -13.07% for the quarter ended June 30, 2002. This return reflects a decrease in the Fund's net asset value per share from $118.49 to $103.00 during the period. For comparison, the Standard & Poor's 500 Index (the "S&P 500"), an unmanaged index of large capitalization stocks commonly used as a benchmark for the U.S. equity market, had a total return of -13.39% over the same period. Investors cannot invest directly in an Index. For the quarter ended June 30, 2001, the Fund' total return was 6.32%. This return reflected an increase in the Fund's net asset value per share from $117.79 to $125.23 during that period. Economic growth as measured by Gross Domestic Product slowed in the second quarter of 2002, increasing at a lower than expected rate. The overall equity markets and all major U.S. equity indices continued to post negative returns as occurred in the first quarter of the year. Economic uncertainty and volatility increased during the quarter with reports of corporate malfeasance and accounting fraud. In general, smaller capitalization stocks outperformed larger capitalization stocks, and a value investment style continued to outperform growth. The best performing sector in the S&P 500 for the second quarter of 2002 was materials, followed by consumer staples and energy. Looking back a year ago, consumer cyclicals was the best second quarter sector performer followed by basic materials and transportation. In this environment of increased volatility, the performance of the Tax-Managed Growth Portfolio (the Portfolio) fared better than the overall market. The Portfolio maintained an overweighted stance in the consumer discretionary sector, and gradually reduced health care positions, especially in biotechnology and pharmaceutical stocks. The Portfolio's emphasis on industrial company investments, especially in the airfreight and aerospace defense areas, proved to 12 be prudent. Property and casualty insurance names as well as service providers positively contributed to the performance in the quarter. Lack of earnings visibility and continuing structural overcapacity reinforced the Portfolio's cautious stance in telecommunications and information technology groups. The combined impact on performance of the Fund's investments and activities outside of the Portfolio was modestly negative during the period. The performance of the Fund trailed that of the Portfolio by approximately -1.4% for the quarter ended June 30, 2002. The Fund's investments in real estate Partnership Preference Units generally benefited from declining interest rates and tightening spreads in income-oriented securities, particularly in real estate-related securities. The Fund's investments in real estate joint ventures suffered from continuing weakness in multifamily fundamentals in many U.S. markets, including those in which the ventures operate. The value of the Fund's holdings in interest rate swaps declined as interest rates fell. For the quarter ended June 30, 2001, the performance of the Fund exceeded that of the Portfolio by approximately 0.7%. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002, COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2001 The Fund's total return for the six months ended June 30, 2002 was -12.26%. This return reflects a decrease in the Fund's net asset value per share from $117.39 to $103.00 during the period. For comparison, the S&P 500 had a total return of - -13.15% over the same period. For the six months ended June 30, 2001, the Fund's total return was -5.9%. This return reflected a decrease in the Fund's net asset value per share from $133.13 to $125.23 during that period. During the first half of 2002, overall equity markets and major equity indices continued to post negative returns. Continuing economic uncertainty and increased volatility caused by issues relating to corporate governance, accounting, and geopolitical uncertainties have created a difficult investment environment. During the period, smaller capitalization stocks generally outperformed larger capitalization stocks, and a value investment style continued to outperform growth. The Portfolio delivered better results than the overall market in the first six months of 2002. The Portfolio maintained an overweighted stance in the consumer discretionary and consumer staples sectors, as it did in the first half of 2001. The Portfolio gradually reduced health care positions, especially in biotechnology and pharmaceutical stocks. The Portfolio's continued emphasis on industrial company investments, especially in the airfreight logistics and aerospace defense areas, proved to be prudent. Lack of earning visibility and continuing structural overcapacity reinforced the Portfolio's cautious weighting in telecommunications and information technology groups. The two aforementioned groups were de-emphasized last year as well. The combined impact on performance of the Fund's investments and activities outside of the Portfolio was modestly negative during the period. The performance of the Fund trailed that of the Portfolio by approximately -1.3% for the six months ended June 30, 2002. The Fund's investments in real estate Partnership Preference Units generally benefited from declining interest rates and tightening spreads in income-oriented securities, particularly in real estate-related securities. The Fund's investments in real estate joint ventures suffered from continuing weakness in multifamily fundamentals in many U.S. markets, including those in which the ventures operate. Interest rate swap valuations rose modestly as termination dates moved closer. For the six months ended June 30, 2001, the performance of the Fund exceeded that of the Portfolio by approximately 0.5%. 13 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 June 30, 2002 and 2001, the unrealized depreciation related to the interest rate swap agreements was $27,737,207 and $14,540,921, 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 real estate investments 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 Boston Management and Research (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 investment valuations are performed at least annually and reviewed periodically. Interim valuations reflect results of operations and distributions, and may be adjusted if there has been a significant change in economic circumstances since the most recent independent valuation. 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. The policies for real estate investments involve significant judgments that are 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 14 (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 value of interest rate swaps may be subject to wide swings in valuation caused by changes in interest rates and in the prices of the underlying instrument and the interest rate swap may be difficult to value since such instrument may be considered illiquid. Fluctuations in the value of Partnership Preference Units derived from changes in general interest rates can be expected to be offset in part (but not entirely) by changes in the value of interest rate swap agreements or other interest rate hedges 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 Partnership Preference Units not offset by changes in the valuation of interest rate swap agreements or other interest rate hedges entered into by the Fund and changes in the value of other real estate investments will cause the performance of the Fund to deviate from the performance of the Portfolio. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------- 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 Note 4 to the consolidated financial statements. Interest Rate Sensitivity Principal (Notional) Amount by Contractual Maturity For the Twelve Months Ended June 30,
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 2.31% 2.31% Rate sensitive derivative financial instruments: - --------------------- Pay fixed/ Receive variable interest rate swap contracts $674,373,000 $674,373,000 $(27,737,207) Average pay rate 6.86% 6.86% Average receive rate 2.31% 2.31%
15 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 16 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 August 14, 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 17 EXHIBIT INDEX 21 List of subsidiaries 18 EX-99.21 3 belairexh21.txt BELAIR CAPITAL FUND LLC 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-----