10-Q 1 belair10q.txt BELAIR CAPITAL FUND LLC FORM 10Q FOR PERIOD ENDING 3/31/03 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, 2003 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 --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES X NO --- --- Belair Capital Fund LLC Index to Form 10-Q PART I - FINANCIAL INFORMATION Page Item 1. Condensed Consolidated Financial Statements..........................3 Condensed Consolidated Statements of Assets and Liabilities as of March 31, 2003 (Unaudited) and December 31, 2002................................................3 Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2003 and 2002.............................................................4 Condensed Consolidated Statements of Changes in Net Assets (Unaudited) for the Three Months Ended March 31, 2003 and 2002............................................................6 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2003 and 2002 ......7 Financial Highlights (Unaudited) for the Three Months Ended March 31, 2003.................................................9 Notes to Condensed Consolidated Financial Statements as of March 31, 2003 (Unaudited)....................................10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................14 Item 3. Quantitative and Qualitative Disclosures About Market Risk..........18 Item 4. Controls and Procedures.............................................21 PART II - OTHER INFORMATION Item 1. Legal Proceedings...................................................22 Item 2. Changes in Securities and Use of Proceeds...........................22 Item 3. Defaults Upon Senior Securities.....................................22 Item 4. Submission of Matters to a Vote of Security Holders.................22 Item 5. Other Information...................................................22 Item 6. Exhibits and Reports on Form 8-K....................................22 SIGNATURES....................................................................23 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002......24 EXHIBIT INDEX.................................................................26 2 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --------------------------------------------------------------------------- BELAIR CAPITAL FUND LLC Condensed Consolidated Statements of Assets and Liabilities March 31, 2003 December 31, (Unaudited) 2002 --------------------- ------------------- Assets: Investment in Belvedere Capital Fund Company LLC (Belvedere Capital) $ 1,294,107,014 $ 1,361,415,813 Investment in Partnership Preference Units 411,355,658 391,195,982 Investment in other real estate investments 161,116,161 157,492,935 Short-term investments 1,431,070 3,426,881 --------------------- ------------------- Total investments $ 1,868,009,903 $ 1,913,531,611 Cash 5,266,364 16,067,430 Escrow deposits - restricted 80,503 1,073,943 Receivable for investments sold - 4,952,435 Dividends and interest receivable 4,780,597 5,327,452 Other assets 1,212,631 1,285,939 --------------------- ------------------- Total assets $ 1,879,349,998 $ 1,942,238,810 --------------------- ------------------- Liabilities: Loan payable - Credit Facility $ 530,769,000 $ 540,769,000 Mortgages payable 112,630,517 112,630,517 Payable for Fund Shares redeemed 1,483,894 - Special Distributions payable 790 - Open interest rate swap contracts, at value 15,125,685 21,367,938 Swap interest payable 4,072,962 5,029,500 Security deposits 402,184 403,844 Accrued expenses: Interest expense 1,691,923 1,787,051 Property taxes 820,775 705,965 Other expenses and liabilities 687,936 706,227 Minority interests in controlled subsidiaries 12,854,121 13,031,112 --------------------- ------------------- Total liabilities $ 680,539,787 $ 696,431,154 --------------------- ------------------- Net assets $ 1,198,810,211 $ 1,245,807,656 Shareholders' Capital --------------------- ------------------- Shareholders' capital $ 1,198,810,211 $ 1,245,807,656 --------------------- ------------------- Shares Outstanding 13,421,371 13,485,660 --------------------- ------------------- Net Asset Value and Redemption Price Per Share $ 89.32 $ 92.38 --------------------- -------------------
See notes to condensed consolidated financial statements 3 BELAIR CAPITAL FUND LLC Condensed Consolidated Statements of Operations (Unaudited) Three Months Three Months Ended Ended March 31, March 31, 2003 2002 -------------------- ------------------ Investment Income: Dividends allocated from Belvedere Capital (net of foreign taxes of $59,957, and $25,004, respectively) $ 4,921,576 $ 4,644,360 Interest allocated from Belvedere Capital 91,847 155,139 Expenses allocated from Belvedere Capital (2,002,351) (2,686,212) -------------------- ------------------ Net investment income allocated from Belvedere Capital $ 3,011,072 $ 2,113,287 Dividends from Partnership Preference Units 9,652,791 8,737,175 Rental income 5,584,172 11,507,916 Interest 46,219 34,146 -------------------- ------------------ Total investment income $ 18,294,254 $ 22,392,524 -------------------- ------------------ Expenses: Investment advisory and administrative fees $ 1,284,962 $ 1,633,322 Property management fees 222,627 463,247 Servicing fees 115,814 168,093 Interest expense on Credit Facility 2,548,872 3,390,594 Interest expense on mortgages 2,386,111 4,363,735 Interest expense on swap contracts 5,087,071 7,360,327 Property and maintenance expenses 1,550,253 2,611,475 Property taxes and insurance 754,647 1,448,970 Amortization of deferred expenses 9,099 27,064 Miscellaneous 126,598 272,146 -------------------- ------------------ Total expenses $ 14,086,054 $ 21,738,973 -------------------- ------------------ Net investment income before minority interests in net income of controlled subsidiaries $ 4,208,200 $ 653,551 Minority interests in net income of controlled subsidiaries (172,159) (660,952) -------------------- ------------------ Net investment income (loss) $ 4,036,041 $ (7,401) -------------------- ------------------
See notes to condensed consolidated financial statements 4 BELAIR CAPITAL FUND LLC Condensed Consolidated Statements of Operations (Unaudited) (Continued) Three Months Three Months Ended Ended March 31, March 31, 2003 2002 ----------------------- ------------------ Realized and Unrealized Gain (Loss) Net realized gain (loss) - Investment transactions from Belvedere Capital (identified cost basis) $ (5,896,539) $ (11,269,064) Investment transactions in Partnership Preference Units (identified cost basis) 92 (614,855) Termination of interest rate swap contracts (2,021,608) - ----------------------- ------------------ Net realized loss $ ( 7,918,055) $ (11,883,919) ----------------------- ------------------ Change in unrealized appreciation (depreciation) - Investment in Belvedere Capital (identified cost basis) $ (61,019,845) $ 22,404,942 Investments in Partnership Preference Units (identified cost basis) 24,137,176 (2,035,172) Investment in other real estate investments (net of minority interests in unrealized loss of controlled subsidiaries of $349,150 and $468,914, respectively) (433,145) (468,914) Interest rate swap contracts 6,242,253 7,519,210 ----------------------- ------------------ Net change in unrealized appreciation (depreciation) $ (31,073,561) $ 27,420,066 ----------------------- ------------------ Net realized and unrealized gain (loss) $ (38,991,616) $ 15,536,147 ----------------------- ------------------ Net (decrease) increase in net assets from operations $ (34,955,575) $ 15,528,746 ======================= ==================
See notes to condensed consolidated financial statements 5 BELAIR CAPITAL FUND LLC Condensed Consolidated Statements of Changes in Net Assets (Unaudited) Three Months Three Months Ended Ended March 31, 2003 March 31, 2002 ------------------- ------------------ Increase (Decrease) in Net Assets: Net investment income (loss) $ 4,036,041 $ (7,401) Net realized loss on investment transactions (7,918,055) (11,883,919) Net change in unrealized appreciation (depreciation) of investments (31,073,561) 27,420,066 ------------------- ------------------ Net (decrease) increase in net assets from operations $ (34,955,575) $ 15,528,746 ------------------- ------------------ Transactions in Fund Shares - Net asset value of Fund Shares issued to Shareholders in payment of distributions declared $ 2,954,974 $ - Net asset value of Fund Shares redeemed (8,388,081) (12,169,664) ------------------- ------------------ Net decrease in net assets from Fund Share transactions $ (5,433,107) $ (12,169,664) ------------------- ------------------ Distributions - Distributions to Shareholders $ (6,607,973) $ - Special distributions to Shareholders (790) - ------------------- ------------------ Total distributions $ (6,608,763) $ - ------------------- ------------------ Net (decrease) increase in net assets $ (46,997,445) $ 3,359,082 Net assets: At beginning of period $1,245,807,656 $1,687,637,826 ------------------- ------------------ At end of period $1,198,810,211 $1,690,996,908 =================== ==================
See notes to condensed consolidated financial statements 6 BELAIR CAPITAL FUND LLC Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Three Months Ended Ended March 31, March 31, 2003 2002 ------------------ ------------------- Cash Flows From (For) Operating Activities - Net (decrease) increase in net assets from operations $ (34,955,575) $ 15,528,746 Adjustments to reconcile net (decrease) increase in net assets from operations to net cash flows from operating activities - Amortization of debt issuance costs 40,580 58,891 Amortization of deferred expenses 9,099 27,064 Net investment income allocated from Belvedere Capital (3,011,072) (2,113,287) Decrease (increase) in dividends and interest receivable 546,855 (4,720,086) Decrease (increase) in escrow deposits 993,440 (5,390) Decrease in receivable for investments sold 4,952,435 - Increase in interest receivable from other real estate investment (24,234) - Decrease in other assets 23,629 50,140 (Decrease) increase in interest payable for open swap contracts (956,538) 320,357 Increase (decrease) in accrued property taxes 114,810 (646,317) Decrease in security deposits, accrued interest and accrued other expenses and liabilities (115,079) (324,680) Improvements to rental property (403,695) (352,227) Proceeds from sale of Partnership Preference Units - 18,708,343 Net (increase) decrease in investment in Belvedere Capital (3,500,002) 929,970 Payment for terminated interest swap contracts (2,021,608) - Decrease in short-term investments 1,995,811 4,559,775 Decrease in minority interest - (52,500) Minority interests in net income of controlled subsidiaries 172,159 660,952 Net realized loss on investment transactions 7,918,055 11,883,919 Net change in unrealized (appreciation) depreciation of investments 31,073,561 (27,420,066) ------------------ --------------------- Net cash flows from operating activities $ 2,852,631 $ 17,093,604 Cash Flows From (For) Financing Activities - Repayment of Credit Facility $ (10,000,000) $ (15,000,000) Payments for Fund Shares redeemed (698) (1,749,112) Distributions paid to Shareholders (3,652,999) (823,154) ------------------ --------------------- Net cash flows for financing activities $ (13,653,697) $ (17,572,266) Net decrease in cash $ (10,801,066) $ (478,662) Cash at beginning of period $ 16,067,430 $ 6,540,394 ------------------ --------------------- Cash at end of period $ 5,266,364 $ 6,061,732 ================== =====================
See notes to condensed consolidated financial statements 7 BELAIR CAPITAL FUND LLC Condensed Consolidated Statements and Cash Flows (Unaudited) (Continued) Three Months Three Months Ended Ended March 31, March 31, 2003 2002 ------------------ ------------------- Supplemental Disclosure and Non-cash Investing and Financing Activities- Interest paid for loan - Credit Facility $ 2,579,816 $ 3,813,353 Interest paid for swap contracts $ 6,043,609 $ 7,039,970 Interest paid for mortgages $ 2,345,531 $ 4,304,844 Market value of securities distributed in payment of redemptions $ 6,903,489 $ 10,420,552 Partnership Preference Units exchanged for a real estate equity investment and an investment in note receivable $ (3,977,592) $ - Market value of real estate equity investment $ 1,907,012 $ - Investment in note receivable $ 2,070,580 $ -
See notes to condensed consolidated financial statements 8 BELAIR CAPITAL FUND LLC as of March 31, 2003 Condensed Consolidated Financial Statements (Continued) FINANCIAL HIGHLIGHTS (UNAUDITED) For the Three Months Ended March 31, 2003 ---------------------------------------------------------------------------------------------------------------------------- Net asset value - Beginning of period $ 92.380 ---------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS ---------------------------------------------------------------------------------------------------------------------------- Net investment income (5) $ 0.299 Net realized and unrealized loss (2.869) ---------------------------------------------------------------------------------------------------------------------------- TOTAL LOSS FROM OPERATIONS $ (2.570) ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS ---------------------------------------------------------------------------------------------------------------------------- Distributions to Shareholders $ (0.490) Special distributions to Shareholders (9) 0.000 ---------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS $ (0.490) ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE - END OF PERIOD $ 89.320 ---------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN (1) (2.81)% ----------------------------------------------------------------------------------------------------------------------------
AS A PERCENTAGE AS A PERCENTAGE OF AVERAGE NET OF AVERAGE GROSS RATIOS ASSETS (4) ASSETS (2)(4) ---------------------------------------------------------------------------------------------------------------------------- Expenses of Consolidated Real Property Subsidiaries Interest and other borrowing costs (3) 0.59% (8) 0.39% (8) Operating expenses (3) 0.63% (8) 0.42% (8) Belair Capital Fund LLC Expenses Interest and other borrowing costs (6) 2.56% (8) 1.70% (8) Investment advisory and administrative fees, servicing fees and other Fund operating expenses (6)(7) 1.18% (8) 0.78% (8) --------------------------------------------- Total expenses 4.96% (8) 3.29% (8) Net investment income 1.36% (8) 0.90% (8) ---------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000's omitted) $1,198,810 Portfolio Turnover of Tax-Managed Growth Portfolio (the Portfolio) 4% ----------------------------------------------------------------------------------------------------------------------------
(1) Returns are calculated by determining the percentage change in net asset value with all distributions reinvested. Total return is not computed on an annualized basis. (2) Average Gross Assets is defined as the average daily amount of all assets of Belair Capital Fund LLC (Belair Capital) (not including its investment in Belair Real Estate Corporation (Belair Real Estate)) plus all assets of Belair Real Estate minus the sum of their liabilities other than the principal amount of money borrowed. For this purpose, the assets and liabilities of Belair Real Estate's controlled subsidiaries are reduced by the proportionate interests therein of investors other than Belair Real Estate. (3) Includes Belair Real Estate's proportional share of expenses incurred by its majority-owned subsidiaries. (4) For the purpose of calculating ratios, the income and expenses of Belair Real Estate's controlled subsidiaries are reduced by the proportionate interests therein of investors other than Belair Real Estate. (5) Calculated using average shares outstanding. (6) Includes the expenses of Belair Capital and Belair Real Estate. Does not include expenses of other real estate subsidiaries majority-owned by Belair Real Estate. (7) Includes Belair Capital's share of Belvedere Capital's allocated expenses, including those expenses allocated from the Portfolio. (8) Annualized. (9) Special distributions amount to less than $0.001 per share. See notes to condensed consolidated financial statements 9 BELAIR CAPITAL FUND LLC as of March 31, 2003 Notes To Condensed 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, 2002, has been derived from the December 31, 2002 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 condensed 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 three months ended March 31, 2003 aggregated $4,000,000 and $7,403,487, respectively, and for the three months ended March 31, 2002 aggregated $27,620,268 and $38,970,790, respectively. There were no purchases of Partnership Preference Units for the three months ended March 31, 2003 and 2002. Sales of Partnership Preference Units aggregated $18,708,343, for the three months ended March 31, 2002. For the three months ended March 31, 2003 and March 31, 2002, there were no purchases or sales of other real estate investments. During the three months ended March 31, 2003, the Fund exchanged Partnership Preference Units in the amount of $3,977,592 for an equity investment in two private real estate companies affiliated with the issuer of such formerly held Partnership Preference Units and a note receivable in the amounts of $1,907,012 and $2,094,814, respectively. The secured note receivable earns interest of 8% per annum and matures in February 2013 or on demand. Sales of Partnership Preference Units during the three months ended March 31, 2002, include amounts sold to other funds sponsored by Eaton Vance Management 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 March 31, 2003 was $8,400,349,853 representing 61.1% of the Portfolio's net assets and at March 31, 2002 was $10,618,305,771, representing 56.5% of the 10 Portfolio's net assets. The Fund's investment in Belvedere Capital at March 31, 2003 was $1,294,107,014 representing 15.4% of Belvedere Capital's net assets and at March 31, 2002 was $1,821,919,684, representing 17.2% of Belvedere Capital's net assets. Investment income allocated to Belvedere Capital from the Portfolio for the three months ended March 31, 2003 totaled $32,398,573, of which $5,013,423 was allocated to the Fund. 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. Expenses allocated to Belvedere Capital from the Portfolio for the three months ended March 31, 2003 totaled $9,667,954, of which $1,499,634 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. Belvedere Capital allocated additional expenses to the Fund of $502,717 for the three months ended March 31, 2003, representing $14,821 of operating expenses and $487,896 of service fees. 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. A summary of the Portfolio's Statement of Assets and Liabilities, at March 31, 2003, December 31, 2002 and March 31, 2002 and its operations for the three months ended March 31, 2003, the year ended December 31, 2002 and the three months ended March 31, 2002 follows: March 31, December 31, March 31, 2003 2002 2002 --------------------- ---------------------- --------------------- Investments, at value $13,797,517,752 $ 14,544,149,182 $ 18,699,529,315 Other assets 24,535,362 70,073,039 137,094,099 ------------------------------------ --------------------- ---------------------- --------------------- Total assets $13,822,053,114 $ 14,614,222,221 $ 18,836,623,414 Total liabilities 73,659,303 42,700,633 54,877,430 ------------------------------------ --------------------- ---------------------- --------------------- Net Assets $13,748,393,811 $ 14,571,521,588 $ 18,781,745,984 ==================================== ===================== ====================== ===================== Dividends and interest $ 53,431,732 $ 213,292,082 $ 48,561,319 ------------------------------------ --------------------- ---------------------- --------------------- Investment adviser fee $ 15,490,999 $ 71,564,552 $ 19,634,596 Other expenses 477,083 2,577,489 654,041 ------------------------------------ --------------------- ---------------------- --------------------- Total expenses $ 15,968,082 $ 74,142,041 $ 20,288,637 ------------------------------------ --------------------- ---------------------- --------------------- Net investment income $ 37,463,650 $ 139,150,041 $ 28,272,682 Net realized losses (62,969,970) (459,996,840) (111,417,095) Net change in unrealized appreciation (depreciation) (649,928,537) (3,312,547,564) 229,264,275 ------------------------------------ --------------------- ---------------------- --------------------- Net increase (decrease) in net assets from operations $ (675,434,857) $ (3,633,394,363) $ 146,119,862 ------------------------------------ --------------------- ---------------------- ---------------------
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, 2003 and December 31, 2002, Belair Capital has entered into cancelable interest rate swap agreements with Merrill Lynch Capital Services, Inc., as listed below. 11 Notional Initial Unrealized Unrealized Amount Optional Final Depreciation Depreciation (000's Fixed Floating Termination Termination At March 31, At December 31, omitted) Rate Rate Date Date 2003 2002 ------------------------------------------------------------------------------------------------------------------------ $120,000 6.715% LIBOR+0.45% 2/03 2/05 $ - * $ 592,865 50,000 6.84% LIBOR+0.45% 2/03 2/05 - * 253,428 150,000 6.835% LIBOR+0.45% 4/03 4/05 372,842 2,209,596 20,000 6.67% LIBOR+0.45% 6/03 2/05 227,665 462,191 75,000 6.68% LIBOR+0.45% 6/03 2/05 855,492 1,736,787 80,000 6.595% LIBOR+0.45% 6/03 2/05 896,708 1,820,237 14,709 6.13% LIBOR+0.45% 11/03 2/05 420,035 553,844 34,951 6.34% LIBOR+0.45% 2/04 2/05 1,429,992 1,729,610 5,191 6.49% LIBOR+0.45% 2/04 2/05 223,334 269,419 24,902 7.077% LIBOR+0.45% 7/04 2/05 1,700,586 1,906,989 10,471 7.37% LIBOR+0.45% 9/04 2/05 836,922 922,144 19,149 7.89% LIBOR+0.45% 2/04 2/05 1,047,594 1,284,855 70,000 7.71% LIBOR+0.45% 2/05 2/05 7,114,514 7,625,973 ------------------------------------------------------------------------------------------------------------------------ $15,125,685 $21,367,938 ------------------------------------------------------------------------------------------------------------------------
* Agreement was terminated on the Initial Optional Termination Date. 5 Debt - Credit Facility Effective March 31, 2003, Belair Capital reduced its loan commitment to $700,000,000 from $790,000,000 at December 31, 2002. There were no other changes to the terms of the Credit Facility during the quarter ended March 31, 2003. 6 Segment Information Belair Capital pursues its investment objective primarily by investing indirectly in the Portfolio through Belvedere Capital. The Portfolio is a diversified investment company of equity securities that emphasizes investments in common stocks of domestic and foreign growth companies that are considered to be high in quality and attractive in their long-term investment prospects. Separate from its investment in Belvedere Capital, Belair Capital invests in real estate assets through its subsidiary Belair Real Estate Corporation (Belair Real Estate). Belair Real Estate invests directly in Partnership Preference Units and debt and equity investments in private real estate companies, and indirectly in real property through a controlled subsidiary, Bel Residential Properties Trust. At March 31, 2002, Belair Real Estate's controlled subsidiaries also included Katahdin Property Trust, LLC. Belair 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 or loss, net realized gain (loss), and unrealized gain (loss). The accounting policies of the reportable segments are the same as those for Belair Capital on a consolidated basis. No reportable segments have been aggregated. Reportable information by segment is as follows: 12 FOR THE THREE MONTHS ENDED TAX-MANAGED GROWTH REAL MARCH 31, 2003 PORTFOLIO* ESTATE TOTAL ---------------------------------------------------- --------------------- -------------------- -------------------- Revenue $ 3,011,072 $ 15,240,385 $ 18,251,457 Interest expense on mortgages - (2,386,111) (2,386,111) Interest expense on Credit Facility - (2,497,895) (2,497,895) Interest expense on swap contracts - (5,087,071) (5,087,071) Operating expenses (503,739) (3,370,259) (3,873,998) Minority interest in net income of controlled subsidiaries - (172,159) (172,159) ---------------------------------------------------- --------------------- -------------------- -------------------- NET INVESTMENT INCOME $ 2,507,333 $ 1,726,890 $ 4,234,223 Net realized loss (5,896,539) (2,021,516) (7,918,055) Change in unrealized gain (loss) (61,019,845) 29,946,284 (31,073,561) ---------------------------------------------------- --------------------- -------------------- -------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS OF REPORTABLE SEGMENTS $ (64,409,051) $ 29,651,658 $ (34,757,393) ---------------------------------------------------- --------------------- -------------------- -------------------- Segment assets $1,294,107,014 $ 581,919,608 $ 1,876,026,622 Segment liabilities 1,484,684 668,327,710 669,812,394 ---------------------------------------------------- --------------------- -------------------- -------------------- NET ASSETS OF REPORTABLE SEGMENTS $1,292,622,330 $ (86,408,102) $ 1,206,214,228 ---------------------------------------------------- --------------------- -------------------- -------------------- FOR THE THREE MONTHS ENDED TAX-MANAGED GROWTH REAL MARCH 31, 2002 PORTFOLIO* ESTATE TOTAL ---------------------------------------------------- --------------------- -------------------- -------------------- Revenue $ 2,113,287 $ 20,272,011 $ 22,385,298 Interest expense on mortgages - (4,363,735) (4,363,735) Interest expense on Credit Facility - (3,288,876) (3,288,876) Interest expense on swap contracts - (7,360,327) (7,360,327) Operating expenses (697,752) (5,684,404) (6,382,156) Minority interest in net income of controlled subsidiaries - (660,952) (660,952) ---------------------------------------------------- --------------------- -------------------- -------------------- NET INVESTMENT INCOME (LOSS) $ 1,415,535 $ (1,086,283) $ 329,252 Net realized loss (11,269,064) (614,855) (11,883,919) Change in unrealized gain (loss) 22,404,942 5,015,124 27,420,066 ---------------------------------------------------- --------------------- -------------------- -------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS OF REPORTABLE SEGMENTS $ 12,551,413 $ 3,313,986 $ 15,865,399 ---------------------------------------------------- --------------------- -------------------- -------------------- Segment assets $1,821,919,684 $ 702,396,302 $ 2,524,315,986 Segment liabilities - 818,110,001 818,110,001 ---------------------------------------------------- --------------------- -------------------- -------------------- NET ASSETS OF REPORTABLE SEGMENTS $1,821,919,684 $ (115,713,699) $ 1,706,205,985 ---------------------------------------------------- --------------------- -------------------- --------------------
* Belair Capital invests indirectly in Tax-Managed Growth Portfolio through Belvedere Capital. The following tables reconcile the reported segment information to the condensed consolidated financial statements for the three months ended March 31, 2003 and March 31, 2002: 13 THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2003 MARCH 31, 2002 ---------------------- ---------------------- Revenue: Revenues from reportable segments $ 18,251,457 $ 22,385,298 Unallocated revenue 42,797 7,226 -------------------- --------------------------- TOTAL REVENUE $ 18,294,254 $ 22,392,524 -------------------- --------------------------- Net increase (decrease) in net assets from operations: Net (decrease) increase in net assets from operations of reportable segments $ (34,757,393) $ 15,865,399 Unallocated revenue 42,797 7,226 Unallocated expenses ** (240,979) (343,879) -------------------- --------------------------- TOTAL NET (DECREASE) INCREASE IN NET ASSETS FROM OPERATIONS $ (34,955,575) $ 15,528,746 -------------------- --------------------------- ** Unallocated expenses include costs of Belair Capital to operate the Fund such as servicing expenses, as well as other miscellaneous administrative costs of Belair Capital. Net assets: Net assets of reportable segments $1,206,214,228 $1,706,205,985 Unallocated cash 1,892,306 1,172,243 Short-term investments 1,431,070 - Other assets - 91,795 Loan payable - Credit Facility (10,615,380) (16,313,070) Other liabilities (112,013) (160,045) -------------------- --------------------------- TOTAL NET ASSETS $1,198,810,211 $1,690,996,908 -------------------- ---------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information in this report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements typically are identified by use of terms such as "may," "will," "should," "might," "expect," "anticipate," "estimate," and similar words, although some forward-looking statements are expressed differently. The actual results of Belair Capital Fund LLC (the Fund) could differ materially from those contained in the forward-looking statements due to a number of factors. The Fund undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Factors that could affect the Fund's performance include a decline in the U.S. stock markets or in general economic conditions, adverse developments affecting the real estate industry or fluctuations in interest rates. The following discussion should be read in conjunction with the Fund's unaudited condensed consolidated financial statements and related notes in Item 1 above. 14 RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2003, COMPARED TO THE QUARTER ENDED MARCH 31, 2002 PERFORMANCE OF THE FUND.(1) The Fund's total return was -2.81% for the quarter ended March 31, 2003. This return reflects a decrease in the Fund's net asset value per share from $92.38 to $89.32 and a distribution of $0.49 per share during the quarter. 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 -3.15% over the same period.(2) The performance of the Fund outperformed that of the Tax-Managed Growth Portfolio (the Portfolio) by approximately 1.9% during the period. Last year, the Fund had a total return performance of 0.94% for the quarter ended March 31, 2002. This return reflected an increase in the Fund's net asset value per share from $117.39 to $118.49. For comparison, the S&P 500 had a total return of 0.28% over the same period.(2) The performance of the Fund outperformed that of the Portfolio by approximately 0.11% during the period. PERFORMANCE OF THE PORTFOLIO. War angst coupled with rising oil prices, domestic terrorist fears, and negative investor sentiment contributed to continued market volatility in the first quarter of 2003. The quarter was marked by a few leadership reversals from the same period last year. Particularly of note was the dominance of large capitalization and growth related stocks, and the divergence in performance of growth oriented sectors and sub-industries during the quarter. Most major domestic benchmarks experienced negative returns and only two of the S&P 500 sectors had gains during the period. The best performing sector of the S&P 500 during the first quarter of 2003 was health care, while the telecommunications services sector continued to trail the performance of the S&P 500. Market leading industries in the first quarter included computer software, biotechnology, and managed health care. Defensive groups such as food distributors, material manufacturing, and drug retailing realized weaker quarterly returns during the period. In this challenging environment, the performance of the Portfolio trailed that of the overall market mostly due to lower exposure to more aggressive sectors and industries. During the quarter, Boston Management and Research (Boston Management), the Portfolio's investment adviser, emphasized industrials and consumer staples sectors, a continuing theme from last year. While this emphasis has been productive in prior periods, it hurt Portfolio returns during the first quarter of 2003. Relatively stronger stock selection within the airfreight and logistics, personal products and beverages sub-industries partially offset the negative performance of these sectors during the quarter. Boston Management gradually increased the Portfolio's exposure to the energy sector (particularly the oil and gas industries) during the quarter to a relatively higher allocation from its neutral standing versus the S&P 500 last year. Boston Management slightly trimmed the Portfolio's positions in the healthcare and financial sectors from last year's levels, primarily due to fundamental and political headwinds. Lack of earnings visibility in the information technology sector prompted a continued underweight allocation versus the S&P 500. The Portfolio also underweighted the telecommunications services sector during the quarter, which was the S&P 500's worst performing sector during the period. Boston Management believes that these sector shifts are appropriate for the longer-term positioning of the Portfolio. ------------------------------ (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. (2) It is not possible to invest directly in an Index. 15 PERFORMANCE OF REAL ESTATE INVESTMENTS. For the quarter ended March 31, 2003, the Fund's real estate operations conducted through a Real Estate Joint Venture reflected weakening multifamily market fundamentals and the uncertain outlook for the U.S. economy as a whole. Rental income decreased to $5.6 million for the quarter ended March 31, 2003 from $11.5 million for the quarter ended March 31, 2002, a decrease of $5.9 million or 51%, while property operating expenses (before debt service and excluding certain operating expenses of Belair Real Estate Corporation (Belair Real Estate) of approximately $0.8 million) decreased to $2.5 million for the quarter ended March 31, 2003 from $4.5 million for the quarter ended March 31, 2002, a decrease of $2.0 million or 44%. The declines in rental income and property operating expenses were principally due to the Fund's sale of its investment in Katahdin Property Trust, LLC (Katahdin) in May 2002. However, during the quarter ended March 31, 2003, Real Estate Joint Venture operations also were affected by deteriorating multifamily market fundamentals in most regions with falling occupancy levels and rising rent concessions. Given the continued uncertain outlook for the U.S. economy as a whole, expectations are that real estate operating results in 2003 will be modestly below the levels of 2002. Due primarily to the sale of the Fund's investment in Katahdin during 2002, the estimated fair value of the real properties held through Real Estate Joint Ventures was lower at the end of the first quarter of 2003 compared to the first quarter of 2002. At March 31, 2003, the estimated fair value of the real properties held through Real Estate Joint Ventures was $157.1 million compared to $328.3 million at March 31, 2002, a decrease of $171.2 million or 52%. The decrease in estimated fair value of the real properties was also due, in part, to modest decreases in property values that resulted from declines in near-term earnings expectations and the economic downturn. The Fund recognized unrealized depreciation of the estimated fair value of its other real estate investments of $0.4 million for the quarter ended March 31, 2003. Despite weaker market conditions, declines in asset values for multifamily properties have generally been modest as decreases in capitalization rates have largely offset declining income level expectations. For the quarter ended March 31, 2003, the Fund's investments in Partnership Preference Units generally benefited from declining interest rate levels and tightening spreads in income-oriented securities, particularly in real estate-related securities. As a result, the Fund recognized approximately, $24.1 million of unrealized appreciation in the estimated fair value of the Partnership Preference Units during the quarter ended March 31, 2003. The estimated fair value of the Fund's Partnership Preference Units totaled $411.4 million at March 31, 2003 compared to $355.1 million at March 31, 2002, an increase of $56.3 million or 16%, primarily due to purchases of Partnership Preference Units as well as appreciation recognized due to market conditions similar to the first quarter 2003 market conditions described above. Dividends received from the Partnership Preference Units for the quarter ended March 31, 2003 totaled $9.7 million compared to $8.7 million for the quarter ended March 31, 2002, an increase of $1.0 million or 11%. During March 2003, Belair Real Estate exchanged Partnership Preference Units of one issuer for an equity interest in, and notes receivable of, private real estate companies formerly affiliated with such issuer. The estimated value of these investments at March 31, 2003 was approximately $4.0 million. PERFORMANCE OF INTEREST RATE SWAPS. For the quarter ended March 31, 2003, interest rate swap valuations appreciated modestly by approximately $6.2 million, as initial optional termination dates moved closer. Approximately 79% of existing notional contract amounts will reach optional termination over the next four quarters. Offsetting the appreciation were minimal interest rate 16 decreases during the first quarter of 2003 in contrast to interest rate increases during the first quarter of 2002. Valuations appreciated by approximately $7.5 million for the quarter ended March 31, 2002, due to increases in swap rates during the period. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2003, the loan commitment under the Fund's revolving credit facility (the Credit Facility) was reduced to $700,000,000. The Fund had outstanding borrowings of $530,760,000, a letter of credit of $1,400,000 and unused loan commitments of $167,840,000 at March 31, 2003. The Credit Facility is being used primarily to finance the Fund's equity in its real estate investments and will continue to be used for such purpose in the future. The Credit Facility will also provide for any short-term liquidity needs of the Fund. In the future, the Fund may increase the size of the Credit Facility (subject to lender consent) and the amount of outstanding borrowings thereunder for these purposes. 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, 2003 and 2002, the unrealized depreciation related to the interest rate swap agreements was $15,125,685 and $22,348,493, respectively. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Fund's discussion and analysis of its financial condition and results of operations are based upon the Fund's (unaudited) condensed 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's critical accounting policies affect the Fund's more significant estimates and assumptions used in valuing the Fund's real estate investments and interest rate swap agreements. Prices are not readily available for these types of investments and therefore are valued on an ongoing basis by Boston Management, in its capacity as manager of Belair Real Estate, in the case of the real estate investments, and in its capacity as the Fund's investment adviser, in the case of the interest rate swap agreements. In estimating the value of the Fund's investments in real estate, Boston Management takes into account 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 fair values based upon independent valuations assuming an orderly disposition of 17 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. Boston Management, as the Fund's investment adviser, determines the value of interest rate swaps, and, in doing so, may consider among other things, dealer and counter-party quotes and pricing models. The policies for valuing 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 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 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 principally by changes in interest rates. Interest rate swaps may be difficult to value since such instruments 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 its real estate investments that are financed by the Fund with floating rate borrowings under the Fund's Credit Facility and by fixed-rate secured mortgage debt obligations of the Real Estate Joint Venture. 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. In the future, the Fund may use other interest rate hedging arrangements (such as caps, floor 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. 18 The value of Partnership Preference Units and, to a lesser degree, the Real Estate Joint Venture is sensitive to interest rate risk. Increases in interest rates generally will have an adverse affect on the value of Partnership Preference Units and the Real Estate Joint Venture. 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 unaudited condensed consolidated financial statements in Item 1. Interest Rate Sensitivity Cost, Principal (Notional) Amount by Contractual Maturity For the Twelve Months Ended March 31, Estimated 2004 2005 2006-2008 Thereafter Total Fair Value --------- ---------------- -------------- ----------------- ---------------- ---------------- Rate sensitive liabilities: ---------------------------------- Long-term debt: ---------------------------------- Fixed-rate mortgages $112,630,517 $112,630,517 $132,000,000 Average interest rate 8.33% 8.33% ---------------------------------- Variable-rate Credit Facility $530,769,000 $530,769,000 $530,769,000 Average interest rate 1.73% 1.73% -------------------------------------------------------------------------------------------------------------------------------- Rate sensitive derivative financial instruments: ---------------------------------- Pay fixed/receive variable interest rate swap contracts $504,373,000 $504,373,000 $(15,125,685) Average pay rate 6.89% 6.89% Average receive rate 1.73% 1.73% -------------------------------------------------------------------------------------------------------------------------------- Rate sensitive investments: ---------------------------------- Fixed-rate Partnership Preference Units: ---------------------------------- Bradley Operating Limited Partnership, 8.875% Series B Cumulative Redeemable Perpetual Preferred Units, Callable 2/23/04, Current Yield: 9.09% $ 22,521,852 $ 22,521,852 $24,970,765 ---------------------------------- Camden Operating Limited Partnership, 8.50% Series B Cumulative Redeemable Perpetual Preferred Units, Callable 2/23/04, Current Yield: 8.32% $ 27,384,494 $ 27,384,494 $28,105,000 ---------------------------------- Colonial Realty Limited Partnership, 8.875% Series B Cumulative Redeemable Perpetual Preferred Units, Callable 2/23/04, Current Yield: 8.87% $ 44,807,072 $ 44,807,072 $48,529,100 ---------------------------------- Kilroy Realty, L.P., 8.075% Series A Cumulative Redeemable Preferred Units, Callable 2/06/03, Current Yield: 8.95% $ 28,800,000 $ 28,800,000 $25,971,264 ---------------------------------- 19 ---------------------------------- Liberty Property L.P., 9.25% Series B Cumulative Redeemable Preferred Units, Callable 7/28/04, Current Yield: 8.91% $ 30,875,000 $ 30,875,000 $32,048,250 ---------------------------------- MHC Operating Limited Partnership, 9% Series D Cumulative Redeemable Perpetual Preference Units, Callable 9/29/04, Current Yield: 9.08% $ 50,000,000 $ 50,000,000 $49,560,000 ---------------------------------- National Golf Operating Partnership, L.P., 9.30% Series A Cumulative Redeemable Preferred Units, Callable 3/4/03, Current Yield: 9.37% $ 31,454,184 $ 31,454,184 $32,771,529 ---------------------------------- National Golf Operating Partnership, L.P., 9.30% Series B Cumulative Redeemable Preferred Units, Callable 7/28/04, Current Yield: 9.31% $ 5,000,000 $ 5,000,000 $ 4,996,000 ---------------------------------- PSA Institutional Partners, L.P., 9.50% Series N Cumulative Redeemable Perpetual Preferred Units, Callable 3/17/05, Current Yield: 9.07% $ 48,250,000 $ 48,250,000 $50,546,700 ---------------------------------- Price Development Company, L.P., 8.95% Series B Cumulative Redeemable Preferred Partnership Interests, Callable 7/28/04, Current Yield: 9.61% $ 30,625,000 $ 30,625,000 $28,530,250 ---------------------------------- Regency Centers, L.P., 8.125% Series A Cumulative Redeemable Preferred Units, Callable 6/25/05, Current Yield: 8.09% $ 30,000,0000 $ 30,000,000 $30,132,000 ---------------------------------- Summit Properties Partnership L.P., 8.95% Series B Cumulative Redeemable Perpetual Preferred Units, Callable 4/29/04, Current Yield: 9.07% $ 29,625,000 $ 29,625,000 $29,222,100 ---------------------------------- Urban Shopping Centers, L.P., 9.45% Series D Cumulative Redeemable Perpetual Preferred Units, Callable 10/01/04, Current Yield: 9.10% $ 25,000,000 $ 25,000,000 $25,972,700 ---------------------------------- Fixed-rate investment in note receivable: ---------------------------------- Fixed-rate note receivable, 8% $ 2,094,814 $ 2,094,814 $ 2,094,814 ----------------------------------
20 ITEM 4. CONTROLS AND PROCEDURES Within the 90-day period prior to the filing of this report, Eaton Vance Management (Eaton Vance), as the Fund's manager, and the Fund's Chief Executive Officer and Chief Financial Officer have conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation. As the Fund's manager, the complete and entire management, control and operation of the Fund are vested in Eaton Vance. The Fund's organizational structure does not provide for a board of directors or a board audit committee. As such, the Fund's Chief Executive Officer and Chief Financial Officer intend to report any significant deficiency in the design or operation of internal controls which could adversely affect the Fund's ability to record, process, summarize and report financial data, and any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal controls to Eaton Vance. 21 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Although in the ordinary course of business, the Fund, Belair Real Estate and Belair Real Estate's controlled subsidiaries may become involved in legal proceedings, the Fund is not aware of any material pending legal proceedings to which any of them is subject. ITEM 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. No matters were submitted to a vote of security holders during the three months ended March 31, 2003. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) The following is a list of all exhibits filed as part of this Form 10-Q: 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K: None. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized officer on May 15, 2003. BELAIR CAPITAL FUND LLC (Registrant) By: /s/ Michelle A. Alexander ---------------------------------------- Michelle A. Alexander Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 23 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Thomas E. Faust Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Belair Capital Fund LLC; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Thomas E. Faust Jr. ------------------------------------- Thomas E. Faust Jr. Chief Executive Officer 24 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Michelle A. Alexander, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Belair Capital Fund LLC; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Michelle A. Alexander --------------------------------------- Michelle A. Alexander Chief Financial Officer 25 EXHIBIT INDEX 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 26