-----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, PADMcJfPwWMeIpXkQBbbXqMZ+o06gevTYDaJV7TsNsCv9JJbBSupOuyXAksOlOAi oWF+XyX4/eQOoai+JTV21Q== 0000940394-04-000510.txt : 20040510 0000940394-04-000510.hdr.sgml : 20040510 20040510160324 ACCESSION NUMBER: 0000940394-04-000510 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 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: 04793198 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 belair10q0304.txt BELAIR CAPITAL FUND LLC 10Q FOR THE QUARTER ENDED 3-31-04 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2004 -------------- [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _____________ 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 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 Securities Exchange Act of 1934). 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, 2004 (Unaudited) and December 31, 2003 3 Condensed Consolidated Statements of Operations (Unaudited for the Three Months Ended March 31, 2004 and 2003 4 Condensed Consolidated Statements of Changes in Net Assets for the Three Months Ended March 31, 2004 (Unaudited) and the Year Ended December 31, 2003 6 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2004 and 2003 7 Financial Highlights (Unaudited) for the Three Months Ended March 31, 2004 9 Notes to Condensed Consolidated Financial Statements as of March 31, 2004 (Unaudited) 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 Item 4. Controls and Procedures 21 PART II OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 23 EXHIBIT INDEX 24 2 PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements.
- ------------------------------------------------------------------------------------------------------------------------------------ BELAIR CAPITAL FUND LLC Condensed Consolidated Statements of Assets and Liabilities March 31, 2004 December 31, (Unaudited) 2003 --------------- ------------ Assets: Investment in Belvedere Capital Fund Company LLC (Belvedere Company) $ 1,604,097,252 $1,588,195,284 Investment in Partnership Preference Units 311,437,195 318,042,995 Investment in other real estate 162,906,906 162,585,380 Short-term investments 28,460,000 11,765,330 --------------- --------------- Total investments $ 2,106,901,353 $2,080,588,989 Cash 8,195,416 8,687,577 Escrow deposits - restricted 80,839 80,839 Open interest rate swap agreements, at value - 1,644,344 Distributions and interest receivable 1,252,330 694,054 Other assets 1,055,941 1,144,720 --------------- --------------- Total assets $ 2,117,485,879 $2,092,840,523 --------------- --------------- Liabilities: Loan payable - Credit Facility $ 468,000,000 $ 447,000,000 Mortgage payable 112,630,517 112,630,517 Payable for Fund shares redeemed 350,000 1,180,000 Distributions payable to minority shareholders - 16,800 Open interest rate swap agreements, at value 3,229,510 - Swap interest payable 246,209 243,920 Security deposits 394,979 372,900 Accrued expenses: Interest expense 939,114 920,797 Property taxes 791,481 576,590 Other expenses and liabilities 669,045 669,458 Minority interests in controlled subsidiaries 8,966,059 6,947,692 --------------- --------------- Total liabilities $ 596,216,914 $ 570,558,674 --------------- --------------- Net assets $ 1,521,268,965 $1,522,281,849 --------------- --------------- Shareholders' Capital $ 1,521,268,965 $1,522,281,849 --------------- --------------- Shares outstanding 12,654,268 12,728,157 --------------- --------------- Net asset value and redemption price per Share $ 120.22 $ 119.60 --------------- ---------------
See notes to unaudited condensed consolidated financial statements 3 BELAIR CAPITAL FUND LLC Condensed Consolidated Statements of Operations (Unaudited)
Three Months Three Months Ended Ended March 31, 2004 March 31, 2003 -------------- -------------- Investment Income: Dividends allocated from Belvedere Company (net of foreign taxes of $66,409, and $59,957, respectively) $ 5,557,427 $ 4,921,576 Interest allocated from Belvedere Company 26,538 91,847 Expenses allocated from Belvedere Company (2,410,134) (2,002,351) -------------- -------------- Net investment income allocated from Belvedere Company $ 3,173,831 $ 3,011,072 Distributions from Partnership Preference Units 8,470,877 9,652,791 Rental income 5,511,218 5,584,172 Interest 105,148 46,219 -------------- -------------- Total investment income $ 17,261,074 $ 18,294,254 -------------- -------------- Expenses: Investment advisory and administrative fees $ 1,401,115 $ 1,284,962 Property management fees 218,537 222,627 Servicing fees 167,543 115,814 Interest expense on mortgage 2,386,111 2,386,111 Interest expense on Credit Facility 1,670,880 2,548,872 Property and maintenance expenses 1,576,526 1,550,253 Property taxes and insurance 700,781 754,647 Amortization of deferred expenses - 9,099 Miscellaneous 136,386 126,598 -------------- -------------- Total expenses $ 8,257,879 $ 8,998,983 -------------- -------------- Net investment income before minority interest in net income of controlled subsidiary $ 9,003,195 $ 9,295,271 Minority interest in net income of controlled subsidiary (110,236) (172,159) -------------- -------------- Net investment income $ 8,892,959 $ 9,123,112 -------------- --------------
See notes to unaudited condensed consolidated financial statements 4 BELAIR CAPITAL FUND LLC Condensed Consolidated Statements of Operations (Unaudited) (Continued)
Three Months Three Months Ended Ended March 31, 2004 March 31, 2003 --------------- ---------------- Realized and Unrealized Gain (Loss) Net realized gain (loss) - Investment transactions from Belvedere Company (identified cost basis) $ 5,850,913 $ (5,896,539) Investment transactions in Partnership Preference Units (identified cost basis) 2,399,543 92 Interest rate swap agreements (1) (3,051,795) (7,108,679) --------------- ---------------- Net realized gain (loss) $ 5,198,661 $ (13,005,126) --------------- ---------------- Change in unrealized appreciation (depreciation) - Investment in Belvedere Company (identified cost basis) $ 24,013,775 $ (61,019,845) Investment in Partnership Preference Units (identified cost basis) (6,958,051) 24,137,176 Investment in other real estate (net of minority interests in unrealized gain (loss) of controlled subsidiary of $1,908,131 and $(349,150), respectively) (1,958,342) (433,145) Interest rate swap agreements (4,873,854) 6,242,253 --------------- ---------------- Net change in unrealized appreciation (depreciation) $ 10,223,528 $ (31,073,561) --------------- ---------------- Net realized and unrealized gain (loss) $ 15,422,189 $ (44,078,687) --------------- ---------------- Net increase (decrease) in net assets from operations $ 24,315,148 $ (34,955,575) =============== ================
(1) Amount represents periodic payments made in connection with interest rate swap agreements. (Note 4) See notes to unaudited condensed consolidated financial statements 5 BELAIR CAPITAL FUND LLC Condensed Consolidated Statements of Changes in Net Assets
Three Months Ended Year Ended March 31, 2004 December 31, (Unaudited) 2003 --------------- --------------- Increase (Decrease) in Net Assets: Net investment income $ 8,892,959 $ 34,029,533 Net realized gain (loss) from investment transactions 5,198,661 (6,702,427) Net change in unrealized appreciation (depreciation) of investments 10,223,528 335,001,122 --------------- --------------- Net increase in net assets from operations $ 24,315,148 $ 362,328,228 --------------- --------------- Transactions in Fund Shares - Net asset value of Fund Shares issued to Shareholders in payment of distributions declared $ 7,259,756 $ 2,956,829 Net asset value of Fund Shares redeemed (16,308,309) (82,202,891) --------------- --------------- Net decrease in net assets from Fund Share transactions $ (9,048,553) $ (79,246,062) --------------- --------------- Distributions - Distributions to Shareholders $ (16,279,479) $ (6,607,973) --------------- --------------- Total distributions $ (16,279,479) $ (6,607,973) --------------- --------------- Net (decrease) increase in net assets $ (1,012,884) $ 276,474,193 Net assets: At beginning of period $1,522,281,849 $1,245,807,656 --------------- --------------- At end of period $1,521,268,965 $1,522,281,849 =============== ===============
See notes to unaudited condensed consolidated financial statements 6 BELAIR CAPITAL FUND LLC Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Three Months Ended Ended March 31, 2004 March 31, 2003 --------------- --------------- Cash Flows From (For) Operating Activities - Net increase (decrease) in net assets from operations $ 24,315,148 $ (34,955,575) Adjustments to reconcile net increase (decrease) in net assets from operations to net cash flows (for) from operating activities - Net investment income allocated from Belvedere Company (3,173,831) (3,011,072) Decrease in escrow deposits - 993,440 Decrease in receivable for investments sold - 4,952,435 Increase in interest receivable from other real estate investments (43,174) (24,234) Decrease in other assets 88,779 73,308 (Increase) decrease in distributions and interest receivable (558,276) 546,855 Increase (decrease) in interest payable for open swap agreements 2,289 (956,538) Increase (decrease) in security deposits, accrued interest and accrued other expenses and liabilities 39,983 (115,079) Increase in accrued property taxes 214,891 114,810 Purchases of Partnership Preference Units (48,668,050) - Proceeds from sales of Partnership Preference Units 50,715,342 - Improvements to rental property (328,563) (403,695) Net increase in investment in Belvedere Company - (3,500,002) Interest incurred on interest rate swap agreements (3,051,795) (7,108,679) (Increase) decrease in short-term investments (16,694,670) 1,995,811 Minority interest in net income of controlled subsidiary 110,236 172,159 Net realized (gain) loss from investment transactions (5,198,661) 13,005,126 Net change in unrealized (appreciation) depreciation of investments (10,223,528) 31,073,561 --------------- --------------- Net cash flows (for) from operating activities $ (12,453,880) $ 2,852,631 --------------- --------------- Cash Flows From (For) Financing Activities - Proceeds from (repayment of) Credit Facility $ 21,000,000 $ (10,000,000) Payments for Fund Shares redeemed (1,758) (698) Distributions paid to Shareholders (9,019,723) (3,652,999) Distributions paid to minority shareholders (16,800) - --------------- --------------- Net cash flows from (for) financing activities $ 11,961,719 $ (13,653,697) --------------- --------------- Net decrease in cash $ (492,161) $ (10,801,066) Cash at beginning of period $ 8,687,577 $ 16,067,430 --------------- --------------- Cash at end of period $ 8,195,416 $ 5,266,364 =============== ===============
See notes to unaudited condensed consolidated financial statements 7 BELAIR CAPITAL FUND LLC Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
Three Months Three Months Ended Ended March 31, 2004 March 31, 2003 --------------- --------------- Supplemental Disclosure and Non-cash Investing and Financing Activities - Interest paid on loan - Credit Facility $ 1,627,008 $ 2,579,816 Interest paid on swap agreements $ 3,049,506 $ 6,043,609 Interest paid on mortgage $ 2,345,531 $ 2,345,531 Market value of securities distributed in payment of redemptions $ 17,136,551 $ 6,903,489 Partnership Preference Units exchanged for an equity investment in real estate companies and an investment in note receivable $ - $ (3,977,592) Market value of an equity investment in real estate companies $ - $ 1,907,012 Investment in note receivable $ - $ 2,070,580
See notes to unaudited condensed consolidated financial statements 8 BELAIR CAPITAL FUND LLC as of March 31, 2004 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Financial Highlights (Unaudited)
For the Three Months Ended March 31, 2004 - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value - Beginning of period $ 119.600 - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) from operations - ----------------------------------------------------------------------------------------------------------------------------------- Net investment income (6) $ 0.699 Net realized and unrealized gain 1.201 - ----------------------------------------------------------------------------------------------------------------------------------- Total income from operations $ 1.900 - ----------------------------------------------------------------------------------------------------------------------------------- Distributions - ----------------------------------------------------------------------------------------------------------------------------------- Distributions to Shareholders $ (1.280) - ----------------------------------------------------------------------------------------------------------------------------------- Total distributions $ (1.280) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value - End of period $ 120.220 - ----------------------------------------------------------------------------------------------------------------------------------- Total Return (1) 1.60% - ----------------------------------------------------------------------------------------------------------------------------------- As a Percentage As a Percentage of Average Net of Average Gross Ratios Assets(5) Assets (2)(5) - ----------------------------------------------------------------------------------------------------------------------------------- Expenses of Consolidated Real Property Subsidiary Interest and other borrowing costs (7) 0.52% (9) 0.38% (9) Operating expenses (7) 0.54% (9) 0.40% (9) Belair Capital Fund LLC Expenses Interest and other borrowing costs (4)(8) 0.44% (9) 0.32% (9) Investment advisory and administrative fees, servicing fees and other Fund operating expenses (3)(4) 1.07% (9) 0.79% (9) - ----------------------------------------------------------------------------------------------------------------------------------- Total expenses 2.57% (9) 1.89% (9) Net investment income 2.33% (9) 1.71% (9) - ----------------------------------------------------------------------------------------------------------------------------------- Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000's omitted) $ 1,521,269 Portfolio turnover of Tax-Managed Growth Portfolio (the Portfolio) 0.61% - -----------------------------------------------------------------------------------------------------------------------------------
(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 of Belair Real Estate's controlled subsidiary are reduced by the proportionate interests therein of investors other than Belair Real Estate. (3) Includes Belair Capital's share of Belvedere Capital Fund Company LLC's allocated expenses, including those expenses allocated from the Portfolio. (4) Includes the expenses of Belair Capital and Belair Real Estate. Does not include expenses of the real estate subsidiary majority-owned by Belair Real Estate. (5) 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. (6) Calculated using average shares outstanding. (7) Includes Belair Real Estate's proportional share of expenses incurred by its majority-owned subsidiary. (8) Ratios do not include interest incurred in connection with the interest rate swap agreements. Had such amounts been included, ratios would be higher. (9) Annualized. See notes to unaudited condensed consolidated financial statements 9 BELAIR CAPITAL FUND LLC as of March 31, 2004 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, 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 as of 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, 2003 has been derived from the December 31, 2003 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 The following table summarizes the Fund's investment transactions for the three months ended March 31, 2004 and March 31, 2003:
Three Months Ended Three Months Ended Investment Transaction March 31, 2004 March 31, 2003 - ------------------------------------------------------------------------------------------------ Increases in investment in Belvedere Company $ - $ 4,000,000 Decreases in investment in Belvedere Company $ 17,136,551 $ 7,403,487 Purchases of Partnership Preference Units (1) $ 48,668,050 $ - Sales of Partnership Preference Units (2) $ 50,715,342 $ - - ------------------------------------------------------------------------------------------------
(1) Purchases of Partnership Preference Units during the three months ended March 31, 2004 include Partnership Preference Units purchased from other investment funds advised by Boston Management and Research (Boston Management). (2) Sales of Partnership Preference Units for the three months ended March 31, 2004 include Partnership Preference Units sold to another investment fund advised by Boston Management for which a loss of $997,698 was recognized. 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 $2,070,580, respectively. The secured note receivable (valued at $2,262,886 as of March 31, 2004 and $2,094,814 as of March 31, 2003) earns interest of 8% per annum and matures in February 2013 or on demand. 10 3 Indirect Investment in the Portfolio The following table summarizes the Fund's investment in Tax-Managed Growth Portfolio (the Portfolio) through Belvedere Capital Fund Company LLC (Belvedere Company), for the three months ended March 31, 2004 and March 31, 2003, including allocations of income, expenses and net realized and unrealized gains (losses) for the respective periods then ended:
Three Months Ended Three Months Ended March 31, 2004 March 31, 2003 - ----------------------------------------------------------------------------------------------------------------------- Belvedere Company's interest in the Portfolio (1) $ 11,520,846,141 $ 8,400,349,853 The Fund's investment in Belvedere Company (2) $ 1,604,097,252 $ 1,294,107,014 Income allocated to Belvedere Company from the Portfolio $ 39,365,471 $ 32,398,573 Income allocated to the Fund from Belvedere Company $ 5,583,965 $ 5,013,423 Expenses allocated to Belvedere Company from the Portfolio $ 12,634,511 $ 9,667,954 Expenses allocated to the Fund from Belvedere Company $ 2,410,134 $ 2,002,351 Net realized gain (loss) allocated to Belvedere Company from the Portfolio $ 41,048,575 $ (37,772,155) Net realized gain (loss) allocated to the Fund from Belvedere Company $ 5,850,913 $ (5,896,539) Change in unrealized appreciation (depreciation) allocated to Belvedere Company from the Portfolio $ 163,577,445 $ (389,828,192) Change in unrealized appreciation (depreciation) allocated to the Fund from Belvedere Company $ 24,013,775 $ (61,019,845) - -----------------------------------------------------------------------------------------------------------------------
(1) As of March 31, 2004 and 2003, the value of Belvedere Company's interest in the Portfolio represents 63.9% and 61.1% of the Portfolio's net assets, respectively. (2) As of March 31, 2004 and 2003, the Fund's investment in Belvedere Company represents 13.9% and 15.4% of Belvedere Company's net assets, respectively. A summary of the Portfolio's Statement of Assets and Liabilities at March 31, 2004, December 31, 2003 and March 31, 2003 and its operations for the three months ended March 31, 2004, for the year ended December 31, 2003 and for the three months ended March 2003 follows:
March 31, December 31, March 31, 2004 2003 2003 -------------------------------------------------------------------- Investments, at value $ 18,003,359,532 $ 17,584,390,762 $13,797,517,752 Other assets 25,944,066 25,462,745 24,535,362 - --------------------------------------------------------------------------------------------------------- Total assets $ 18,029,303,598 $ 17,609,853,507 $13,822,053,114 Total liabilities 254,697 264,502 73,659,303 - --------------------------------------------------------------------------------------------------------- Net assets $ 18,029,048,901 $ 17,609,589,005 $13,748,393,811 ========================================================================================================= Dividends and interest $ 62,101,320 $ 232,925,912 $ 53,431,732 - --------------------------------------------------------------------------------------------------------- Investment adviser fee $ 19,348,796 $ 67,584,543 $ 15,490,999 Other expenses 598,921 2,295,653 477,083 - --------------------------------------------------------------------------------------------------------- Total expenses $ 19,947,717 $ 69,880,196 $ 15,968,082 - --------------------------------------------------------------------------------------------------------- Net investment income $ 42,153,603 $ 163,045,716 $ 37,463,650 Net realized gain (loss) 64,894,806 70,909,770 (62,969,970) Net change in unrealized appreciation (depreciation) 261,922,214 3,174,709,110 (649,928,537) - --------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from operations $ 368,970,623 $ 3,408,664,596 $ (675,434,857) - ---------------------------------------------------------------------------------------------------------
11 4 Interest Rate Swap Agreements Belair Capital has entered into interest rate swap agreements with Merrill Lynch Capital Services, Inc. in connection with its real estate investments and the associated borrowings. Under such agreements, 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. Interest rate swap agreements open at March 31, 2004 and December 31, 2003 are listed below.
Notional Initial Unrealized Unrealized Amount Optional Final Depreciation Appreciation (000's) Fixed Floating Termination Termination At March 31, At December 31, omitted) Rate Rate Date Date 2004 2003 - ---------------------------------------------------------------------------------------------------------------------- $20,000 4.045% LIBOR + 0.30% - 6/10 $ (350,722) $ 230,597 95,952 5.00% LIBOR + 0.30% 8/04 6/10 (745,551) - 95,952 5.05% LIBOR + 0.30% 2/04 6/10 -* 218,976 61,500 4.865% LIBOR + 0.30% 7/04 6/10 (286,726) 212,857 75,000 4.795% LIBOR + 0.30% 9/04 6/10 (420,663) 304,067 42,000 4.69% LIBOR + 0.30% 2/05 6/10 (303,822) 201,570 49,000 4.665% LIBOR + 0.30% 3/05 6/10 (380,485) 240,892 35,330 4.18% LIBOR + 0.30% 7/09 6/10 (741,541) 235,385 - ---------------------------------------------------------------------------------------------------------------------- $ (3,229,510) $ 1,644,344 - ----------------------------------------------------------------------------------------------------------------------
* Agreement was terminated on the Initial Optional Termination Date. 5 Debt Credit Facility - On March 16, 2004, Belair Capital amended its credit agreement with DrKW Holdings, Inc. to establish a borrowing limit of $468,000,000 under that agreement. Borrowings under this credit arrangement accrue interest at a rate of one month LIBOR plus 0.30% per annum. As of March 31, 2004, outstanding borrowings under this credit arrangements totaled $468,000,000. 6 Segment Information Belair Capital pursues its investment objective primarily by investing indirectly in the Portfolio through Belvedere Company. The Portfolio is a diversified investment company that emphasizes investments in common stocks of domestic and foreign growth companies that are considered to be high in quality and attractive in their long-term investment prospects. Separate from its investment in Belvedere Company, Belair Capital invests in real estate assets through its subsidiary, Belair Real Estate. Belair Real Estate invests directly and indirectly in Partnership Preference Units, debt and equity investments in private real estate companies and in real property through a controlled subsidiary, Bel Residential Properties Trust. 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 (loss), net realized gain (loss) and unrealized appreciation (depreciation). The accounting policies of the reportable segments are the same as those for the Fund on a consolidated basis. No reportable segments have been aggregated. Reportable information by segment is as follows: 12
Tax-Managed For the Three Months Ended Growth Real March 31, 2004 Portfolio* Estate Total - -------------------------------------------------------------------------------------------------------------------- Revenue $ 3,173,831 $ 14,034,549 $ 17,208,380 Interest expense on mortgage - (2,386,111) (2,386,111) Interest expense on Credit Facility - (1,570,627) (1,570,627) Operating expenses (699,664) (3,275,833) (3,975,497) Minority interest in net income of controlled subsidiary - (110,236) (110,236) - -------------------------------------------------------------------------------------------------------------------- Net investment income $ 2,474,167 $ 6,691,742 $ 9,165,909 Net realized gain (loss) 5,850,913 (652,252) 5,198,661 Change in unrealized appreciation (depreciation) 24,013,775 (13,790,247) 10,223,528 - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from operations of reportable segments $ 32,338,855 $ (7,750,757) $ 24,588,098 - -------------------------------------------------------------------------------------------------------------------- Tax-Managed For the Three Months Ended Growth Real March 31, 2003 Portfolio* Estate Total - -------------------------------------------------------------------------------------------------------------------- Revenue $ 3,011,072 $ 15,240,385 $ 18,251,457 Interest expense on mortgage - (2,386,111) (2,386,111) Interest expense on Credit Facility - (2,472,406) (2,472,406) Operating expenses (503,739) (3,370,259) (3,873,998) Minority interest in net income of controlled subsidiary - (172,159) (172,159) - -------------------------------------------------------------------------------------------------------------------- Net investment income $ 2,507,333 $ 6,839,450 $ 9,346,783 Net realized loss (5,896,539) (7,108,587) (13,005,126) Change in unrealized appreciation (depreciation) (61,019,845) 29,946,284 (31,073,561) - -------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in net assets from operations of reportable segments $ (64,409,051) $ 29,677,147 $ (34,731,904) - -------------------------------------------------------------------------------------------------------------------- Tax-Managed Growth Real At March 31, 2004 Portfolio* Estate Total - -------------------------------------------------------------------------------------------------------------------- Segment assets $ 1,604,097,252 $ 480,708,602 $2,084,805,854 Segment liabilities 350,000 548,139,137 548,489,137 - -------------------------------------------------------------------------------------------------------------------- Net assets (liabilities) of reportable segments $ 1,603,747,252 $ (67,430,535) $1,536,316,717 - -------------------------------------------------------------------------------------------------------------------- At December 31, 2003 - -------------------------------------------------------------------------------------------------------------------- Segment assets $ 1,588,195,284 $ 487,471,604 $2,075,666,888 Segment liabilities 1,180,000 544,629,124 545,809,124 - -------------------------------------------------------------------------------------------------------------------- Net assets (liabilities) of reportable segments $ 1,587,015,284 $ (57,157,520) $1,529,857,764 - --------------------------------------------------------------------------------------------------------------------
* Belair Capital invests indirectly in Tax-Managed Growth Portfolio through Belvedere Company. The following tables reconcile the reported segment information to the condensed consolidated financial statements for the periods indicated:
Three Months Three Months Ended Ended March 31, 2004 March 31, 2003 ---------------- ---------------- Revenue: Revenue from reportable segments $ 17,208,380 $ 18,251,457 Unallocated amounts: Interest earned on cash not invested in the Portfolio or in subsidiaries 52,694 42,797 ---------------- ---------------- Total revenue $ 17,261,074 $ 18,294,254 ---------------- ---------------- 13 Net increase (decrease) in net assets from operations: Net increase (decrease) in net assets from operations of reportable segments $ 24,588,098 $ (34,731,904) Unallocated amounts: Interest earned on cash not invested in the Portfolio or in subsidiaries 52,694 42,797 Unallocated amounts (1): Servicing fees (167,543) (115,814) Interest expense on Credit Facility (100,253) (76,466) Audit, tax and legal fees (45,101) (47,931) Other operating expenses (12,747) (26,257) ---------------- ---------------- Total net increase (decrease) in net assets from operations $ 24,315,148 $ (34,955,575) ---------------- ---------------- March 31, 2004 December 31, 2003 ---------------- ------------------- Net assets: Net assets of reportable segments $1,536,316,717 $1,529,857,764 Unallocated cash (2) 4,220,025 5,408,305 Short-term investments (2) 28,460,000 11,765,330 Loan payable - Credit Facility (3) (47,626,774) (24,579,481) Other liabilities (101,003) (170,069) ---------------- ------------------- Total net assets $1,521,268,965 $1,522,281,849 ---------------- -------------------
(1) Unallocated amounts represent expenses incurred that pertain to the overall operation of Belair Capital, and do not pertain to either operating segment. (2) Unallocated cash and short-term investments represent cash and cash equivalents not currently invested in the Portfolio or real estate assets. (3) Unallocated amount of loan payable - Credit Facility primarily represents borrowings on hand to be used for acquiring investments. However, such borrowings have also been used to pay selling commissions, organization expenses and other liquidity needs of the Fund. 7 Subsequent Events On May 3, 2004, Belair Real Estate entered an agreement to establish and acquire a majority interest in a controlled subsidiary. This controlled subsidiary will indirectly own certain industrial properties with an estimated value of approximately $193,000,000 at acquisition. Belair Real Estate is expected to own an 80% interest in the controlled subsidiary and a minority shareholder will own the remaining interest. Based on the terms of the current agreements, Belair Real Estate expects to acquire the investment in the third quarter of 2004. The minority shareholder of the controlled subsidiary, or an affiliate thereof, will manage the real property. It is expected that the real property will be financed through first mortgage loans secured by the properties and an assignment of certain leases and rents. The loans are expected to be without recourse to Belair Capital and Belair Real Estate. No financing agreement has been entered into at this time. On May 3, 2004, Belair Capital entered into a forward interest rate swap agreement with Merrill Lynch Capital Services, Inc. in anticipation of its future investment in the controlled subsidiary for the purpose of hedging the interest rate of substantially all of the expected fixed-rate mortgage financing of the real property over an expected 8-year term. Under such agreement, Belair Capital has agreed to made periodic payments at fixed rates in exchange for payments at floating rates. The notional amount of the contract is $104,176,000, which approximates Belair Capital's expected 80% interest in the anticipated secured debt of the controlled subsidiary. The floating interest rate to be received by Belair Capital is three-month LIBOR and the fixed interest rate to be paid by Belair Capital is 4.875%. The swap agreement entered into by Belair Capital is effective in June 2004 and terminates in June 2012. 14 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. RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2004 COMPARED TO THE QUARTER ENDED MARCH 31, 2003 - -------------------------------------------------------------------------------- (a) RESULTS OF OPERATIONS. - -------------------------- Increases and decreases in the Fund's net asset value per share are derived from net investment income or loss, and realized and unrealized gains and losses on investments. The Fund's net investment income (or loss) is determined by subtracting the Fund's total expenses from its investment income and then deducting the minority interest in net income of the controlled subsidiary of Belair Real Estate Corporation (Belair Real Estate). The Fund's investment income includes the net investment income allocated to the Fund from Belvedere Capital Fund Company LLC (Belvedere Company), rental income from the properties owned by Belair Real Estate's controlled subsidiary, partnership income allocated to the income-producing preferred equity interests in real estate operating partnerships (Partnership Preference Units) owned by Belair Real Estate and interest earned on the Fund's short-term investments (if any). The net investment income of Belvedere Company allocated to the Fund includes dividends, interest and expenses allocated to Belvedere Company by Tax-Managed Growth Portfolio (the Portfolio) less the expenses of Belvedere Company allocated to the Fund. The Fund's total expenses include the Fund's investment advisory and administrative fees, servicing fees, interest expense from mortgages on properties owned by Belair Real Estate's controlled subsidiary, interest expense on the Fund's credit arrangements (the Credit Facility), property management fees, property taxes, insurance, maintenance and other expenses relating to the properties owned by Belair Real Estate's controlled subsidiary, and other miscellaneous expenses. The Fund's realized and unrealized gains and losses are the result of transactions in, or changes in value of, security investments held through the Fund's indirect interest (through Belvedere Company) in the Portfolio, real estate investments held through Belair Real Estate, the Fund's interest rate swap agreements and any other direct investments of the Fund, as well as periodic payments made by the Fund pursuant to interest rate swap agreements. Realized and unrealized gains and losses on investments have the most significant impact on the Fund's net asset value per Share and result primarily from sales of such investments and changes in their underlying value. The investments of the Portfolio consist primarily of common stocks of domestic and foreign growth companies that are considered to be high in quality and attractive in their long-term investment prospects. Because the securities holdings of the Portfolio are broadly diversified, the performance of the Portfolio cannot be attributed to one particular stock or one particular industry or market sector. The performance of the Portfolio and the Fund are substantially influenced by the overall performance of the U.S. stock market, as well as by the relative performance versus the overall market of specific stocks and classes of stocks in which the Portfolio maintains large positions. PERFORMANCE OF THE FUND.(1) The Fund's investment objective is to achieve long-term, after-tax returns for Shareholders. Eaton Vance Management (Eaton Vance), as the Fund's manager, measures the Fund's success in achieving its objective based on the investment returns of the Fund, using the Standard & Poor's 500 Composite Index (the S&P 500) as the Fund's primary performance benchmark. The S&P 500 is a broad-based unmanaged index of common stocks widely used as a measure of U.S. stock market performance. Eaton Vance's primary focus in pursuing total return is on the Fund's common stock portfolio, which consists of its indirect interest in the Portfolio. In measuring the performance of the Fund's real estate investments held through Belair Real Estate, Eaton Vance considers whether, through current returns and changes in valuation, the real - ----------------------------- (1) Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Returns are calculated by determining the percentage change in net asset value with all distributions reinvested. The Portfolio's total return for the period reflects the total return of another fund that invests in the Portfolio, adjusted for certain fund expenses. Performance is for the stated time period only and is not annualized; due to market volatility, the Fund's current performance may be lower or higher. The performance of the Fund and the Portfolio is compared to that of their benchmark, the S&P 500. It is not possible to invest directly in an Index. 15 estate investments achieve returns that over the long-term exceed the cost of the borrowing incurred to acquire such investments and thereby add to Fund returns. The Fund has entered into interest rate swap agreements to fix the cost of its borrowings under the Credit Facility used to acquire Belair Real Estate's equity in its real estate investments and to mitigate in part the impact of interest rate changes on the Fund's net asset value. The Fund's total return was 1.60% for the quarter ended March 31, 2004. This return reflects an increase in the Fund's net asset value per share from $119.60 to $120.22 and a distribution of $1.28 per share during the period. For comparison, the S&P 500 had a total return of 1.69% over the same period. The performance of the Fund trailed that of the Portfolio by approximately 0.52% during the period. Last year, the Fund's total return was -2.81% for the quarter ended March 31, 2003. This return reflected 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 period. For comparison, the S&P 500 had a total return of -3.15% over the same period. The performance of the Fund exceeded that of the Portfolio by approximately 1.90% during that period. PERFORMANCE OF THE PORTFOLIO. For the quarter ended March 31, 2004, the Portfolio's total return was 2.12%, compared to -4.71% for the quarter ended March 31, 2003. International unrest coupled with weak employment, a struggling dollar and surging oil prices pressured domestic markets in the first quarter of 2004. Like the quarter ended March 31, 2003, volatility was high during the first quarter of 2004. However, unlike the first quarter of 2003, major indices experienced positive returns in 2004 as fiscal and monetary stimuli supported robust corporate earnings and productivity growth. During the first quarter of 2004, companies on average reported better than expected sales trends, increased dividends and initiated sizeable share buybacks reflecting a steady global economic recovery. While large capitalization stocks outperformed smaller capitalization stocks during the first quarter of 2003, small capitalization stocks outperformed large-cap companies during the later months of 2003, and continued to do so in the first quarter of 2004. In addition, during the first quarter of 2004 higher quality stocks regained performance leadership over last year's prevailing higher volatility stocks. During the quarter ended March 31, 2004, the Portfolio's sector allocation remained similar to its allocation at March 31, 2003. The Portfolio's stronger quarterly performance relative to the S&P 500 during the first quarter of 2004 resulted from its diversified industry exposure and positive stock selection decisions. During the quarter ended March 31, 2004, the Portfolio remained underweight in the information technology sector, the market's weakest performing sector. Stock selection by the Portfolio's investment adviser, Boston Management and Research (Boston Management), in the computer peripherals and electronic equipment industries was particularly beneficial to the Portfolio's performance during the first quarter of 2004. Similar to the first quarter of 2003, valuation concerns prompted a de-emphasis of the telecommunication sector during the first quarter of 2004. However, telecommunication services stocks generally performed well during the first quarter of 2004. Similar to the first quarter of 2003, the Portfolio was overweight the industrials sector. During the first quarter of 2004, attractive valuations and positive secular business trends helped machinery, building products and airfreight stocks of the aforementioned sector advance higher. In the first quarter of 2003, Boston Management began increasing the Portfolio's exposure to the energy sector, a change from its previous underweight stance versus the S&P 500. This allocation shift has aided performance, as oil exploration and other energy equipment and service names benefited from rising oil prices. Although the Portfolio's relative overweight of the financials sector contributed to its positive return during the quarter ended March 31, 2004, the sub-par performance of its commercial bank and capital market stocks hindered returns during the quarter. While Boston Management remained optimistic on the consumer, it slightly trimmed the Portfolio's relative overweight in the consumer discretionary and staples sectors. Portfolio holdings in leisure, retail, and personal products benefited from continued consumer spending driven by tax refunds, strong refinancing activity and increases in wages and salaries. The Portfolio maintained an underweight of the healthcare sector relative to the S&P 500 during the quarter ended March 31, 2004, but added to holdings of stronger quarterly performers such as healthcare equipment and service companies. PERFORMANCE OF REAL ESTATE INVESTMENTS. The Fund's real estate investments are held through Belair Real Estate. As of March 31, 2004, real estate investments included a portfolio of Partnership Preference Units that generally are affiliated with publicly traded and private real estate investment trusts (REITs) and a majority interest in a real estate joint venture (the Real Estate Joint Venture). As of March 31, 2004, the estimated fair value of the Fund's real estate investments represented 22.4% of the Fund's total assets. Adjusting for the minority interest of the real estate operating company that is the principal minority investor in the Real Estate Joint Venture as of March 31, 2004, the Fund's real estate investments represented 29.3% of the Fund's net assets. During the quarter ended March 31, 2004, Belair Real Estate sold (or experienced scheduled redemptions of) certain of its Partnership Preference Units for approximately $50.7 million (including sales to another investment fund advised by Boston Management), recognizing gains of $2.4 million on the transactions. 16 During the quarter ended March 31, 2004, Belair Real Estate also acquired interests in additional Partnership Preference Units from another investment fund advised by Boston Management for approximately $48.7 million. At March 31, 2004, the estimated fair value of the Fund's Partnership Preference Units was approximately $311.4 million compared to approximately $411.4 million at March 31, 2003, a decrease of $100.0 million or 24%. While the decrease in value was principally due to fewer Partnership Preference Units held at March 31, 2004, the decrease also reflects the lower per unit values of Partnership Preference Units held at March 31, 2004 due to their lower average coupon rates. In the current low interest rate environment, issuers have been redeeming Partnership Preference Units as Belair Real Estate's call protections expire or restructuring the terms of outstanding Partnership Preference Units in advance of their call dates. As a result, many of the higher-yielding Partnership Preference Units held by Belair Real Estate during the quarter ended March 31, 2003 were no longer held at March 31, 2004. Boston Management expects this trend to continue through 2004. The Fund saw unrealized depreciation of the estimated fair value in its Partnership Preference Units of approximately $7.0 million during the quarter ended March 31, 2004 compared to approximately $24.1 million of unrealized appreciation for the quarter ended March 31, 2003. The net unrealized depreciation in the first quarter of 2004 consisted of approximately $3.3 million of unrealized depreciation resulting from decreases in per unit values of the Partnership Preference Units held by Belair Real Estate at March 31, 2004 (as described above) and approximately $3.7 million of unrealized depreciation resulting from the reclassification of previously recorded unrealized appreciation as realized gains due to sales of Partnership Preference Units during the quarter ended March 31, 2004. During the quarter ended March 31, 2003, Belair Real Estate'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. Distributions from Partnership Preference Units for the quarter ended March 31, 2004 totaled $8.5 million compared to $9.7 million for the quarter ended March 31, 2003, a decrease of $1.2 million or 12%. The decrease was principally due to fewer Partnership Preference Units held on average, as well as to lower average yields for the Partnership Preference Units held during the quarter ended March 31, 2004. Like the quarter ended March 31, 2003, operations of Belair Real Estate's Real Estate Joint Venture were impacted by weak multifamily market fundamentals during the quarter ended March 31, 2004. Rental income from real estate operations decreased to approximately $5.5 million for the quarter ended March 31, 2004 from approximately $5.6 million for the quarter ended March 31, 2003, a decrease of $0.1 million or 2%. This decrease in rental income was due to reduced apartment rental rates and increased rent concessions at properties owned by Belair Real Estate's Real Estate Joint Venture, trends that continued from 2003. Property operating expenses for Belair Real Estate's Real Estate Joint Venture were approximately $2.5 million for each of the quarters ended March 31, 2004 and March 31, 2003 (property operating expenses are before certain operating expenses of Belair Real Estate of approximately $0.8 million for each of the quarters ended March 31, 2004 and March 31, 2003). The near-term outlook for multifamily property operations continues to be weak. While anticipated economic and employment growth is expected to lead to improvements over the longer-term, significant employment growth has not yet occurred in most markets and low interest rates have contributed to continued apartment move-outs due to new home purchases and increased competition for new residents from ongoing development of new multifamily properties. As a result, Boston Management, Belair Real Estate's manager, expects that real estate operating results in 2004 will continue to be similar to 2003's results. At March 31, 2004, the estimated fair value of the real properties held through Belair Real Estate was approximately $158.7 million compared to approximately $157.1 million at March 31, 2003, an increase of $1.6 million or 1%. The modest increase in estimated real property values at March 31, 2004 resulted from lower capitalization rates, which more than offset the impact on property values of lower near-term income expectations. The Fund saw unrealized depreciation in the estimated fair value of its other real estate investments (which includes Belair Real Estate's interest in the Real Estate Joint Venture) of approximately $2.0 million during the quarter ended March 31, 2004 compared to approximately $0.4 million of unrealized depreciation for the quarter ended March 31, 2003. During the quarter ended March 31, 2003, Belair Real Estate experienced modest decreases in property values due to declines in near-term earnings expectations and the economic downturn. However, declines in asset values for multifamily properties during the quarter ended March 31, 2003 generally were modest as decreases in capitalization rates largely offset declining income level expectations. On May 3, 2004, Belair Real Estate entered into agreements to establish Elkhorn Property Trust (Elkhorn), form ProLogis Six Rivers Limited Partnership (in association with subsidiaries of other investment funds advised by Boston Management and ProLogis, a publicly-held REIT) (Six Rivers) and merge Six Rivers with Keystone Property Trust, a publicly-held REIT (Keystone). It is expected 17 that the merger will be consummated during the third quarter of 2004, subject to the satisfaction of certain conditions precedent. Upon the ultimate consummation of the transactions, Belair Real Estate will own an 80% interest in Elkhorn and ProLogis will own a 20% interest in Elkhorn. Elkhorn will own a partnership interest in Six Rivers through which it will own 100% of the economic interest in certain industrial properties acquired through the merger of Six Rivers and Keystone and valued at approximately $193 million at the date of acquisition. Prologis, or an affiliate thereof, will manage the properties. It is anticipated that Keystone's existing direct fixed-rate obligations will be retired after the merger date. It is anticipated that first mortgage financing estimated to be 60-65% of the property value will be obtained in connection with the acquisition and will be secured by the properties. There can be no assurance that the conditions precedent to the consummation of the transactions described above will be satisfied or that the financing required to acquire the properties will be obtained. PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the quarter ended March 31, 2004, net realized and unrealized losses on the Fund's interest rate swap agreements totaled approximately $7.9 million, compared to net realized and unrealized losses of approximately $0.9 million for the quarter ended March 31, 2003. Net realized and unrealized losses on swap agreements for the quarter ended March 31, 2004 consisted of $4.9 million of unrealized depreciation due to changes in swap agreement valuations and $3.0 million of periodic payments made pursuant to outstanding swap agreements (and classified as net realized losses on interest rate swap agreements). For the quarter ended March 31, 2003, unrealized appreciation of $6.2 million on swap agreement valuation changes were offset by $7.1 million of swap agreement periodic payments. The negative impact on Fund performance for the quarter ended March 31, 2004 from changes in swap agreement valuations was attributable to a decline in swap rates during the period. The positive contribution to Fund performance for the quarter ended March 31, 2003 from changes in swap valuations was due primarily to the Fund's swap agreements approaching optional termination dates, as relevant swap rates were substantially unchanged. (b) LIQUIDITY AND CAPITAL RESOURCES. - ------------------------------------ OUTSTANDING BORROWINGS. The Fund has entered into credit arrangements with DrKW Holdings, Inc. and Merrill Lynch Mortgage Capital, Inc. (collectively, the Credit Facility) primarily to finance the Fund's equity in its real estate investments and will continue to use the Credit Facility for such purpose in the future. The Credit Facility may also be used for other purposes, including 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. As of March 31, 2004, the Fund had outstanding borrowings of $468.0 million and unused loan commitments of $98.5 million under the Credit Facility. During the quarter ended March 31, 2004, the Fund amended its loan agreement with DrKW Holdings, Inc. to establish a borrowing limit of $468 million under that agreement. On May 3, 2004, Belair Real Estate entered an agreement to establish and acquire a majority interest in a Real Estate Joint Venture, Elkhorn. Belair Real Estate's acquisition of its interest in Elkhorn is expected to occur in the third quarter of 2004. Elkhorn is expected to indirectly own industrial properties with a value of approximately $193 million at acquisition. Belcrest Realty will own 80% of the interests in Elkhorn. The amount of Belair Real Estate's net investment in Elkhorn will depend in part on the terms of the anticipated mortgage financing to be obtained for the real estate assets, closing costs and other consideration. The Fund plans to increase its borrowings under the existing Credit Facility to fund its equity in Elkhorn and has begun discussions with DrKW Holdings, Inc. and Merrill Lynch Mortgage Capital, Inc. in anticipation of its investment in Elkhorn. The Fund has entered into interest rate swap agreements with respect to its real estate investments and associated borrowings. Pursuant to these agreements, the Fund makes periodic payments to the counterparty at predetermined fixed rates, in exchange for floating-rate payments at a predetermined spread plus one-month LIBOR. During the terms of the outstanding interest rate swap agreements, changes in the underlying values of the agreements are recorded as unrealized appreciation or depreciation. As of March 31, 2004, the unrealized depreciation related to the interest rate swap agreements was approximately $3.2 million. As of March 31, 2003, the unrealized depreciation related to the interest rate swap agreements was approximately $15.1 million. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. - ------------------------------------------------------------------- INTEREST RATE RISK. The Fund's primary exposure to interest rate risk arises from its real estate investments that are financed by the Fund with floating rate borrowings under the Fund's Credit Facility and by fixed-rate secured mortgage debt obligations of the Real Estate Joint Venture. Partnership Preference Units are fixed rate instruments whose values will generally decrease when interest rates rise and increase when interest rates fall. The interest rates on borrowings under the Fund's Credit Facility are reset at regular intervals based on one-month LIBOR. The Fund has entered into interest rate swap 18 agreements to fix the cost of its borrowings under the Credit Facility used to acquire Belair Real Estate's equity in its real estate investments and to mitigate in part the impact of interest rate changes on the Fund's net asset value. Under the terms of the interest rate swap agreements, the Fund makes cash payments at fixed rates in exchange for floating rate payments that fluctuate with one-month LIBOR. The Fund's interest rate swap agreements will generally increase in value when interest rates rise and decrease in value when interest rates fall. In the future, the Fund may use other interest rate hedging arrangements (such as caps, floors and collars) to fix or limit borrowing costs. The use of interest rate hedging arrangements is a specialized activity that can expose the Fund to significant loss. The following table summarizes the contractual maturities and weighted-average interest rates associated with the Fund's significant non-trading financial instruments. The Fund has no market risk sensitive instruments held for trading purposes. This information should be read in conjunction with Note 4 and Note 5 to the Fund's unaudited condensed consolidated financial statements in Item 1 above. Interest Rate Sensitivity Cost, Principal (Notional) Amount by Contractual Maturity and Callable Date for the Twelve Months Ended March 31,*
Estimated 2005 2006-2008 2009 Thereafter Total Fair Value - ------------------------------------------------------------------------------------------------------------------------------------ Rate sensitive liabilities: - ----------------------------------------- Long-term debt: - ----------------------------------------- Fixed-rate mortgages $112,630,517 $112,630,517 $137,700,000 Average interest rate 8.33% 8.33% - ----------------------------------------- Variable-rate Credit Facility $468,000,000 $468,000,000 $468,000,000 Average interest rate 1.39% 1.39% - --------------------------------------------------------------------------------------------------------------------------- Rate sensitive derivative financial instruments: - ----------------------------------------- Pay fixed/ receive variable interest rate swap agreements $378,782,000 $378,782,000 $ (3,229,510) Average pay rate 4.73% 4.73% Average receive rate 1.39% 1.39% - --------------------------------------------------------------------------------------------------------------------------- Rate sensitive investments: - ----------------------------------------- Fixed-rate Partnership Preference Units: - ----------------------------------------- Cabot Industrial Properties, L.P., 8.625% Series B Cumulative Redeemable Preferred Units, Callable 4/29/04, Current Yield: 8.30% $28,455,170 $ 28,455,170 $ 27,544,100 Colonial Realty Limited Partnership, 7.25% Series B Cumulative Redeemable Perpetual Preferred Units, Callable 2/24/09, Current Yield: 7.39% $19,013,123 $ 19,013,123 $ 22,068,000 19 Estimated 2005 2006-2008 2009 Thereafter Total Fair Value - ------------------------------------------------------------------------------------------------------------------------------------ Essex Portfolio, L.P., 9.3% Series D Cumulative Redeemable Preferred Units, Callable 7/28/10, Current Yield: 8.90% $ 20,212,880 $ 20,212,880 $ 20,888,480 Kilroy Realty, L.P., 7.45% Series A Cumulative Redeemable Preferred Units, Callable 9/30/09, Current Yield: 7.82% $ 20,000,000 $ 20,000,000 $ 19,064,520 Liberty Property L.P., 9.25% Series B Cumulative Redeemable Preferred Units, Callable 7/28/04, Current Yield: 9.06% $30,875,000 $ 30,875,000 $ 31,529,550 MHC Operating Limited Partnership, 9% Series D Cumulative Redeemable Perpetual Preference Units, Callable 9/29/04, Current Yield: 8.86% $50,000,000 $ 50,000,000 $ 50,800,000 National Golf Operating Partnership, L.P., 9.30% Series A Cumulative Redeemable Preferred Units, Callable 2/6/03, Current Yield: 9.26% $31,454,184 $ 31,454,184 $ 33,161,195 National Golf Operating Partnership, L.P., 9.30% Series B Cumulative Redeemable Preferred Units, Callable 2/6/03, Current Yield: 9.26% $ 5,000,000 $ 5,000,000 $ 5,020,000 PSA Institutional Partners, L.P., 6.4% Series NN Cumulative Redeemable Perpetual Preferred Units, Callable 3/17/10, Current Yield: 6.90% $ 48,250,000 $ 48,250,000 $ 44,737,400 Price Development Company, L.P., 8.95% Series B Cumulative Redeemable Preferred Partnership Units, Callable 7/28/04, Current Yield: 8.86% $30,625,000 $ 30,625,000 $ 30,931,250 Urban Shopping Centers, L.P., 9.45% Series D Cumulative Redeemable Perpetual Preferred Units, Callable $25,000,000 $ 25,000,000 $ 25,692,700 10/1/04, Current Yield: 9.20% - ----------------------------------------- Note Receivable: - ----------------------------------------- Fixed-rate note receivable, 8% $ 2,070,580 $ 2,070,580 $ 2,262,886
* The investments listed reflect holdings as of March 31, 2004. The Fund's current holdings may differ. 20 ITEM 4. CONTROLS AND PROCEDURES. - --------------------------------- Eaton Vance, as the Fund's manager, conducted an evaluation of the effectiveness of the Fund's disclosure controls and procedures (as defined by Rule 13a-15(e) of the 1934 Act) as of the end of the period covered by this report, with the participation of the Fund's Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Fund's disclosure controls and procedures were effective. There were no changes in the Fund's internal control over financial reporting that occurred during the quarter ended March 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Fund's internal control over financial reporting. As the Fund's manager, the complete and entire management, control and operation of the Fund are vested in Eaton Vance. The Fund's Chief Executive Officer and Chief Financial Officer intend to report to the Board of Directors of Eaton Vance, Inc. (the sole trustee of Eaton Vance) any significant deficiency in the design or operation of internal control over financial reporting which could adversely affect the Fund's ability to record, process, summarize and report financial data, and any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal control over financial reporting. PART 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, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES. - -------------------------------------------------------------------------------- As described in the Fund's Annual Report on Form 10-K for the year ended December 31, 2003, shares of the Fund may be redeemed by Shareholders on any business day. Redemptions are met at the net asset value per share of the Fund. The right to redeem is available to all Shareholders and all outstanding Fund shares are eligible. During each month in the quarter ended March 31, 2004, the total number of shares redeemed and the average price paid per share were as follows: Total No. of Shares Average Price Paid Per Month Ended Redeemed(1) Share - -------------------------------------------------------------------------------- January 31, 2004 25,864.66 $120.57 - -------------------------------------------------------------------------------- February 29, 2004 49,597.46 $122.06 - -------------------------------------------------------------------------------- March 31, 2004 59,648.83 $121.77 - -------------------------------------------------------------------------------- Total 135,110.94 $121.55 - -------------------------------------------------------------------------------- (1) All shares redeemed during the periods were redeemed at the option of Shareholders pursuant to the Fund's redemption policy. The Fund has not announced any plans or programs to repurchase shares other than at the option of Shareholders. 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, 2004. ITEM 5. OTHER INFORMATION. - --------------------------- None. 21 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: 4.1(a) Amendment No. 1 dated March 16, 2004 to the Loan and Security Agreement between Belair Capital Fund LLC and DrKW Holdings, Inc. 4.2(a) Amendment No. 1 dated March 16, 2004 to the Loan and Security Agreement between Belair Capital Fund LLC, Merrill Lynch Mortgage Capital, Inc., the Lenders referred to therein and Merrill Lynch Capital Services, Inc. 21 List of Subsidiaries 31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (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 10, 2004. BELAIR CAPITAL FUND LLC /s/ Michelle A. Alexander ------------------------- Michelle A. Alexander Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 23 EXHIBIT INDEX ------------- 4.1(a) Amendment No. 1 dated March 16, 2004 to the Loan and Security Agreement between Belair Capital Fund LLC and DrKW Holdings, Inc. 4.2(a) Amendment No. 1 dated March 16, 2004 to the Loan and Security Agreement between Belair Capital Fund LLC, Merrill Lynch Mortgage Capital, Inc., the Lenders referred to therein and Merrill Lynch Capital Services, Inc. 21 List of Subsidiaries 31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 24 EX-4.1(A) 2 belairex41a.txt LOAN & SECURITY AGT. AMEND. BTW BELAIR & DRKW EXHIBIT 4.1(a) AMENDMENT NO. 1 dated as of March 16, 2004 (this "Amendment") to the LOAN AND SECURITY Agreement dated as of July 15, 2003 (as the same may be further amended, supplemented or otherwise modified, renewed or replaced from time to time, the "Credit Agreement"), by and between BELAIR CAPITAL FUND LLC, a Massachusetts limited liability company (the "Borrower") and DrKW Holdings, Inc., a Delaware corporation, as lender (the "Lender"). WHEREAS, on July 15, 2003, the Borrower and the Lender entered into the Credit Agreement pursuant to which the Lender made available to the Borrower a term loan in the aggregate principal amount of $515,000,000; WHEREAS, in accordance with Section 2.8 of the Credit Agreement, as of the date hereof, the Borrower has repaid to the Lender an aggregate of $68,000,000 of the outstanding principal amount of the term loan; WHEREAS, the Borrower has requested the Lender to increase the amount of the term loan by $21,000,000, so that, as of the date hereof after giving effect to this Amendment and all prior prepayments, the aggregate principal amount of $468,000,000 will be outstanding under the term loan; WHEREAS, the Borrower has requested and the Lender has agreed, subject to the terms and conditions of this Amendment, to amend certain provisions of the Credit Agreement, as set forth herein; NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS. Subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, the Credit Agreement is hereby amended as of the Effective Date (as defined in Section 3 hereof) as follows: (A) Article 1 of the Credit Agreement is hereby amended by amending and restating the following definitions in their entirety to read as follows: "'LOAN' shall mean collectively, the loans made by the Lender to the Borrower under this Agreement pursuant to Section 2.1(i) and any loans made by the Lender to the Borrower under this Agreement pursuant to Section 2.1(ii). `OVERFLOW AGREEMENT' shall mean the Loan and Security Agreement dated as of July 15, 2003 by and among the Overflow Agent, the Lenders referred to therein, the Swap Provider and the Borrower, as amended from time to time in accordance with the terms thereof." (B) Section 2.1 of the Credit Agreement is hereby amended in its entirety to read as follows: "2.1 LOAN. The Lender agrees, on the terms and conditions set forth herein, (i) to make (x) a Loan to the Borrower on the Closing Date in an aggregate principal amount of $515,000,000 and (y) a Loan to the Borrower on March 16, 2004 in an aggregate principal amount of $21,000,000 and (ii) concurrently with any prepayment made by a Designated Fund under a loan facility provided by the Lender to such Designated Fund in connection with a transfer of assets from such Designated Fund to the Borrower, to make an additional Loan to the Borrower in an aggregate principal amount equal to the amount of such prepayment." (C) Section 2.2(b) of the Credit Agreement is hereby amended by deleting the figure "$515,000,000" and inserting the figure "$468,000,000" in lieu thereof. (D) Section 2.4 of the Credit Agreement is hereby amended in its entirety to read as follows: "2.4 INTEREST. Interest shall accrue on the unpaid principal amount of the Loan at the Interest Rate from and including the Closing Date (with respect to the loan made pursuant to Section 2.1(i)(x) hereof), March 16, 2004 (with respect to the loan made pursuant to Section 2.1(i)(y) hereof) or the date that a Loan is made pursuant to Section 2.1(ii) (with respect to such loan made pursuant to Section 2.1(ii)), and in each case, to but excluding the date of any principal payment whether upon acceleration or otherwise. Interest accrued on the Loan shall be payable on each applicable Interest Payment Date and on any day on which the Loan is repaid whether due to acceleration or otherwise. Notwithstanding anything in this Agreement to the contrary, the interest rate on the Loan shall in no event be in excess of the maximum interest rate permitted by Applicable Law. All interest shall accrue daily and shall be calculated on the basis of a 360-day year and the actual number of days elapsed." (E) Section 2.8 of the Credit Agreement is hereby amended in its entirety to read as follows: "2.8 OPTIONAL PREPAYMENTS. Subject to Section 12.3, the Borrower may at any time and from time to time (i) from the Closing Date until the date that is the first anniversary thereof; provided that, except as set forth below in this Section 2.8, after giving effect to any prepayment made pursuant to this Section 2.8(i) all of the conditions set forth on Schedule 2.8 hereto would be satisfied; provided, further that, in addition to any amounts that the Borrower may prepay in accordance with the immediately preceding proviso, the Borrower may prepay $21,000,000 in aggregate principal amount pursuant to this Section 2.8(i) (without reference to the 2 immediately preceding proviso), and (ii) at any time after the first anniversary of the Closing Date, upon five Business Days' prior written notice to the Lender, pay the outstanding principal amount of the Loan, in whole or in part, without prepayment penalty, together with accrued interest to the date of such prepayment on the principal amount prepaid, provided that each partial principal repayment shall be in a minimum aggregate amount of $1,000,000 or any integral multiple of $100,000 in excess thereof. Each notice of prepayment shall specify the prepayment date and the principal amount of the Loan to be prepaid, shall be irrevocable and shall commit the Borrower to prepay the Loan in the amount and in the date stated therein." (F) Section 12.1 of the Credit Agreement is hereby amended in its entirety to read as follows: "12.1 EXPENSES. Whether or not the transactions hereby contemplated shall be consummated, Merrill Lynch Group agrees to pay all reasonable expenses incurred by the Borrower and the Lender in connection with, or growing out of, the negotiation, preparation, execution and delivery of this Agreement (including any waiver or modification hereof or any amendment hereto) and any other documentation contemplated hereby, the Note and the Collateral (including the Pledged Securities), including, but not limited to, the reasonable fees and disbursements of any counsel for the Lender. The Borrower agrees to pay all reasonable expenses incurred by the Lender in connection with, or growing out of, the enforcement and administration of this Agreement and any other documentation contemplated hereby, the Note and the Collateral (including the Pledged Securities), including, but not limited to, the reasonable fees and disbursements of any counsel for the Borrower and the Lender." SECTION 2. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants that: (A) after giving effect to this Amendment, the representations and warranties contained in the Credit Agreement are true and correct in all material respects on and as of the date hereof as if such representations and warranties had been made on and as of the date hereof (except to the extent that any such representations and warranties specifically relate to an earlier date); and (B) after giving effect to this Amendment, no Event of Default or Default will have occurred and be continuing on and as of the date hereof. SECTION 3. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject to the satisfaction in full of each of the conditions precedent set forth in this Section 3 (the date on which all such conditions have been satisfied being herein called the "Effective Date"): (A) the Lender shall have received executed counterparts of this Amendment which, when taken together, bear the signatures of the Borrower and the Lender; 3 (B) the Lender shall have received a new Note executed by the Borrower in an aggregate principal amount of $468,000,000 to be exchanged for and replace the prior Note delivered by the Borrower in an aggregate principal amount of $515,000,000; (C) the Borrower shall have received from the Lender the prior Note in an aggregate principal amount of $515,000,000 for cancellation; (D) the Lender shall have received the written opinion of counsel to the Borrower, dated the date hereof and addressed to the Lender, in form and substance satisfactory to counsel to the Lender; (E) the Lender shall have received such other documents as the Lender may reasonably request; and (F) all legal matters incident to this Amendment shall be satisfactory to counsel to the Lender. SECTION 4. LOAN. Upon satisfaction of the conditions precedent set forth in Section 3 hereof, the Lender shall make $21,000,000 available to the Borrower on March 16, 2004 by causing an amount of same day funds in Dollars equal to $21,000,000 to be disbursed via Federal Funds wire transfer to the Borrower's account at the Custodian, ABA No. 011-001-438, Account No. 5821-5013 Control Wire Re: Belair Capital Fund LLC - 4922, or to such other account as to which the Borrower shall instruct the Lender in writing. SECTION 5. MISCELLANEOUS. (A) Capitalized terms used herein and not otherwise defined herein shall have the meanings as defined in the Credit Agreement. (B) Except as expressly amended hereby, the Credit Agreement shall remain in full force and effect in accordance with the original terms thereof. (C) The amendments herein contained are limited specifically to the matters set forth above and do not constitute directly or by implication an amendment or waiver of any other provision of the Credit Agreement or any default which may occur or may have occurred under the Credit Agreement. (D) This Amendment may be executed in any number of counterparts, each of which shall constitute an original, but all of which when taken together shall constitute one and the same instrument. (E) This Amendment shall constitute a Fundamental Document. (F) This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. 4 IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the date first written above. Borrower: BELAIR CAPITAL FUND LLC, as Borrower By: EATON VANCE MANAGEMENT, as Manager By: /s/ M. Katherine Kreider -------------------------------- Name: M. Katherine Kreider Title: Vice President Address: The Eaton Vance Building 255 State Street Boston, Massachusetts 02109 Telephone No.: (617) 482-8260 Telecopier No.: (617) 482 3836 Lender: DRKW HOLDINGS, INC., as Lender By: /s/ Neil D. Winward -------------------------------- Name: Neil D. Winward Title: President Address: 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 969-7909 Telecopier No.: (212) 969-7850 ACKNOWLEDGED AND ACCEPTED Investment Manager: WELLS FARGO BANK, NATIONAL ASSOCIATION, successor-by-merger to Wells Fargo Bank Minnesota, National Association, as Investment Manager By: /s/ Melissa Philibert -------------------------------- Name: Melissa Philibert Title: Corporate Trust Officer Address: Sixth Street and Marquette Avenue MAC N9311-161 Minneapolis, MN 55479 Attention: Corporate Trust Services/Asset-Backed Administration Telephone No.: (612) 667-8058 Telecopier No.: (617) 667-3539 EX-4.2(A) 3 belairex42a.txt LOAN & SECURITY AGT. AMEND. BTW BELAIR & ML EXHIBIT 4.2(a) AMENDMENT NO. 1 dated as of March 16, 2004 (this "Amendment") to the LOAN AND SECURITY Agreement dated as of July 15, 2003 (as the same may be further amended, supplemented or otherwise modified, renewed or replaced from time to time, the "Credit Agreement"), by and among BELAIR CAPITAL FUND LLC, a Massachusetts limited liability company (the "Borrower"), the Lenders referred to therein, Merrill Lynch Mortgage Capital, Inc., a Delaware corporation, as agent (the "Agent"), and Merrill Lynch Capital Services, Inc., a Delaware corporation (the "Swap Provider"). WHEREAS, on July 15, 2003, the Borrower, the Lenders, the Agent and the Swap Provider entered into the Credit Agreement pursuant to which the Lenders made available to the Borrower a revolving credit facility in the aggregate principal amount of $100,000,000; WHEREAS, the Borrower has requested and the Required Lenders have agreed, subject to the terms and conditions of this Amendment, to amend certain provisions of the Credit Agreement, as set forth herein; NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS. Subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, the Credit Agreement is hereby amended as of the Effective Date (as defined in Section 3 hereof) as follows: Article 1 of the Credit Agreement is hereby amended by amending and restating the following definition in its entirety to read as follows: "`TERM LOAN AGREEMENT' shall mean the Loan and Security Agreement dated as of July 15, 2003 by and between the Term Lender and the Borrower, as amended from time to time in accordance with the terms thereof." SECTION 2. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants that: (A) after giving effect to this Amendment, the representations and warranties contained in the Credit Agreement are true and correct in all material respects on and as of the date hereof as if such representations and warranties had been made on and as of the date hereof (except to the extent that any such representations and warranties specifically relate to an earlier date); and (B) after giving effect to this Amendment, no Event of Default or Default will have occurred and be continuing on and as of the date hereof. SECTION 3. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject to the satisfaction in full of each of the conditions precedent set forth in this Section 3 (the date on which all such conditions have been satisfied being herein called the "Effective Date"): (A) the Agent shall have received executed counterparts of this Amendment which, when taken together, bear the signatures of the Required Lenders and the Borrower; (B) the Agent shall have received the written opinion of counsel to the Borrower, dated the date hereof and addressed to the Agent, in form and substance satisfactory to counsel to the Agent; (C) the Agent shall have received such other documents as the Agent may reasonably request; and (D) all legal matters incident to this Amendment shall be satisfactory to counsel to the Agent. SECTION 4. MISCELLANEOUS. (A) Capitalized terms used herein and not otherwise defined herein shall have the meanings as defined in the Credit Agreement. (B) Except as expressly amended hereby, the Credit Agreement shall remain in full force and effect in accordance with the original terms thereof. (C) The amendments herein contained are limited specifically to the matters set forth above and do not constitute directly or by implication an amendment or waiver of any other provision of the Credit Agreement or any default which may occur or may have occurred under the Credit Agreement. (D) This Amendment may be executed in any number of counterparts, each of which shall constitute an original, but all of which when taken together shall constitute one and the same instrument. (E) This Amendment shall constitute a Fundamental Document. (F) This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the date first written above. Borrower: BELAIR CAPITAL FUND LLC, as Borrower By: EATON VANCE MANAGEMENT, as Manager By: /s/ M. Katherine Kreider -------------------------------- Name: M. Katherine Kreider Title: Vice President Address: The Eaton Vance Building 255 State Street Boston, Massachusetts 02109 Telephone No.: (617) 482-8260 Telecopier No.: (617) 482 3836 Lenders: MERRILL LYNCH MORTGAGE CAPITAL, INC., individually and as Agent By: /s/ Joshua A. Green -------------------------------- Name: Joshua A. Green Title: Vice President Address: 4 World Financial Center 10th Floor New York, New York 10080 Telephone No.: (212) 449-7330 Telecopier No.: (212) 449-6673 Swap Provider: MERRILL LYNCH CAPITAL SERVICES, INC., as Swap Provider By: /s/ Thomas Finley -------------------------------- Name: Thomas Finley Title: Managing Director Address: 4 World Financial Center 12th Floor New York, New York 10080 Telephone No.: (212) 449-8169 Telecopier No.: (212) 449-6993 EX-21 4 ex21.txt LIST OF SUBSIDIARIES Exhibit 21 Belair Capital Fund LLC Subsidiaries Name Jurisdiction of Incorporation ---- ----------------------------- Belair Real Estate Corporation Delaware Belair Real Estate Subsidiary LLC Delaware Bel Residential Properties Trust Maryland EX-31.1 5 belair311.txt CERTIFICATION PURSUANT TO SECTION 302 FOR CEO EXHIBIT 31.1 CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION - ------------- I, Thomas E. Faust Jr., certify that: 1. I have reviewed this Form 10-Q of Belair Capital Fund LLC; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 10, 2004 /s/ Thomas E. Faust Jr. ----------------------- Thomas E. Faust Jr. Chief Executive Officer EX-31.2 6 belair312.txt CERTIFICATION PURSUANT TO SECTION 302 FOR CFO EXHIBIT 31.2 CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION - ------------- I, Michelle A. Alexander, certify that: 1. I have reviewed this Form 10-Q of Belair Capital Fund LLC; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 10, 2004 /s/ Michelle A. Alexander ------------------------- Michelle A. Alexander Chief Financial Officer EX-32.1 7 belair321.txt CERTIFICATION PURSUANT TO SECTION 906 FOR CEO EXHIBIT 32.1 CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned hereby certifies in his capacity as Chief Executive Officer of Belair Capital Fund LLC (the Fund), that based on his knowledge: (a) the Quarterly Report of the Fund on Form 10-Q for the quarter ended March 31, 2004 (the Report) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (b) the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Fund for such period. Date: May 10, 2004 /s/ Thomas E. Faust Jr. ----------------------- Thomas E. Faust Jr. Chief Executive Officer EX-32.2 8 belair322.txt CERTIFICATION PURSUANT TO SECTION 906 FOR CFO EXHIBIT 32.2 CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned hereby certifies in her capacity as Chief Financial Officer of Belair Capital Fund LLC (the Fund), that based on her knowledge: (a) the Quarterly Report of the Fund on Form 10-Q for the quarter ended March 31, 2004 (the Report) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (b) the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Fund for such period. Date: May 10, 2004 /s/ Michelle A. Alexander ------------------------- Michelle A. Alexander Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----