UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
Commision File No. 0002-25767
Belair Capital Fund LLC
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3404037
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(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
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None
----
Former Name, Former Address and Former Fiscal Year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ___
Page 1 of 24
Belair Capital Fund LLC
Index to Form 10Q
PART I - FINANCIAL INFORMATION
Page
Item 1. Consolidated Financial Statements 3
Consolidated Statements of Assets and Liabilities as of
June 30, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Operations For the Three Months Ended
June 30, 2000 and 1999 (unaudited) for the Six Months Ended
June 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Changes in Net Assets For the Six
Months Ended June 30, 2000 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (unaudited) 6
Notes to Financial Statements as of June 30, 2000 (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports 22
SIGNATURES 23
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------
BELAIR CAPITAL FUND LLC
Consolidated Statements of Assets and Liabilities
June 30,
2000 December 31,
(Unaudited) 1999
------------------- ------------------
Assets:
Investment in Belvedere Capital LLC $2,234,901,756 $2,228,073,699
Investment in real estate partnership preference units 587,848,146 502,999,255
Investment in other real estate 157,100,000 -
Short-term investments 5,855,757 -
------------------- ------------------
Total Investments $2,985,705,659 $2,731,072,954
Cash 10,884,613 3,802,594
Receivable for open swap contracts 23,682,823 23,158,186
Dividends receivable 2,221,355 608,281
Deferred expenses 2,672,634 338,678
Escrow deposits - restricted 2,663,377 -
Swap interest receivable 390,177 24,814
Other assets 68,731
------------------- ------------------
Total Assets $3,028,289,369 $2,759,005,507
------------------- ------------------
Liabilities:
Loan payable $781,000,000 $655,000,000
Mortgage payable 112,630,517 -
Minority interest in controlled subsidiaries 12,054,350 208,000
Special distributions payable 1,091,752 -
Security deposits 390,589 -
Payable for Fund shares redeemed - 1,072,380
Rents received in advance 178,277 -
Accrued Expenses
Interest expense 7,726,685 8,156,260
Other accrued expenses 2,445,801 199,114
------------------- ------------------
Total Liabilities $917,517,971 $664,635,754
------------------- ------------------
Net assets $2,110,771,398 $2,094,369,753
=================== ==================
Shareholders' Capital
------------------- ------------------
Shareholders' capital $2,110,771,398 $2,094,369,753
------------------- ------------------
------------------- ------------------
Shares Outstanding 15,234,397 15,900,744
------------------- ------------------
------------------- ------------------
Net Asset Value and Redemption Price Per Share $138.55 $131.72
------------------- ------------------
3
BELAIR CAPITAL FUND LLC
Consolidated Statements of Operations
(Unaudited) Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------------- ------------------ ------------------ -----------------
Investment Income:
Dividends allocated from Belvedere Capital $4,805,694 $4,740,033 $9,793,831 $9,358,559
(net of foreign taxes of $48,532, $94,698,
$88,422 and $141,357, respectively)
Interest allocated from Belvedere Capital 1,238,677 1,165,695 2,074,393 2,419,528
Expenses allocated from Belvedere Capital (3,349,395) (3,217,522) (6,652,288) (6,363,843)
----------------- ------------------ ------------------ -----------------
Net investment income allocated from
Belvedere Capital $2,694,976 $2,688,206 $5,215,936 $5,414,244
Dividends from partnership preference units 15,496,609 11,934,026 29,185,203 23,656,074
Interest 128,886 125,136 207,628 165,570
----------------- ------------------ ------------------ -----------------
Total investment income $18,320,471 $14,747,368 $34,608,767 $29,235,888
----------------- ------------------ ------------------ -----------------
Expenses:
Investment advisor fees $1,809,910 $1,653,140 $3,527,449 $3,174,777
Service fees 207,095 238,792 427,406 469,081
Interest expense 12,762,520 8,586,283 23,798,763 16,930,903
Interest expense/(income) on swap contracts (177,548) 1,809,076 94,232 3,472,568
Custodian and transfer agent fees 65,895 9,874 80,139 31,951
Legal and accounting services 264,553 394,053 404,217 426,416
Printing and postage 2,307 3,631 4,800 4,860
Amortization of deferred expenses 27,466 8,156 54,831 38,770
Miscellaneous 16,901 - 49,701 2,298
----------------- ------------------ ------------------ -----------------
Total expenses $14,979,099 $12,703,005 $28,441,538 $24,551,624
----------------- ------------------ ------------------ -----------------
Net investment income $3,341,372 $2,044,363 $6,167,229 $4,684,264
----------------- ------------------ ------------------ -----------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) -
Investment transactions from Belvedere $16,445,271 $1,187,438 $48,297,917 $6,393,795
Capital
Investment transactions in partnership (48,619) (2,940,672) (2,946,213) (8,241,428)
preference units ----------------- ------------------ ------------------ -----------------
Net realized gain (loss) $16,396,652 $(1,753,234) $45,351,704 $(1,847,633)
----------------- ------------------ ------------------ -----------------
Change in unrealized appreciation
(depreciation) -
Investment in Belvedere Capital $(33,067,459) $109,647,685 $ 60,470,766 $160,978,642
Investments in partnership preference units 12,313,512 (19,294,500) (1,367,252) (13,762,978)
Interest rate swap contracts (4,727,393) 16,715,449 524,637 28,095,943
----------------- ------------------ ------------------ -----------------
Net change in unrealized
appreciation/(depreciation) $(25,481,340) $107,068,634 $59,628,151 $175,311,607
----------------- ------------------ ------------------ -----------------
Net realized and unrealized gain (loss) $(9,084,688) $105,315,400 $ 104,979,855 $173,463,974
----------------- ------------------ ------------------ -----------------
Net increase (decrease) in net assets from
operations $(5,743,316) $107,359,763 $111,147,084 $178,148,238
================= ================== ================== =================
4
BELAIR CAPITAL FUND LLC
Consolidated Statements of Changes in Net Assets (unaudited)
Six Months Six Months
ended ended
June 30, 2000 June 30, 1999
------------------- ------------------
Increase (Decrease) in Net Assets:
Net investment income $6,167,229 $4,684,264
Net realized gain (loss) from investment transactions 45,351,704 (1,847,633)
Net change in unrealized appreciation (depreciation) of
investments 59,628,151 175,311,607
------------------- ------------------
Net increase in net assets from operations $111,147,084 $178,148,238
------------------- ------------------
Transactions in Fund shares -
Net asset value of shares redeemed $(89,640,998) $(26,953,923)
------------------- ------------------
Net decrease in net assets from Fund share transactions $(89,640,998) $(26,953,923)
------------------- ------------------
Distributions to shareholders -
Special distributions to Shareholders $(5,104,441) -
------------------- ------------------
Total distributions $(5,104,441) -
------------------- ------------------
Net increase in net assets $16,401,645 $151,194,315
Net assets:
Beginning of period 2,094,369,753 1,932,848,372
------------------- ------------------
End of period $2,110,771,398 $2,084,042,687
=================== ==================
5
BELAIR CAPITAL FUND LLC
Consolidated Statements of Cash Flows (unaudited)
Six months Six months
ended ended
June 30, June 30,
2000 1999
------------------ ------------------
Cash flows from (for) Operating Activities -
Net investment income $ 6,167,229 $ 4,684,264
Adjustments to reconcile net investment income to net
Cash flows used for operating activity -
Amortization of organization and other deferred expenses 54,831 38,770
Net investment income allocated from Belvedere Capital (5,215,936) (5,414,244)
Payment of organization and offering expenses - (443,560)
Increase in dividends receivable (1,613,074) (6,048,718)
Increase in interest receivable for open swap contracts (365,363) -
Increase in interest payable for open swap contracts - 372,345
Increase in deferred expenses (2,388,784) -
Increase in other receivables - (12,089)
Increase (decrease) in accrued interest and operating expenses 859,523 (374,262)
Increase in minority interest 159,500 -
Purchases of partnership preference units (101,895,368) (209,000,000)
Payments for investments in other real property (33,988,289) -
Sales of partnership preference units 12,733,012 168,858,572
Net decrease in investment in Belvedere Capital 17,126,405 10,035,713
Increase in short-term investments (5,855,757) -
--------------------------------------
Net cash flows used for operating activities $(114,222,071) $ (37,303,209)
Cash Flows From (for) Financing Activities -
Proceeds from loan $126,000,000 $ 42,000,000
Payments for Fund shares redeemed (683,221) (7,275,444)
Special distributions paid (4,012,689) -
--------------------------------------
Net cash flows from financing activities $ 121,304,090 $ 34,724,556
Net increase (decrease) in cash 7,082,019 (2,578,653)
Cash at beginning of period 3,802,594 2,711,580
------------------ ------------------
Cash at end of period $ 10,884,613 $ 132,927
================== ==================
Supplemental Disclosure and Non-cash Investing and
Financing Activities-
Unrealized appreciation of investments and open swap contracts $ 566,163,232 $ 388,671,802
Interest paid for loan $ 24,228,338 $ 17,095,071
Interest paid for swap contracts $ 459,595 $ 3,100,223
Market value of securities distributed in payment of redemptions $ 90,030,157 $ 19,672,166
Market value of real property and other assets, net of current
liabilities, contributed to Bel Residential $ 158,305,656 -
Mortgage assumed in connection with acquisition of real property $ 112,630,517 -
Minority interest in exchange for contribution of real property and
related assets, net of liabilities $ 11,686,850 -
6
BELAIR CAPITAL FUND LLC as of June 30, 2000
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1 Organization
A Investment Objective--Belair Capital Fund LLC (Belair Capital) is a
Massachusetts limited liability company established to offer diversification and
tax-sensitive investment management to persons holding large and concentrated
positions in equity securities of selected publicly-traded companies. The
investment objective of Belair Capital is to achieve long-term, after-tax
returns for shareholders. Belair Capital pursues this objective primarily by
investing indirectly in Tax-Managed Growth Portfolio (the Portfolio), a
diversified, open-end management investment company registered under the
Investment Company Act of 1940, as amended. The Portfolio is organized as a
trust under the laws of the state of New York. Belair Capital maintains its
investment in the Portfolio by investing in Belvedere Capital Fund Company LLC
(Belvedere Capital), a separate Massachusetts limited liability company that
invests exclusively in the Portfolio. The performance of Belair Capital and
Belvedere Capital are directly and substantially affected by the performance of
the Portfolio. Separate from its investment in the Portfolio through Belvedere
Capital, Belair Capital invests in real estate assets including income-producing
preferred equity interests in real estate operating partnerships (partnership
preference units) affiliated with publicly-traded real estate investment trusts
(REITs) and interests in controlled real property subsidiaries.
B Subsidiaries--Belair Capital invests in real estate through its subsidiary
Belair Real Estate Corporation (BREC). BREC invests directly in partnership
preference units and indirectly in real property through a controlled
subsidiary, Bel Residential Properties Trust (Bel Residential).
BREC - BREC invests directly in partnership preference units and also holds a
majority interest in Bel Residential. At June 30, 2000, Belair Capital owned
100% of the common stock issued by BREC and intends to hold all of BREC's common
stock at all times. Approximately 105 charitable organizations own preferred
stock of BREC which has been recorded as a minority interest on the Statement of
Assets and Liabilities. The preferred stock has a par value of $.01 per share
and is redeemable by BREC at a redemption price of $100 after the occurrence of
certain tax events or after December 31, 2004. Dividends on the preferred stock
are cumulative and payable annually in arrears in December in an amount equal to
$8 per share per annum.
BEL RESIDENTIAL- Bel Residential, a majority owned subsidiary of BREC,
indirectly owns eleven multi-family residential properties (collectively, the
Properties) located in seven states (Texas, Arizona, Georgia, North Carolina,
Washington, Colorado and Florida). BREC owns Class A units of Bel Residential,
representing a 75% equity interest in Bel Residential, and a minority
shareholder (the Bel Residential minority shareholder) owns Class B units,
representing a 25% equity interest in Bel Residential. The equity interest of
the Bel Residential minority shareholder is recorded as a minority interest on
the Statement of Assets and Liabilities. The primary distinction between the two
classes of shares is the distribution priority and voting rights. BREC has
priority in distributions and has greater voting rights than the holder of Class
B units.
The accompanying consolidated financial statements include the accounts of
Belair Capital, BREC and Bel Residential (collectively, the Fund). All material
intercompany accounts and transactions have been eliminated.
7
2 Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A Investment Costs--The Fund's investment assets were acquired through
contributions of common stock by shareholders in exchange for Shares of Belair
Capital, in private purchases of partnership preference units and through
contributions of real estate investments in exchange for minority interests in a
controlled subsidiary. Upon receipt of common stock from shareholders Belair
Capital immediately exchanged the contributed securities into Belvedere Capital
for shares thereof, and Belvedere Capital, in turn, immediately thereafter
exchanged the contributed securities into the Portfolio for an interest in the
Portfolio. The cost at which the Fund's investments of contributed common stock
are carried on the books and in the financial statements is the value of the
contributed common stock as of the close of business on the day prior to their
contribution to the Fund. The initial tax basis of the Fund's investment in the
Portfolio through Belvedere Capital is the same as the contributing
shareholders' basis in securities and cash contributed to the Fund. The initial
tax and financial reporting basis of securities and real estate investments
purchased by the Fund is the purchase cost. The initial financial reporting
basis of real estate investments contributed to the Fund is the market value on
contribution date. The initial tax basis of real estate investments contributed
to the Fund is the contributor's tax basis at the time of contribution or value
at the time of contribution, depending on the taxability of the contribution.
B Investment Valuations--The Fund's investments consist of partnership
preference units, other real property investments, shares of Belvedere Capital
and short-term debt securities. Belvedere Capital's only investment is an
interest in the Portfolio, the value of which is derived from a proportional
interest therein. Additionally, the Fund has entered into interest rate swap
contracts (see Note 7). The valuation policy followed by the Fund, Belvedere
Capital and the Portfolio for all assets, other than real property, is as
follows. Marketable securities, including options, that are listed on foreign or
U.S. securities exchanges or in the NASDAQ National Market System are valued at
closing sale prices, on the exchange where such securities are principally
traded. Futures positions on securities or currencies are generally valued at
closing settlement prices. Unlisted or listed securities for which closing sale
prices are not available are valued at the mean between the latest bid and asked
prices. Short-term debt securities with a remaining maturity of 60 days or less
are valued at amortized cost, which approximates value. Other fixed income and
debt securities, including listed securities and securities for which price
quotations are available, are normally valued on the basis of valuations
furnished by a pricing service. Investments held by the Portfolio for which
valuations or market quotations are unavailable are valued at fair value using
methods determined in good faith by or at the direction of the Trustees.
Investments held by the Fund for which valuations or market quotations are
unavailable are valued at fair value using methods determined in good faith by
the Investment Adviser. Interest rate swap contracts are valued by obtaining
dealer or counterparty quotes.
The value of the Fund's real estate assets is determined in good faith by Eaton
Vance as Manager of BREC, taking into account all relevant factors, data and
information, including, with respect to investments in partnership preference
units, information from dealers and similar firms with knowledge of such issues
and the prices of comparable preferred equity securities and other fixed or
8
adjustable rate instruments having similar investment characteristics. Real
estate investments other than partnership preference units are generally stated
at estimated market values based on independent valuations. Detailed investment
valuations, which include the discounted cash flow method of appraisal, are
performed annually and reviewed periodically and adjusted if there has been a
significant change in economic circumstances since the previous valuation. The
discounted cash flow method of appraisal projects future cash inflows and
outflows, and presumes a sales price at the end of a holding period. Such
amounts are discounted at an appropriate rate of return that a prudent buyer
would currently require to purchase the real estate assets. The valuation of
investments assumes the orderly disposition of all assets.
C Escrow Accounts--The escrow accounts related to Bel Residential consist of
deposits for real estate taxes, insurance, reserve for replacements and capital
repairs required under the mortgage agreement. Bel Residential has no access to
these funds once deposited into the escrow accounts. Amounts are held by the
financial institution and controlled by the lender (Note 8).
D Interest Rate Swaps--The Fund has entered into interest rate swap agreements
with respect to its borrowings and investments in fixed-rate partnership
preference units. Pursuant to these agreements, the Fund makes quarterly
payments to the counterparty at predetermined fixed rates, in exchange for
floating-rate payments from the counterparty at a predetermined spread to
three-month LIBOR, based on notional values approximately equal to the Fund's
acquisition cost for the fixed-rate partnership preference units. During the
terms of the outstanding swap agreements, changes in the underlying values of
the swaps are recorded as unrealized gains or losses. The Fund is exposed to
credit loss in the event of non-performance by the swap counterparty.
E Written Options--The Portfolio and the Fund may write listed and
over-the-counter call options on individual securities, on baskets of securities
and on stock market indices. Upon the writing of a call option, an amount equal
to the premium received by the Portfolio or Fund is included in the Statement of
Assets and Liabilities of the respective entity, as a liability. The amount of
the liability is subsequently marked-to-market to reflect the current value of
the option written in accordance with the investment valuation policies
discussed above. Premiums received from writing options that expire are treated
as realized gains. Premiums received from writing options that are exercised or
are closed are added to or offset against the proceeds or amount paid on the
transaction to determine the realized gain or loss. The Portfolio or Fund as a
writer of an option may have no control over whether the underlying securities
may be sold and as a result bears the market risk of an unfavorable change in
the price of the securities underlying the written option.
F Purchased Options--Upon the purchase of a put option, the premium paid by the
Portfolio or Fund is included in the Statement of Assets and Liabilities of the
respective entity as an investment. The amount of the investment is subsequently
marked-to-market to reflect the current market value of the option purchased, in
accordance with the investment valuation policies discussed above. If an option
which the Portfolio or Fund has purchased expires on the stipulated expiration
date, the Portfolio or Fund will realize a loss in the amount of the cost of the
option. If the Portfolio or Fund enters into a closing sale transaction, the
Portfolio or Fund will realize a gain or loss, depending on whether the sales
proceeds from the closing sale transaction are greater or less than the cost of
the option. If the Portfolio or Fund exercises a put option, it will realize a
gain or loss from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid.
9
G Rental Operations--The apartment units held indirectly by Bel Residential are
leased to residents generally for a term of one year renewable upon consent of
both parties on a year-to-year or month-to-month basis.
H Income--Dividend income is recorded on the ex-dividend date and interest and
rental income is recorded on the accrual basis.
Belvedere Capital's net investment income or loss consists of Belvedere
Capital's pro-rata share of the net investment income of the Portfolio, less all
actual or accrued expenses of Belvedere Capital, determined in accordance with
generally accepted accounting principles. The Fund's net investment income or
loss consists of the Fund's pro-rata share of the net investment income of
Belvedere Capital, plus all income earned on the Fund's investments (including
partnership preference units and other real property), less all actual and
accrued expenses of the Fund determined in accordance with generally accepted
accounting principles.
I Rental Property and Depreciation--Costs incurred in connection with
acquisitions of properties have been capitalized. Significant betterments and
improvements are capitalized as part of the building and improvements.
Depreciation of the buildings and improvements is computed using the straight
line method over the estimated useful lives of the related assets, which range
up to 30 years for buildings and up to ten years for building and land
improvements and up to five years for furniture, fixtures and equipment.
J Organization Costs and Deferred Expenses--Costs incurred by the Fund in
connection with its organization are being amortized on a straight-line basis
over five years. Costs incurred in connection with BREC are expensed as
incurred. Deferred costs of Bel Residential consist of deferred mortgage
origination expenses which are amortized over the terms of the loan.
K Income Taxes--Belair Capital, Belvedere Capital and the Portfolio are treated
as partnerships for federal income tax purposes. As a result, Belair Capital,
Belvedere Capital and the Portfolio do not incur federal income tax liability,
and the shareholders and partners thereof are individually responsible for taxes
on items of partnership income, gain, loss, and deduction. The policy of BREC
and Bel Residential is to comply with the Internal Revenue Code applicable to
REITs. BREC and Bel Residential will generally not be subject to federal income
tax to the extent that they distribute their earnings to their stockholders each
year and maintain their qualification as a REIT.
L Other--Investment transactions are accounted for on a trade date basis.
M Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expense during the reporting period. Actual results could differ from those
estimates.
N Interim Financial Statements--The interim financial statements relating to
June 30, 2000 and for the six months then ended have not been audited by
independent certified public accountants, but in the opinion of the Fund's
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial statements.
10
2 Distributions to Shareholders
The Fund intends to distribute each year all of its net investment income for
the year, if any, and approximately 22% of its net realized capital gains for
such year, if any, other than precontribution gains allocated to a shareholder
in connection with a tender offer or other extraordinary corporate event with
respect to a security contributed by such shareholder, for which no capital gain
distribution is made. In addition, whenever a distribution with respect to a
precontribution gain is made, the Fund makes a special distribution to
compensate shareholders receiving such distributions for taxes that may be due
in connection with the precontribution gain and supplemental distributions.
Special distributions accrued for or paid during the six month period ended June
30, 2000 totaled $5,104,441.
3 Shareholder Transactions
The Fund may issue an unlimited number of full and fractional shares.
Transactions in Fund shares were as follows:
Six Months Ended Six Months Ended
June 30, June 30,
2000 1999
-------------------- --------------------
Redemptions (666,347) (222,480)
-------------------- --------------------
Net decrease (666,347) (222,480)
-------------------- --------------------
Redemptions of shares held less than three years are generally subject to a
redemption fee of 1% of the net asset value of shares redeemed. The redemption
fee is paid to the Investment Adviser by the Fund on behalf of the redeeming
shareholder. No charge is levied on redemptions of shares acquired through the
reinvestment of distributions, shares redeemed in connection with a Tender
Security or shares redeemed following the death of all of the initial holders of
the shares redeemed. In addition, no fee applies to redemptions by shareholders,
who, during any 12-month period, redeems less than 8% of the total number of
shares held by the shareholder as of the beginning of the 12-month period. For
the six months ended June 30, 2000 and June 30, 1999, the Investment Adviser
received $683,221 and $137,888, respectively, in redemption fees.
4 Investment Transactions
Increases and decreases of the Fund's investment in Belvedere Capital for the
six months ended June 30, 2000 aggregated $14,761,240 and $121,917,802
respectively, and for the six months ended June 30, 1999 aggregated $20,703,023
and $49,785,902, respectively. Purchases and sales of partnership preference
units aggregated $101,895,368 and $12,733,012 for the six months ended June 30,
2000, and $209,000,000 and $168,858,852 for the six months ended June 30, 1999.
For the six months ended June 30, 2000, acquisitions of other real property,
through purchases and contributions, totaled $157,100,000. There were no
acquisitions of real property other than partnership preference units for the
six months ended June 30, 1999.
11
Purchases and sales of partnership preference units during the period ended June
30, 2000 and sales of partnership preference units during the period ended June
30, 1999 include amounts purchased from and sold to other funds sponsored by
Eaton Vance Management.
5 Indirect Investment in Portfolio
Belvedere Capital's interest in the Portfolio at June 30, 2000 was
$8,894,702,269, representing 52.4% of the Portfolio's net assets, and at June
30, 1999 was $5,209,972,269, representing 45.0% of the Portfolio's assets. The
Fund's investment in Belvedere Capital at June 30, 2000 was $2,234,901,756,
representing 25.1% of Belvedere Capital's net assets, and at June 30, 1999 was
$2,148,204,008, representing 41.2% of Belvedere Capital's net assets. Investment
income allocated to Belvedere Capital from the Portfolio for the six months
ended June 30, 2000 totaled $43,951,952, of which $11,868,224 was allocated to
the Fund. Investment income allocated to Belvedere Capital from the portfolio
for the six months ended June 30, 1999 totaled $26,073,997, of which $11,778,087
was allocated to the Fund. Expenses allocated to Belvedere Capital from the
Portfolio for the six months ended June 30, 2000 totaled $18,388,926, of which
$4,961,380 was allocated to the Fund. Expenses allocated to Belvedere Capital
from the Portfolio for the six months ended June 30, 1999 totaled $10,461,875,
of which $4,769,940 was allocated to the Fund. Belvedere Capital allocated
additional expenses to the Fund of $1,698,367 for the six months ended June 30,
2000, representing $55,385 of operating expenses and $1,642,982 of service fees.
Belvedere Capital allocated additional expenses to the Fund of $1,593,903 for
the six months ended June 30, 1999, representing $71,990 of operating expenses
and $1,521,913 of service fees (see Note 9).
A summary of the Portfolio's Statement of Assets and Liabilities, at June 30,
2000, December 31, 1999 and June 30, 1999 and its operations for the six months
ended June 30, 2000, the year ended December 31, 1999 and the six months ended
June 30, 1999 follows:
June 30, December 31, June 30,
2000 1999 1999
-------------------- ------------------------ ---------------------
Investments, at value $16,968,560,668 $15,009,514,121 $11,600,175,904
Other Assets 129,856,981 105,404,490 23,965,371
- ----------------------------------- -------------------- ------------------------ ---------------------
Total Assets $17,098,417,649 $15,114,918,611 $11,624,141,275
Total Liabilities 122,641,585 269,652 44,412,722
- ----------------------------------- -------------------- ------------------------ ---------------------
Net Assets $16,975,776,064 $15,114,648,959 $11,579,728,553
=================================== ==================== ======================== =====================
Dividends and interest $85,182,083 $135,795,086 $58,144,116
Investment adviser fee 34,563,622 51,368,943 22,746,571
Other expenses 1,049,805 1,599,875 682,895
- ----------------------------------- -------------------- ------------------------ ---------------------
Total expenses $35,613,427 $52,968,818 $23,429,466
- ----------------------------------- -------------------- ------------------------ ---------------------
Net investment income $49,568,656 $82,826,268 $34,714,650
Net realized gains (losses) 528,149,257 19,281,587 31,011,816
Net unrealized gains 1,165,290,091 1,954,982,313 800,339,021
- ----------------------------------- -------------------- ------------------------ ---------------------
Net increase in net assets from
operations $1,743,008,004 $2,057,090,168 $866,065,487
- ----------------------------------- -------------------- ------------------------ ---------------------
12
6 Rental Property
The average occupancy rate for real property held by Bel Residential, consisting
of 2,681 residential units, was approximately 96% at June 30, 2000. The carrying
value of real property owned by the Fund through Bel Residential at June 30,
2000 is as follows:
Land $ 23,565,000
Buildings, improvements and other depreciable assets 133,535,000
------------------
Carrying value $157,100,000
------------------
7 Cancelable Interest Rate Swap Agreements
The Fund may enter into cancelable interest rate swap agreements in connection
with its investments in partnership preference units and the associated
borrowings. Under such agreements, the Fund has agreed to make periodic payments
at fixed rates in exchange for payments at floating rates. The notional or
contractual amounts of these instruments may not necessarily represent the
amounts potentially subject to risk. The measurement of the risks associated
with these investments is meaningful only when considered in conjunction with
all related assets, liabilities and agreements. As of June 30, 2000, the Fund
has entered into cancelable interest rate swap agreements with Merrill Lynch
Capital Services, Inc. (MLCS) with respect to each of its holdings of
partnership preference units and the associated borrowings. The Fund has the
right to terminate the interest rate swap agreements beginning in the first half
of 2003, at dates corresponding approximately to the initial call dates of the
partnership preference units held by the Fund.
Unrealized Unrealized
Notional Initial Appreciation/ Appreciation/
Amount Optional (Depreciation) (Depreciation)
Effective (000's Fixed Floating Termination Maturity At June 30, At December 31,
Date omitted) Rate Rate Date Date 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
2/98 $ 60,000 6.72% Libor+.45% 2/03 2/05 $ 2,431,800 $ 2,190,325
2/98 120,000 6.715% Libor+.45% 2/03 2/05 4,884,750 4,404,500
4/98 50,000 6.84% Libor+.45% 2/03 2/05 1,820,667 1,579,937
4/98 150,000 6.835% Libor+.45% 4/03 4/05 3,791,582 4,983,531
6/98 20,000 6.67% Libor+.45% 6/03 2/05 826,850 747,192
6/98 75,000 6.68% Libor+.45% 6/03 2/05 3,075,000 2,768,906
6/98 80,000 6.595% Libor+.45% 6/03 2/05 3,518,900 3,236,267
11/98 14,709 6.13% Libor+.45% 11/03 2/05 883,399 871,658
2/99 34,951 6.34% Libor+.45% 2/04 2/05 1,813,943 1,732,927
4/99 5,191 6.49% Libor+.45% 2/04 2/05 239,966 223,114
7/99 24,902 7.077% Libor+.45% 7/04 2/05 580,760 396,636
9/99 10,471 7.37% Libor+.45% 9/04 2/05 121,880 23,193
3/00 19,149 7.89% Libor+.45% 2/04 2/05 (73,282) -
3/00 70,000 7.71% Libor+.45% - 2/05 (233,392) -
- ------------------------------------------------------------------------------------------------------------------------
Total $ 23,682,823 $ 23,158,186
- ------------------------------------------------------------------------------------------------------------------------
13
8 Debt
A Mortgage - Real property held by Bel Residential is financed through a loan
secured by cross-collateralized first mortgage liens on such real property. The
balance at June 30, 2000 is as follows:
Annual Monthly
Interest Interest Balance at
Maturity Date Rate Payment* June 30, 2000
- ------------- ---- -------- -------------
May 1, 2010 8.33% $781,844 $112,630,517
*Mortgage provides for monthly payments of interest only through May 1, 2010,
with the entire principle balance due on May 1, 2010.
B Credit Facility--Belair Capital has obtained a $790,000,000 Credit Facility
with a term of seven years from Merrill Lynch International Bank Limited. Belair
Capital's obligations under the Credit Facility are secured by a pledge of its
assets, excluding the assets of Bel Residential. Interest on borrowed funds is
based on the prevailing LIBOR rate for the respective interest period plus a
spread of 0.45% per annum. Belair Capital may borrow for interest periods of one
month to five years. In addition, Belair Capital pays a commitment fee at a rate
of 0.10% per annum on the unused amount of the loan commitment. Borrowings under
the Credit Facility have been used to purchase qualifying assets, pay selling
commissions and organizational expenses, and to provide for the short-term
liquidity needs of the Fund. Additional borrowings under the Credit Facility may
be made in the future for these purposes. At June 30, 2000, and December 31,
1999, amounts outstanding under the Credit Facility totaled $781,000,000 and
$655,000,000, respectively.
9 Management Fee and Other Transactions with Affiliates
The Fund and the Portfolio have engaged Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM) as investment adviser.
Under the terms of the advisory agreement with the Portfolio, BMR receives a
monthly fee of 5/96 of 1% (0.625% annually) of the average daily net assets of
the Portfolio up to $500,000,000 and at reduced rates as daily net assets exceed
that level. For the six months ended June 30, 2000, and June 30, 1999 the
advisory fee applicable to the Portfolio was 0.44% (annualized) and 0.46%
(annualized), respectively, of average daily net assets for such periods.
Belvedere Capital's allocated portion of the advisory fee was $17,845,464, of
which $4,806,934 was allocated to the Fund, for the six months ended June 30,
2000, and $10,155,976, of which $4,619,261 was allocated to the Fund, for the
six months ended June 30, 1999. In addition, Belair Capital pays BMR a monthly
advisory and administrative fee of 1/20 of 1% (0.60% annually) of the average
daily gross investment assets of Belair Capital (including the value of all
assets of Belair Capital other than Belair Capital's investment in BREC, minus
the sum of Belair Capital's liabilities other than the principal amount of money
borrowed) and BREC pays BMR a monthly management fee at a rate of 1/20th of 1%
(equivalent to 0.60% annually) of the average daily gross investment assets of
BREC (which consist of all assets of BREC minus the sum of BREC's liabilities
other than the principal amount of money borrowed. For this purpose, the assets
and liabilities of BREC's controlled subsidiaries are reduced by the
proportionate interests therein of investors other than BREC.). The advisory fee
payable by the Portfolio in respect of Belair Capital's indirect investment in
the Portfolio is credited toward Belcrest Capital's advisory and administrative
fee payment. For the six months ended June 30, 2000 and June 30, 1999 the
14
advisory and administrative fee payable to BMR by the Fund, less the Fund's
allocated share of the Portfolio's advisory fee, totaled $3,527,449 and
$3,174,777, respectively.
Eaton Vance Management (EVM) serves as manager of Belair Capital and receives no
separate compensation for services provided in such capacity.
Pursuant to a servicing agreement between Belvedere Capital and Eaton Vance
Distributors, Inc. (EVD), Belvedere Capital pays a servicing fee to EVD for
providing certain services and information to shareholders. The servicing fee is
paid on a quarterly basis at an annual rate of 0.15% of Belvedere Capital's
average daily net assets and totaled $6,089,747 and $3,343,263 for the six
months ended June 30, 2000 and June 30, 1999, respectively, of which $1,642,982
and $1,521,913 was allocated to Belair Capital for the respective periods.
Pursuant to a servicing agreement between Belair Capital and EVD, Belair Capital
pays a servicing fee to EVD on a quarterly basis at an annual rate of 0.20% of
Belair Capital's average daily net assets, less Belair Capital's allocated share
of the servicing fee payable by Belvedere Capital. For the six months ended June
30, 2000 and June 30, 1999 the servicing fee paid directly by Belair Capital
totaled $427,406 and $469,081, respectively. Of the amounts allocated to and
incurred by the Fund, for the six months ended June 30, 2000 and June 30, 1999,
$2,066,178 and $828,542, respectively, were paid to subagents.
Equity Residential Properties Management Corp. (ERPM) an affiliate of the Bel
Residential minority holder provides day to day management of Bel Residential
pursuant to a management agreement (Note 1B). The management agreement provides
for a management fee in the amount of 4% of gross collections and allows for
reimbursement to the of payroll expenses incurred by ERPM.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Increases and decreases in Belair Capital's net asset value per share are
derived from net investment income, and realized and unrealized gains and losses
on Belair Capital's interest (through Belvedere Capital) in the Portfolio, real
estate investments held through BREC and any direct investments of Belair
Capital. Expenses of Belair Capital include its pro-rata share of the expenses
of Belvedere Capital, and indirectly the Portfolio, as well as the actual and
accrued expenses of Belair Capital and BREC, including its subsidiary Bel
Residential. Belair Capital's most significant expense is interest incurred on
borrowings incurred in connection with its real estate investments. Belair
Capital's realized and unrealized gains and losses on investments are based on
its allocated share of the realized and unrealized gains and losses of Belvedere
Capital, and indirectly, the Portfolio, as well as realized and unrealized gains
and losses on investments in real estate through BREC. The realized and
unrealized gains and losses on investments have the most significant impact on
Belair Capital's net asset value per share and result 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 holding 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 Belair Capital are substantially influenced by
the overall performance of the United States 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. Through the impact of
interest rates on the valuation of Belair Capital's investments in Partnership
Preference Units through BREC and its positions in interest rate swap
agreements, the performance of Belair Capital is also affected by movements in
interest rates, and particularly, changes in credit spread relationships. On a
combined basis, Belair Capital's Partnership Preference Units and interest rate
swaps generally decline in value when credit spreads widen (as fixed income
markets grow more risk-averse) and generally increase in value when credit
spreads tighten.
Results of Operations For the Quarter ended June 30, 2000 and the Six Months
Ended June 30, 2000
Belair Capital achieved total return performance of -0.2% for the quarter ended
June 30, 2000. This return reflects a decrease in the Belcrest Capital's net
asset value per share from $138.86 to $138.55. For comparison, the S&P 500, an
unmanaged index of large capitalization stocks commonly used as a benchmark for
the U.S. equity market, had a total return of -2.7% over the same period. Belair
Capital had a total return of 5.4% for the quarter ended June 30, 1999.
During the second quarter of 2000, U.S. equity market leadership was
concentrated in health care stocks and defensive consumer products stocks.
Concerns about a peaking of economic growth pulled money away from other sectors
more exposed to a weakening economy. Technology stocks were mixed, with the
strong momentum of previous quarters focused on a narrow slice of telecom
equipment and computer networking stocks. A number of tech-oriented stocks
experienced dismal second quarter performance, as growth expectations were
revised downward or valuations more carefully scrutinized. The relative
performance of Belair Capital versus the S&P 500 was aided by Tax-Managed Growth
16
Portfolio's large holdings of drug and consumer products stocks, and its
valuation-sensitive investment approach.
In the fixed income markets, the second quarter saw stable interest rates on
benchmark government bonds and stable credit spreads. The performance of Belair
Capital during the quarter was little impacted by changes in valuation of its
holdings of partnership preference units.
Belair Capital achieved total return performance of 5.2% for the six months
ended June 30, 2000. This return reflects an increase in Belair Capital's net
asset value per share from $131.72 to $138.55. For comparison, the S&P 500, an
unmanaged index of large capitalization stocks commonly used as a benchmark for
U.S. stocks, had a total return of -0.4% over the same period. Belair Capital
had a total return of 9.3% for the six months ended June 30, 1999.
During the six months ended June 30, 2000, the U.S. equity markets were lead by
health care, semiconductor and semiconductor equipment, computer networking and
energy stocks. Gains during the period were primarily achieved in the first
three months. Growth stocks outperformed value stocks, and small cap stock
benchmarks bested their large cap counterparts. Compared to the euphoric fourth
quarter of 1999, markets showed considerably more caution in assessing
valuations, and more skepticism in embracing story stocks lacking strong
business fundamentals and a clear growth strategy. During the period, the
relative performance of Belair Capital versus the S&P 500 benefited from
Tax-Managed Growth Portfolio's large holdings of drug stocks, and its
valuation-sensitive investment approach.
In the fixed income markets, the first half of 2000 saw declining interest rates
on government bonds, particularly longer-maturity issues. Concerns about future
availability created a scarcity value for 30-year Treasuries. At the long end of
the maturity spectrum, credit spreads for corporate issues widened. The market
for preferred securities in general, and real estate preferreds in particular,
improved modestly. The Belair Capital's investments in real estate partnership
preference units and associated borrowings had minimal impact on the Fund's
performance during the first half of 2000.
Liquidity and Capital Resources
As of June 30, 2000, Belair Capital had outstanding borrowings of $781.0 million
under the Credit Facility established with Merrill Lynch International Bank
Limited, the term of which extends until February 6, 2005. Belair Capital has
available under the Credit Facility $9.0 million to meet short-term liquidity
need and for other purposes.
Belair Capital may redeem shares of Belvedere Capital at any time. Both
Belvedere Capital and the Portfolio follow the practice of normally meeting
redemptions by distributing securities drawn from the Portfolio. Belvedere
Capital and the Portfolio may also meet redemptions by distributing cash. As of
June 30, 2000, the Portfolio had cash and short-term investments totaling $731.5
million. The Portfolio participates in a $150 million multi-fund unsecured line
of credit agreement with a group of banks. The Portfolio may temporarily borrow
from the line of credit to satisfy redemption requests in cash or to settle
investment transactions. The Portfolio had no outstanding borrowings under the
$150 million line of credit at June 30, 2000, and, as of that date, the net
assets of the Portfolio totaled $16,975.8 million. To ensure liquidity for
investors in the Portfolio, the Portfolio may not invest more than 15% of its
17
net assets in illiquid assets. As of June 30, 2000, restricted securities, which
are considered illiquid, constituted 4.4% of the net assets of the Portfolio.
The Partnership Preference Units held by BREC are not registered under the
Securities Act and are subject to substantial restrictions on transfer. As such,
they are considered illiquid.
BREC's investment in real estate apart from Partnership Preference Units is also
considered illiquid. Bel Residential has been structured as an investment of at
least ten years (until 2010), at which time a buy/sell mechanism may offer a
measure of liquidity to both BREC and its minority shareholder.
Redemptions of Fund shares are met primarily by distributing securities drawn
from the Portfolio, although cash may also be distributed. Shareholders
generally do not have the right to receive the proceeds of Fund redemptions in
cash.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The value of Fund shares may not increase or may decline. The performance of
Belair Capital fluctuates. There can be no assurance that the performance of
Belair Capital will match that of the United States stock market or that of
other equity funds. In managing the Portfolio for the long-term, after-tax
returns, the Portfolio's investment adviser generally seeks to avoid or minimize
sales of securities with large accumulated capital gains, including contributed
securities. Such securities constitute a substantial portion of the assets of
the Portfolio. Although the Portfolio may utilize certain management strategies
in lieu of selling appreciated securities, the Portfolio's, and hence Belair
Capital's, exposure to losses during stock market declines may nonetheless be
higher than funds that do not follow a general policy of avoiding sales of
highly-appreciated securities.
The Portfolio invests in securities issued by foreign companies and Belair
Capital may acquire foreign investments. Foreign investments involve
considerations and possible risks not typically associated with investing in the
United States. The value of foreign investments to U.S. investors may be
adversely affected by changes in currency rates. Foreign brokerage commissions,
custody fees and other costs of investing are generally higher than in the
United States, and foreign investments may be less liquid, more volatile and
more subject to government regulation than in the United States. Foreign
investments could be adversely affected by other factors not present in the
United States, including expropriation, confiscatory taxation, lack of uniform
accounting and auditing standards, armed conflict, and potential difficulty in
enforcing contractual obligations.
In managing the Portfolio, the investment adviser may purchase or sell
derivative instruments (which derive their value by reference to other
securities, indices, instruments, or currencies) to hedge against securities
price declines and currency movements to enhance returns. Such transactions may
include, without limitation, the purchase and sale of stock index futures
contracts and options on stock index futures; the purchase of put options and
the sale of call options on securities held; equity swaps; and the purchase and
sale of forward currency exchange contracts and currency futures. The Portfolio
may make short sales of securities provided that an equal amount is held of the
18
security sold short (a covered short sale) and may also lend portfolio
securities. Belair Capital utilizes interest rate swap agreements to fix the
cost of its borrowings over the term of the Credit Facility. In the future,
Belair Capital may use other interest rate hedging arrangements (such as caps,
floors and collars) to fix or limit borrowing costs. The use of these investment
techniques is a specialized activity that may be considered speculative and
which can expose Belair Capital and the Portfolio to significant risk of loss.
Successful use of these investment techniques is subject to the ability and
performance of the investment adviser. Belair Capital's and the Portfolio's
ability to meet their investment objectives may be adversely affected by the use
of these techniques. The writer of an option or a party to an equity swap may
incur losses that substantially exceed the payments, if any, received from a
counterparty. Swaps, caps, floors, collars and over-the-counter options are
private contracts in which there is also a risk of loss in the event of a
default on an obligation to pay by the counterparty. Such instruments may be
difficult to value, may be illiquid and may be subject to wide swings in
valuation caused by changes in the price of the underlying security, index,
instrument or currency. In addition, if Belair Capital or the Portfolio has
insufficient cash to meet margin, collateral or settlement requirements, it may
have to sell assets to meet such requirements. Alternatively, should Belair
Capital or the Portfolio fail to meet these requirements, the counterparty or
broker may liquidate positions of Belair Capital or the Portfolio. The Portfolio
may also have to sell or deliver securities holdings in the event that it is not
able to purchase securities on the open market to cover its short positions or
to close out or satisfy an exercise notice with respect to options positions it
has sold. In any of these cases, such sales may be made at prices or in
circumstances that the investment adviser considers unfavorable.
The Portfolio's ability to utilize covered short sales, certain equity swaps and
certain equity collar strategies (combining the purchase of a put option and the
sale of a call option) as a tax-efficient management technique with respect to
holdings of appreciated securities is limited to circumstances in which the
hedging transaction is closed out within thirty days of the end of the
Portfolio's taxable year and the underlying appreciated securities position is
held unhedged for at least the next ninety days after such hedging transaction
is closed. There can be no assurance that counterparties will at all times be
willing to enter into covered short sales, interest rate hedges, equity swaps
and other derivative instrument transaction on terms satisfactory to Belair
Capital or the Portfolio. Belair Capital's and the Portfolio's ability to enter
into such transactions may also be limited by covenants under the Credit
Facility, the federal margin regulations and other laws and regulations. The
Portfolio's use of certain investment techniques may be constrained because the
Portfolio is a diversified, open-end management investment company registered
under the 1940 Act and because other investors in the Portfolio are regulated
investment companies under Subchapter M of the Code. Moreover, Belair Capital
and the Portfolio are subject to restrictions under the federal securities laws
on their ability to enter into transactions in respect of securities that are
subject to restrictions on transfer pursuant to the Securities Act.
Although intended to add to returns, the borrowing of funds to purchase
Partnership Preference Units through BREC exposes Belair Capital to the risk
that the returns achieved on the Partnership Preference Units will be lower than
the cost of borrowing to purchase such assets and that the leveraging of Belair
Capital to buy such assets will therefore diminish the returns to be achieved by
Belair Capital as a whole. In addition, there is a risk that the availability of
financing will be interrupted at some future time, requiring Belair Capital to
sell assets to repay outstanding borrowings or a portion thereof. It may be
necessary to make such sales at unfavorable prices. Belair Capital's obligations
under the Credit Facility and mortgages are secured by a pledge of its assets.
In the event of default, a lender could elect to sell assets of Belair Capital
without regard to consequences of such action for shareholders. The rights of a
lender to receive payments of interest on and repayments of principal of
19
borrowings is senior to the rights of the shareholders. Under the terms of the
Credit Facility, Belair Capital is not permitted to make distributions of cash
or securities while there is outstanding an event of default under the Credit
Facility. During such periods, Belair Capital would not be able to honor
redemption requests or make cash distributions.
The Partnership Preference Units held by Belair Capital through its investment
in BREC are subject to restrictions on transfer, including, among other
restrictions, limitations on the manner of resale and the requirement that the
general partner of the issuer consent to transfers. In addition, there is no
active secondary market for any Partnership Preference Units that BREC holds.
Accordingly, BREC's investments in Partnership Preference Units are illiquid.
The success of BREC's investments in Partnership Preference Units depends in
part on many factors related to the real estate market and to the issuing
partnerships that may affect such partnerships' profitability and their ability
to make distributions to holders of Partnership Preference Units. These factors
include, without limitation, general economic conditions, the supply and demand
for different types of real properties, the financial health of tenants, the
timing of lease expirations and terminations, fluctuations in rental rates and
operating costs, exposure to adverse environmental conditions and losses from
casualty or condemnation, interest rates, availability of financing, managerial
performance, government rules and regulations, and acts of God. Although BREC's
investments in Partnership Preference Units are, to some degree, insulated from
risk by virtue of their senior position relative to other equity interests in
the issuing partnerships and by their diversification across a range of property
types and geographic regions, the above-referenced factors can substantially
affect the value and marketability of such investments over time. There can be
no assurance that the investments in Partnership Preference Units will be an
economic success.
The valuations of Partnership Preference Units held by Belair Capital through
its investment in BREC fluctuate over time to reflect, among other factors,
changes in interest rates, changes in the perceived riskiness of such units
(including call risk), changes in the perceived riskiness of comparable or
similar securities trading in the public market and the relationship between
supply and demand for comparable or similar securities trading in the public
market. Increases in interest rates and increases in the perceived riskiness of
such units or comparable or similar securities will adversely affect the
valuation of the Partnership Preference Units. Fluctuation in the value of
Partnership Preference Units derived from changes in general interest rates can
be expected to be offset in part (but not entirely) by changes in the value of
interest rate swap agreements or other interest rate hedges entered into by
Belair Capital with respect to its borrowings under the Credit Facility.
Fluctuations in the value of Partnership Preference Units derived from other
factors besides general interest rate movements (including issuer-specific and
sector-specific credit concerns and changes in interest rate spread
relationships) will not be offset by changes in the value of interest rate swap
agreements or other interest rate hedges entered into by Belair Capital. Changes
in the valuation of the Partnership Preference Units not offset by changes in
the valuation of interest rate swap agreements or other interest rate hedges
entered into by Belair Capital will cause the performance of Belair Capital to
deviate from the performance of the Portfolio.
While Belair Capital's manager intends that BREC's investments in Bel
Residential will reduce overall portfolio risk and volatility and contribute to
returns over time, this investment exposes Belair Capital to certain additional
risks as well. The performance of BREC's investment may be influenced by
20
decisions which Bel Residential's minority shareholder may make on behalf of Bel
Residential, and potential changes in the submarkets in which Bel Residential's
buildings are located. The debt of Bel Residential is fixed-rate, secured by the
underlying properties and with limited recourse to BREC. However, changes in
interest rates, the availability of financing and other financial conditions can
have a material impact on property values and therefore on the value of BREC's
equity interest. Other factors bearing on the value of BREC's real estate
investments, include, without limitation, general economic conditions, the
supply and demand of comparable real properties, fluctuations in rental rates
and operating costs, exposure to adverse environmental conditions and losses
from casualty or condemnation, government rules and regulations, and acts of
God. There can be no assurance that BREC's real estate investments will be an
economic success.
Over time, the performance of Belair Capital can be expected to be more volatile
than the performance of the Portfolio.
21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Fund is not aware of any pending legal proceedings to which the Fund is a
party or to which their assets are subject.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. THE FOLLOWING IS A LIST OF ALL EXHIBITS FILED AS PART OF THIS FORM 10Q:
10(2)(a) Amendment No. 1 dated as of December 28, 1999 to Management
Agreement
27 Financial Data Schedules
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned officer of its Manager, Eaton Vance Management thereunto duly
authorized on August 14, 2000.
BELAIR CAPITAL FUND LLC
(Registrant)
By: EATON VANCE MANAGEMENT,
its Manager
By: /s/ James L. O'Connor
-----------------------------------
James L. O'Connor
Vice President
By: /s/ William M. Steul
------------------------------------
William M. Steul
Chief Financial Officer
23
EXHIBIT INDEX
10(2)(a) Amendment No. 1 dated as of December 28, 1999 to Management Agreement
27 Financial Data Schedules
24