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 September 30, 2001
Commission File No. 000-1108991
-----------
Belmar Capital Fund LLC
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3508106
-------- ----------
(State of organization) (I.R.S. Employer Identification No.)
The Eaton Vance Building
255 State Street, Boston, Massachusetts 02109
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 617-482-8260
------------
None
----
Former Name, Former Address and Former Fiscal Year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Page 1 of 25
Belmar Capital Fund LLC
Index to Form 10Q
PART I - FINANCIAL INFORMATION
Page
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Assets
and Liabilities as of September 30, 2001
(Unaudited) and December 31, 2000 3
Condensed Consolidated Statements of Operations
(Unaudited) for the Three Months Ended September 30, 2001
and 2000 and for the Nine Months Ended
September 30, 2001 and for the Period from the
Start of Business, March 17, 2000 to September 30, 2000 4
Condensed Consolidated Statements of Changes in
Net Assets (Unaudited) for the Nine Months Ended
September 30, 2001 and for the Period from the Start
of Business, March 17, 2000 to September 30, 2000 6
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Nine Months Ended September 30, 2001
and for the Period from the Start of Business,
March 17, 2000 to September 30, 2000 7
Notes to Condensed Consolidated Financial Statements
as of September 30, 2001 (Unaudited) 9
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
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports 23
SIGNATURES 24
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Assets and Liabilities
September 30,
2001 December 31,
(Unaudited) 2000
-------------------- -------------------
Assets:
Investment in Belvedere Capital LLC $1,927,372,259 $2,485,733,611
Investment in real estate Partnership Preference Units 611,066,896 578,677,544
Investment in other real estate 227,515,786 228,933,113
Short-term investments 4,588,128 4,057,378
-------------------- -------------------
Total investments $2,770,543,069 $3,297,401,646
Cash 1,259,625 2,256,168
Cash - security deposits 599,882 308,197
Escrow deposits - restricted 7,629,253 13,785,139
Dividends receivable - 5,337,003
Accounts receivable and other assets 356,288 1,371,180
Deferred expenses - 882,499
Prepaid expenses 105,209 572,818
-------------------- -------------------
Total assets $2,780,493,326 $3,321,914,650
Liabilities:
Loan payable $613,500,000 $613,500,000
Mortgage payable, net of unamortized debt issuance costs 172,471,116 173,083,255
Open interest rate swap contracts, at value 60,229,312 35,439,158
Special distributions payable 1,762,555 -
Security deposits 680,126 740,964
Payable for Fund Shares redeemed - 3,218,084
Swap interest payable 1,192,983 357,842
Accrued expenses:
Interest expense 3,420,781 4,038,348
Accrued property taxes 2,258,098 2,614,810
Other accrued expenses 347,784 590,660
Other liabilities 4,117,678 3,054,387
Minority interest in controlled subsidiary 16,655,237 27,561,714
-------------------- -------------------
Total liabilities $876,635,670 $ 864,199,222
-------------------- -------------------
Net assets $1,903,857,656 $2,457,715,428
-------------------- -------------------
Shareholders' Capital
Shareholders' capital $1,903,857,656 $2,457,715,428
-------------------- -------------------
Shares Outstanding 24,387,085 25,122,311
-------------------- -------------------
Net Asset Value and Redemption Price Per Share $78.07 $97.83
-------------------- -------------------
3
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of
Operations (Unaudited)
Three Months Three Months Nine Months For the Period
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000*
----------------- ---------------- ------------------ -----------------
Investment Income:
Dividends allocated from Belvedere Capital
(net of foreign taxes of $50,619, $19,672,
$121,099 and $40,629, respectively) $ 5,568,575 $ 3,155,499 $ 16,376,524 $ 5,151,733
Interest allocated from Belvedere Capital 348,045 1,293,291 1,616,004 1,816,535
Expenses allocated from Belvedere Capital (3,165,935) (2,309,196) (10,089,200) (3,747,281)
----------------- ---------------- ------------------ -----------------
Net investment income allocated from
Belvedere Capital $ 2,750,685 $ 2,139,594 $ 7,903,328 $ 3,220,987
Dividends from Partnership Preference Units 14,357,713 4,223,722 33,708,166 14,103,850
Rental income 8,730,936 2,249,832 26,374,868 2,249,832
Interest 91,404 43,096 506,238 57,878
----------------- ---------------- ------------------ -----------------
Total investment income $25,930,738 $ 8,656,244 $ 68,492,600 $19,632,547
----------------- ---------------- ------------------ -----------------
Expenses:
Investment advisory and administrative fees $ 1,792,803 $ 1,344,004 $ 5,648,053 $ 2,167,557
Property management fees 347,308 86,532 1,040,203 86,532
Distribution and servicing fees 1,031,845 758,655 3,339,596 1,220,121
Interest expense on credit facility 5,734,510 8,150,435 25,309,092 13,148,329
Interest expense on swap contracts 6,732,767 2,146,595 16,721,512 2,949,374
Interest expense on mortgages 3,895,241 1,327,215 11,593,019 1,327,215
Property and maintenance 3,378,233 576,047 9,593,472 576,047
Property taxes and insurance 1,023,401 235,035 2,964,591 235,035
Organization expenses - 98,000 - 734,885
Legal and accounting services 160,209 585,959 514,991 732,105
Amortization of deferred expenses - 1,322 - 1,322
Custodian and transfer agent fees 18,493 18,699 73,041 34,380
Loan program structuring expense 16,688 17,062 47,063 36,750
Printing and postage 3,440 3,478 10,484 50,803
Miscellaneous 322,443 10,391 747,458 11,860
----------------- ---------------- ------------------ -----------------
Total expenses $24,457,381 $15,359,429 $ 77,602,575 $23,312,315
Deduct -
Reduction of investment advisory and
administrative fees 521,117 382,034 1,669,419 615,184
----------------- ----------------- ----------------- ------------------
Net expenses $23,936,264 $14,977,395 $ 75,933,156 $22,697,131
----------------- ----------------- ----------------- ------------------
Net investment income (loss) before minority
interest in net (income) loss of controlled
subsidiary $ 1,994,474 $(6,321,151) $ (7,440,556) $(3,064,584)
Minority interest in net (income) loss of
controlled subsidiary 61,619 98,800 (295,269) 98,800
---------------- ----------------- ----------------- ------------------
Net investment income (loss) $ 2,056,093 $(6,222,351) $ (7,735,825) $(2,965,784)
---------------- ----------------- ----------------- ------------------
*For the period from the start of business, March 17, 2000 to September 30,
2000.
4
Condensed Consolidated Statements of
Operations (Unaudited) (Continued)
Three Months Three Months Nine Months For the Period
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000*
----------------- ---------------- ------------------ -----------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) -
Investment transactions from Belvedere
Capital (identified cost basis) $ (25,715,901) $(12,837,008) $ (27,098,182) $(4,821,803)
Investment transactions in real property - - 428,905 -
------------------- ---------------- ------------------ -----------------
Net realized loss $ (25,715,901) $(12,837,008) $ (26,669,277) $(4,821,803)
------------------- ---------------- ------------------ -----------------
Change in unrealized appreciation
(depreciation) -
Investment in Belvedere Capital (identified
cost basis) $(293,367,277) $ 23,127,237 $(456,547,178) $24,193,862
Investments in Partnership Preference Units
(identified cost basis) (7,546,924) 33,465,423 32,389,352 39,780,334
Investment transactions in real property (3,486,773) - (1,449,129) -
Interest rate swap contracts (24,597,142) (11,514,442) (24,790,154) (19,145,524)
------------------- ---------------- ------------------ -----------------
Net change in unrealized
appreciation (depreciation) $(328,998,116) $ 45,078,218 $(450,397,109) $44,828,672
------------------- ----------------- ------------------ -----------------
Net realized and unrealized gain (loss) $(354,714,017) $ 32,241,210 $(477,066,386) $40,006,869
------------------- ---------------- ------------------ -----------------
Net increase (decrease) in net assets from
operations $(352,657,924) $ 26,018,859 $(484,802,211) $37,041,085
================== ================ ================== =================
*For the period from the start of business, March 17, 2000 to September 30,
2000.
5
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Changes in Net Assets
(Unaudited)
Nine Months For the Period
Ended Ended
September 30, September 30,
2001 2000*
------------------- --------------------
Increase (Decrease) in Net Assets
Net investment loss $ (7,735,825) $ (2,965,784)
Net realized loss on investment transactions (26,669,277) (4,821,803)
Net change in unrealized appreciation (depreciation) of
investments (450,397,109) 44,828,672
------------------- --------------------
Net increase (decrease) in net assets from operations $ (484,802,211) $ 37,041,085
------------------- --------------------
Transactions in Fund shares -
Investment securities contributed $ - $1,998,645,930
Less - Selling commissions - (6,850,614)
------------------- --------------------
Net contributions $ - $1,991,795,316
Net asset value of Shares redeemed (67,266,788) (72,983,363)
------------------- --------------------
Net increase (decrease) in net assets from Fund Share transactions $ (67,266,788) $1,918,811,953
------------------- --------------------
Distributions to Fund Shareholders
Special distributions to Fund Shareholders $ (1,788,773) $ (744,698)
------------------- --------------------
Total distributions to Fund Shareholders $ (1,788,773) $ (744,698)
------------------- --------------------
Net increase (decrease) in net assets $ (553,857,772) $1,955,108,340
Net assets
Beginning of period $2,457,715,428 $105,000
------------------- --------------------
End of period $1,903,857,656 $1,955,213,340
=================== ====================
*For the period from the start of business, March 17, 2000 to September 30,
2000.
6
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months For the Period
Ended Ended
September 30, September 30,
2001 2000*
------------------- ------------------
Cash Flows From (For) Operating Activities -
Net investment loss $(7,735,825) $ (2,965,784)
Adjustments to reconcile net investment loss to
net cash flows from (for) operating activities
Amortization of debt issuance costs 239,284 5,128
Amortization of deferred expenses - 1,322
Net investment income allocated from Belvedere Capital (7,903,328) (3,220,987)
(Increase) decrease in dividends receivable 5,337,003 (3,628)
Increase in security deposits (291,685) -
(Increase) decrease in escrow deposits 6,155,886 (374,630)
(Increase) decrease in prepaid expenses 467,609 (82,926)
Decrease in accounts receivable and other assets 1,014,892 893,708
Increase in interest payable for open swap contracts 835,141 381,476
Increase (decrease) in accrued property taxes (356,712) 2,115,066
Increase (decrease) in accrued interest, operating expenses and
other liabilities (621,201) 1,635,583
Increase in minority interest - 210,000
Purchases of Partnership Preference Units - (479,875,848)
Payments for investments in other real property (48,651,593) (40,297,981)
Cash assumed in connection with acquisition of real estate
Investments - 432,064
Proceeds from sales of investments in other real property 49,080,499 -
Sales of Partnership Preference Units - 4,271,468
Improvements to property (9,890,177) (597,794)
Net decrease in investment in Belvedere Capital 16,990,093 5,166,032
Increase in short-term investments (530,750) (2,474,082)
Minority interest in net income (loss) of
controlled subsidiary 295,269 (98,800)
--------------------------------------
Net cash flows from (for) operating activities $ 4,434,405 $(514,880,613)
Cash Flows From (For) Financing Activities -
Proceeds from Credit Facility $ - $ 523,500,000
Payment of mortgages (860,582) -
Payments on behalf of investors (selling commissions) - (6,850,614)
Capital contributed to controlled subsidiary 210,000 -
Payments for Fund Shares redeemed (4,780,366) (1,065,834)
--------------------------------------
Net cash flows from (for) financing activities $(5,430,948) $ 515,583,552
Net increase (decrease) in cash $ (996,543) $ 702,939
Cash at beginning of period $ 2,256,168 $ 105,000
------------------- ------------------
Cash at end of period $ 1,259,625 $ 807,939
=================== ==================
*For the period from the start of business, March 17, 2000 to September 30,
2000.
7
SUPPLEMENTAL DISCLOSURE AND NON-CASH INVESTING AND FINANCING ACTIVITIES-
Securities contributed by Fund Shareholders, invested in Belvedere
Capital $ - $1,998,645,930
Change in unrealized appreciation (depreciation) of investments and
open swap contracts $(450,397,109) $ 44,828,672
Interest paid for Credit Facility $ 24,073,532 $ 9,686,538
Interest paid for mortgages $ 11,398,247 $ -
Interest paid for swap contracts $ 15,886,371 $ 2,567,898
Market value of securities distributed in payment of redemptions $ 65,704,506 $ 71,917,529
8
BELMAR CAPITAL FUND LLC AS OF SEPTEMBER 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1 Organization
Belmar Capital Fund LLC (Belmar Capital) is a Delaware 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 Belmar Capital
is to achieve long-term, after-tax returns for Fund Shareholders. Belmar 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. Belmar 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 Belmar
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, Belmar 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 an interest in a controlled real property
subsidiary.
The accompanying condensed consolidated financial statements of Belmar Capital
include the accounts of Belmar Realty Corporation (BRC) and Bel Alliance
Apartments, LLC (Bel Apartments) (collectively, the Fund). All material
intercompany accounts and transactions have been eliminated.
2 Interim Financial Statements
The condensed consolidated interim financial statements of Belmar Capital and
its subsidiaries as of September 30, 2001 and September 30, 2000 and for the
nine months ended September 30, 2001 and for the period from the start of
business, March 17, 2000, to September 30, 2000 have been prepared by the Fund,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. 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 and cash flows at the dates and for
the periods presented. It is suggested that these interim financial statements
be read in conjunction with the financial statements and the notes thereto
included in the Fund's latest annual report on Form 10. Results for interim
periods are not necessarily indicative of those to be expected for the entire
fiscal year.
Reclassifications have been made to the prior period's financial statements to
conform to the current period's presentation.
9
3 Estate Freeze
Shareholders in the Fund are entitled to restructure their Fund Share interests
under what is termed an Estate Freeze Election. Under this election, Fund Shares
are divided into Preferred Shares and Common Shares. Preferred Shares have a
preferential right over the corresponding Common Shares equal to (i) 95% of the
original capital contribution made in respect of the undivided Shares from which
the Preferred Shares and Common Shares were derived, plus (ii) an annuity
priority return equal to 8.5% of the Preferred Shares' preferential interest in
the original capital contribution of the undivided Fund Shares. The associated
Common Shares are entitled to the remaining 5% of the original capital
contribution in respect of the undivided Fund Shares, plus any returns thereon
in excess of the fixed annual priority of the Preferred Shares. The existence of
restructured Fund Shares does not adversely affect Shareholders who do not
participate in the election nor do the restructured Fund Shares have
preferential rights to Fund Shares that have not been restructured. Shareholders
who subdivide Fund Shares under this election sacrifice certain rights and
privileges that they would otherwise have with respect to the Fund Shares so
divided, including redemption rights and voting and consent rights. Upon the
twentieth anniversary of the issuance of the associated undivided Fund Shares to
the original holders thereof, Preferred and Common Shares will automatically
convert into full and fractional undivided Fund Shares.
The allocation of the Fund's net asset value per Share of $78.07 at September
30, 2001 and $97.83 at December 31, 2000, between Preferred and Common Shares
that have been restructured is as follows:
Per Share Value Per Share Value
At September 30, 2001 At December 31, 2000
---------------------- ------------ ---------------------------- ------------- -----------------------
Date of Contribution Preferred Common Preferred Common
Shares Shares Shares Shares
---------------------- ------------ ---------------------------- ------------- -----------------------
March 17, 2000 $78.07 $0.00 $95.00 $2.83
May 16, 2000 78.07 0.00 94.80 3.03
July 19, 2000 78.07 0.00 97.83 0.00
4 Investment Transactions
Increases and decreases of the Fund's investment in Belvedere Capital for the
nine months ended September 30, 2001 aggregated $39,375,146 and $121,994,466,
respectively, and for the period from the start of business March 17, 2000, to
September 30, 2000 aggregated $2,013,341,677 and $91,420,420, respectively.
There were no purchases and sales of Partnership Preference Units for the nine
months ended September 30, 2001. For the period from the start of business,
March 17, 2000, to September 30, 2000, purchases and sales of Partnership
Preference Units aggregated $479,875,848 and $4,271,468, respectively. For the
nine months ended September 30, 2001, acquisitions and sales of other real
property aggregated $48,651,593 and $49,080,499, respectively. For the period
from the start of business March 17, 2000, to September 30, 2000, acquisitions
of other real property totaled $40,297,981.
10
Purchases and sales of Partnership Preference Units during the period from the
start of business, March 17, 2000, to September 30, 2000 include amounts
purchased from and sold to other funds sponsored by Eaton Vance Management
(EVM).
5 Indirect Investment in Portfolio
Belvedere Capital's interest in the Portfolio at September 30, 2001 was
$8,914,385,448 representing 55.5% of the Portfolio's net assets and at September
30, 2000 was $9,826,270,245 representing 53.8% of the Portfolio's net assets.
The Fund's investment in Belvedere Capital at September 30, 2001 was $
1,927,372,259 representing 21.6% of Belvedere Capital's net assets and at
September 30, 2000 was $1,944,514,303 representing 19.8% of Belvedere Capital's
net assets. Investment income allocated to Belvedere Capital from the Portfolio
for the nine months ended September 30, 2001 totaled $77,460,677, of which
$17,992,528 was allocated to the Fund. Investment income allocated to Belvedere
Capital from the Portfolio for the period from the start of business, March 17,
2000, to September 30, 2000 totaled $52,741,510, of which $6,968,268 was
allocated to the Fund. Expenses allocated to Belvedere Capital from the
Portfolio for the nine months ended September 30, 2001 totaled $32,264,414, of
which $7,497,753 was allocated to the Fund. Expenses allocated to Belvedere
Capital from the Portfolio for the period from the start of business, March 17,
2000, to September 30, 2000 totaled $21,756,301, of which $2,784,751 was
allocated to the Fund. Belvedere Capital allocated additional expenses to the
Fund of $2,591,447 for the nine months ended September 30, 2001, representing
$61,007 of operating expenses and $2,530,440 of service fees. Belvedere Capital
allocated additional expenses to the Fund of $962,530 for the period from the
start of business, March 17, 2000, to September 30, 2000, representing $27,848
of operating expenses and $934,682 of service fees (Note 9).
A summary of the Portfolio's Statement of Assets and Liabilities, at September
30, 2001, December 31, 2000 and September 30, 2000 and its operations for the
nine months ended September 30, 2001, the year ended December 31, 2000 and for
the period from the start of business, March 17, 2000, to September 30, 2000
follows:
September 30, December 31, September 30,
2001 2000 2000
-------------------- ------------------------ ----------------------
Investments, at value $15,879,363,685 $18,318,105,043 $18,195,602,562
Other assets 247,862,763 251,324,504 279,625,633
- ----------------------------------- -------------------- ------------------------ ----------------------
Total Assets $16,127,226,448 $18,569,429,547 $18,475,228,195
Total Liabilities 63,436,483 184,360,662 215,812,049
- ----------------------------------- -------------------- ------------------------ ----------------------
Net Assets $16,063,789,965 $18,385,068,885 $18,259,416,146
=================================== ==================== ======================== ======================
Dividends and interest $ 141,895,798 $ 189,740,537 $ 99,760,427
- ----------------------------------- -------------------- ------------------------ ----------------------
Investment adviser fee $ 57,512,662 $ 73,317,616 $ 39,987,733
Other expenses 1,602,705 2,500,093 1,217,629
- ----------------------------------- -------------------- ------------------------ ----------------------
Total Expenses $ 59,115,367 $ 75,817,709 $ 41,205,362
- ----------------------------------- -------------------- ------------------------ ----------------------
Net investment income $ 82,780,431 $ 113,922,828 $ 58,555,065
Net realized gains (losses) (226,406,730) 196,962,539 55,162,018
Net unrealized gains (losses) (3,614,091,583) 141,360,943 395,800,978
- ----------------------------------- -------------------- ------------------------ ----------------------
Net increase (decrease) in net
assets from operations $(3,757,717,882) $ 452,246,310 $ 509,518,061
- ----------------------------------- -------------------- ------------------------ ----------------------
11
6 Rental Property
The average occupancy rate for real property held by Bel Apartments, consisting
of 5,806 residential units, was approximately 88% at September 30, 2001 and
approximately 90% at December 31, 2000. The fair value of real property owned by
the Fund through Bel Apartments at September 30, 2001 and December 31, 2000 is
as follows:
September 30, 2001 December 31, 2000
------------------ -----------------
Land $44,302,798 $44,302,798
Buildings, improvements and other assets 183,212,988 184,630,315
------------------------- ------------------------
Fair Value $227,515,786 $228,933,113
------------------------- ------------------------
7 Cancelable Interest Rate Swap Agreements
The Fund has entered into cancelable interest rate swap agreements in connection
with its real estate investments 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 September 30, 2001 and December 31, 2000, the
Fund has entered into cancelable interest rate swap agreements with Merrill
Lynch Capital Services, Inc.
Notional Initial Unrealized Unrealized
Amount Optional Final Depreciation Depreciation
Effective (000's Fixed Floating Termination Termination At September At December
Date omitted) Rate Rate Date Date 30, 2001 31, 2000
- --------------- ------------- --------- ----------------- ----------------- ------------------- ----------------- ----------------
3/00 27,500 8.96% Libor + .40% 3/05 3/30 $ 3,387,898 $2,090,656
3/00 19,146 9.09% Libor + .40% 4/04 3/30 2,083,560 1,275,653
3/00 43,181 9.20% Libor + .40% 6/03 3/30 3,710,068 2,349,306
3/00 21,766 9.24% Libor + .40% 4/03 3/30 1,751,239 1,131,694
3/00 38,102 9.11% Libor + .40% 2/04 3/30 3,933,870 2,441,132
3/00 20,659 9.13% Libor + .40% 11/03 3/30 2,003,277 1,242,356
3/00 23,027 9.05% Libor + .40% 7/04 3/30 2,584,388 1,599,508
5/00 10,773 9.54% Libor + .40% 4/03 3/30 939,966 664,167
5/00 12,984 9.50% Libor + .40% 6/03 3/30 1,214,383 839,556
5/00 9,608 9.46% Libor + .40% 11/03 3/30 1,030,901 700,422
5/00 13,274 9.42% Libor + .40% 2/04 3/30 1,512,653 1,019,736
5/00 12,063 9.38% Libor + .40% 4/04 3/30 1,425,380 954,860
5/00 10,799 9.35% Libor + .40% 7/04 3/30 1,341,978 896,944
5/00 41,185 9.31% Libor + .40% 9/04 3/30 5,247,734 3,490,916
5/00 7,255 9.26% Libor + .40% 3/05 3/30 996,955 663,842
7/00 22,982 9.17% Libor + .40% 2/03 3/30 1,634,088 1,050,464
7/00 28,305 9.15% Libor + .40% 4/03 3/30 2,216,192 1,389,085
7/00 32,404 9.13% Libor + .40% 6/03 3/30 2,722,793 1,684,599
7/00 3,383 9.08% Libor + .40% 11/03 3/30 322,485 196,831
7/00 12,062 9.00% Libor + .40% 2/04 3/30 1,196,761 716,644
7/00 24,622 8.99% Libor + .40% 4/04 3/30 2,544,152 1,528,127
7/00 9,184 8.97% Libor + .40% 7/04 3/30 999,856 604,506
7/00 13,454 8.93% Libor + .40% 9/04 3/30 1,496,066 899,160
7/00 17,888 8.87% Libor + .40% 3/05 3/30 2,124,146 1,277,995
9/00 39,407 7.46% Libor + .40% - 9/10 5,622,615 2,741,566
11/00 11,776 8.34% Libor + .40% 3/05 3/30 1,067,674 354,841
11/00 2,338 8.41% Libor + .40% 9/04 3/30 202,004 66,110
11/00 23,636 8.48% Libor + .40% 2/04 3/30 1,849,785 588,364
11/00 20,625 8.60% Libor + .40% 6/03 3/30 1,377,062 433,793
11/00 28,629 8.66% Libor + .40% 2/03 3/30 1,689,383 546,325
- --------------- ------------- --------- ----------------- ----------------- ------------------- ----------------- ----------------
Total $60,229,312 $35,439,158
- --------------- ------------- --------- ----------------- ----------------- ------------------- ----------------- ----------------
12
8 Debt
A Mortgages - Real property held by Bel Apartments is financed through loans
collateralized by its real estate assets, mortgage loan deposit accounts,
including all subaccounts thereunder, and an assignment of certain leases and
rents. Balances at September 30, 2001 and December 31, 2000, excluding
unamortized debt issuance costs, are as follows:
Monthly
Principal and
Annual Interest Balance at Balance at
Maturity Date Interest Rate Payment September 30, 2001 December 31, 2000
- ------------- ------------- ------- ------------------ -----------------
October 1, 2010 8.56% $ 165,866 $ 21,297,578 $ 68,531,692
October 1, 2010 8.54% 458,550 59,082,515 59,359,514
October 1, 2010 8.55% 572,100 73,676,934 38,772,626
October 1, 2010 8.58% 92,172 11,832,920 -
September 1, 2027 7.68% 73,293 9,897,267 9,983,964
------------------- ----------------------------- ---------------------------
$1,361,981 $175,787,214 $176,647,796
------------------- ----------------------------- ---------------------------
Scheduled repayments of mortgages, excluding unamortized debt issuance costs,
for the years subsequent to September 30, 2001 and December 31, 2000 are as
follows:
Years Ending
September 30, Amount Years Ending December 31, Amount
- -------------- ------ -------------------------- ------
2002 $ 1,319,038 2001 $1,175,020
2003 1,432,077 2002 1,277,787
2004 1,545,646 2003 1,393,907
2005 1,695,368 2004 1,476,894
2006 1,844,662 2005 1,649,899
Thereafter 167,950,423 Thereafter 169,674,289
----------- -----------
$175,787,214 $176,647,796
------------ ------------
B Credit Facility - The Fund has entered into a revolving securitization
facility (the Commercial Paper Facility) of up to $700 million with a special
purpose commercial paper issuer (the CP Issuer) and Citicorp North America, Inc.
as agent for the CP Issuer. The Commercial Paper Facility is supported by a
committed liquidity facility (the Liquidity Facility) provided by Citibank,
N.A., under which borrowings may be made for a maximum term of seven years from
the Fund's initial closing. The CP Issuer funds advances under the Commercial
Paper Facility by issuing highly rated commercial paper notes. On borrowings
under the Commercial Paper Facility, the Fund pays a rate of interest equal to
the CP Issuer's cost of funding plus a margin and certain fees and expenses.
13
Interest expense includes a commitment fee of approximately 0.18% per year on
the unused portion of the Commercial Paper Facility. In the event that the CP
Issuer is unable or unwilling to maintain advances to the Fund, it may assign
its advances to the providers of the Liquidity Facility. Borrowings under the
Liquidity Facility will be at an annual rate of one-month Libor plus 0.75%.
Initial borrowings under the Commercial Paper Facility have been used to
purchase real estate assets, to pay organizational costs and selling expenses of
the Fund, and to provide for short-term liquidity needs of the Fund. Additional
borrowings under the Commercial Paper Facility may be made in the future for
these purposes. At September 30, 2001 and at December 31, 2000, the amount
outstanding under the Commercial Paper Facility totaled $613,500,000 and
$613,500,000, 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 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
nine months ended September 30, 2001 and for the period from the Fund's start of
business, March 17, 2000, to September 30, 2000, the advisory fee applicable to
the Portfolio was 0.43% (annualized), of average daily net assets. Belvedere
Capital's allocated portion of the advisory fee was $31,645,569 of which
$7,354,396 was allocated to the Fund for the nine months ended September 30,
2001, and $21,104,515 of which $2,709,416 was allocated to the Fund, for the
period from the Fund's start of business, March 17, 2000, to September 30, 2000.
In addition, Belmar Capital pays BMR, but for the fee cap described below, a
monthly advisory and administrative fee of 1/20 of 1% (0.60% annually) of the
average daily gross assets of Belmar Capital reduced by the portion of the
monthly advisory or management fees payable for such month by the Portfolio and
BRC that is attributable to the value of the Fund's direct or indirect
investment therein (but no such reduction is made to the extent that any such
fee or portion thereof has been waived by BMR). The term "gross investment
assets" with respect to Belmar Capital is defined to include the current value
of all of Belmar Capital's assets (including Belmar Capital's interest in
Belvedere Capital and Belmar Capital's ratable share of the assets of its
controlled subsidiary), without reduction by any liabilities.
BRC pays BMR a monthly management fee at a rate of 1/20 of 1% (equivalent to
0.60% annually) of the average daily gross assets of BRC. The term "gross
investment assets" with respect to BRC is defined to include the current value
of all assets of BRC, including BRC's ratable share of the assets of the assets
of its controlled subsidiaries, without reduction by any liabilities. (For this
purpose, the assets of BRC's controlled subsidiaries are reduced by the
proportionate interests therein of investors other than BRC.) For the nine
months ended September 30, 2001 and for the period from the start of business,
March 17, 2000 to September 30, 2000, the advisory and administrative fee
payable to BMR by the Fund, less the Fund's allocated share of the Portfolio's
advisory fee, totaled $5,648,053 and $2,167,557, respectively.
14
EVM and BMR do not receive separate compensation for serving as manager of
Belmar Capital and manager of Belvedere Capital, respectively.
As compensation for its services as placement agent, Belmar Capital pays Eaton
Vance Distributors, Inc. (EVD) a monthly distribution fee at a rate of 1/120 of
1% (equivalent to 0.10% annually) of Belmar Capital's average daily net assets.
For the nine months ended September 30, 2001 and for the period from the start
of business, March 17, 2000, to September 30, 2000, Belmar Capital's
distribution fees paid or accrued to EVD totaled $1,669,419 and $615,184,
respectively.
BMR has agreed to waive a portion of the monthly advisory and administrative fee
otherwise payable by Belmar Capital to the extent that such fee, together with
the monthly distribution fee payable to EVD, exceeds 1/20th of 1% (equivalent to
0.60% annually) of Belmar Capital's average daily gross investment assets (as
defined above) reduced by the portion of the monthly advisory or management fees
for such month payable by the Portfolio and BRC that is attributable to the
value of the Fund's direct or indirect investments therein (but no reduction
shall be made to the extent that any such fee or portion thereof has been waived
by BMR). For the nine months ended September 30, 2001, and for the period from
the start of business, March 17, 2000, to September 30, 2000, BMR has waived
$1,669,419 and $615,184, respectively, of the advisory and administrative fee of
Belmar Capital.
Pursuant to a servicing agreement between Belvedere Capital and 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 $10,894,221 and $7,298,976 for the nine months ended September 30, 2001,
and for the period from the start of business, March 17, 2000, to September 30,
2000, respectively, of which $2,530,440 and $934,682, respectively, was
allocated to Belmar Capital. Pursuant to a servicing agreement between Belmar
Capital and EVD, Belmar Capital pays a servicing fee to EVD on a quarterly basis
at an annual rate of 0.25% of Belmar Capital's average daily net assets, less
Belmar Capital's allocated share of the servicing fee payable by Belvedere
Capital. For the nine months ended September 30, 2001, and for the period from
the start of business, March 17, 2000, to September 30, 2000, the servicing fee
paid directly by Belmar Capital totaled $1,670,176 and $604,937, respectively.
Of the amounts allocated to and incurred by the Fund, for the nine months ended
September 30, 2001, $1,295,208 was paid to subagents. For the period from the
start of business, March 17, 2000, to September 30, 2000, no amounts were paid
to subagents.
Bel Apartments indirectly holds real property through its interests in six
operating partnerships. Each operating partnership has entered into a management
agreement with an affiliate of the Bel Apartments minority shareholder. The
management agreements provide for a management fee and allow for reimbursement
to the manager for all direct expenses incurred by the manager for managing the
Bel Apartments properties. For the nine months ended September 30, 2001, and for
the period from inception, September 8, 2000 to September 30, 2000, Bel
Apartments paid or accrued property management fees of $1,040,203 and $86,532,
respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Increases and decreases in Belmar Capital Fund LLC's (the Fund) net asset value
per share are derived from net investment income or loss, and realized and
unrealized gains and losses on the Fund's interest through Belvedere Capital
15
Fund Company LLC (Belvedere Capital) in Tax-Managed Growth Portfolio (the
Portfolio), real estate investments held through its subsidiary, Belmar Realty
Corporation (BRC), and any direct investments of the Fund. Expenses of the Fund
include its pro-rata share of the expenses of Belvedere Capital, and indirectly
the Portfolio, as well as the actual and accrued expenses of the Fund and BRC,
including its subsidiary, Bel Alliance Apartments, LLC (Bel Apartments). The
Fund's most significant expense is interest incurred on borrowings incurred in
connection with its real estate investments. The Fund'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 BRC. The realized and unrealized gains and losses on
investments have the most significant impact on the Fund'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
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 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 the Fund's
real estate investments through BRC and its positions in interest rate swap
agreements, the performance of the Fund is also affected by movements in
interest rates, and particularly, changes in credit spread relationships. On a
combined basis, the Fund's real estate investments 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 SEPTEMBER 30, 2001
The Fund had total return performance of -15.6% for the quarter ended September
30, 2001. This return reflects a decrease in the Fund's net asset value per
share from $92.48 to $78.07. For comparison, the Standard & Poors 500 Index (S&P
500), an unmanaged index of large capitalization stocks commonly used as a
benchmark for the U.S. equity market, had a total return of -14.7% over the same
period.
During the third quarter of 2001, the U.S. equity market fell sharply, initially
to reflect deteriorating domestic economic conditions and then in response to
the events of September 11th. The coordinated actions of the Federal Reserve,
the Bush Administration and Congress since September 11th have attempted to
maintain orderly and liquid markets and to stimulate the economy. Through the
end of September, the S&P 500 rallied by nearly 8% from the lows reached on
September 21st.
The relative performance of different market sectors during the third quarter
was influenced primarily by investors' initial assessment of the September 11th
events. Market leading industries and sectors in the third quarter included
aerospace and defense stocks, gold mining stocks and defensive plays such as
consumer products, pharmaceuticals, packaged foods and utilities. The quarter's
weakest performers included airlines and other travel-related industries,
entertainment, consumer durables and specialty retailers. Technology stocks
16
resumed their decline from the highs reached in the first half of 2000.
Financial stocks were mixed, with the benefits of declining short-term interest
rates largely offset by rising credit concerns.
In this most difficult of environments, the performance of the Portfolio was
slightly better than that of the overall market. The Fund underperformed both
the Portfolio and the S&P 500 in the quarter. The underperformance was primarily
in the month of September and can be attributed to three factors: 1) rising
credit spreads impacting the value of the Fund's real estate investments, 2)
declining intermediate-term interest rates impacting the Fund's interest rate
swap positions and 3) the Fund's slightly leveraged exposure to the Portfolio.
Although the U.S. real estate market remains in generally good balance, fallout
from the September 11th events will likely have a negative effect.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
The Fund had total return performance of -20.2% for the nine months ended
September 30, 2001. This return reflects a decrease in the Fund's net asset
value per share from $97.83 to $78.07. 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 -20.4% over the same period.
During the first nine months of 2001, the U.S. equity market continued the weak
performance pattern in place since early 2000. After a strong start in January,
the market fell through the balance of the first quarter, rallied into May, and
then began a long slide that climaxed in the wake of the September 11th attacks.
The best performing industries and sectors in the nine-month period included
gold mining, utilities, healthcare services, foods, and tobacco. The weakest
performing industries and sectors included airlines, oil and gas drillers,
media, and most technology groups. The market suffered from a deteriorating
economic outlook, a collapse in corporate profits and, finally, the significant
economic and market dislocation and heightened risk sensitivity in the wake of
the September 11th events.
In this period of market weakness, the performance of the Portfolio was modestly
above that of the overall market. The Fund's performance was between that of the
Portfolio and the S&P 500. For the year to date, the Fund's real estate
investments and associated interest rate swap agreements have had a slightly
negative impact on performance. The U.S. real estate market remains in generally
good balance. Fallout from the September 11th events will likely have a negative
effect, the full dimensions of which are not yet evident.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001, the Fund had outstanding borrowings of $613.5 million
under a seven-year revolving securitization facility (the Commercial Paper
Facility) with a special purpose commercial paper issuer (the CP Issuer) and
Citicorp North America, Inc. as agent for the CP Issuer. The Commercial Paper
Facility is supported by a committed liquidity facility (the Liquidity Facility)
provided by Citibank, N.A., the term of which extends until March 17, 2007. The
Fund's obligations under the Commercial Paper Facility and Liquidity Facility
(collectively, the Credit Facility) are secured by a pledge of substantially all
of its assets, including BRC common stock and shares of Belvedere Capital held
17
by the Fund. Belmar Capital has available under the Credit Facility $86.5
million in unused loan commitments to meet short-term liquidity needs and for
other purposes.
The Fund 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 September 30,
2001, the Portfolio had cash and short-term investments totaling $258.5 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 September 30, 2001, and, as of that date, the net assets of
the Portfolio totaled $16,036.8 million. To ensure liquidity for investors in
the Portfolio, the Portfolio may not invest more than 15% of its net assets in
illiquid assets. As of September 30, 2001, restricted securities, which are
considered illiquid, constituted 1.9% of the net assets of the Portfolio.
The Partnership Preference Units held by BRC are not registered under the
Securities Act of 1933 (the Securities Act) and are subject to substantial
restrictions on transfer. As such, they are considered illiquid. BRC's
investments in real estate joint ventures are extremely illiquid. BRC's
investment in Bel Apartments has been structured as an investment of at least
ten years (until 2010), at which time a buy/sell mechanism offers liquidity to
both BRC and its respective minority shareholders.
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 RISK
(a) Quantitative Information About Market Risk
Interest Rate Risk
- ------------------
The Fund's primary exposure to interest rate risk arises from investments in
real estate that are financed with floating rate bank borrowings. The interest
rate on borrowings under the Fund's Credit Facility is reset at regular
intervals based on the Issuer's cost of financing plus a margin or one-month
LIBOR plus a premium. The Fund utilizes cancelable interest rate swap agreements
to fix the cost of its borrowings over the term of the Credit Facility and to
mitigate the impact of interest rate changes on the Fund's net asset value.
Under the terms of the interest rate swap agreements, the Fund makes cash
payments at fixed rates in exchange for floating rate payments that fluctuate
with one-month LIBOR. In the future, the Fund may use other interest rate
hedging arrangements (such as caps, floors and collars) to fix or limit
borrowing costs. The use of interest rate hedging arrangements is a specialized
activity that may be considered speculative and which can expose the Fund to
significant loss.
The following table summarizes the contractual maturities and weighted-average
interest rates associated with the Fund's significant non-trading financial
instruments. The Fund has no market risk sensitive instruments held for trading
purposes. This information should be read in conjunction with Notes 7 and 8 to
the condensed consolidated financial statements.
18
Interest Rate Sensitivity
Principal (Notional) Amount by Contractual Maturity
For the Twelve Months Ended September 30,
2002 2003 2004 2005 2006 Thereafter Total Fair Value
-------- ------------ ------------ ------------ ------------- --------------- --------------- -----------------
Rate sensitive
liabilities:
- -------------------
Long term debt -
variable rate
Credit Facility
$613,500,000 $613,500,000 $613,500,000
Average
interest rate 3.20% 3.20%
Rate sensitive
derivative
financial
instruments:
- -------------------
Pay fixed/
Receive
variable
interest rate
swap contracts
$601,656,000 $601,656,000 $(60,229,312)
Average
pay rate 8.96% 8.96%
Average receive
rate 3.20% 3.20%
(b) Qualitative Information About Market Risk
The value of Fund shares may not increase or may decline. The performance of the
Fund fluctuates. There can be no assurance that the performance of the Fund 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 the Fund'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 the Fund 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
19
expropriation, confiscatory taxation, lack of uniform accounting and auditing
standards, armed conflict, and potential difficulty in enforcing contractual
obligations.
Risks of Certain Investment Techniques
- --------------------------------------
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 and 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
security sold short (a covered short sale) and may also lend portfolio
securities. The use of these investment techniques is a specialized activity
that may be considered speculative and which can expose the Fund 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.
The Fund'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 the Fund 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 the Fund or the Portfolio fail to meet these requirements,
the counterparty or broker may liquidate positions of the Fund 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 sixty 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 transactions on terms satisfactory to the Fund
or the Portfolio. The Fund's and the Portfolio's ability to enter into such
transactions may also be limited by covenants under the Fund's revolving
securitization 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 Investment Company Act of 1940 and
because other investors in the Portfolio are regulated investment companies
under Subchapter M of the Internal Revenue Code. Moreover, the Fund 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.
20
Risks of Investing in Qualifying Assets and Leverage
- ----------------------------------------------------
The success of BRC's real estate investments, which consist of Partnership
Preference Units and an interest in a real estate joint venture (Real Estate
Joint Venture), depends in part on many factors related to the real estate
market. 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 (whether or not insured against). Partnership
Preference Units also depend upon factors relating to the issuing partnerships
that may affect such partnerships' profitability and their ability to make
distributions to holders of Partnership Preference Units. BRC's investment in
interests in a Real Estate Joint Venture may be influenced by decisions which
the principal minority investor in the Real Estate Joint Venture (the Operating
Partner) may make on behalf of the property owned thereby and potential changes
in the specific real estate sub-markets in which the properties are located. The
debt of the Real Estate Joint Venture is fixed-rate, secured by the underlying
properties and with limited recourse to BRC. 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 BRC's equity interest.
There can be no assurance that BRC's ownership of real estate investments will
be an economic success. Moreover, the success of the Real Estate Joint Venture
investment depends in large part upon the performance of the Operating Partner.
The Operating Partner will be subject to substantial conflicts of interest in
structuring, operating and winding up the Real Estate Joint Venture. The
Operating Partner will have an economic incentive to maximize the prices at
which they sell properties to Real Estate Joint Ventures and to minimize the
prices at which they acquire properties from Real Estate Joint Ventures. The
Operating Partner may devote greater attention or more resources to managing
their wholly-owned properties than properties held by Real Estate Joint
Ventures. Future investment opportunities identified by the Operating Partner
will more likely be pursued independently, rather than through, the Real Estate
Joint Venture. Financial difficulties encountered by the Operating Partner in
its other businesses may interfere with the operations of the Real Estate Joint
Venture.
Although intended to add to returns, the borrowing of funds to purchase real
estate investments exposes the Fund to the risk that the returns achieved on the
real estate investments will be lower than the cost of borrowing to purchase
such assets and that the leveraging of the Fund to buy such assets will
therefore diminish the returns to be achieved by the Fund as a whole. In
addition, there is a risk that the availability of financing will be interrupted
at some future time, requiring the Fund to sell assets to repay outstanding
borrowings or a portion thereof. It may be necessary to make such sales at
unfavorable prices. The Fund's obligations under the Credit Facility are secured
by a pledge of its assets. In the event of default, the lender could elect to
sell assets of the Fund without regard to consequences of such action for
Shareholders. The rights of the lender to receive payments of interest on and
repayments of principal of borrowings is senior to the rights of the
Shareholders. Under the terms of the Credit Facility, the Fund 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, the Fund would not be
able to honor redemption requests or make cash distributions.
21
The valuations of Partnership Preference Units held by the Fund through its
investment in BRC 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. The ongoing value of BRC's investments in Real
Estate Joint Ventures will be substantially uncertain. BRC's investments in Real
Estate Joint Ventures generally will be stated at estimated market value based
on independent valuations, assuming an orderly disposition of assets. Detailed
investment evaluations will be performed annually and reviewed periodically.
Interim valuations will reflect results of operations and distributions, and may
be adjusted to reflect significant changes in economic circumstances since the
most recent independent evaluation. Fluctuations in the value of real estate
investments derived from changes in general interest rates can be expected to be
offset in part (but not entirely) by changes in the value of interest rate swap
agreements or other interest rate hedges entered into by the Fund with respect
to its borrowings under the Credit Facility.
Fluctuations in the value of real estate investments derived from other factors
besides general interest rate movements (including issuer-specific and
sector-specific credit concerns, property-specific concerns and changes in
interest rate spread relationships) will not be offset by changes in the value
of interest rate swap agreements or other interest rate hedges entered into by
the Fund. Changes in the valuation of real estate investments not offset by
changes in the valuation of interest rate swap agreements or other interest rate
hedges entered into by the Fund will cause the performance of the Fund to
deviate from the performance of the Portfolio. Over time, the performance of the
Fund can be expected to be more volatile than the performance of the Portfolio.
22
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:
(a) Exhibits
10(2)(a) Copy of Amendment No. 1 to Management Agreement between Belmar
Realty Corporation and Boston Management and Research dated as of
January 2, 2001 filed herewith.
21 List of subsidiaries
23
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 November 14, 2001.
BELMAR 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
24
EXHIBIT INDEX
10(2)(a) Copy of Amendment No. 1 to Management Agreement between Belmar
Realty Corporation and Boston Management and Research dated as of
January 2, 2001 filed herewith.
21 List of subsidiaries
25