UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2002
Commission 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
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(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 [ ]
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
March 31, 2002 (unaudited) and December 31, 2001 3
Consolidated Statements of Operations (unaudited) for the
Three Months Ended March 31, 2002 and 2001 4
Consolidated Statements of Changes in Net Assets (unaudited)
for the Three Months Ended March 31, 2002 and 2001 6
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 2002 and 2001 7
Financial Highlights (unaudited) for the Three Months
Ended March 31, 2002 9
Notes to Consolidated Financial Statements as of March 31,
2002 (unaudited) 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports 15
SIGNATURES 16
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
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BELAIR CAPITAL FUND LLC
Consolidated Statements of Assets and Liabilities
March 31,
2002 December 31,
(Unaudited) 2001
-------------- --------------
Assets:
Investment in Belvedere Capital Fund
Company LLC $1,821,919,684 $1,820,021,041
Investment in Partnership Preference Units 355,117,552 376,475,922
Investment in other real estate 328,297,389 327,945,162
Short-term investments - 4,559,775
-------------- --------------
Total Investments $2,505,334,625 $2,529,001,900
Cash 6,061,732 6,540,394
Escrow deposits - restricted 4,642,726 4,637,336
Dividends receivable 7,267,155 2,547,069
Deferred expenses 91,795 118,859
Other assets 171,424 221,564
-------------- --------------
Total assets $2,523,569,457 $2,543,067,122
-------------- --------------
Liabilities:
Loan payable $ 543,769,000 $ 558,769,000
Mortgage payable, net of unamortized debt
issuance costs ($2,010,567 and $2,069,458,
respectively) 226,469,950 226,411,059
Open interest rate swap contracts, at value 22,348,493 29,867,703
Swap interest payable 4,714,505 4,394,148
Security deposits 868,011 878,199
Accrued expenses:
Interest expense 3,296,911 3,717,765
Property taxes 1,406,777 2,053,094
Other expenses and liabilities 2,094,867 1,988,505
Minority interests in controlled subsidiaries 27,604,035 27,349,823
-------------- --------------
Total liabilities $ 832,572,549 $ 855,429,296
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Net assets $1,690,996,908 $1,687,637,826
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Shareholders' Capital -------------- --------------
Shareholders' capital $1,690,996,908 $1,687,637,826
-------------- --------------
Shares Outstanding 14,271,530 14,376,567
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Net Asset Value and Redemption Price Per Share $118.49 $117.39
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See notes to consolidated financial statements
3
BELAIR CAPITAL FUND LLC
Consolidated Statements of Operations (Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2002 2001
-------------- --------------
Investment Income:
Dividends allocated from Belvedere Capital
(net of foreign taxes of $25,004 and $30,320,
respectively) $ 4,644,360 $ 4,734,583
Interest allocated from Belvedere Capital 155,139 851,914
Expenses allocated from Belvedere Capital (2,686,212) (3,067,499)
-------------- --------------
Net investment income allocated from
Belvedere Capital $ 2,113,287 $ 2,518,998
Dividends from Partnership Preference Units 8,737,175 11,133,216
Rental income 11,507,916 5,979,865
Interest 34,146 172,994
-------------- --------------
Total investment income $ 22,392,524 $ 19,805,073
-------------- --------------
Expenses:
Investment advisory and administrative fees $ 1,633,322 $ 1,738,712
Property management fees 463,247 238,841
Servicing fees 168,093 200,118
Interest expense on Credit Facility 3,390,594 10,369,359
Interest expense on mortgages 4,363,735 2,386,111
Interest expense on swap contracts 7,360,327 735,861
Property and maintenance expenses 2,611,475 1,463,057
Property taxes and insurance 1,448,970 585,744
Amortization of deferred expenses 27,064 35,649
Miscellaneous 272,146 360,103
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Total expenses $ 21,738,973 $ 18,113,555
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Net investment income before minority interests
in net income of controlled subsidiaries $ 653,551 $ 1,691,518
Minority interests in net income of controlled
subsidiaries (660,952) (334,714)
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Net investment income (loss) $ (7,401) $ 1,356,804
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See notes to consolidated financial statements
4
BELAIR CAPITAL FUND LLC
Consolidated Statements of Operations (Unaudited) (Continued)
Three Months Three Months
Ended Ended
March 31, March 31,
2002 2001
-------------- --------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) -
Investment transactions from Belvedere
Capital (identified cost basis) $ (11,269,064) $ 6,043,693
Investment transactions in Partnership
Preference Units (identified cost basis) (2,040,040) (1,142,610)
-------------- --------------
Net realized gain (loss) $ (13,309,104) $ 4,901,083
-------------- --------------
Change in unrealized appreciation
(depreciation) -
Investment in Belvedere Capital (identified
cost basis) $ 22,404,942 $(255,144,565)
Investments in Partnership Preference Units
(identified cost basis) (609,987) 32,547,138
Investment in other real estate investments
(net of minority interests in unrealized gain
(loss) of controlled subsidiaries) (468,914) -
Interest rate swap contracts 7,519,210 (14,168,209)
-------------- --------------
Net change in unrealized appreciation
(depreciation) $ 28,845,251 $(236,765,636)
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Net realized and unrealized gain (loss) $ 15,536,147 $(231,864,553)
-------------- --------------
Net increase (decrease) in net assets from
operations $ 15,528,746 $(230,507,749)
============== ==============
See notes to consolidated financial statements
5
BELAIR CAPITAL FUND LLC
Consolidated Statements of Changes in Net Assets (Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2002 2001
--------------- ---------------
Increase (Decrease) in Net Assets:
Net investment income (loss) $ (7,401) $ 1,356,804
Net realized gain (loss) on investment
transactions (13,309,104) 4,901,083
Net change in unrealized appreciation
(depreciation) of investments 28,845,251 (236,765,636)
--------------- ---------------
Net increase (decrease) in net assets from
operations $ 15,528,746 $ (230,507,749)
--------------- ---------------
Transactions in Fund Shares -
Net asset value of Fund Shares redeemed $ (12,169,664) $ (17,411,099)
--------------- ---------------
Net decrease in net assets from Fund Share
transactions $ (12,169,664) $ (17,411,099)
--------------- ---------------
Net increase (decrease) in net assets $ 3,359,082 $ (247,918,848)
Net assets:
At beginning of period $1,687,637,826 $2,010,997,840
--------------- ---------------
At end of period $1,690,996,908 $1,763,078,992
=============== ===============
See notes to consolidated financial statements
6
BELAIR CAPITAL FUND LLC
Consolidated Statements of Cash Flows (Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2002 2001
-------------- --------------
Cash Flows From (For) Operating Activities -
Net investment income (loss) $ (7,401) $ 1,356,804
Adjustments to reconcile net investment income
(loss) to net cash flows from (for) operating
activities-
Amortization of debt issuance costs 58,891 40,580
Amortization of deferred expenses 27,064 35,649
Net investment income allocated from Belvedere
Capital (2,113,287) (2,518,998)
(Increase) decrease in dividends receivable (4,720,086) 1,710,276
Increase in escrow deposits (5,390) (305,720)
Decrease in other assets 50,140 226,904
Increase in interest payable for open swap
contracts 320,357 1,612,197
Increase (decrease) in accrued property taxes (646,317) 167,015
Decrease in security deposits, accrued
expenses and other liabilities (324,680) (4,833,401)
Improvements to rental property (352,227) (311,783)
Purchases of Partnership Preference Units (5,655,543) (9,386,616)
Sales of Partnership Preference Units 24,363,886 9,386,616
Net (increase) decrease in investment in
Belvedere Capital 929,970 (19,414,176)
Decrease in minority interest (52,500) (52,500)
Decrease in short-term investments 4,559,775 5,067,352
Minority interests in net income of controlled
subsidiaries 660,952 334,714
-------------- --------------
Net cash flows from (for) operating activities $ 17,093,604 $ (16,885,087)
Cash Flows For Financing Activities -
Repayment of Credit Facility $ (15,000,000) $ (25,000,000)
Payments for Fund Shares redeemed (1,749,112) (2,054,985)
Distributions paid to minority shareholders (823,154) (587,028)
-------------- --------------
Net cash flows used for financing activities $ (17,572,266) $ (27,642,013)
Net decrease in cash $ (478,662) $ (44,527,100)
Cash at beginning of period $ 6,540,394 $ 46,875,064
-------------- --------------
Cash at end of period $ 6,061,732 $ 2,347,964
============== ==============
See notes to consolidated financial statements
7
BELAIR CAPITAL FUND LLC
Consolidated Statements of Cash Flows (Unaudited) (Continued)
Three Months Three Months
Ended Ended
March 31, March 31,
2002 2001
-------------- --------------
Supplemental Disclosure and Non-cash Investing
and Financing Activities-
Change in unrealized appreciation
(depreciation) of investments and open swap
contracts $ 28,845,251 $(236,765,636)
Interest paid for loan $ 3,813,353 $ 11,892,919
Interest paid for swap contracts $ 7,039,970 $ 876,336
Interest paid for mortgages $ 4,304,844 $ 2,345,531
Market value of securities distributed in
payment of redemptions $ 10,420,552 $ 15,356,114
See notes to consolidated financial statements
8
Belair Capital Fund LLC as of March 31, 2002
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Financial Highlights (Unaudited)
For the Three Months Ended March 31, 2002
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Net asset value - Beginning of period $ 117.390
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Income (loss) from operations
- --------------------------------------------------------------------------------
Net investment loss (5) $ (0.001)
Net realized and unrealized gain 1.101
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Total income from operations $ 1.100
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Net asset value - End of period $ 118.490
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Total Return (1) 0.94%
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As a Percentage As a Percentage
of Average Net of Average Gross
Ratios Assets (4)(8) Assets (2)(4)(8)
- --------------------------------------------------------------------------------
Expenses of Consolidated Real Property
Subsidiaries
Interest and other borrowing costs (3) 0.79% 0.55%
Operating Expenses (3) 0.83% 0.58%
Belair Capital Fund LLC Expenses
Interest and other borrowing cost (6) 2.62% 1.83%
Investment advisory and administrative
fees, servicing fees and other Fund
operating expenses (6)(7) 1.15% 0.81%
---------------------------------
Total expenses 5.39% 3.77%
Net investment loss (0.002)% (0.001)%
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Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 1,690,997
Portfolio Turnover of Tax-Managed Growth Portfolio 5%
- --------------------------------------------------------------------------------
(1) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of the
period. Distributions, if any, are assumed reinvested at the net asset
value on the reinvestment date.
(2) Average Gross Assets is defined as the average daily amount of all assets
of Belair Capital Fund LLC (not including its investment in Belair Real
Estate Corporation (BREC)) plus all assets of BREC minus the sum of each
entities' liabilities other than the principal amount of money borrowed.
For this purpose, the assets and liabilities of BREC's controlled
subsidiaries are reduced by the proportionate interests therein of
investors other than BREC.
(3) Ratio includes BREC's proportional share of expenses incurred by its
majority-owned subsidiaries.
(4) For the purpose of calculating ratios, the income and expenses of BREC's
controlled subsidiaries are reduced by the proportionate interests therein
of investors other than BREC.
(5) Calculated using average shares outstanding.
(6) Ratio includes the expenses of Belair Capital Fund LLC and BREC for which
Belair Capital Fund LLC owns 100% of the outstanding common stock. The
ratio does not include expenses of other real estate subsidiaries.
(7) Ratio includes Belair Capital Fund LLC's share of Belvedere Capital's
allocated expenses, including those expenses allocated from the Portfolio.
(8) Annualized.
See notes to consolidated financial statements
9
BELAIR CAPITAL FUND LLC as of March 31, 2002
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1 Basis of Presentation
The condensed consolidated interim financial statements of Belair Capital Fund
LLC (Belair Capital) and its subsidiaries (collectively the "Fund") have been
prepared by the Fund, without audit, in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America, have been condensed or
omitted as permitted by such rules and regulations. All adjustments, consisting
of normal recurring adjustments, have been included. Management believes that
the disclosures are adequate to present fairly the financial position, results
of operations, cash flows and financial highlights at the dates and for the
periods presented. It is suggested that these interim financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Fund's latest annual report on Form 10-K. Results for interim periods are
not necessarily indicative of those to be expected for the full fiscal year.
The balance sheet at December 31, 2001, has been derived from the December 31,
2001 audited financial statements but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements as permitted by the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Certain amounts in the prior period's consolidated financial statements have
been reclassified to conform with the current year presentation.
2 Investment Transactions
Increases and decreases of the Fund's investment in Belvedere Capital Fund
Company LLC (Belvedere Capital) for the three months ended March 31, 2002
aggregated $27,620,268 and $38,970,790, respectively, and for the three months
ended March 31, 2001 aggregated $63,122,364 and $59,064,302, respectively.
Purchases and sales of Partnership Preference Units aggregated $5,655,543 and
$24,363,886, respectively, for the three months ended March 31, 2002 and
$9,386,616 and $9,386,616, respectively, for the three months ended March 31,
2001. For the three months ended March 31, 2002 and March 31, 2001, there were
no acquisitions or sales of other real property.
Purchases and sales of Partnership Preference Units during the three months
ended March 31, 2002 and March 31, 2001 include amounts purchased from and sold
to other funds sponsored by Eaton Vance Management.
3 Indirect Investment in Portfolio
Belvedere Capital's interest in Tax-Managed Growth Portfolio (the Portfolio) at
March 31, 2002 was $10,618,305,771 representing 56.5% of the Portfolio's net
assets and at March 31, 2001 was $9,248,868,309 representing 54.7% of the
Portfolio's net assets. The Fund's investment in Belvedere Capital at March 31,
2002 was $1,821,919,684 representing 17.2% of Belvedere Capital's net assets and
10
at March 31, 2001 was $1,890,271,327, representing 20.4% of Belvedere Capital's
net assets. Investment income allocated to Belvedere Capital from the Portfolio
for the three months ended March 31, 2002 totaled $27,289,011, of which
$4,799,499, was allocated to the Fund. Investment income allocated to Belvedere
Capital from the Portfolio for the three months ended March 31, 2001 totaled
$25,944,565, of which $5,586,497 was allocated to the Fund. Expenses allocated
to Belvedere Capital from the Portfolio for the three months ended March 31,
2002 totaled $11,408,561, of which $2,005,160 was allocated to the Fund.
Expenses allocated to Belvedere Capital from the Portfolio for the three months
ended March 31, 2001 totaled $10,657,687, of which $2,290,377 was allocated to
the Fund. Belvedere Capital allocated additional expenses to the Fund of
$681,052 for the three months ended March 31, 2002, representing $16,857 of
operating expenses and $664,195 of service fees. Belvedere Capital allocated
additional expenses to the Fund of $777,122 for the three months ended March 31,
2001, representing $19,875 of operating expenses and $757,247 of service fees.
A summary of the Portfolio's Statement of Assets and Liabilities, at March 31,
2002, December 31, 2001 and March 31, 2001 and its operations for the three
months ended March 31, 2002, the year ended December 31, 2001 and the three
months ended March 31, 2001 follows:
March 31, December 31, March 31,
2002 2001 2001
-----------------------------------------------------
Investments, at value $18,699,529,315 $18,312,992,768 $16,937,423,532
Other Assets 137,094,099 23,229,223 32,010,878
- --------------------------------------------------------------------------------
Total Assets $18,836,623,414 $18,336,221,991 $16,969,434,410
Total Liabilities 54,877,430 357,011 59,756,296
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Net Assets $18,781,745,984 $18,335,864,980 $16,909,678,114
================================================================================
Dividends and interest $ 48,561,319 $ 192,367,081 $ 48,190,173
- --------------------------------------------------------------------------------
Investment adviser fee $ 19,634,596 $ 76,812,367 $ 19,128,089
Other expenses 654,041 2,161,015 640,516
- --------------------------------------------------------------------------------
Total expenses $ 20,288,637 $ 78,973,382 $ 19,768,605
- --------------------------------------------------------------------------------
Net investment income $ 28,272,682 $ 113,393,699 $ 28,421,568
Net realized gains (losses) (111,417,095) (360,120,300) 52,532,750
Net change in unrealized
gains (losses) 229,264,275 (1,605,211,090) (2,205,600,689)
- --------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations $ 146,119,862 $(1,851,937,691) $(2,124,646,371)
- --------------------------------------------------------------------------------
4 Cancelable Interest Rate Swap Agreements
Belair Capital has entered into cancelable interest rate swap agreements in
connection with its real estate investments and the associated borrowings. Under
such agreements, Belair Capital has agreed to make periodic payments at fixed
rates in exchange for payments at floating rates. The notional or contractual
amounts of these instruments may not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
investments is meaningful only when considered in conjunction with all related
assets, liabilities and agreements. As of March 31, 2002 and December 31, 2001,
Belair Capital has entered into cancelable interest rate swap agreements with
Merrill Lynch Capital Services, Inc.
- --------------------------------------------------------------------------------
11
Notional Initial Unrealized Unrealized
Amount Optional Depreciation Depreciation
Effective (000's Fixed Floating Termination Maturity At March 31, At December 31,
Date omitted) Rate Rate Date Date 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
2/98 $120,000 6.715% Libor+0.45% 2/03 2/05 $(2,825,585) $ (4,036,969)
4/98 50,000 6.84% Libor+0.45% 2/03 2/05 (1,267,642) (1,789,764)
4/98 150,000 6.835% Libor+0.45% 4/03 4/05 (4,193,487) (5,769,278)
6/98 20,000 6.67% Libor+0.45% 6/03 2/05 (563,218) (780,852)
6/98 75,000 6.68% Libor+0.45% 6/03 2/05 (2,125,094) (2,943,209)
6/98 80,000 6.595% Libor+0.45% 6/03 2/05 (2,148,126) (3,002,682)
11/98 14,709 6.13% Libor+0.45% 11/03 2/05 (307,319) (455,595)
2/99 34,951 6.34% Libor+0.45% 2/04 2/05 (945,737) (1,322,041)
4/99 5,191 6.49% Libor+0.45% 2/04 2/05 (158,537) (216,372)
7/99 24,902 7.077% Libor+0.45% 7/04 2/05 (1,191,105) (1,507,472)
9/99 10,471 7.37% Libor+0.45% 9/04 2/05 (593,779) (734,425)
3/00 19,149 7.89% Libor+0.45% 2/04 2/05 (1,145,614) (1,428,015)
3/00 70,000 7.71% Libor+0.45% - 2/05 (4,883,250) (5,881,029)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $(22,348,493) $(29,867,703)
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2002, COMPARED TO THE
QUARTER ENDED MARCH 31, 2001
Belair Capital Fund LLC and its subsidiaries (collectively, the Fund) achieved a
total return performance of 0.94% for the quarter ended March 31, 2002. This
return reflects an increase in the Fund's net asset value per share from $117.39
to $118.49. This return is compared to 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, which had a total return of 0.28% over the same
period. For comparison, at the end of the first quarter of 2001, the Fund's net
asset value per share decreased from $133.13 to $117.79, representing a -11.5%
return versus S&P 500's total return of -11.9%.
During the first quarter of 2002, the U.S. equity market's return was hampered
by continued volatility and economic uncertainty. In this difficult environment,
the performance of Tax-Managed Growth Portfolio (the Portfolio) exceeded that of
the overall market. The Portfolio correctly de-emphasized the two worst
performing sectors of the S&P 500: Information Technology and Telecom, which
lost -7.5% and -15.9% respectively. The Portfolio held the same cautious stance
on the aforementioned sectors in the first quarter of 2001. Value stocks in all
capitalization ranges outperformed their growth counterparts for the quarter
ending March 31, 2002. The Portfolio made a gradual shift to overweight in
Capital Goods, and increased its exposure to the Consumer Discretionary area
during the last year, which helped its performance. An increase in the exposure
to defense and aerospace names continued to be productive for the Portfolio.
In the fixed income markets, the first quarter benefited from a stable interest
rate environment and narrowing credit spreads. The Federal Reserve Board left
interest rates unchanged for the quarter ending March 31, 2002; the first
non-action since early 2000. Changes in valuation of the Fund's holdings of
Partnership Preference Units and other real estate investments had a modest
positive impact on the Fund's performance during the period.
12
LIQUIDITY AND CAPITAL RESOURCES
The Fund has entered into interest rate swap agreements with respect to its
borrowings and real estate investments. Pursuant to these agreements, the Fund
makes quarterly payments to the counterparty at predetermined fixed rates, in
exchange for floating-rate payments from the counterparty at a predetermined
spread to three-month LIBOR. During the terms of the outstanding swap
agreements, changes in the underlying values of the swaps are recorded as
unrealized gains or losses.
As of March 31, 2002 and 2001, the unrealized depreciation related to the
interest rate swap agreements was $(22,348,493) and $(19,002,862), respectively.
CRITICAL ACCOUNTING POLICIES
The Fund's discussion and analysis of its financial condition and results of
operations are based upon the Fund's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires the Fund to make estimates, judgments and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. The Fund bases
these estimates, judgments and assumptions on historical experience and on other
various factors that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or
conditions.
The Fund believes its more significant estimates and assumptions used in
preparation of its consolidated financial statements are affected by its
critical accounting policies for the Fund's investments in real estate and
interest rate swap contracts. Prices are not readily available for these types
of investments and therefore they are valued as determined in good faith by the
Investment Adviser on an ongoing basis.
In estimating the value of the Fund's investments in real estate, the Investment
Adviser takes into account all relevant factors, data and information, including
with respect to investments in Partnership Preference Units, information from
dealers and similar firms with knowledge of such issues and the prices of
comparable preferred equity securities and other fixed or adjustable rate
instruments having similar investment characteristics. Real estate investments
other than Partnership Preference Units are generally stated at estimated market
values based upon independent valuations assuming an orderly disposition of
assets. Detailed valuations are performed annually and reviewed periodically and
adjusted if there has been a significant change in economic circumstances since
the previous valuation. Given that such valuations include many assumptions,
including but not limited to an orderly disposition of assets, values may differ
from amounts ultimately realized. The Investment Adviser, in determining the
value of interest rate swaps, may consider among other things, dealer and
counter-party quotes and pricing models.
These policies involve significant judgments made, based upon without
limitation, general economic conditions, the supply and demand for different
types of real properties, the financial health of tenants, the timing of lease
expirations and terminations, fluctuations in rental rates and operating costs,
exposure to adverse environmental conditions and losses from casualty or
condemnation, interest rates, availability of financing, managerial performance
and government rules and regulations. The valuations of Partnership Preference
Units held by the Fund through its investment in Belair Real Estate Corporation
(BREC) fluctuate over time to reflect, among other factors, changes in interest
rates, changes in perceived riskiness of such units (including call risk),
changes in the perceived riskiness of comparable or similar securities trading
13
in the public market and the relationship between supply and demand for
comparable or similar securities trading in the public market. 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. 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
The Fund's primary exposure to interest rate risk arises from investments in
real estate that are financed using floating rate bank borrowings under a
revolving credit facility (the Credit Facility). The interest rate on borrowings
under the Fund's Credit Facility is reset at regular intervals based on a fixed
and predetermined premium to LIBOR for short-term extensions of credit. The Fund
utilizes cancelable interest rate swap agreements to fix the cost of its
borrowings under the Credit Facility and to mitigate the impact of interest rate
changes on the Fund's net asset value. Under the terms of the interest rate swap
agreements, the Fund makes cash payments at fixed rates in exchange for floating
rate payments that fluctuate with three-month LIBOR. The interest rate swap
agreements are valued on an ongoing basis by the Investment Adviser. In the
future, the Fund may use other interest rate hedging arrangements (such as caps,
floors and collars) to fix or limit borrowing costs. The use of interest rate
hedging arrangements is a specialized activity that may be considered
speculative and which can expose the Fund to significant loss.
The following table summarizes the contractual maturities and weighted-average
interest rates associated with the Fund's significant non-trading financial
instruments. The Fund has no market risk sensitive instruments held for trading
purposes. This information should be read in conjunction with Notes 4 to the
consolidated financial statements.
Interest Rate Sensitivity
Principal (Notional) Amount by Contractual Maturity
For the Twelve Months Ended March 31,
2003 2004 2005 2006 2007 Thereafter Total Fair Value
-----------------------------------------------------------------------------------------------------------
Rate sensitive
liabilities:
- ------------------
Long term debt-
variable rate
Credit Facility $543,769,000 $543,769,000 $543,769,000
Average
interest rate 2.48% 2.48%
Rate sensitive
derivative
financial
instruments:
- ------------------
Pay fixed/
Receive
variable interest
rate swap
contracts $674,373,000 $674,373,000 $(22,348,493)
Average
pay rate 6.86% 6.86%
Average
receive rate 2.48% 2.48%
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- --------------------------
Although in the ordinary course of business, the Fund, BREC or the real estate
investments in which BREC has equity interests may become involved in legal
proceedings, the Fund is not aware of any material pending legal proceedings to
which the Fund or BREC is a party or of which any of BREC's real estate
investments is the subject.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
- --------------------------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- ----------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION.
- --------------------------
None.
ITEM 6. THE FOLLOWING IS A LIST OF ALL EXHIBITS FILED AS PART OF THIS FORM 10Q:
- -------------------------------------------------------------------------------
(a) Exhibits
21 List of subsidiaries
15
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 May 15, 2002.
BELAIR CAPITAL FUND LLC
(Registrant)
By: EATON VANCE MANAGEMENT,
its Manager
By: /s/ James L. O'Connor
--------------------------------
James L. O'Connor
Vice President
By: /s/ William M. Steul
--------------------------------
William M. Steul
Chief Financial Officer
16
EXHIBIT INDEX
21 List of subsidiaries
17