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. 000-30509
Belport Capital Fund LLC
------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3551830
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(State of organization) (I.R.S. Employer Identification No.)
The Eaton Vance Building
255 State Street, Boston, Massachusetts 02109
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 617-482-8260
------------------------------
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 17
Belport Capital Fund LLC
Index to Form 10Q
PART I - FINANCIAL INFORMATION Page
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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 for the Period Ended
March 31, 2001 4
Consolidated Statements of Changes in Net Assets (Unaudited)
for the Three Months Ended March 31, 2002 and for the Period
Ended March 31, 2001 6
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended March 31, 2002 and for the Period Ended
March 31, 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 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II- OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports 16
SIGNATURES 17
2
3
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
- --------------------------------------------------------------------------------
BELPORT CAPITAL FUND LLC
Consolidated Statements of Assets and Liabilities
March 31,
2002 December 31,
(Unaudited) 2001
-------------- --------------
Assets:
Investment in Belvedere Capital Fund
Company LLC $1,767,713,414 $1,762,622,297
Investment in Partnership Preference Units 93,491,238 92,501,000
Investment in other real estate 495,660,528 518,617,126
Short-term investments 371,055 1,705,915
-------------- --------------
Total investments $2,357,236,235 $2,375,446,338
Cash 10,940,591 10,001,955
Escrow deposits - restricted 3,106,420 2,081,850
Open interest rate swap contracts, at value 1,095,372 -
Dividends receivable 1,342,500 570,625
Other assets 431,648 934,710
-------------- --------------
Total assets $2,374,152,766 $2,389,035,478
-------------- --------------
Liabilities:
Loan payable on Credit Facility $ 231,000,000 $ 231,000,000
Mortgage payable, net of unamortized debt
issuance costs of $2,409,327 and $2,439,385,
respectively 358,698,173 358,668,115
Open interest rate swap contracts, at value - 2,344,008
Security deposits 959,032 948,853
Swap interest payable 335,743 170,110
Accrued expenses:
Interest expense 2,553,882 2,556,850
Property taxes 2,972,852 1,698,822
Other expenses and liabilities 3,440,269 3,059,258
Minority interest in controlled subsidiaries 32,623,467 39,431,598
-------------- --------------
Total liabilities $ 632,583,418 $ 639,877,614
-------------- --------------
Net assets $1,741,569,348 $1,749,157,864
Shareholders' Capital
-------------- --------------
Shareholders' capital $1,741,569,348 $1,749,157,864
-------------- --------------
Shares Outstanding 17,688,607 17,782,241
-------------- --------------
Net Asset Value and Redemption Price Per Share $98.46 $98.37
-------------- --------------
See notes to consolidated financial statements
3
BELPORT CAPITAL FUND LLC
Consolidated Statements of Operations
(Unaudited)
Three Months
Ended Period Ended
March 31, March 31,
2002 2001*
-------------- --------------
Investment Income:
Dividends allocated from Belvedere Capital
(net of foreign taxes of $24,276 and $5,562,
respectively) $ 4,497,093 $ 145,886
Interest allocated from Belvedere Capital 149,847 36,849
Expenses allocated from Belvedere Capital (2,599,446) (129,172)
-------------- --------------
Net investment income allocated from
Belvedere Capital $ 2,047,494 $ 53,563
Rental Income 17,228,311 2,709,467
Dividends from Partnership Preference Units 2,203,828 -
Interest 42,124 12,000
-------------- --------------
Total investment income $21,521,757 $2,775,030
-------------- --------------
Expenses:
Investment advisory and administrative fees $ 1,488,441 $ 34,568
Property management fees 690,709 93,673
Distribution and servicing fees 855,385 29,045
Interest expense on mortgages 6,185,329 1,008,958
Interest expense on Credit Facility 1,311,904 144,331
Interest expense on swap contracts 2,036,074 12,945
Property and maintenance expenses 3,682,656 519,521
Property taxes and insurance 1,968,146 206,686
Miscellaneous 384,780 10,591
-------------- --------------
Total expenses $18,603,424 $2,060,318
Deduct-
Reduction of investment adviser and
administrative fee $ (423,820) $ (14,838)
-------------- --------------
Net expenses $18,179,604 $2,045,480
-------------- --------------
Net investment income before minority
interests in net income of controlled
subsidiaries $ 3,342,153 $ 729,550
Minority interests in net income of
controlled subsidiaries (1,068,174) (223,157)
-------------- --------------
Net investment income $ 2,273,979 $ 506,393
-------------- --------------
* For the period from the start of business, March 14, 2001, to March 31,
2001.
See notes to consolidated financial statements
4
BELPORT CAPITAL FUND LLC
Consolidated Statements of Operations
(Unaudited) (Continued)
Three Months Period
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) $(10,094,276) $ 821,984
-------------- --------------
Net realized gain (loss) $(10,094,276) $ 821,984
-------------- --------------
Change in unrealized appreciation(depreciation)-
Investment in Belvedere Capital
(identified cost basis) $ 21,581,004 $(15,278,534)
Investments in Partnership Preference Units
(identified cost basis) 990,238 -
Investment in other real estate investments
(net of minority interest in unrealized
loss of controlled subsidiaries of
$6,554,953 and $0, respectively) (16,860,461) (1,337,380)
Interest rate swap contracts 3,439,380 493,596
-------------- --------------
Net change in unrealized
appreciation (depreciation) $ 9,150,161 $(16,122,318)
-------------- --------------
Net realized and unrealized loss $ (944,115) $(15,300,334)
-------------- --------------
Net increase (decrease) in net assets from
operations $ 1,329,864 $(14,793,941)
============== ==============
* For the period from the start of business, March 14, 2001, to March 31,
2001.
See notes to consolidated financial statements
5
BELPORT CAPITAL FUND LLC
Consolidated Statements of Changes in Net Assets (Unaudited)
Three Months Period
Ended Ended
March 31, 2002 March 31, 2001*
---------------- ---------------
Increase (Decrease) in Net Assets:
Net investment income $ 2,273,979 $ 506,393
Net realized gain (loss) on investment
transactions (10,094,276) 821,984
Net change in unrealized appreciation
(depreciation) of investments 9,150,161 (16,122,318)
---------------- ---------------
Net increase (decrease) in net assets from
operations $ 1,329,864 $(14,793,941)
---------------- ---------------
Transactions in Fund Shares -
Investment securities contributed $ - $483,670,049
Less - Selling commissions $ - (1,609,428)
---------------- ---------------
Net contributions $ - $482,060,621
Net asset value of Fund Shares redeemed (8,918,380) (161,616)
---------------- ---------------
Net increase (decrease) in net assets from
Fund Share transactions $ (8,918,380) $481,899,005
---------------- ---------------
Net increase (decrease) in net assets $ (7,588,516) $467,105,064
Net assets:
At beginning of period $1,749,157,864 $ -
---------------- ---------------
At end of period $1,741,569,348 $467,105,064
================ ===============
* For the period from the start of business, March 14, 2001, to March 31,
2001.
See notes to consolidated financial statements
6
BELPORT CAPITAL FUND LLC
Consolidated Statements of Cash Flows (Unaudited)
Three Months Period
Ended Ended
March 31, March 31,
2002 2001*
------------ -------------
Cash flows From (For) Operating Activities -
Net investment income $ 2,273,979 $ 506,393
Adjustments to reconcile net investment income to net
cash flows from (for) operating activities -
Net investment income allocated from Belvedere Capital (2,047,494) (53,563)
Amortization of debt issuance costs 30,058 9,548
Increase in escrow deposits (1,024,570) -
Decrease (increase) in other assets 503,062 (349,106)
Increase in dividends receivable (771,875) -
Increase in minority interest - 210,000
Increase in security deposits 10,179 7,279
Increase in interest payable for open swap contracts 165,633 12,945
Increase in accrued interest and accrued expenses and liabilities 378,043 1,580,703
Increase in accrued property taxes 1,274,030 175,540
Improvements to rental property (458,814) (111,884)
Cash assumed in connection with acquisition of other real estate investments - 1,353,367
Payments for investments in other real estate - (49,080,498)
Net decrease (increase) in investment in Belvedere Capital 906,535 (841,861)
Decrease in short-term investments 1,334,860 -
Minority interests in net income of controlled subsidiaries 1,068,174 223,157
------------ -------------
Net cash flows from (for) operating activities $ 3,641,800 $(46,357,980)
Cash Flows From (For) Financing Activities
Proceeds from Credit Facility $ - $ 51,500,000
Payments on behalf of investors (selling commissions) - (1,609,428)
Payments for Fund Shares redeemed (1,381,814) -
Distributions paid to minority shareholders (1,321,350) -
------------ -------------
Net cash flows from (for) financing activities $(2,703,164) $ 49,890,572
Net increase in cash $ 938,636 $ 3,532,592
Cash at beginning of period $10,001,955 $ -
------------ -------------
Cash at end of period $ 10,940,591 $ 3,532,592
============ =============
* For the period from the start of business, March 14, 2001, to March 31,
2001.
See notes to consolidated financial statements
7
BELPORT CAPITAL FUND LLC
Consolidated Statements of Cash Flows (Unaudited) (Continued)
Three Months Period
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 $9,150,161 $(16,122,318)
Interest paid for loan $1,314,873 $ -
Interest paid for mortgages $6,111,830 $ 166,568
Interest paid for swap contracts $1,870,441 $ -
Market value of securities distributed in payment
of redemptions $7,536,566 $ -
Market value of real property and other assets,
net of current liabilities, assumed in conjunction
with acquisition of real estate investments $ - $206,104,124
Mortgage assumed in connection with acquisition of
real estate investments $ - $143,800,000
Securities contributed by Fund Shareholders,
invested in Belvedere Capital $ - $483,670,049
* For the period from the start of business, March 14, 2001, to March 31,
2001.
See notes to consolidated financial statements
8
BELPORT CAPITAL FUND LLC as of March 31, 2002
Consolidated Financial Statements (Continued)
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
For the Three Months Ended March 31, 2002
- --------------------------------------------------------------------------------
Net asset value - Beginning of period $ 98.370
- --------------------------------------------------------------------------------
Income (loss) from operations
- --------------------------------------------------------------------------------
Net investment income (6) $ 0.128
Net realized and unrealized loss (0.038)
- --------------------------------------------------------------------------------
Total income from operations $ 0.090
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value - End of period $ 98.460
Total Return (1) 0.09%
- --------------------------------------------------------------------------------
As a Percentage As a Percentage
of Average Net of Average Gross
Ratios Assets(5) Assets(2)(5)
- --------------------------------------------------------------------------------
Expenses of Consolidated Real Property Subsidiaries
Interest and other borrowing costs(3)(4) 1.13% 0.86%
Operating expenses (3)(4) 1.17% 0.90%
Belport Capital Fund LLC Expenses
Interest and other borrowing costs(3)(7) 0.79% 0.61%
Investment advisory and administrative
fees, servicing fees and other Fund
operating expenses (3)(7)(8) 1.14% 0.88%
---------------------------------------------
Total expenses(3)(8)(9) 4.23% 3.25%
Net investment income(3)(9) 0.54% 0.41%
- --------------------------------------------------------------------------------
Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 1,741,569
Portfolio Turnover of Tax-Managed Growth Portfolio 5.00%
- --------------------------------------------------------------------------------
(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. Total return is not calculated on an
annualized basis.
(2) Average Gross Assets is defined as the average daily amount of all assets
of Belport Capital Fund LLC (not including its investment in Belport Realty
Corporation (BRC)) plus all assets of BRC, without reduction by any
liabilities. For this purpose, the assets of BRC's controlled subsidiaries
are reduced by the proportionate interest therein of investors other than
BRC.
(3) Annualized.
(4) Ratio includes BRC's proportional share of expenses incurred by its
majority-owned subsidiaries.
(5) For the purpose of calculating ratios, the income and expenses of BRC's
controlled subsidiaries are reduced by the proportionate interest therein
of investors other than BRC.
(6) Calculated using average shares outstanding.
(7) Ratio includes the expenses of Belport Capital Fund LLC and BRC, for which
Belport Capital Fund LLC owns 100% of the outstanding common stock. The
ratio does not include expenses of other real estate subsidiaries.
(8) Ratio includes Belport Capital Fund LLC's share of Belvedere Capital's
allocated expenses, including those expenses allocated from the Portfolio.
(9) The expenses reflect a reduction of the investment advisory and
administrative fees. Had such actions not been taken, the ratios of total
expenses to average net assets and average gross assets would have been
4.33% and 3.33%, respectively, and the ratios of net investment income to
average net assets and average gross assets would have been 0.44% and
0.33%, respectively.
See notes to consolidated financial statements
9
BELPORT 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 Belport Capital Fund
LLC (Belport Capital) and its subsidiaries (collectively, the "Fund") have been
prepared by the Fund, without audit, in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted as permitted by such rules and regulations. All adjustments, consisting
of normal recurring adjustments, have been included. Management believes that
the disclosures are adequate to present fairly the financial position, results
of operations, cash flows and financial highlights at the dates and for the
periods presented. It is suggested that these interim financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Fund's latest annual report on Form 10. 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 Article 10 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 Estate Freeze
Shareholders in Belport Capital 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 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.
10
The allocation of Belport Capital's net asset value per Share of $98.46 and
$98.37 as of March 31, 2002 and December 31, 2001 respectively, between
Preferred and Common Shares that have been restructured is as follows:
Per Share Value At Per Share Value At
March 31, 2002 December 31, 2001
--------------------------------------------------
Preferred Common Preferred Common
Date of Contribution Shares Shares Shares Shares
- --------------------------------------------------------------------------------
May 23, 2001 $ 98.46 $ - N/A* N/A*
July 26, 2001 $ 94.71 $ 3.75 $ 94.71 $ 3.66
* There were no Estate Freeze participants from the May 23, 2001 closing as
of December 31, 2001.
3 Investment Transactions
Increases and decreases of the Belport Capital's investment in Belvedere Capital
for the three months ended March 31, 2002 aggregated $5,191,349 and $13,634,454,
respectively, and for the period from the start of business, March 14, 2001, to
March 31, 2001 aggregated $486,307,339 and $1,795,429, respectively. For the
period ended March 31, 2002 and from the start of business, March 14, 2001 to
March 31, 2001 there were no sales or purchases of Partnership Preference Units.
For the three months ended March 31, 2002, there were no acquisitions or sales
of other real estate investments. For the period from the start of business,
March 14, 2001 to March 31, 2001, acquisitions of other real estate investments
aggregated $49,080,498.
Purchases of other real estate investments during the period from the start of
business, March 14, 2001 to March 31, 2001 include amounts purchased from other
funds sponsored by EVM.
4 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 $1,767,713,414 representing 16.7% of Belvedere Capital's net assets and
at March 31, 2001 was $470,108,923, representing 5.1% 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 $4,646,940
was allocated to Belport Capital. Investment income allocated to Belvedere
Capital from the Portfolio for the period from the start of business, March 14,
2001, to March 31, 2001 totaled $3,611,204, of which $182,735 was allocated to
Belport Capital. Expenses allocated to Belvedere Capital from the Portfolio for
the three months ended March 31, 2002 totaled $11,408,561, of which $1,940,638
was allocated to Belport Capital. Expenses allocated to Belvedere Capital from
the Portfolio for the period from the start of business, March 14, 2001, to
March 31, 2001 totaled $1,889,269, of which $95,630 was allocated to Belport
Capital. Belvedere Capital allocated additional expenses to Belport Capital of
$658,808 for the three months ended March 31, 2002, representing $16,775 of
operating expenses and $642,033 of service fees. Belvedere Capital allocated
additional expenses to Belport Capital of $33,542, for the period from the start
of business, March 14, 2001, to March 31, 2001, representing $890 of operating
expenses and $32,652 of service fees.
11
A summary of the Portfolio's Statement of Assets and Liabilities, at March 31,
2002, December 31, 2001 and at March 31, 2001 and its operations for the three
months ended March 31, 2002, the year ended December 31, 2001 and for the period
from the start of business, March 14, 2001, to 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
- --------------------------------------------------------------------------------
Net Assets $18,781,745,984 $18,335,864,980 $16,909,678,114
================================================================================
Dividends and interest $ 48,561,319 $ 150,792,607 $ 6,615,699
- --------------------------------------------------------------------------------
Investment adviser fee $ 19,634,596 $ 61,024,040 $ 3,339,762
Other expenses 654,041 1,633,741 113,242
- --------------------------------------------------------------------------------
Total expenses $ 20,288,637 $ 62,657,781 $ 3,453,004
- --------------------------------------------------------------------------------
Net investment income $ 28,272,682 $ 88,134,826 $ 3,162,695
Net realized gains (losses) (111,417,095) (383,002,016) 29,651,034
Net change in unrealized
gains (losses) 229,264,275 46,979,377 (553,410,222)
- --------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations $ 146,119,862 $ (247,887,813) $ (520,596,493)
- --------------------------------------------------------------------------------
5 Interest Rate Swap Agreements
Belport Capital has entered into current and forward interest rate swap
agreements in connection with its real estate investments and the associated
borrowings. Under such agreements, Belport 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, Belport Capital has entered into interest rate swap
agreements with Citibank, N.A. and Merrill Lynch Capital Services, Inc.
Unrealized Unrealized
Notional Appreciation Appreciation
Amount (Depreciation) (Depreciation)
Effective (000's Fixed Floating Termination at March 31, at December 31,
Date omitted) Rate Rate Date 2002 2001
----------- ---------- ------- ---------- ------------- ---------------- -----------------
03/01 $49,808 5.8075% Libor + 0.40% 3/08 $ 146,821 $ 452,595
05/01 73,980 5.79% Libor + 0.40% 3/08 304,702 (797,634)
07/01 34,905 5.995% Libor + 0.40% 3/08 (227,387) (767,018)
12/01 57,509 5.841% Libor + 0.40% 3/08 5,043 (786,962)
03/08 49,080 6.45% Libor + 0.40% 2/10 498,590 (538,733)
03/08 73,980 6.92% Libor + 0.40% 9/10 367,603 93,744
- -------------------------------------------------------------------------------------------------------
Total $1,095,372 $(2,344,008)
- -------------------------------------------------------------------------------------------------------
12
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
PERIOD ENDED MARCH 31, 2001
Belport Capital Fund LLC and its subsidiaries (collectively, the Fund) achieved
a total return performance of 0.09% for the quarter ended March 31, 2002. This
return reflects an increase in the Fund's net asset value per share from $98.37
to $98.46. 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 period from the start of business,
March 14, 2001, to March 31, 2001, the Fund's net asset value per share
decreased from $100.00 to $96.93, representing a -3.07% 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 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
negative impact on the Fund's performance during the period.
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 periodic payments to the counterparty at predetermined fixed rates, in
exchange for floating-rate payments from the counterparty that fluctuate with
one-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 appreciation related to the
interest rate swap agreements was $ 1,095,372 and $493,596, respectively.
13
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 Belport Realty Corporation
(BRC) fluctuate over time to reflect, among other factors, changes in interest
rates, changes in perceived riskiness of such units (including call risk),
changes in the perceived riskiness of comparable or similar securities trading
in the public market and the relationship between supply and demand for
comparable or similar securities trading in the public market. 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)
14
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 RISK
The Fund's primary exposure to interest rate risk arises from investments in
real estate that are financed with 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 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. 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. This information should be read in conjunction with Note 5 to the
consolidated financial statements. The Fund has no market risk sensitive
instruments held for trading purposes.
Interest Rate Sensitivity
Principal (Notional) Amount by Contractual Maturity
For the Twelve Months Ended March 31,
2003-2007 Thereafter Total Fair Value
------------------------------------------------------------
Rate sensitive
liabilities:
- ---------------
Long term debt-
Variable rate
Credit Facility $231,000,000 $231,000,000 $231,000,000
Average
Interest rate 2.63% 2.63%
Rate sensitive
derivative
financial
instruments:
- ---------------
Pay fixed/
Receive
variable
interest rate
swap contracts $338,534,299 $338,534,299 $ 1,095,372
- ---------------
Average pay
rate 6.16% 6.16%
Average
receive rate 2.63% 2.63%
15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ---------------------------
Although in the ordinary course of business, the Fund, BRC or the real estate
investments in which BRC 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 BRC is a party or of which any of BRC'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
16
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 June 28, 2002.
BELPORT 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
17