UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2002
Commission File No. 000-30509
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Belcrest Capital Fund LLC
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3453080
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(State of organization) (I.R.S. Employer Identification No.)
The Eaton Vance Building
255 State Street, Boston, Massachusetts 02109
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 617-482-8260
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None
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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
--- ---
Belcrest Capital Fund LLC
Index to Form 10Q
PART I - FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements 3
Consolidated Statements of Assets and
Liabilities as of June 30, 2002 (Unaudited) and
December 31, 2001 3
Consolidated Statements of Operations (Unaudited)
for the Three Months Ended June 30, 2002 and 2001
and for the Six Months Ended June 30, 2002 and 2001 4
Consolidated Statements of Changes in Net Assets
(Unaudited) for the Six Months Ended June 30, 2002
and 2001 6
Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended June 30, 2002 and 2001 7
Financial Highlights (Unaudited) for the Six Months
Ended June 30, 2002 9
Notes to Consolidated Financial Statements as of
June 30, 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 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports 17
SIGNATURES 18
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
BELCREST CAPITAL FUND LLC
Consolidated Statements of Assets and Liabilities
June 30,
2002 December 31,
(Unaudited) 2001
-------------------- -------------------
Assets:
Investment in Belvedere Capital Fund Company LLC $2,915,254,500 $3,417,745,020
Investment in Partnership Preference Units 550,761,098 570,711,688
Investment in other real estate 821,737,310 1,042,486,780
Short-term investments - 5,719,717
-------------------- -------------------
Total investments $4,287,752,908 $5,036,663,205
Cash 9,644,714 12,170,155
Escrow deposits - restricted 11,361,017 15,248,666
Dividends and interest receivable 10,965,663 5,180,619
Other assets 8,211,233 11,314,657
-------------------- -------------------
Total assets $4,327,935,535 $5,080,577,302
-------------------- -------------------
Liabilities:
Loan payable on Credit Facility $ 831,367,888 $ 884,350,000
Mortgages payable 664,152,519 773,645,268
Payable for Fund Shares redeemed - 1,395,000
Open interest rate swap contracts, at value 55,015,865 49,830,356
Security deposits 2,625,433 2,894,109
Swap interest payable 4,601,056 4,338,728
Accrued expenses:
Interest expense 6,880,201 8,294,748
Property taxes 6,386,965 10,181,155
Other expenses and liabilities 6,440,074 7,415,556
Minority interests in controlled subsidiaries 38,465,027 84,242,013
-------------------- -------------------
Total liabilities $1,615,935,028 $1,826,586,933
Net assets $2,712,000,507 $3,253,990,369
Shareholders' Capital $2,712,000,507 $3,253,990,369
-------------------- -------------------
Shareholders' capital $2,712,000,507 $3,253,990,369
-------------------- -------------------
Shares Outstanding 29,057,180 30,417,292
-------------------- -------------------
Net Asset Value and Redemption Price Per Share $ 93.33 $ 106.98
-------------------- -------------------
See notes to consolidated financial statements
3
BELCREST CAPITAL FUND LLC
Consolidated Statements of Operations (Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
----------------- ------------------ ------------------ -----------------
Investment Income:
Dividends allocated from Belvedere Capital $ 9,793,322 $ 8,666,427 $ 18,476,643 $ 17,335,295
(net of foreign taxes of $175,236, $57,970,
$222,037, $113,401, respectively)
Interest allocated from Belvedere Capital 229,820 469,837 519,889 2,029,038
Expenses allocated from Belvedere Capital (4,782,131) (5,490,495) (9,803,409) (11,106,371)
----------------- ------------------ ------------------ -----------------
Net investment income allocated from
Belvedere Capital $ 5,241,011 $ 3,645,769 $ 9,193,123 $ 8,257,962
Dividends from Partnership Preference Units 13,092,134 5,225,141 26,202,643 22,738,431
Rental income 34,114,119 44,347,771 71,813,523 80,268,868
Interest 53,798 265,066 112,075 754,065
----------------- ------------------ ------------------ -----------------
Total investment income $52,501,062 $53,483,747 $107,321,364 $112,019,326
----------------- ------------------ ------------------ -----------------
Expenses:
Investment advisory and administrative fees $ 3,062,846 $ 3,688,760 $ 6,316,866 $ 7,142,590
Property management fees 1,318,051 1,744,761 2,792,961 3,134,016
Distribution and servicing fees 1,048,403 1,247,783 2,187,824 2,583,591
Interest expense on mortgages 12,808,459 16,759,283 27,076,060 30,554,723
Interest expense on Credit Facility 5,048,003 14,556,983 10,437,424 31,046,814
Interest expense on swap contracts 11,142,552 3,926,050 21,970,127 4,979,779
Property and maintenance expense 10,726,610 13,016,067 21,529,300 24,159,047
Property taxes and insurance 4,497,073 4,811,064 9,262,353 8,623,682
Miscellaneous 334,506 565,256 859,987 2,068,887
----------------- ------------------ ------------------ -----------------
Total expenses $49,986,503 $60,316,007 $102,432,902 $114,293,129
Deduct:
Reduction of investment advisory
and administrative fees 747,368 864,201 1,534,162 1,776,341
----------------- ------------------ ------------------ -----------------
Net expenses $49,239,135 $59,451,806 $100,898,740 $112,516,788
----------------- ------------------ ------------------ -----------------
Net investment income (loss) before minority
interests in net income of controlled
subsidiaries $ 3,261,927 $(5,968,059) $ 6,422,624 $ (497,462)
Minority interests in net income
of controlled subsidiaries (971,962) (1,748,083) (2,457,349) (3,656,049)
----------------- ------------------ ------------------ -----------------
Net investment income (loss) $ 2,289,965 $(7,716,142) $ 3,965,275 $ (4,153,511)
----------------- ------------------ ------------------ -----------------
See notes to consolidated financial statements
4
BELCREST CAPITAL FUND LLC
Consolidated Statements of Operations (Unaudited)
(Continued)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
----------------- ------------------ ------------------ -----------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) -
Investment transactions from Belvedere
Capital (identified cost basis) $(128,764,690) $(13,494,885) $(148,880,691) $ (2,339,271)
Investment transactions in Partnership
Preference Units (identified cost basis) - - 374,360 -
Investment transactions in other real estate
investments - - (1,532,128) -
----------------- ------------------ ------------------ -----------------
Net realized loss $(128,764,690) $(13,494,885) $(150,038,459) $ (2,339,271)
----------------- ------------------ ------------------ -----------------
Change in unrealized appreciation (depreciation)-
Investment in Belvedere Capital
(identified cost basis) $(267,781,085) $206,353,852 $(227,572,171) $(259,358,821)
Investments in Partnership Preference Units
(identified cost basis) 17,144,028 20,448,760 15,049,410 69,595,482
Investment in other real estate (net of
minority interests in unrealized gain
(loss) of controlled subsidiaries of
$9,714,133, $(16,349,450),
$(35,896,712) and $(17,047,739),
respectively) (12,804,182) 8,137,764 (38,986,760) 4,689,153
Interest rate swap contracts (16,502,065) 9,960,010 (5,185,509) (11,529,789)
----------------- ------------------ ------------------ -----------------
Net change in unrealized
appreciation (depreciation) $(279,943,304) $244,900,386 $(256,695,030) $(196,603,975)
----------------- ------------------ ------------------ -----------------
Net realized and unrealized gain (loss) $(408,707,994) $231,405,501 $(406,733,489) $(198,943,246)
----------------- ------------------ ------------------ -----------------
Net increase (decrease) in net assets from
operations $(406,418,029) $223,689,359 $(402,768,214) $(203,096,757)
================= ================== ================== =================
See notes to consolidated financial statements
5
BELCREST CAPITAL FUND LLC
Consolidated Statements of Changes in Net Assets (Unaudited)
Six Months Six Months
Ended Ended
June 30, 2002 June 30, 2001
------------------- -----------------
Increase (Decrease) in Net Assets:
Net investment income (loss) $ 3,965,275 $ (4,153,511)
Net realized loss on investment transactions (150,038,459) (2,339,271)
Net change in unrealized appreciation (depreciation) of
investments (256,695,030) (196,603,975)
------------------- -----------------
Net decrease in net assets from operations $ (402,768,214) $ (203,096,757)
------------------- -----------------
Transactions in Fund Shares -
Net asset value of Shares redeemed $ (139,221,648) $ (67,918,638)
------------------- -----------------
Net decrease in net assets from Fund Share transactions $ (139,221,648) $ (67,918,638)
------------------- -----------------
Net decrease in net assets $ (541,989,862) $ (271,015,395)
Net assets:
Beginning of period $3,253,990,369 $3,807,101,131
------------------- -----------------
End of period $2,712,000,507 $3,536,085,736
=================== =================
See notes to consolidated financial statements
6
BELCREST CAPITAL FUND LLC
Consolidated Statements of Cash Flows (Unaudited)
Six Months Six Months
Ended Ended
June 30, June 30,
2002 2001
----------------- -------------------
Cash Flows From (For) Operating Activities -
Net investment income (loss) $ 3,965,275 $ (4,153,511)
Adjustments to reconcile net investment income (loss) to net
cash flows from (for) operating activities -
Amortization of debt issuance costs 404,250 436,071
Net investment income allocated from Belvedere Capital (9,193,123) (8,257,962)
(Increase) decrease in interest and dividends receivable (5,785,044) 12,288,687
(Increase) decrease in escrow deposits 2,439,019 (4,395,432)
Decrease in other assets 1,594,754 4,156,068
Increase in interest payable for open swap contracts 262,328 2,758,169
Decrease in accrued property taxes (3,116,484) (751,930)
Decrease in security deposits, accrued expenses and other liabilities (1,149,937) (3,066,727)
Increase in minority interest - 216,000
Improvements to rental property (3,477,557) (4,526,205)
Payments for investments in other real estate - (75,156,301)
Proceeds from sale of investment in other real estate 31,588,186 -
Decrease in cash due to sale of majority interest in controlled
subsidiary (1,195,835) -
Sales of Partnership Preference Units 35,374,360 -
Net increase in investment in Belvedere Capital (2,344,772) (4,212,788)
Decrease in short-term investments 5,719,717 16,453,462
Minority interests in net income of
controlled subsidiaries 2,457,349 3,656,049
----------------- -------------------
Net cash flows from (for) operating activities $ 57,542,486 $(64,556,350)
Cash Flows From (For) Financing Activities -
Proceeds from (repayment of) Credit Facility $(52,982,112) $ 76,600,000
Payments on mortgages (2,123,266) (1,905,963)
Payments for Fund Shares redeemed (3,041,096) (4,567,704)
Distributions paid to minority shareholders (1,921,453) (1,528,295)
----------------- -------------------
Net cash flows from (for) financing activities $(60,067,927) $ 68,598,038
Net increase (decrease) in cash $ (2,525,441) $ 4,041,688
Cash at beginning of period $ 12,170,155 $ 10,419,784
----------------- -------------------
Cash at end of period $ 9,644,714 $ 14,461,472
================= ===================
See notes to consolidated financial statements
7
BELCREST CAPITAL FUND LLC
Consolidated Statements of Cash Flows (Unaudited) (Continued)
Six Months Six Months
Supplemental Disclosure of Non-cash Investing and Ended Ended
Financing Activities- June 30, 2002 June 30, 2001
------------------ ------------------
Change in unrealized appreciation (depreciation) of investments and
open swap contracts $(256,695,030) $ (196,603,975)
Interest paid for loan-Credit Facility $ 10,894,432 $ 34,613,525
Interest paid for swap contracts $ 21,707,799 $ 2,221,610
Interest paid for mortgages $ 26,757,718 $ 28,990,722
Market value of securities distributed in payment of redemptions $ 137,575,552 $ 63,350,934
Market value of real property and other assets, net of current
liabilities, assumed in conjunction with acquisition of real
estate investments $ - $ 312,541,047
Mortgage assumed in conjunction with acquisition of real estate
investments $ - $ 217,307,500
Market value of real property and other assets, net of current
liabilities, disposed of in conjunction with sale of real estate
investment in Bel Apartment $ 148,197,322 $ -
Mortgage disposed of in conjunction with sale of real estate
investment in Bel Apartment $ 107,369,483 $ -
See notes to consolidated financial statements
8
BELCREST CAPITAL FUND LLC
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 2002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value - Beginning of period $106.980
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
- --------------------------------------------------------------------------------
Net investment income(6) $ 0.133
Net realized and unrealized loss (13.783)
- --------------------------------------------------------------------------------
TOTAL LOSS FROM OPERATIONS $(13.650)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 93.330
- --------------------------------------------------------------------------------
TOTAL RETURN(1) (12.76)%
- --------------------------------------------------------------------------------
AS A PERCENTAGE AS A PERCENTAGE
OF AVERAGE NET OF AVERAGE GROSS
RATIOS ASSETS (5) ASSETS (4)(5)
- ---------------------------------------------------------------------------------------------------------------------------
Expenses of Consolidated Real Property Subsidiaries
Interest and other borrowing costs (3) 1.38% (9) 0.96% (9)
Operating expenses(3) 1.69% (9) 1.17% (9)
Belcrest Capital Fund LLC Expenses
Interest and other borrowing costs(2) 2.11% (9) 1.46% (9)
Investment advisory and administrative fees,
servicing fees and other Fund operating expenses(2)(7) 1.13% (9) 0.78% (9)
--------------------------------------------------
Total expenses(8) 6.31% (9) 4.37% (9)
Net investment income(8) 0.26% (9) 0.18% (9)
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $2,712,001
Portfolio Turnover of Tax-Managed Growth Portfolio 13%
- ---------------------------------------------------------------------------------------------------------------------------
(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) Ratio includes the expenses of Belcrest Capital Fund LLC and Belcrest
Realty Corporation (BRC), for which Belcrest Capital Fund LLC owns 100% of
the outstanding common stock. The ratio does not include expenses of other
real estate subsidiaries.
(3) Ratio includes BRC's proportional share of expenses incurred by its
majority-owned subsidiaries.
(4) Average Gross Assets is defined as the average daily amount of all assets
of Belcrest Capital Fund LLC (not including its investment in BRC) plus all
assets of BRC minus the sum of each entity's liabilities other than the
principal amount of money borrowed. For this purpose, the assets and
liabilities of BRC's controlled subsidiaries are reduced by the
proportionate interests therein of investors other than BRC.
(5) For the purpose of calculating ratios, the income and expenses of BRC's
controlled subsidiaries are reduced by the proportionate interests therein
of investors other than BRC.
(6) Calculated using average shares outstanding.
(7) Ratio includes Belcrest Capital Fund LLC's share of Belvedere Capital's
allocated expenses, including those expenses allocated from the Portfolio.
(8) The expenses reflect a reduction of the investment advisory and
administrative fees. Had such action not been taken, the ratios of total
expenses to average net assets and average gross assets would have been
6.41% and 4.44%, respectively, and the ratios of net investment income to
average net assets and average gross assets would have been 0.16% and
0.11%, respectively.
(9) Annualized.
See notes to consolidated financial statements
9
BELCREST CAPITAL FUND LLC as of June 30, 2002
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1 Basis of Presentation
The condensed consolidated interim financial statements of Belcrest Capital Fund
LLC (Belcrest 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-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 Article 10 of Regulation S-X.
Certain amounts in the prior period's consolidated financial statements have
been reclassified to conform with the current period presentation.
2 Investment Transactions
Increases and decreases of the Fund's investment in Belvedere Capital Fund
Company LLC (Belvedere Capital) for the six months ended June 30, 2002
aggregated $94,227,892 and $229,458,673, respectively, and for the six months
ended June 30, 2001 aggregated $55,038,327 and $114,105,781, respectively. For
the six months ended June 30, 2002, sales of Partnership Preference Units
aggregated $35,374,360. There were no sales of Partnership Preference Units for
the six months ended June 30, 2001. There were no purchases of Partnership
Preference Units during the six months ended June 30, 2002 and for the six
months ended June 30, 2001. For the six months ended June 30, 2002, acquisitions
and sales of other real estate investments aggregated $0 and $31,588,186,
respectively. For the six months ended June 30, 2001, acquisitions and sales of
other real estate investments aggregated $75,156,301 and $0, respectively.
During the six months ended June 30, 2002, BRC sold its majority interest in Bel
Apartment Properties Trust (Bel Apartment) to another fund sponsored by Eaton
Vance Management (EVM).
3 Indirect Investment in Portfolio
Belvedere Capital's interest in Tax-Managed Growth Portfolio (the Portfolio) at
June 30, 2002 was $9,414,074,868 representing 57.0% of the Portfolio's net
10
assets and at June 30, 2001 was $9,970,047,835 representing 54.6% of the
Portfolio's net assets. The Fund's investment in Belvedere Capital at June 30,
2002 was $2,915,254,500 representing 31.0% of Belvedere Capital's net assets and
at June 30, 2001 was $3,643,171,355, representing 36.5% of Belvedere Capital's
net assets. Investment income allocated to Belvedere Capital from the Portfolio
for the six months ended June 30, 2002 totaled $59,178,086, of which $18,996,532
was allocated to the Fund. Investment income allocated to Belvedere Capital from
the Portfolio for the six months ended June 30, 2001 totaled $50,467,696, of
which $19,364,333 was allocated to the Fund. Expenses allocated to Belvedere
Capital from the Portfolio for the six months ended June 30, 2002 totaled
$22,716,704, of which $7,307,345 was allocated to the Fund. Expenses allocated
to Belvedere Capital from the Portfolio for the six months ended June 30, 2001
totaled $21,587,638, of which $8,267,264 was allocated to the Fund. Belvedere
Capital allocated additional expenses to the Fund of $2,496,064 for the six
months ended June 30, 2002, representing $61,831 of operating expenses and
$2,434,233 of service fees. Belvedere Capital allocated additional expenses to
the Fund of $2,839,107 for the six months ended June 30, 2001, representing
$65,072 of operating expenses and $2,774,035 of service fees.
A summary of the Portfolio's Statement of Assets and Liabilities, at June 30,
2002, December 31, 2001 and June 30, 2001 and its operations for the six months
ended June 30, 2002, the year ended December 31, 2001 and the six months ended
June 30, 2001 follows:
June 30, December 31, June 30,
2002 2001 2001
-------------------- ------------------------ ---------------------
Investments, at value $16,438,266,069 $18,312,992,768 $18,239,311,489
Other Assets 258,245,026 23,229,223 19,932,030
- ----------------------------------- -------------------- ------------------------ ---------------------
Total Assets $16,696,511,095 $18,336,221,991 $18,259,243,519
Total Liabilities 171,302,142 357,011 463,366
- ----------------------------------- -------------------- ------------------------ ---------------------
Net Assets $16,525,208,953 $18,335,864,980 $18,258,780,153
=================================== ==================== ======================== =====================
Dividends and interest $ 104,789,317 $ 192,367,081 $ 93,075,546
- ----------------------------------- -------------------- ------------------------ ---------------------
Investment adviser fee $ 38,983,369 $ 76,812,367 $ 38,822,203
Other expenses 1,249,484 2,161,015 959,382
- ----------------------------------- -------------------- ------------------------ ---------------------
Total expenses $ 40,232,853 $ 78,973,382 $ 39,781,585
- ----------------------------------- -------------------- ------------------------ ---------------------
Net investment income $ 64,556,464 $ 113,393,699 $ 53,293,961
Net realized losses (198,388,599) (360,120,300) (12,705,834)
Net change in unrealized
gains (losses) (1,921,047,828) (1,605,211,090) (1,238,423,587)
- ----------------------------------- -------------------- ------------------------ ---------------------
Net decrease in
net assets from operations $(2,054,879,963) $(1,851,937,691) $(1,197,835,460)
- ----------------------------------- -------------------- ------------------------ ---------------------
4 Cancelable Interest Rate Swap Agreements
Belcrest Capital has entered into cancelable interest rate swap agreements in
connection with its real estate investments and the associated borrowings. Under
such agreements, Belcrest 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 June 30,
2002 and December 31, 2001, Belcrest Capital has entered into cancelable
interest rate swap agreements with Merrill Lynch Capital Services, Inc.
11
Notional Initial Unrealized Unrealized
Amount Optional Final Depreciation Depreciation
Effective (000's Fixed Floating Termination Termination at June 30, at December 31,
Date omitted) Rate Rate Date Date 2002 2001
- -------------- ----------- ----------- --------------- --------------- -------------- -------------------- -------------------
11/98 $ 68,750 6.2250% Libor + 0.45% 11/24/03 11/24/05 $2,366,913 $ 1,781,035
11/98 24,528 6.2950% Libor + 0.45% 05/24/03 11/24/05 713,647 603,624
11/98 41,368 6.3100% Libor + 0.45% 02/24/03 11/24/05 1,050,812 958,841
02/99 9,030 6.5050% Libor + 0.45% 03/04/03 11/24/05 220,293 235,750
02/99 21,996 6.4970% Libor + 0.45% 04/20/03 11/24/05 610,278 605,921
02/99 20,018 6.4390% Libor + 0.45% 11/24/03 11/24/05 771,236 635,733
02/99 111,000 6.4068% Libor + 0.45% 02/23/04 11/24/05 4,589,503 3,623,059
04/99 80,000 6.5550% Libor + 0.45% 04/28/04 11/24/05 3,762,539 3,058,399
04/99 16,468 6.7195% Libor + 0.45% 02/06/03 11/24/05 389,355 480,383
04/99 12,671 6.6176% Libor + 0.45% 11/24/03 11/24/05 530,163 462,881
04/99 15,105 6.5903% Libor + 0.45% 02/23/04 11/24/05 682,151 571,060
07/99 26,516 7.3080% Libor + 0.45% 11/24/03 11/24/05 1,426,743 1,430,877
07/99 40,193 7.3010% Libor + 0.45% 02/23/04 11/24/05 2,376,585 2,286,386
07/99 10,109 7.2370% Libor + 0.45% 04/29/04 11/24/05 623,049 580,387
07/99 155,000 7.2310% Libor + 0.45% 07/28/04 11/24/05 10,247,868 9,298,744
09/99 17,674 7.7000% Libor + 0.45% 02/23/04 11/24/05 1,175,728 1,184,451
09/99 9,833 7.6350% Libor + 0.45% 07/28/04 11/24/05 739,365 702,968
09/99 43,000 7.6525% Libor + 0.45% 09/17/04 11/24/05 3,369,730 3,168,606
09/99 35,024 7.6440% Libor + 0.45% 07/28/04 11/24/05 2,640,442 2,512,664
09/99 212,000 7.6224% Libor + 0.45% 09/28/04 11/24/05 16,598,579 15,521,494
09/99 1,907 7.5800% Libor + 0.45% 04/29/04 11/24/05 130,886 127,093
- -------------- ----------- ----------- --------------- --------------- -------------- -------------------- -------------------
Total $55,015,865 $49,830,356
- -------------- ----------- ----------- --------------- --------------- -------------- -------------------- -------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2002, COMPARED TO THE
QUARTER ENDED JUNE 30, 2001
Belcrest Capital Fund LLC and its subsidiaries (collectively, the Fund) achieved
a total return of -12.87% for the quarter ended June 30, 2002. This return
reflects a decrease in the Fund's net asset value per share from $107.12 to
$93.33 during the period. For comparison, the Standard & Poor's 500 Index (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 -13.39% over the
same period. Investors cannot invest directly in an Index. For the quarter ended
June 30, 2001, the Fund's total return was 6.7%. This return reflected an
increase in the Fund's net asset value per share from $106.73 to $113.89 during
that period.
Economic growth as measured by Gross Domestic Product slowed in the second
quarter of 2002, increasing at a lower than expected rate. The overall equity
markets and all major U.S. equity indices continued to post negative returns as
occurred in the first quarter of the year. Economic uncertainty and volatility
increased during the quarter with reports of corporate malfeasance and
accounting fraud. In general, smaller capitalization stocks outperformed larger
capitalization stocks, and a value investment style continued to outperform
growth. The best performing sector in the S&P 500 for the second quarter of 2002
was materials, followed by consumer staples and energy. Looking back a year ago,
consumer cyclicals was the best second quarter sector performer followed by
basic materials and transportation.
12
In this environment of increased volatility, the performance of the Tax-Managed
Growth Portfolio (the Portfolio) fared better than the overall market. The
Portfolio maintained an overweighted stance in the consumer discretionary
sector, and gradually reduced health care positions, especially in biotechnology
and pharmaceutical stocks. The Portfolio's emphasis on industrial company
investments, especially in the airfreight and aerospace defense areas, proved to
be prudent. Property and casualty insurance names as well as service providers
positively contributed to the performance in the quarter. Lack of earnings
visibility and continuing structural overcapacity reinforced the Portfolio's
cautious stance in telecommunications and information technology groups.
The combined impact on performance of the Fund's investments and activities
outside of the Portfolio was modestly negative during the period. The
performance of the Fund trailed that of the Portfolio by approximately -1.2% for
the quarter ended June 30, 2002. The Fund's investments in real estate
partnership preference units generally benefited from lower interest rates and
tightening spreads in income-oriented securities, particularly in real estate
related securities. The Fund's investments in real estate joint ventures
suffered from continuing weakness in multifamily fundamentals in many U.S.
markets, including those in which the ventures operate. The value of the Fund's
holdings in interest rate swaps declined as interest rates fell. For the quarter
ended June 30, 2001, the performance of the Fund exceeded that of the Portfolio
by approximately 1.1%.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002, COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 2001
The Fund's total return for the six months ended June 30, 2002 was -12.76%. This
return reflects a decrease in the Fund's net asset value per share from $106.98
to $93.33 during the period. For comparison, the S&P 500 had a total return of
- -13.15% over the same period. For the six months ended June 30, 2001, the Fund's
total return was -5.3%. This return reflected a decrease in the Fund's net asset
value per share from $120.30 to $113.89 during that period.
During the first half of 2002, overall equity markets and major equity indices
continued to post negative returns. Continuing economic uncertainty and
increased volatility caused by issues relating to corporate governance,
accounting, and geopolitical uncertainties have created a difficult investment
environment. During the period, smaller capitalization stocks generally
outperformed larger capitalization stocks, and a value investment style
continued to outperform growth.
The Portfolio delivered better results than the overall market in the first six
months of 2002. The Portfolio maintained an overweighted stance in the consumer
discretionary and consumer staples sectors, as it did in the first half of 2001.
The Portfolio gradually reduced health care positions, especially in
biotechnology and pharmaceutical stocks. The Portfolio's continued emphasis on
industrial company investments, especially in the airfreight logistics and
aerospace defense areas, proved to be prudent. Lack of earning visibility and
continuing structural overcapacity reinforced the Portfolio's cautious weighting
in telecommunications and information technology groups. The two aforementioned
groups were de-emphasized last year as well.
The combined impact on performance of the Fund's investments and activities
outside of the Portfolio was modestly negative during the period. The
performance of the Fund trailed that of the Portfolio by approximately -1.8% for
the six months ended June 30, 2002. The Fund's investments in real estate
partnership preference units generally benefited from lower interest rates and
13
tightening spreads in income-oriented securities, particularly in real estate
related securities. The Fund's investments in real estate joint ventures
suffered from continuing weakness in multifamily fundamentals in many U.S.
markets, including those in which the ventures operate. The value of the Fund's
holdings in interest rate swaps declined as interest rates fell. For the six
months ended June 30, 2001, the performance of the Fund exceeded that of the
Portfolio by approximately 1.1%.
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 June 30, 2002 and 2001, the unrealized depreciation related to the
interest rate swap agreements was $55,015,865 and $24,359,646, 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 real estate investments 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 Boston
Management and Research (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 investment valuations are performed at least annually and
reviewed periodically. Interim valuations for the real estate joint ventures,
reflect results of operations and distributions, and may be adjusted if there
has been a significant change in economic circumstances since the most recent
independent 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.
14
The policies for real estate investments involve significant judgments that are
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 Belcrest
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. The value of interest rate swaps may be subject to wide swings in
valuation caused by changes in interest rates and in the prices of the
underlying instrument and the interest rate swap may be difficult to value since
such instrument may be considered illiquid.
Fluctuations in the value of Partnership Preference Units derived from changes
in general interest rates can be expected to be offset in part (but not
entirely) by changes in the value of interest rate swap agreements or other
interest rate hedges entered into by 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 Partnership Preference Units not offset by
changes in the valuation of interest rate swap agreements or other interest rate
hedges entered into by the Fund and changes in the value of other real estate
investments 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 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 Note 4 to the
consolidated financial statements.
15
Interest Rate Sensitivity
Principal (Notional) Amount by Contractual Maturity
For the Twelve Months Ended June 30,
2003-2005 2006 2007 Thereafter Total Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive
liabilities:
Long term debt
variable rate
Credit Facility $831,367,888 $831,367,888 $831,367,888
Average interest
rate 2.31% 2.31%
Rate sensitive
derivative financial
instruments:
Pay fixed/receive
variable interest rate
swap contracts $972,190,000 $972,190,000 $(55,015,865)
Average pay rate 7.02% 7.02%
Average receive rate 2.31% 2.31%
16
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
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned officer of its Manager, Eaton Vance Management thereunto duly
authorized on August 14, 2002.
BELCREST 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
18
EXHIBIT INDEX
21 List of subsidiaries