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. 000-49775
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Belport Capital Fund LLC
------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3551830
-------- -------------------
(State of organization) (I.R.S. Employer Identification No.)
The Eaton Vance Building
255 State Street, Boston, Massachusetts 02109
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 617-482-8260
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None
----
Former Name, Former Address and Former Fiscal Year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
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 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 Period
Ended June 30, 2001 4
Consolidated Statements of Changes in Net Assets
(Unaudited) for the Six Months Ended June 30, 2002
and for the Period Ended June 30, 2001 6
Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended June 30, 2002 and for the
Period Ended June 30, 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 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
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
- --------------------------------------------------------------------------------
BELPORT CAPITAL FUND LLC
Consolidated Statements of Assets and Liabilities
June 30,
2002 December 31,
(Unaudited) 2001
------------------- ------------------
Assets:
Investment in Belvedere Capital Fund Company LLC $1,541,299,575 $1,762,622,297
Investment in Partnership Preference Units 95,110,025 92,501,000
Investment in other real estate 496,711,319 518,617,126
Short-term investments - 1,705,915
------------------- ------------------
Total investments $2,133,120,919 $2,375,446,338
Cash 9,477,501 10,001,955
Escrow deposits - restricted 4,717,898 2,081,850
Dividends and interest receivable 1,342,626 570,625
Other assets 2,636,968 3,374,095
------------------- ------------------
Total assets $2,151,295,912 $2,391,474,863
------------------- ------------------
Liabilities:
Loan payable on Credit Facility $ 231,000,000 $ 231,000,000
Mortgages payable 361,107,500 361,107,500
Open interest rate swap contracts, at value 9,480,774 2,344,008
Security deposits 921,544 948,853
Swap interest payable 189,369 170,110
Accrued expenses:
Interest expense 2,493,897 2,556,850
Property taxes 4,083,738 1,698,822
Other expenses and liabilities 3,034,322 3,059,258
Minority interests in controlled subsidiaries 32,731,337 39,431,598
------------------- ------------------
Total liabilities $ 645,042,481 $ 642,316,999
------------------- ------------------
Net assets $1,506,253,431 $1,749,157,864
------------------- ------------------
Shareholders' Capital
------------------- ------------------
Shareholders' capital $1,506,253,431 $1,749,157,864
------------------- ------------------
Shares Outstanding 17,461,865 17,782,241
------------------- ------------------
Net Asset Value and Redemption Price Per Share $ 86.26 $ 98.37
------------------- ------------------
See notes to consolidated financial statements
3
BELPORT CAPITAL FUND LLC
Consolidated Statements of Operations (Unaudited)
Three Months Three Months Six Months
Ended Ended Ended Period Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001*
----------------- ------------------ ------------------ -----------------
Investment Income:
Dividends allocated from Belvedere Capital
(net of foreign taxes of $91,631, $8,130,
$115,907 and $13,692, respectively) $ 5,135,285 $1,547,928 $ 9,632,378 $ 1,693,814
Interest allocated from Belvedere Capital 120,556 70,470 270,403 107,319
Expenses allocated from Belvedere Capital (2,507,271) (967,697) (5,106,717) (1,096,869)
----------------- ------------------ ------------------ -----------------
Net investment income allocated from
Belvedere Capital $ 2,748,570 $ 650,701 $ 4,796,064 $ 704,264
Dividends from Partnership Preference Units 2,203,828 - 4,407,656 -
Rental income 16,863,391 9,270,300 34,091,702 11,979,767
Interest 42,706 68,242 84,830 80,242
----------------- ------------------ ------------------ -----------------
Total investment income $21,858,495 $9,989,243 $43,380,252 $12,764,273
----------------- ------------------ ------------------ -----------------
Expenses:
Investment advisory and administrative fees $ 1,426,611 $ 673,001 $ 2,915,052 $ 707,569
Property management fees 681,600 374,587 1,372,309 468,260
Distribution and servicing fees 808,819 313,444 1,664,204 342,489
Interest expense on mortgages 6,222,590 3,416,877 12,407,919 4,425,835
Interest expense on Credit Facility 1,334,844 801,601 2,646,748 945,932
Interest expense on swap contracts 1,821,933 178,516 3,858,007 191,461
Property and maintenance expense 4,041,721 1,955,938 7,724,377 2,475,459
Property taxes and insurance 1,947,866 915,599 3,916,012 1,122,285
Miscellaneous 225,365 807,824 610,145 818,415
----------------- ------------------ ------------------ -----------------
Total expenses $18,511,349 $9,437,387 $37,114,773 $11,497,705
Deduct-
Reduction of investment advisory
and administrative fees $ (409,283) $ (157,294) $ (833,103) $ (172,132)
----------------- ------------------ ------------------ -----------------
Net expenses $18,102,066 $9,280,093 $36,281,670 $11,325,573
----------------- ------------------ ------------------ -----------------
Net investment income before minority
interests in net income of controlled
subsidiaries $ 3,756,429 $ 709,150 $ 7,098,582 $ 1,438,700
Minority interests in net income
of controlled subsidiaries (899,444) (561,019) (1,967,618) (784,176)
----------------- ------------------ ------------------ -----------------
Net investment income $ 2,856,985 $ 148,131 $ 5,130,964 $ 654,524
----------------- ------------------ ------------------ -----------------
* For the period from the start of business, March 14, 2001, to June 30, 2001.
See notes to consolidated financial statements
4
BELPORT CAPITAL FUND LLC
Consolidated Statements of Operations (Unaudited)
(Continued)
Three Months Three Months Six Months
Ended Ended Ended Period Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001*
----------------- ------------------ ------------------ -----------------
Realized and Unrealized Gain (Loss)
Net realized loss -
Investment transactions from Belvedere
Capital (identified cost basis) $ (6,972,021) $(2,319,334) $ (17,066,297) $(1,497,350)
----------------- ------------------ ------------------ -----------------
Net realized loss $ (6,972,021) $(2,319,334) $ (17,066,297) $(1,497,350)
----------------- ------------------ ------------------ -----------------
Change in unrealized appreciation (depreciation)-
Investment in Belvedere Capital
(identified cost basis) $(201,939,631) $ 6,392,869 $(180,358,627) $(8,885,665)
Investments in Partnership Preference Units
(identified cost basis) 1,618,787 - 2,609,025 -
Investments in other real estate investments
(net of minority interests in unrealized
loss of controlled subsidiaries of
$198,233, $1,816,546, $6,753,186
and $1,816,546, respectively) 198,234 928,512 (16,662,227) (408,868)
Interest rate swap contracts (10,576,146) 1,532,929 (7,136,766) 2,026,525
----------------- ------------------ ------------------ -----------------
Net change in unrealized
appreciation (depreciation) $(210,698,756) $ 8,854,310 $(201,548,595) $(7,268,008)
----------------- ------------------ ------------------ -----------------
Net realized and unrealized gain (loss) $(217,670,777) $ 6,534,976 $(218,614,892) $(8,765,358)
----------------- ------------------ ------------------ -----------------
Net increase (decrease) in net assets from
operations $(214,813,792) $ 6,683,107 $(213,483,928) $(8,110,834)
================= ================== ================== =================
* For the period from the start of business, March 14, 2001, to June 30, 2001.
See notes to consolidated financial statements
5
BELPORT CAPITAL FUND LLC
Consolidated Statements of Changes in Net Assets (Unaudited)
Six Months Period
Ended Ended
June 30, 2002 June 30, 2001*
------------------- --------------------
Increase (Decrease) in Net Assets:
Net investment income $ 5,130,964 $ 654,524
Net realized loss on investment transactions (17,066,297) (1,497,350)
Net change in unrealized appreciation (depreciation) of
investments (201,548,595) (7,268,008)
------------------- --------------------
Net decrease in net assets from operations $ (213,483,928) $ (8,110,834)
------------------- --------------------
Transactions in Fund Shares -
Investment securities contributed $ - $853,093,766
Less - Selling commissions - (3,159,019)
------------------- --------------------
Net contributions $ - $849,934,747
Net asset value of Fund Shares redeemed (29,420,505) (2,046,505)
------------------- --------------------
Net increase (decrease) in net assets from Fund Share transactions $ (29,420,505) $847,888,242
------------------- --------------------
Net increase (decrease) in net assets $ (242,904,433) $839,777,408
Net assets:
At beginning of period $1,749,157,864 $ -
------------------- --------------------
At end of period $1,506,253,431 $839,777,408
=================== ====================
* For the period from the start of business, March 14, 2001, to June 30, 2001.
See notes to consolidated financial statements
6
BELPORT CAPITAL FUND LLC
Consolidated Statements of Cash Flows (Unaudited)
Six Months Period
Ended Ended
June 30, June 30,
2002 2001*
----------------- ------------------
Cash Flows From (For) Operating Activities -
Net investment income $ 5,130,964 $ 654,524
Adjustments to reconcile net investment income to net
cash flows from (for) operating activities -
Net investment income allocated from Belvedere Capital (4,796,064) (704,264)
Amortization of debt issuance costs 97,466 45,119
Decrease (increase) in escrow deposits (2,636,048) 28,362
Decrease in other assets 639,661 170,225
Increase in interest and dividends receivable (772,001) -
Increase in minority interest - 426,000
(Decrease) increase in security deposits (27,309) 3,825
Increase in interest payable for open swap contracts 19,259 39,839
(Decrease) increase in accrued interest and other expenses and
liabilities (87,889) 1,778,030
Increase in accrued property taxes 2,384,916 537,003
Improvements to rental property (1,509,598) (456,609)
Purchase of Partnership Preference Units - (9,386,616)
Cash assumed in connection with acquisition of other real estate
investments - 1,915,787
Sales of Partnership Preference Units - 9,386,616
Payments for investments in other real estate - (91,778,276)
Net (increase) decrease in investment in Belvedere Capital 2,977,326 (366,533)
(Increase) decrease in short-term investments 1,705,915 (1,535,825)
Minority interests in net income of
controlled subsidiaries 1,967,618 784,176
----------------- ------------------
Net cash flows from (for) operating activities $ 5,094,216 $(88,458,617)
Cash Flows From (For) Financing Activities
Proceeds from Credit Facility $ - $ 99,000,000
Payments on behalf of investors (selling commissions) - (3,159,019)
Payments for Fund Shares redeemed (3,703,970) (549,113)
Payment of distributions to minority shareholders (1,914,700) (194,595)
Payment on mortgage - (12,183)
----------------- ------------------
Net cash flows from (for) financing activities $(5,618,670) $ 95,085,090
----------------- ------------------
Net decrease (increase) in cash $ (524,454) $ 6,626,473
Cash at beginning of period $10,001,955 $ -
----------------- ------------------
Cash at end of period $ 9,477,501 $ 6,626,473
================= ==================
* For the period from the start of business, March 14, 2001, to June 30, 2001.
See notes to consolidated financial statements
7
BELPORT CAPITAL FUND LLC
Consolidated Statements of Cash Flows (Unaudited) (Continued)
Six Months Period
Ended Ended
June 30, June 30,
2002 2001*
----------------- ------------------
Supplemental Disclosure of Non-cash Investing and
Financing Activities-
Change in unrealized appreciation (depreciation) of investments and
open swap contracts $(201,548,595) $ (7,268,008)
Interest paid for loan-Credit Facility $ 2,184,379 $ 626,758
Interest paid for mortgages $ 12,347,318 $ 2,862,469
Interest paid for swap contracts $ 3,838,748 $ 151,622
Market value of securities distributed in payment of redemptions $ 25,716,535 $ 1,497,392
Market value of real property and other assets, net of current
liabilities, assumed in conjunction with acquisition of real
estate investments $ - $384,358,110
Mortgage assumed in connection with acquisition of real estate
investments $ - $265,142,975
Securities contributed by Fund Shareholders, invested in
Belvedere Capital $ - $853,093,766
* For the period from the start of business, March 14, 2001, to June 30, 2001.
See notes to consolidated financial statements
8
BELPORT CAPITAL FUND LLC as of June 30, 2002
Consolidated Financial Statements (Continued)
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 2002
- --------------------------------------------------------------------------------
NET ASSET VALUE - BEGINNING OF PERIOD $98.370
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
- --------------------------------------------------------------------------------
Net investment income (6) $ 0.290
Net realized and unrealized loss (12.40)
- --------------------------------------------------------------------------------
TOTAL LOSS FROM OPERATIONS $(12.11)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $86.260
TOTAL RETURN (1) (12.31)%
- --------------------------------------------------------------------------------
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(4) 1.15% (3) 0.88% (3)
Operating expenses(4) 1.22% (3) 0.93% (3)
Belport Capital Fund LLC Expenses
Interest and other borrowing costs(7) 0.78% (3) 0.60% (3)
Investment advisory and administrative fees,
servicing fees and other Fund operating expenses(7)(8) 1.12% (3) 0.85% (3)
-----------------------------------------------
Total expenses(8)(9) 4.27% (3) 3.26% (3)
Net investment income(9) 0.62% (3) 0.47% (3)
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $1,506,253
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. 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
4.37% and 3.34%, respectively, and the ratios of net investment income to
average net assets and average gross assets would have been 0.52% and
0.39%, respectively.
See notes to consolidated financial statements
9
BELPORT 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 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 period 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 $86.26 and
$98.37 as of June 30, 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
JUNE 30, 2002 DECEMBER 31, 2001
------------------- ------------------ ------------------- ------------------
PREFERRED COMMON PREFERRED COMMON
DATE OF CONTRIBUTION SHARES SHARES SHARES SHARES
- ---------------------------------------- ------------------- ------------------ ------------------- ------------------
May 23, 2001 $ 86.26 $ - N/A* N/A*
July 26, 2001 $ 86.26 $ - $ 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 six months ended June 30, 2002 aggregated $12,161,350 and $40,855,212,
respectively, and for the period from the start of business, March 14, 2001, to
June 30, 2001 aggregated $859,755,930 and $7,755,356, respectively. There were
no purchases or sales of Partnership Preference Units for the six months ended
June 30, 2002. For the period from the start of business, March 14, 2001 to June
30, 2001, purchases and sales of Partnership Preference Units aggregated
$9,386,616 and $9,386,616, respectively. For the six months ended June 30, 2002,
there were no acquisitions or sales of other real estate investments. For the
period from the start of business, March 14, 2001 to June 30, 2001, acquisitions
and sales of other real estate investments aggregated $91,778,276 and $0,
respectively.
Purchases and sales of Partnership Preference Units and acquisitions of other
real estate investments during the period from the start of business, March 14,
2001, to June 30, 2001, represent amounts purchased from and sold to other funds
sponsored by Eaton Vance Management (EVM).
4 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
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 $1,541,299,575 representing 16.4% of Belvedere Capital's net assets and
at June 30, 2001 was $842,321,823, representing 8.5% 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 $9,902,781 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
June 30, 2001 totaled $28,134,335, of which $1,801,133 was allocated to Belport
Capital. Expenses allocated to Belvedere Capital from the Portfolio for the six
months ended June 30, 2002 totaled $22,716,704, of which $3,807,061 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 June 30,
2001 totaled $12,819,220, of which $813,404 was allocated to Belport Capital.
Belvedere Capital allocated additional expenses to Belport Capital of $1,299,656
11
for the six months ended June 30, 2002, representing $32,306 of operating
expenses and $1,267,350 of service fees. Belvedere Capital allocated additional
expenses to Belport Capital of $283,465, for the period from the start of
business, March 14, 2001, to June 30, 2001, representing $6,455 of operating
expenses and $277,010 of service fees.
A summary of the Portfolio's Statement of Assets and Liabilities, at June 30,
2002, December 31, 2001 and at June 30, 2001 and its operations for the six
months ended June 30, 2002, the year ended December 31, 2001 and for the period
from the start of business, March 14, 2001, to 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 $ 150,792,607 $ 51,501,072
- ----------------------------------- -------------------- ------------------------ ---------------------
Investment adviser fee $ 38,983,369 $ 61,024,040 $ 23,033,876
Other expenses 1,249,484 1,633,741 432,108
- ----------------------------------- -------------------- ------------------------ ---------------------
Total expenses $ 40,232,853 $ 62,657,781 $ 23,465,984
- ----------------------------------- -------------------- ------------------------ ---------------------
Net investment income $ 64,556,464 $ 88,134,826 $ 28,035,088
Net realized losses (198,388,599) (383,002,016) (35,587,550)
Net change in unrealized gains
(losses) (1,921,047,828) 46,979,377 413,766,880
- ----------------------------------- -------------------- ------------------------ ---------------------
Net increase (decrease) in net
assets from operations $(2,054,879,963) $ (247,887,813) $ 406,214,418
- ----------------------------------- -------------------- ------------------------ ---------------------
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 June 30, 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 June 30, at December 31,
Date omitted) Rate Rate Date 2002 2001
- -------------- ----------- ------------ ----------------- -------------- -------------------- -------------------
03/01 $49,080 5.8075% Libor + 0.40% 3/08 $(1,926,351) $ 452,595
05/01 73,980 5.7900% Libor + 0.40% 3/08 (2,990,428) (797,634)
07/01 34,905 5.9950% Libor + 0.40% 3/08 (1,780,389) (767,018)
12/01 57,509 5.8410% Libor + 0.40% 3/08 (2,465,573) (786,962)
03/08 49,080 6.4500% Libor + 0.40% 2/10 93,346 (538,733)
03/08 73,980 6.9200% Libor + 0.40% 9/10 (411,379) 93,744
- -------------- ----------- ------------ ----------------- -------------- -------------------- -------------------
Total $(9,480,774) $(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 JUNE 30, 2002, COMPARED TO THE
QUARTER ENDED JUNE 30, 2001
Belport Capital Fund LLC and its subsidiaries (collectively, the Fund) achieved
a total return of -12.39% for the quarter ended June 30, 2002. This return
reflects a decrease in the Fund's net asset value per share from $98.46 to
$86.26 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 5.9%. This return reflected an
increase in the Fund's net asset value per share from $96.93 to $102.68 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.
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 -0.7% for
the quarter ended June 30, 2002. The Fund's investments in its two real estate
joint ventures generally performed well, despite continuing weakness in
multifamily fundamentals in many U.S. markets. The Fund's investments in real
estate partnership preference units benefited from lower interest rates and
tightening spreads in income-oriented securities, particularly in real estate
related securities. 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 0.3%.
13
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002, COMPARED TO THE
PERIOD ENDED JUNE 30, 2001
The Fund's total return for the six months ended June 30, 2002 was -12.31%. This
return reflects a decrease in the Fund's net asset value per share from $98.37
to $86.26 during the period. For comparison, the S&P 500 had a total return of
- -13.15% over the same period. For the period from the start of business, March
14, 2001 to June 30, 2001, the Fund's total return was 2.68%. This return
reflected an increase in the Fund's net asset value per share from $100.00 to
$102.68 during that period. Because the Fund commenced investment operations on
March 14, 2001, there is no comparative performance for the first half of 2001.
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 -1.4% for
the six months ended June 30, 2002. The Fund's investments in real estate
partnership preference units 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. Because the Fund commenced
investment operations on March 14, 2001, there is no comparative performance for
the first half of 2001.
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 June 30, 2002 and 2001, the unrealized (depreciation) appreciation related
to the interest rate swap agreements was $(9,480,774) and $2,026,525,
respectively.
14
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 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.
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 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. 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
15
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 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. The Fund has no market risk sensitive instruments held for trading
purposes. This information should be read in conjunction with Note 5 to the
consolidated financial statements.
Interest Rate Sensitivity
Principal (Notional) Amount by Contractual Maturity
For the Twelve Months Ended June 30,
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 1.80% 1.80%
Rate sensitive
derivative
financial
instruments:
- -------------------
Pay fixed/
Receive
variable interest
rate swap
contracts $338,534,297 $338,534,297 $(9,480,774)
Average pay
rate 6.16% 6.16%
Average
receive rate 1.80% 1.80%
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.
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
18