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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. 000-32633
Belmar Capital Fund LLC
(Exact name of registrant as specified in its charter)
Delaware 04-3508106
-------- ------------------------------------
(State of organization) (I.R.S. Employer Identification No.)
The Eaton Vance Building
255 State Street, Boston, Massachusetts 02109
--------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 617-482-8260
--------------------------
None
----
Former Name, Former Address and Former Fiscal Year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Belmar 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 13
Item 3. Quantitative and Qualitative Disclosures About Market Risks 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
- -----------------------------------------
BELMAR CAPITAL FUND LLC
Consolidated Statements of Assets and Liabilities
June 30,
2002 December 31,
(Unaudited) 2001
-------------- --------------
Assets:
Investment in Belvedere Capital Fund
Company LLC $1,883,770,915 $2,129,845,069
Investment in Partnership Preference Units 580,421,530 587,551,880
Investment in other real estate 217,796,294 229,061,223
Short-term investments - 3,919,805
-------------- --------------
Total investments $2,681,988,739 $2,950,377,977
-------------- --------------
Cash 1,634,543 1,658,511
Escrow deposits - restricted 3,403,398 6,140,804
Dividends receivable 6,797,325 4,935,259
Other assets 3,425,548 4,318,106
-------------- --------------
Total assets $2,697,249,553 $2,967,430,657
Liabilities:
Loan payable - Credit Facility $ 613,500,000 $ 613,500,000
Mortgages payable 163,055,460 175,470,843
Open interest rate swap contracts, at value 45,078,418 44,239,310
Swap interest payable 1,383,793 1,447,644
Notes payable to minority shareholder 565,972 700,000
Security deposits 752,036 679,655
Accrued expenses:
Interest expense 2,548,282 2,782,673
Property taxes 1,699,409 3,121,214
Other expenses and liabilities 1,536,799 3,894,230
Minority interests in controlled subsidiaries 12,464,107 12,910,955
-------------- --------------
Total liabilities $ 842,584,276 $ 858,746,524
-------------- --------------
Net assets $1,854,665,277 $2,108,684,133
-------------- --------------
Shareholders' Capital
Shareholders' capital $1,854,665,277 $2,108,684,133
-------------- --------------
Shares Outstanding 23,671,138 24,134,504
-------------- --------------
Net Asset Value and Redemption Price Per Share $ 78.35 $ 87.37
-------------- --------------
See notes to consolidated financial statements
3
BELMAR 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
(net of foreign taxes of $110,981, $35,921,
$140,336 and $70,480, respectively) $ 6,226,651 $ 5,376,228 $11,671,790 $ 10,807,949
Interest allocated from Belvedere Capital 146,166 291,411 327,524 1,267,959
Expenses allocated from Belvedere Capital (3,038,724) (3,404,806) (6,184,777) (6,923,265)
------------ ------------ ------------ -------------
Net investment income allocated from
Belvedere Capital $ 3,334,093 $ 2,262,833 $ 5,814,537 $ 5,152,643
Dividends from Partnership Preference Units 13,191,317 4,992,740 27,103,846 19,350,453
Rental income 8,770,649 8,903,540 17,513,538 17,643,932
Interest 46,494 153,621 58,389 414,834
------------ ------------ ------------ --------------
Total investment income $25,342,553 $16,312,734 $50,490,310 $ 42,561,862
------------ ------------ ------------ --------------
Expenses:
Investment advisory and administrative fees $ 1,996,181 $ 1,923,355 $ 4,100,935 $ 3,855,250
Property management fees 347,172 341,687 694,821 692,895
Distribution and servicing fees 996,600 1,116,887 2,040,086 2,307,751
Interest expense on Credit Facility 3,546,268 8,783,017 7,223,852 19,574,582
Interest expense on swap contracts 9,840,142 5,854,066 20,037,973 9,988,745
Interest expense on mortgages 3,805,226 3,865,228 7,626,983 7,697,778
Property and maintenance expenses 2,851,751 3,241,307 5,558,137 6,215,239
Property taxes and insurance 1,248,259 965,180 2,478,566 1,941,190
Miscellaneous 221,139 174,471 504,128 871,764
------------ ------------ ------------ ------------
Total expenses $24,852,738 $26,265,198 $50,265,481 $ 53,145,194
Deduct -
Reduction of investment adviser and
administrative fees $ 500,383 $ 557,385 $ 1,015,852 $ 1,148,302
------------ ------------ ------------ -------------
Net expenses $24,352,355 $25,707,813 $49,249,629 $ 51,996,892
------------ ------------ ------------ -------------
Net investment income (loss) before minority
interest in net income of controlled subsidiary $ 990,198 $(9,395,079) $ 1,240,681 $ (9,435,030)
Minority interest in net income of
controlled subsidiary (97,540) (113,488) (211,932) (356,888)
------------ ------------ ------------ -------------
Net investment income (loss) $ 892,658 $(9,508,567) $ 1,028,749 $ (9,791,918)
------------ ------------ ------------ -------------
See notes to consolidated financial statements
4
BELMAR 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) $(118,185,963) $ (8,367,362) $(130,723,188) $ (1,382,281)
Investment transactions in Partnership
Preference Units (identified cost basis) 2,285,305 - 2,285,305 -
Investment transactions in other real estate
investments (net of minority interest in
realized loss of controlled subsidiary of
$(483,457), $0, $(483,457), and $0, respectively) (1,797,001) - (1,797,001) 428,905
-------------- ------------- -------------- --------------
Net realized loss $(117,697,659) $ (8,367,362) $(130,234,884) $ (953,376)
-------------- ------------- -------------- --------------
Change in unrealized appreciation (depreciation) -
Investment in Belvedere Capital (identified
cost basis) $(135,368,463) $127,249,668 $(108,446,689) $(163,179,901)
Investments in Partnership Preference Units
(identified cost basis) 21,142,806 11,528,736 21,073,173 39,936,276
Investment transactions in other real estate
investments (net of minority interest in
unrealized gain (loss) of controlled
subsidiary of $550,045, $(4,297,357),
$(210,400), and $(4,297,357), respectively) 1,912,828 2,037,644 2,673,275 2,037,644
Interest rate swap contracts (8,966,738) 11,759,935 (839,108) (193,012)
-------------- ------------- ------------- --------------
Net change in unrealized appreciation
(depreciation) $(121,279,567) $152,575,983 $ (85,539,349) $(121,398,993)
-------------- -------------- ---------------- --------------
Net realized and unrealized gain (loss) $(238,977,226) $144,208,621 $(215,774,233) $(122,352,369)
--------------- ------------- -------------- --------------
Net increase (decrease) in net assets from
operations $(238,084,568) $134,700,054 $(214,745,484) $(132,144,287)
=============== ============= ============== ==============
See notes to consolidated financial statements
5
BELMAR 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) $ 1,028,749 $ (9,791,918)
Net realized loss on investment transactions (130,234,884) (953,376)
Net change in unrealized appreciation
(depreciation) of investments (85,539,349) (121,398,993)
-------------- --------------
Net decrease in net assets from operations $(214,745,484) $(132,144,287)
Transactions in Fund Shares -
Net asset value of Fund Shares redeemed $ (39,273,372) $ (48,167,260)
-------------- --------------
Net decrease in net assets from Fund Share
transactions $ (39,273,372) $ (48,167,260)
Distributions -
Special Distributions to Belmar Capital
Fund LLC Shareholders $ - $ (1,786,192)
-------------- --------------
Total distributions $ - $ (1,786,192)
-------------- --------------
Net decrease in net assets $(254,018,856) $(182,097,739)
-------------- --------------
Net assets
At beginning of period $2,108,684,133 $2,457,715,428
-------------- --------------
At end of period $1,854,665,277 $2,275,617,689
============== ==============
See notes to consolidated financial statements
6
BELMAR 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) $ 1,028,749 $ (9,791,918)
Adjustments to reconcile net investment income (loss) to
net cash flows from operating activities -
Amortization of debt issuance costs 177,558 164,138
Net investment income allocated from Belvedere Capital (5,814,537) (5,152,643)
(Increase) decrease in dividends receivable (1,862,066) 5,337,003
Increase (decrease) in interest payable for open swap contracts (63,851) 712,587
Decrease in escrow deposits 2,431,430 5,491,833
Decrease in other assets 378,024 1,271,215
Decrease in accrued property taxes (1,335,243) (1,141,471)
Decrease in security deposits, accrued expenses and other liabilities (1,132,963) (118,262)
Increase in minority interest - 210,000
Proceeds from sales of Partnership Preference Units 30,488,828 -
Payments for investments in other real estate - (48,651,593)
Proceeds from sales of investments in other real estate - 49,080,499
Improvements to rental property (1,101,239) (5,786,731)
Decrease in cash due to sale of one multifamily real estate property (17,946) -
Net (increase) decrease in investment in Belvedere Capital (24,696,694) 21,014,517
(Increase) decrease in short-term investments 3,919,805 (8,478,195)
Minority interest in net income of controlled subsidiary 211,932 356,888
------------- -------------
Net cash flows from operating activities $ 2,611,787 $ 4,517,867
Cash Flows For Financing Activities -
Payments on mortgages $ (643,863) $ (594,651)
Payment on notes payable to minority shareholder (134,028) -
Payments for Fund Shares redeemed (1,857,864) (3,612,358)
------------- -------------
Net cash flows for financing activities $ (2,635,755) $ (4,207,009)
Net increase (decrease) in cash $ (23,968) $ 310,858
Cash at beginning of period $ 1,658,511 $ 2,256,168
------------- -------------
Cash at end of period $ 1,634,543 $ 2,567,026
============= =============
See notes to consolidated financial statements
7
BELMAR CAPITAL FUND LLC
Consolidated Statements of Cash Flows (Unaudited) (Continued)
Six Months Six Months
Ended Ended
June 30, 2002 June 30, 2001
------------- -------------
Supplemental Disclosure of Non-cash Investing and Financing Activities-
Change in unrealized appreciation (depreciation) of investments and
open swap contracts $(85,539,349) $(121,398,993)
Interest paid for loan - Credit Facility $ 5,982,934 $ 17,885,376
Interest paid for mortgages $ 7,571,410 $ 7,577,421
Interest paid for swap contracts $ 20,101,824 $ 9,276,158
Market value of securities distributed in payment of redemptions $ 37,415,508 $ 47,772,986
Market value of real property and other assets, net of current
liabilities, disposed of in conjunction with the sale of one
multifamily property in other real estate investments $ 10,276,498 $ -
Mortgage disposed of in conjunction with the sale of one multifamily
property in other real estate investments $ 11,771,520 $ -
See notes to consolidated financial statements
8
BELMAR 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 $ 87.370
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
- --------------------------------------------------------------------------------
Net investment income(6) $ 0.043
Net realized and unrealized loss (9.063)
- --------------------------------------------------------------------------------
TOTAL LOSS FROM OPERATIONS $ (9.020)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 78.350
- --------------------------------------------------------------------------------
Total Return(1) (10.32)%
- --------------------------------------------------------------------------------
As a As a
Percentage Percentage of
of Average Average Gross
RATIOS Net Assets(5) Assets(4)(5)
- --------------------------------------------------------------------------------
Expenses of Consolidated Real Property Subsidiaries
Interest and other borrowing costs(7) 0.59%(9) 0.42%(9)
Operating expenses(7) 0.69%(9) 0.50%(9)
Belmar Capital Fund LLC Expenses
Interest and other borrowing costs(8) 2.69%(9) 1.93%(9)
Investment advisory and administrative fees,
servicing fees and other Fund operating
expenses(2)(8) 1.14%(9) 0.82%(9)
------------------------------
Total expenses(3) 5.11%(9) 3.67%(9)
Net investment income 0.10%(9) 0.07%(9)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net Assets, end of period (000's omitted) $1,854,665
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 Belmar Capital Fund LLC's share of Belvedere Capital's
allocated expenses, including those expenses allocated from the Portfolio.
(3) 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
5.21% and 3.74%, respectively, and the ratios of net investment loss to
average net assets and average gross assets would have been (0.001)% and
(0.001)%, respectively.
(4) Average Gross Assets is defined as the average daily amount of all assets
of Belmar Capital Fund LLC (not including its investment in Belmar Realty
Corporation (BRC)) plus all assets of BRC, without reduction by any
liabilities. For this purpose, the assets of BRC's controlled subsidiary is
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 subsidiary is reduced by the proportionate interests therein of
investors other than BRC.
(6) Calculated using average shares outstanding.
(7) Ratio includes BRC's proportional share of expenses incurred by its
majority-owned subsidiary.
(8) Ratio includes the expenses of Belmar Capital Fund LLC and BRC, for which
Belmar Capital Fund LLC owns 100% of the outstanding common stock. The
ratio does not include expenses of its real estate subsidiary.
(9) Annualized.
See notes to consolidated financial statements
9
BELMAR 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 Belmar Capital Fund
LLC (Belmar 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 Estate Freeze
Shareholders in Belmar 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. At June
30, 2002 and December 31, 2001, the Preferred Shares were valued at $78.35 and
$87.37, respectively, and the Common Shares had no value. 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
3 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 $57,542,029 and $70,260,843, respectively, and for the six months
ended June 30, 2001 aggregated $19,373,046 and $88,160,549, respectively.
Purchases and sales of Partnership Preference Units for the six months ended
June 30, 2002 aggregated $0 and $30,488,828, respectively. There were no
purchases and sales of Partnership Preference Units for the six months ended
June 30, 2001. For the six months ended June 30, 2002, there were no
acquisitions of other real property and for the six months ended June 30, 2001,
acquisitions and sales of other real property aggregated $48,651,593 and
$49,080,499, respectively.
In June 2002, one of the multifamily residential properties owned by Bel
Alliance Apartments, LLC (Bel Apartments) was sold to an affiliate of the
minority shareholder in Bel Apartments.
Sales of Partnership Preference Units for the six months ended June 30, 2002
represent amounts sold to other funds sponsored by Eaton Vance Management. Sales
of other real estate property during the six months ended June 30, 2001
represent amounts sold to other funds sponsored by Eaton Vance Management.
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 $1,883,770,915, representing 20.0% of Belvedere Capital's net assets
and at June 30, 2001 was $2,257,536,569, representing 22.6% 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
$11,999,314 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 $12,075,908 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 $4,609,876 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 $5,153,314 was allocated to the Fund.
Belvedere Capital allocated additional expenses to the Fund of $1,574,901 for
the six months ended June 30, 2002, representing $39,233 of operating expenses
and $1,535,668 of service fees. Belvedere Capital allocated additional expenses
to the Fund of $1,769,951 for the six months ended June 31, 2001, representing
$40,472 of operating expenses and $1,729,479 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 for the six months
ended 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 $ 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 loss (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)
- --------------------------------------------------------------------------------
11
5 Cancelable Interest Rate Swap Agreements
Belmar Capital has entered into cancelable interest rate swap agreements in
connection with its real estate investments and the associated borrowings. Under
such agreements Belmar 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,
Belmar Capital has entered into cancelable interest rate swap agreements with
Merrill Lynch Capital Services, Inc.
Notional Initial Unrealized Unrealized
Amount Optional Final Depreciation Depreciation
Effective (000's) Fixed Floating Termination Termination At June 30, At December 31,
Date omitted) Rate Rate Date Date 2002 2001
- -------------------------------------------------------------------------------------------------------------------
3/00 $27,500 8.96% Libor + 0.40% 3/05 3/30 $ 2,747,855 $2,436,531
3/00 19,146 9.09% Libor + 0.40% 4/04 3/30 1,588,948 1,532,942
3/00 43,181 9.20% Libor + 0.40% 6/03 3/30 2,482,335 2,837,702
3/00 21,766 9.24% Libor + 0.40% 4/03 3/30 1,081,377 1,342,028
3/00 38,102 9.11% Libor + 0.40% 2/04 3/30 2,986,997 2,949,577
3/00 20,659 9.13% Libor + 0.40% 11/03 3/30 1,474,521 1,511,706
3/00 23,027 9.05% Libor + 0.40% 7/04 3/30 2,031,321 1,907,179
5/00 10,773 9.54% Libor + 0.40% 4/03 3/30 577,727 751,770
5/00 12,984 9.50% Libor + 0.40% 6/03 3/30 812,076 970,355
5/00 9,608 9.46% Libor + 0.40% 11/03 3/30 763,356 816,822
5/00 13,274 9.42% Libor + 0.40% 2/04 3/30 1,157,672 1,187,688
5/00 12,063 9.38% Libor + 0.40% 4/04 3/30 1,110,878 1,110,698
5/00 10,799 9.35% Libor + 0.40% 7/04 3/30 1,065,780 1,037,073
5/00 41,185 9.31% Libor + 0.40% 9/04 3/30 4,206,119 4,018,391
5/00 7,255 9.26% Libor + 0.40% 3/05 3/30 818,574 752,849
7/00 22,982 9.17% Libor + 0.40% 2/03 3/30 873,905 1,221,975
7/00 28,305 9.15% Libor + 0.40% 4/03 3/30 1,369,813 1,671,727
7/00 32,404 9.13% Libor + 0.40% 6/03 3/30 1,820,639 2,056,481
7/00 3,383 9.08% Libor + 0.40% 11/03 3/30 237,006 241,109
7/00 12,062 9.00% Libor + 0.40% 2/04 3/30 904,757 878,731
7/00 24,622 8.985% Libor + 0.40% 4/04 3/30 1,956,490 1,859,986
7/00 9,184 8.97% Libor + 0.40% 7/04 3/30 782,911 726,630
7/00 13,454 8.93% Libor + 0.40% 9/04 3/30 1,180,831 1,075,119
7/00 17,888 8.87% Libor + 0.40% 3/05 3/30 1,714,479 1,500,071
9/00 39,407 7.46% Libor + 0.40% - 9/10 5,209,022 3,940,610
11/00 11,776 8.34% Libor + 0.40% 3/05 3/30 821,744 635,430
11/00 2,338 8.41% Libor + 0.40% 9/04 3/30 152,500 123,704
11/00 23,636 8.48% Libor + 0.40% 2/04 3/30 1,343,881 1,161,401
11/00 20,265 8.60% Libor + 0.40% 6/03 3/30 900,135 894,183
11/00 28,629 8.66% Libor + 0.40% 2/03 3/30 904,769 1,088,842
- --------------------------------------------------------------------------------------------------------------------
Total $45,078,418 $44,239,310
- --------------------------------------------------------------------------------------------------------------------
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
Belmar Capital Fund LLC and its subsidiaries (collectively, the Fund) total
return for the quarter ended June 30, 2002 was -11.31%. This return reflects a
decrease in the Fund's net asset value per share from $88.34 to $78.35 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 6.2%. This return reflected an increase in the
Fund's net asset value per share from $87.12 to $92.48 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 positive during the period. The
performance of the Fund exceeded that of the Portfolio by approximately 0.3% 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 investment in its real estate joint venture,
despite continuing weakness in operating fundamentals, performed moderately well
during the quarter. 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 0.6%.
13
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 -10.32%. This
return reflects a decrease in the Fund's net asset value per share from $87.37
to $78.35 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 -5.47%. This return reflected a decrease in the Fund's net
asset value per share from $97.83 to $92.48 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 positive during the period. The
performance of the Fund exceeded that of the Portfolio by approximately 0.6% 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
tightening spreads in income-oriented securities, particularly in real estate
related securities. The Fund's investment in its real estate joint venture,
despite continuing weakness in operating fundamentals, performed moderately
well. 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 0.9%.
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 related to the
interest rate swap agreements was $45,078,418 and $35,632,170, 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
14
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 (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 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 Belmar
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.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
- -------------------------------------------------------------------
The Fund's primary exposure to interest rate risk arises from investments in
real estate that are financed using floating rate bank borrowings under a
revolving credit facility (the Credit Facility). The interest rate on borrowings
under the Fund's Credit Facility is reset at regular intervals based on the
Issuer's cost of financing plus a margin or one-month LIBOR plus a premium. The
Fund utilizes cancelable interest rate swap agreements to fix the cost of its
borrowings 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 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,
2003-2006 2007 Thereafter Total Fair Value
---------------------------------------------------------------------------------------
Rate sensitive
liabilities:
- ---------------
Long term
debt - variable
rate Credit
Facility $613,500,000 $613,500,000 $613,500,000
Average
Interest rate 1.80% 1.80%
Rate sensitive
derivative
financial
instruments:
- ---------------
Pay fixed/
Receive
variable
interest rate
swap contracts $601,657,000 $601,657,000 $(45,078,418)
Average
pay rate 8.96% 8.96%
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) Exhibit
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.
BELMAR CAPITAL FUND LLC
(Registrant)
By: EATON VANCE MANAGEMENT,
its Manager
By: /s/ James L. O'Connor
-----------------------------
James L. O'Connor
Vice President
By: /s/ William M. Steul
-----------------------------
William M. Steul
Chief Financial Officer
18
EXHIBIT INDEX
21 List of subsidiaries
19