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 September 30, 2002
Commission File No. 000-49775
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
------------
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. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Assets and
Liabilities as of September 30, 2002 (Unaudited)
and December 31, 2001 3
Condensed Consolidated Statements of Operations (Unaudited)
for the Three Months Ended September 30, 2002 and 2001
and for the Nine Months Ended September 30, 2002 and
Period Ended September 30, 2001 4
Condensed Consolidated Statements of Changes in Net Assets
(Unaudited) for the Nine Months Ended September 30, 2002
and for the Period Ended September 30, 2001 6
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Nine Months Ended September
30, 2002 and for the Period Ended September 30, 2001 7
Financial Highlights (Unaudited) for the Nine Months Ended
September 30, 2002 9
Notes to Condensed Consolidated Financial Statements as
of September 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
Item 4. Controls and Procedures 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports 19
SIGNATURES 20
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Assets and Liabilities
September 30,
2002 December 31,
(Unaudited) 2001
------------------- ------------------
Assets:
Investment in Belvedere Capital Fund Company LLC $1,297,737,552 $1,762,622,297
Investment in Partnership Preference Units 96,704,925 92,501,000
Investment in other real estate 497,826,255 518,617,126
Short-term investments - 1,705,915
------------------- ------------------
Total investments $1,892,268,732 $2,375,446,338
Cash 9,970,448 10,001,955
Escrow deposits - restricted 5,727,499 2,081,850
Dividends and interest receivable 570,711 570,625
Other assets 2,952,972 3,374,095
------------------- ------------------
Total assets $1,911,490,362 $2,391,474,863
------------------- ------------------
Liabilities:
Loan payable on Credit Facility $ 226,000,000 $ 231,000,000
Mortgages payable 361,107,500 361,107,500
Open interest rate swap contracts, at value 25,952,663 2,344,008
Payable for Fund Shares redeemed 692,050 -
Security deposits 876,970 948,853
Swap interest payable 192,570 170,110
Accrued expenses:
Interest expense 2,468,894 2,556,850
Property taxes 5,668,181 1,698,822
Other expenses and liabilities 3,965,600 3,059,258
Minority interests in controlled subsidiaries 32,649,498 39,431,598
------------------- ------------------
Total liabilities $ 659,573,926 $ 642,316,999
------------------- ------------------
Net assets $1,251,916,436 $1,749,157,864
Shareholders' Capital
------------------- ------------------
Shareholders' capital $1,251,916,436 $1,749,157,864
------------------- ------------------
Shares Outstanding 17,347,349 17,782,241
------------------- ------------------
Net Asset Value and Redemption Price Per Share $ 72.17 $ 98.37
------------------- ------------------
See notes to condensed consolidated financial statements
3
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Three Months Nine Months
Ended Ended Ended Period Ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001*
---------------- ----------------- ----------------- ----------------
Investment Income:
Dividends allocated from Belvedere Capital
(net of foreign taxes of $41,726, $24,069,
$157,633 and $37,761, respectively) $ 4,650,371 $ 2,766,008 $14,282,749 $ 4,459,822
Interest allocated from Belvedere Capital 106,853 172,902 377,256 280,221
Expenses allocated from Belvedere Capital (2,150,164) (1,542,279) (7,256,881) (2,639,148)
---------------- ----------------- ----------------- ----------------
Net investment income allocated from
Belvedere Capital $ 2,607,060 $ 1,396,631 $ 7,403,124 $ 2,100,895
Dividends from Partnership Preference Units 2,203,828 - 6,611,484 -
Rental income 16,739,175 12,459,977 50,830,877 24,439,744
Interest 31,529 100,188 116,359 180,430
---------------- ----------------- ----------------- ----------------
Total investment income $21,581,592 $13,956,796 $64,961,844 $26,721,069
---------------- ----------------- ----------------- ----------------
Expenses:
Investment advisory and administrative fees $ 1,301,705 $ 1,023,426 $ 4,216,757 $ 1,730,995
Property management fees 671,594 505,571 2,043,903 973,831
Distribution and servicing fees 660,900 497,827 2,325,104 840,316
Interest expense on mortgages 6,259,455 4,603,396 18,667,374 9,029,231
Interest expense on Credit Facility 1,304,389 1,469,056 3,951,137 2,414,988
Interest expense on swap contracts 2,039,806 489,064 5,897,813 680,525
Property and maintenance expense 4,181,159 2,847,393 11,905,536 5,322,852
Property taxes and insurance 2,194,962 1,483,172 6,110,974 2,605,457
Miscellaneous 129,962 670,466 740,107 1,488,881
---------------- ----------------- ----------------- ----------------
Total expenses $18,743,932 $13,589,371 $55,858,705 $25,087,076
Deduct-
Reduction of investment advisory
and administrative fees (341,941) (252,048) (1,175,044) (424,180)
---------------- ----------------- ----------------- ----------------
Net expenses $18,401,991 $13,337,323 $54,683,661 $24,662,896
---------------- ----------------- ----------------- ----------------
Net investment income before minority $ 3,179,601 $ 619,473 $10,278,183 $ 2,058,173
interests in net income of controlled
subsidiaries
Minority interests in net income
of controlled subsidiaries (776,108) (768,931) (2,743,726) (1,553,107)
---------------- ----------------- ----------------- ----------------
Net investment income (loss) $ 2,403,493 $ (149,458) $ 7,534,457 $ 505,066
---------------- ----------------- ----------------- ----------------
* For the period from the start of business, March 14, 2001, to September 30, 2001.
See notes to condensed consolidated financial statements
4
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Operations
(Unaudited) (Continued)
Three Months Three Months Nine Months
Ended Ended Ended Period Ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001*
----------------- ------------------ ------------------ -----------------
Realized and Unrealized Gain (Loss)
Net realized loss -
Investment transactions from Belvedere
Capital (identified cost basis) $ (25,127,027) $ (13,477,042) $ (42,193,324) $ (14,974,392)
----------------- ------------------ ------------------ -----------------
Net realized loss $ (25,127,027) $ (13,477,042) $ (42,193,324) $ (14,974,392)
----------------- ------------------ ------------------ -----------------
Change in unrealized appreciation (depreciation)-
Investment in Belvedere Capital
(identified cost basis) $(207,683,986) $(142,555,289) $(388,042,613) $(151,440,954)
Investments in Partnership Preference Units
(identified cost basis) 1,594,900 154,700 4,203,925 154,700
Investments in other real estate investments
(net of minority interests in unrealized
gain (loss) of controlled subsidiaries of
$162, $610,721, $(6,753,024)
and $(1,205,825), respectively) (162) (610,721) (16,662,389) (1,019,589)
Interest rate swap contracts (16,471,889) (8,644,975) (23,608,655) (6,618,450)
----------------- ------------------ ------------------ -----------------
Net change in unrealized
appreciation (depreciation) $(222,561,137) $(151,656,285) $(424,109,732) $(158,924,293)
----------------- ------------------ ------------------ -----------------
Net realized and unrealized loss $(247,688,164) $(165,133,327) $(466,303,056) $(173,898,685)
----------------- ------------------ ------------------ -----------------
Net decrease in net assets from
operations $(245,284,671) $(165,282,785) $(458,768,599) $(173,393,619)
================= ================== ================== =================
* For the period from the start of business, March 14, 2001, to September 30, 2001.
See notes to condensed consolidated financial statements
5
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Changes in Net Assets (Unaudited)
Nine Months Period
Ended Ended
September 30, 2002 September 30, 2001*
------------------- --------------------
Increase (Decrease) in Net Assets:
Net investment income $ 7,534,457 $ 505,066
Net realized loss on investment transactions (42,193,324) (14,974,392)
Net change in unrealized appreciation (depreciation) of
investments (424,109,732) (158,924,293)
------------------- --------------------
Net decrease in net assets from operations $ (458,768,599) $ (173,393,619)
------------------- --------------------
Transactions in Fund Shares -
Investment securities contributed $ - $1,205,813,049
Less - Selling commissions - (4,699,332)
------------------- --------------------
Net contributions $ - $1,201,113,717
Net asset value of Fund Shares redeemed (38,472,829) (3,469,846)
------------------- --------------------
Net increase (decrease) in net assets from Fund Share transactions $ (38,472,829) $1,197,643,871
------------------- --------------------
Net increase (decrease) in net assets $ (497,241,428) $1,024,250,252
Net assets:
At beginning of period $1,749,157,864 $ -
------------------- --------------------
At end of period $1,251,916,436 $1,024,250,252
=================== ====================
* For the period from the start of business, March 14, 2001, to September 30, 2001.
See notes to condensed consolidated financial statements
6
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Period
Ended Ended
September 30, September 30,
2002 2001*
------------------- -------------------
Cash Flows From (For) Operating Activities -
Net decrease in net assets from operations $(458,768,599) $(173,393,619)
Adjustment to reconcile net decrease in net assets from operations to net
cash flows from (for) operating activities -
Net investment income allocated from Belvedere Capital (7,403,124) (2,100,895)
Amortization of debt issuance costs 164,875 94,681
Increase in escrow deposits (3,645,649) (130,859)
Decrease in other assets 256,248 258,961
Increase in dividends and interest receivable (86) -
Increase in minority interest - 646,000
Increase in interest payable for open swap contracts 22,460 131,390
Increase in security deposits, accrued interest and other accrued expenses
and liabilities 746,503 2,353,833
Increase in accrued property taxes 3,969,359 1,753,574
Improvements to rental property (2,624,541) (1,514,606)
Purchases of Partnership Preference Units - (44,291,616)
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 decrease in investment in Belvedere Capital 8,959,900 1,824,884
(Increase) decrease in short-term investments 1,705,915 (883,832)
Minority interests in net income of controlled subsidiaries 2,743,726 1,553,107
Net realized loss on investment transactions 42,193,324 14,974,392
Net change in unrealized (appreciation) depreciation of investments 424,109,732 158,924,293
------------------- -------------------
Net cash flows from (for) operating activities $ 12,430,043 $(120,276,185)
Cash Flows From (For) Financing Activities -
Proceeds from (repayment of) Credit Facility $ (5,000,000) $ 136,000,000
Payments on behalf of investors (selling commissions) - (4,699,332)
Payments for Fund Shares redeemed (4,688,748) (1,825,338)
Payment on mortgage - (49,154)
Payments of distributions to minority shareholders (2,772,802) (617,373)
--------------------------------------
Net cash flows from (for) financing activities $ (12,461,550) $ 128,808,803
Net increase (decrease) in cash $ (31,507) $ 8,532,618
Cash at beginning of period $ 10,001,955 $ -
------------------ ------------------
Cash at end of period $ 9,970,448 $ 8,532,618
================== ==================
*For the period from the start of business, March 14, 2001, to September 30, 2001.
See notes to condensed consolidated financial statements
7
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
Nine Months Period
Ended Ended
September 30, September 30,
2002 2001*
------------------ -------------------
Supplemental Disclosure of Non-cash Investing and
Financing Activities-
Securities contributed by Fund Shareholders, to Belvedere Capital Fund
Company LLC $ - $ 1,205,813,049
Interest paid for loan-Credit Facility $ 3,261,526 $ 1,758,504
Interest paid for swap contracts $ 5,875,353 $ 549,135
Interest paid for mortgages $18,539,364 $ 7,416,789
Market value of securities distributed in payment of redemptions $33,092,031 $ 1,644,508
Market value of real property and other assets, net of current
liabilities, assumed in conjunction with acquisition of real estate $ - $ 382,442,323
investments
Mortgage assumed in connection with acquisition of real
estate investments $ - $ 265,142,975
* For the period from the start of business, March 14, 2001, to September 30, 2001.
See notes to condensed consolidated financial statements
8
BELPORT CAPITAL FUND LLC as of September 30, 2002
Condensed Consolidated Financial Statements (Continued)
FINANCIAL HIGHLIGHTS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - BEGINNING OF PERIOD $ 98.370
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (6) $ 0.428
Net realized and unrealized loss (26.628)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LOSS FROM OPERATIONS $ (26.200)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 72.170
TOTAL RETURN (1) (26.63)%
- ------------------------------------------------------------------------------------------------------------------------------------
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) 1.23% (3) 0.92% (3)
Operating expenses (4) 1.33% (3) 1.00% (3)
Belport Capital Fund LLC Expenses
Interest and other borrowing costs (7) 0.84% (3) 0.63% (3)
Investment advisory and administrative fees,
servicing fees and other Fund operating expenses (7)(8) 1.13% (3) 0.84% (3)
-----------------------------------------------
Total expenses (8) (9) 4.53% (3) 3.39% (3)
Net investment income (9) 0.64% (3) 0.48% (3)
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,251,916
Portfolio Turnover of Tax-Managed Growth Portfolio 16%
- ------------------------------------------------------------------------------------------------------------------------------
(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
4.63% and 3.46%, respectively, and the ratios of net investment income to
average net assets and average gross assets would have been 0.54% and
0.41%, respectively.
See notes to condensed consolidated financial statements
9
BELPORT CAPITAL FUND LLC as of September 30, 2002
NOTES TO CONDENSED 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 condensed 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 $72.17 and
$98.37 as of September 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
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------- ------------------ ------------------- ------------------
PREFERRED COMMON PREFERRED COMMON
DATE OF CONTRIBUTION SHARES SHARES SHARES SHARES
- ---------------------------------------- ------------------- ------------------ ------------------- ------------------
May 23, 2001 $ 72.17 $ - N/A* N/A*
July 26, 2001 $ 72.17 $ - $ 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 nine months ended September 30, 2002 aggregated $16,786,220 and
$58,838,152, respectively, and for the period from the start of business, March
14, 2001, to September 30, 2001 aggregated $1,216,352,030 and $14,008,371,
respectively. There were no purchases or sales of Partnership Preference Units
for the nine months ended September 30, 2002. For the period from the start of
business, March 14, 2001 to September 30, 2001, purchases and sales of
Partnership Preference Units aggregated $44,291,616 and $9,386,616,
respectively. For the nine months ended September 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 September 30, 2001, acquisitions and sales
of other real estate investments aggregated $91,778,276 and $0, respectively.
Purchases and sales of Partnership Preference Units during the period from the
start of business, March 14, 2001, to September 30, 2001, represent amounts
purchased from and sold to other funds sponsored by Eaton Vance Management
(EVM). Acquisitions of other real estate investments include amounts purchased
from other funds sponsored by EVM.
4 Indirect Investment in Portfolio
Belvedere Capital's interest in Tax Managed Growth Portfolio (the Portfolio) at
September 30, 2002 was $8,043,904,602 representing 58.6% of the Portfolio's net
assets and at September 30, 2001 was $8,914,385,448, representing 55.5% of the
Portfolio's net assets. The Fund's investment in Belvedere Capital at September
30, 2002 was $1,297,737,552 representing 16.1% of Belvedere Capital's net assets
and at September 30, 2001 was $1,038,029,208, representing 11.6% of Belvedere
Capital's net assets. Investment income allocated to Belvedere Capital from the
Portfolio for the nine months ended September 30, 2002 totaled $88,799,143, of
which $14,660,005 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 September 30, 2001 totaled $55,127,316, of which
$4,740,043 was allocated to Belport Capital. Expenses allocated to Belvedere
Capital from the Portfolio for the nine months ended September 30, 2002 totaled
$32,657,939, of which $5,411,033 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 September 30, 2001 totaled $23,495,996, of which
$1,956,589 was allocated to Belport Capital. Belvedere Capital allocated
additional expenses to Belport Capital of $1,845,848 for the nine months ended
September 30, 2002, representing $49,018 of operating expenses and $1,796,830 of
11
service fees. Belvedere Capital allocated additional expenses to Belport Capital
of $682,559, for the period from the start of business, March 14, 2001, to
September 30, 2001, representing $16,471 of operating expenses and $666,088 of
service fees.
A summary of the Portfolio's Statement of Assets and Liabilities, at September
30, 2002, December 31, 2001 and at September 30, 2001 and its operations for the
nine months ended September 30, 2002, the period ended December 31, 2001 and for
the period from the start of business, March 14, 2001, to September 30, 2001
follows:
September 30, December 31, September 30,
2002 2001 2001
-------------------- ------------------------ ---------------------
Investments, at value $ 13,713,440,772 $18,312,992,768 $ 15,879,363,685
Other Assets 59,906,476 23,229,223 247,862,763
- ----------------------------------- -------------------- ------------------------ ---------------------
Total Assets $ 13,773,347,248 $18,336,221,991 $ 16,127,226,448
Total Liabilities 35,785,860 357,011 63,436,483
- ----------------------------------- -------------------- ------------------------ ---------------------
Net Assets $ 13,737,561,388 $18,335,864,980 $ 16,063,789,965
=================================== ==================== ======================== =====================
Dividends and interest $ 155,639,717 $ 150,792,607 $ 100,321,324
- ----------------------------------- -------------------- ------------------------ ---------------------
Investment adviser fee $ 55,373,624 $ 61,024,040 $ 41,724,335
Other expenses 1,956,361 1,633,741 1,075,431
- ----------------------------------- -------------------- ------------------------ ---------------------
Total expenses $ 57,329,985 $ 62,657,781 $ 42,799,766
- ----------------------------------- -------------------- ------------------------ ---------------------
Net investment income $ 98,309,732 $ 88,134,826 $ 57,521,558
Net realized losses (503,906,340) (383,002,016) (249,288,446)
Net change in unrealized
appreciation(depreciation) (4,125,048,140) 46,979,377 (1,961,901,116)
- ----------------------------------- -------------------- ------------------------ ---------------------
Net decrease in net assets
from operations $(4,530,644,748) $ (247,887,813) $(2,153,668,004)
- ----------------------------------- -------------------- ------------------------ ---------------------
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 September 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., as
listed below.
Unrealized
Notional Unrealized Appreciation
Amount Depreciation (Depreciation)
Effective (000's Fixed Floating Termination at September 30, at December 31,
Date omitted) Rate Rate Date 2002 2001
- -------------- ----------- ------------ ----------------- -------------- -------------------- -------------------
03/01 $49,080 5.8075% Libor + 0.40% 3/08 $ (498,874) $ 452,595
05/01 73,980 5.7900% Libor + 0.40% 3/08 (7,968,488) (797,634)
07/01 34,905 5.9950% Libor + 0.40% 3/08 (4,126,742) (767,018)
12/01 57,509 5.8410% Libor + 0.40% 3/08 (6,333,796) (786,962)
03/08 49,080 6.4500% Libor + 0.40% 2/10 (5,302,579) (538,733)
03/08 73,980 6.9200% Libor + 0.40% 9/10 (1,722,184) 93,744
- -------------- ----------- ------------ ----------------- -------------- -------------------- -------------------
Total $(25,952,663) $(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 SEPTEMBER 30, 2002, COMPARED TO THE
QUARTER ENDED SEPTEMBER 30, 2001
The total return of Belport Capital Fund LLC and its subsidiaries (collectively,
the Fund) was -16.33% for the quarter ended September 30, 2002. This return
reflects a decrease in the Fund's net asset value per share from $86.26 to
$72.17 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 -17.27% over the
same period. Investors cannot invest directly in an Index. For the quarter ended
September 30, 2001, the Fund's total return was -14.64%. This return reflected a
decrease in the Fund's net asset value per share from $102.68 to $87.65 for the
period. For comparison, the S&P 500 had a total return of -14.67% over the same
period.
A multitude of factors contributed to the disconnect between the economic
recovery and the dismal performance of the equity markets. A combination of
geopolitical uncertainties, negative investor sentiment, and fears of double dip
recession pressured equity returns. The third quarter of 2002 marked the worst
broad market decline, as measured by the S&P 500, since the fourth quarter of
1987. Looking back a year ago during the same period, the U.S. equity market
fell sharply as well, but mostly in response to the tragic events of September
11th coupled with deteriorating domestic economic conditions. Every major
domestic benchmark experienced negative returns during the September 2002
quarter, and none of the S&P 500 sectors or industry groups had gains. A subtle
change in leadership to growth and large caps emerged, but volatility and the
pace of sector rotation remained at high levels.
The best performing sector of the S&P 500 was health care, while information
technology and telecommunications services continued to trail the benchmark.
Market leading groups in the third quarter of 2002 included casinos and gaming
stocks, agricultural equipment, as well as defensive plays such as household
products, generic pharmaceuticals and utilities. Defensive leadership was
evident during the third quarter of 2001 as well, resulting from cautious
investor sentiment due to September 11th. Last year's leading industries
included consumer products, pharmaceuticals, packaged foods and utilities
groups. Higher beta and more aggressive groups were the worst performers for the
quarter ending in September 2002, a continued theme from the same period in
2001. Weaker group performers included semiconductors, airlines, entertainment,
catalog retail and steel stocks.
In this challenging environment, the performance of Tax-Managed Growth Portfolio
(the Portfolio) and the Fund surpassed that of the overall market. The Portfolio
maintained an overweight position in the industrials and consumer staples
sectors, a slight directional increase from the levels held at the end of the
third quarter of 2001. The Portfolio's emphasis in the areas of food and drug
products, airfreight logistics, machinery and defense sub-groups contributed
positively to its performance. The Portfolio's neutral weight in the energy
group, a relative increase from last year, particularly in the oil and gas
industry, proved to be constructive for the overall returns. The Portfolio's
underweight in health care and an overweight of the consumer discretionary
stocks detracted from returns. While the Portfolio had gradually reduced its
13
position in the financial sector from last year's level, this sector was
overweighted, weakening absolute returns, mainly due to insurance and bank
industry holdings. Lack of earnings visibility and fundamental uncertainty
resulted in the Portfolio's de-emphasis of information technology and
telecommunications, which were the worst performing sectors in the quarter ended
September 30, 2002.
The combined impact on performance of the Fund's investment activities outside
of the Portfolio was modestly negative for the quarters ended September 30, 2002
and 2001. The performance of the Fund trailed that of the Portfolio by
approximately -1.2% and -1.0% for the quarters ended September 30, 2002 and
2001, respectively. During both periods, the Fund's investments in real estate
Partnership Preference Units generally benefited from declining interest rates
and tightening spreads in income-oriented securities, particularly in real
estate-related securities, while the Fund's investments in real estate joint
ventures experienced weakness in multifamily fundamentals in many U.S. markets,
which resulted in declines in value, and interest rate swap valuations declined
as interest rates fell. During both periods, dividends received from the Fund's
Partnership Preference Units and real estate joint venture investments modestly
added to performance.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO
THE PERIOD ENDED SEPTEMBER 30, 2001
The Fund's total return for the nine months ended September 30, 2002 was
- -26.63%. This return reflects a decrease in the Fund's net asset value per share
from $98.37 to $72.17 during the period. For comparison, the S&P 500 had a total
return of -28.15% over the same period. For the period from the start of
business, March 14, 2001 to September 30, 2001, the Fund's total return was
- -12.35%. This return reflected a decrease in the Fund's net asset value per
share from $100.00 to $87.65 during that period. For comparison, the S&P 500 had
a total return of -12.41% over the same period.
Investors awaiting earnings and economic solidification were troubled by
political uncertainties, possibility of a double dip recession, lackluster
corporate growth prospects, and weakening consumer resilience. Heightened risk
sensitivity translated into negative investor sentiment, which has prolonged the
bear market. The first nine months of 2002 repeated another volatile market
pattern seen during the same period in 2001, rising gradually through mid-March
and retreating to the lowest levels of the year at the end of September.
Investors' behavior however proved different during 2002 in that U.S. equity
fund net outflows were at peak levels, sharply contrasting net inflow activity
seen during the first nine months of 2001. Most major indices posted multi-year
lows, with none achieving positive returns year-to-date in 2002. All ten of the
S&P 500 sectors declined during this period. The best performing sectors during
these nine months ended September 30, 2002 included consumer staples, materials,
and energy. The weakest performing groups included fiber optics, semiconductor
equipment, unregulated power producers and information technology consulting and
services groups.
For the first nine months of 2002, the performance of the Portfolio was above
that of the overall market. The outperformance relative to the benchmark can be
attributed to the Portfolio's sector allocation and stock selection. The most
important decision was to underweight information technology and telecom
services groups, a continued theme from 2001. The Portfolio underweighted
computers, semiconductor equipment, and diversified and wireless services. The
Portfolio's positioning in the banks, insurance, food products, and defense
14
sub-groups was also beneficial. The Portfolio gradually reduced holdings in the
health care sector, a directional shift from the same period last year, but
participation in the pharmaceutical and biotechnology names nevertheless hurt
returns. The only other notable difference in the Portfolio's current
composition relative to last year was evident in the reduced underweight in the
energy and utilities sectors.
The combined impact on performance of the Fund's investment activities outside
of the Portfolio was modestly negative for the nine months ended September 30,
2002 and for the period ended September 30, 2001. The performance of the Fund
trailed that of the Portfolio by approximately -2.2% and -0.2% , respectively.
During both periods, the Fund's investments in real estate Partnership
Preference Units generally benefited from declining interest rates and
tightening spreads in income-oriented securities, particularly in real
estate-related securities, while the Fund's investments in real estate joint
ventures experienced weakness in multifamily fundamentals in many U.S. markets,
which resulted in declines in value, and interest rate swap valuations declined
as interest rates fell. During both periods, dividends received from the Fund's
Partnership Preference Units and real estate joint venture investments modestly
added to performance.
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 September 30, 2002 and 2001, the unrealized depreciation related to the
interest rate swap agreements was $25,952,663 and $6,618,450, respectively.
CRITICAL ACCOUNTING POLICIES
The Fund's discussion and analysis of its financial condition and results of
operations are based upon the Fund's condensed 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's critical accounting policies affect the Fund's more significant
estimates and assumptions used in valuing the Fund's real estate investments and
interest rate swap contracts. Prices are not readily available for these types
of investments and therefore are valued on an ongoing basis by Boston Management
and Research (BMR), in its capacity as Manager of Belport Realty Corporation
(BRC), in the case of the real estate investments, and in its capacity as the
Fund's investment adviser, in the case of the interest rate swap contracts.
In estimating the value of the Fund's investments in real estate, BMR takes into
account relevant factors, data and information, including with respect to
investments in Partnership Preference Units, information from dealers and
15
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. BMR, as the Fund's investment adviser, determines the value of
interest rate swaps, and, in doing so, may consider among other things, dealer
and counter-party quotes and pricing models.
The policies for valuing 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 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 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 BMR, in its
16
capacity as the Fund's 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
condensed consolidated financial statements.
Interest Rate Sensitivity
Principal (Notional) Amount by Contractual Maturity
For the Nine Months Ended September 30,
2003-2007 Thereafter Total Fair Value
-----------------------------------------------------------------------------------------
Rate sensitive
liabilities:
- -------------------
Long term debt -
Variable rate
Credit Facility
$226,000,000 $226,000,000 $226,000,000
Average
Interest rate 1.75% 1.75%
Rate sensitive
derivative
financial
instruments:
- -------------------
Pay fixed/
Receive
variable interest
rate swap
contracts $338,534,297 $338,534,297 $(25,952,663)
Average pay
rate 6.16% 6.16%
Average
receive rate 1.75% 1.75%
ITEM 4. CONTROLS AND PROCEDURES
Eaton Vance Management, as the Fund's Manager ("Eaton Vance"), and the Fund's
Chief Executive Officer and Chief Financial Officer have conducted an evaluation
of the effectiveness of disclosure controls and procedures pursuant to Rule
13a-14 under the Securities Exchange Act of 1934. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures are effective in ensuring that all material
information required to be filed in this quarterly report has been made known to
them in a timely fashion. There have been no significant changes in internal
controls, or in factors that could significantly affect internal controls,
subsequent to the date the Chief Executive Officer and Chief Financial Officer
completed their evaluation.
17
The complete and entire management, control and operation of the Fund are vested
in the Fund's Manager, Eaton Vance. The Fund's organizational structure does not
provide for a board of directors or a board audit committee. As such, the Fund's
Chief Executive Officer and Chief Financial Officer intend to report any
significant deficiency in the design or operation of internal controls which
could adversely affect the Fund's ability to record, process, summarize and
report financial data, and any fraud, whether or not material, that involves
management or other employees who have a significant role in the Fund's internal
controls, to Eaton Vance.
18
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.
On October 16, 2002, Eaton Vance as the Fund's Manager, elected Thomas E. Faust
Jr. and Michelle A. Alexander as the Fund's Chief Executive Officer and Chief
Financial Officer, respectively. Mr. Faust is Executive Vice President of Eaton
Vance and BMR and their corporate parent and trustee, Eaton Vance Corp. and
Eaton Vance Inc. He is also the Chief Investment Officer of Eaton Vance and BMR,
and a Director of Eaton Vance Corp. Ms. Alexander is a Vice President of Eaton
Vance and BMR. Mr. Faust and Ms. Alexander also serve as officers of various
investment companies managed or advised by Eaton Vance or BMR.
ITEM 6. THE FOLLOWING IS A LIST OF ALL EXHIBITS FILED AS PART OF THIS FORM 10Q:
(a) Exhibits
21 List of subsidiaries
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
19
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 duly authorized officer on November 14, 2002.
BELPORT CAPITAL FUND LLC
(Registrant)
By: /s/ Michelle A. Alexander
---------------------------------------
Michelle A. Alexander
Duly Authorized Officer and
Principal Accounting Officer
20
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Thomas E. Faust Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Belport Capital Fund
LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Thomas E. Faust Jr.
----------------------------------------
Thomas E. Faust Jr.
Chief Executive Officer
21
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Michelle A. Alexander, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Belport Capital Fund
LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Michelle A. Alexander
---------------------------------------
Michelle A. Alexander
Chief Financial Officer
22
EXHIBIT INDEX
21 List of subsidiaries
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
23