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, 2003
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Commission File No. 000-32633
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Belmar Capital Fund LLC
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(Exact name of registrant as specified in its charter)
Delaware 04-3508106
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(State of organization) ( I.R.S. Employer Identification No.)
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 617-482-8260
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None
----
(Former Name, Former Address and Former Fiscal Year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES X NO
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BELMAR CAPITAL FUND LLC
Index to Form 10-Q
PART I FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Statements 3
Condensed Consolidated Statements of Assets
and Liabilities as of September 30, 2003 (Unaudited)
and December 31, 2002 3
Condensed Consolidated Statements of Operations
(Unaudited) for the Three Months Ended September 30,
2003 and 2002 and for the Nine Months Ended September
30, 2003 and 2002 4
Condensed Consolidated Statements of Changes in
Net Assets (Unaudited) for the Nine Months Ended
September 30, 2003 and 2002 6
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Nine Months Ended September
30, 2003 and 2002 7
Financial Highlights (Unaudited) for the Nine
Months Ended September 30, 2003 9
Notes to Condensed Consolidated Financial Statements
as of September 30, 2003 (Unaudited) 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
EXHIBIT INDEX 26
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
- ----------------------------------------------------
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Assets and Liabilities
September 30, 2003 December 31,
(Unaudited) 2002
------------------ ------------
Assets:
Investment in Belvedere Capital Fund Company LLC
(Belvedere Capital) $ 1,767,246,710 $ 1,645,261,953
Investment in Partnership Preference Units 495,806,212 550,352,892
Investment in other real estate 188,577,125 203,940,755
Short-term investments 20,783,681 -
---------------------- ----------------
Total investments $ 2,472,413,728 $ 2,399,555,600
Cash 3,843,630 6,149,096
Escrow deposits - restricted 4,768,419 4,583,810
Dividends and interest receivable 2,145,128 2,456,370
Receivable for securities sold - 29,285,540
Other assets 2,947,501 3,608,880
---------------------- ----------------
Total assets $ 2,486,118,406 $ 2,445,639,296
---------------------- ----------------
Liabilities:
Loan payable - Credit Facility $ 541,500,000 $ 596,500,000
Mortgages payable 161,502,581 162,461,900
Open interest rate swap agreements, at value 26,069,108 47,057,312
Swap interest payable 1,144,679 1,696,469
Security deposits 787,086 776,772
Notes payable to minority shareholder 565,972 565,972
Accrued expenses:
Interest expense 1,338,585 2,487,473
Property taxes 2,402,277 3,143,437
Other expenses and liabilities 2,144,847 1,601,191
Minority interests in controlled subsidiaries 7,579,724 9,118,965
---------------------- ----------------
Total liabilities $ 745,034,859 $ 825,409,491
---------------------- ----------------
Net assets $ 1,741,083,547 $ 1,620,229,805
---------------------- ----------------
Shareholders' Capital $ 1,741,083,547 $ 1,620,229,805
---------------------- ----------------
Shares outstanding 22,566,215 23,190,678
---------------------- ----------------
Net asset value and redemption price per Share $ 77.15 $ 69.87
---------------------- ----------------
See notes to unaudited condensed consolidated financial statements
3
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Investment Income:
Dividends allocated from Belvedere Capital
(net of foreign taxes of $54,283, $51,132,
$239,038 and $191,468, respectively) $ 6,434,594 $ 5,639,402 $ 18,541,161 $ 17,311,192
Interest allocated from Belvedere Capital 53,274 128,715 356,952 456,239
Expenses allocated from Belvedere Capital (2,751,074) (2,607,604) (7,759,274) (8,792,381)
--------------- --------------- --------------- ---------------
Net investment income allocated from
Belvedere Capital $ 3,736,794 $ 3,160,513 $ 11,138,839 $ 8,975,050
Dividends from Partnership Preference Units 10,698,840 12,483,972 35,334,250 39,587,818
Rental income 8,473,810 8,710,898 25,718,859 26,224,436
Interest 53,976 2,993 112,079 61,382
--------------- --------------- --------------- ---------------
Total investment income $ 22,963,420 $ 24,358,376 $ 72,304,027 $ 74,848,686
--------------- --------------- --------------- ---------------
Expenses:
Investment advisory and administrative fees $ 1,789,557 $ 1,790,762 $ 5,327,406 $ 5,891,697
Property management fees 338,613 346,211 1,012,188 1,041,032
Distribution and servicing fees 873,268 818,175 2,459,323 2,858,261
Interest expense on mortgages 3,605,783 3,631,000 10,765,966 11,257,983
Interest expense on Credit Facility 1,944,624 3,343,724 6,852,621 10,567,576
Interest expense on swap agreements 6,972,899 10,118,324 26,215,668 30,156,297
Property and maintenance expenses 2,954,163 2,977,014 8,842,473 8,535,151
Property taxes and insurance 1,239,332 1,057,132 3,612,851 3,535,698
Miscellaneous 342,831 248,364 987,615 752,492
--------------- --------------- --------------- ---------------
Total expenses $ 20,061,070 $ 24,330,706 $ 66,076,111 $ 74,596,187
Deduct-
Reduction of investment advisory
and administrative fees 446,705 419,814 1,246,404 1,435,666
--------------- --------------- --------------- ---------------
Net expenses $ 19,614,365 $ 23,910,892 $ 64,829,707 $ 73,160,521
--------------- --------------- --------------- ---------------
Net investment income before
minority interest in net income of
controlled subsidiary $ 3,349,055 $ 447,484 $ 7,474,320 $ 1,688,165
Minority interest in net income
of controlled subsidiary (45,381) (155,365) (277,732) (367,297)
--------------- --------------- --------------- ---------------
Net investment income $ 3,303,674 $ 292,119 $ 7,196,588 $ 1,320,868
--------------- --------------- --------------- ---------------
See notes to unaudited condensed consolidated financial statements
4
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited) (Continued)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) -
Investment transactions from Belvedere
Capital (identified cost basis) $ 1,277,688 $ (33,410,557) $ (3,041,249) $ (164,133,745)
Investment transactions in Partnership
Preference Units (identified cost basis) 14,546,216 2,830,974 16,357,516 5,116,279
Investment transactions in other real estate
(net of minority interest in realized gain
(loss) of controlled subsidiary of $0, $7,434,
$0, and $(476,023), respectively) - 19,062 - (1,777,939)
--------------- ---------------- ---------------- ---------------
Net realized gain (loss) $ 15,823,904 $ (30,560,521) $ 13,316,267 $ (160,795,405)
--------------- ---------------- ---------------- ---------------
Change in unrealized appreciation
(depreciation) -
Investment in Belvedere Capital
(identified cost basis) $ 36,814,345 $ (247,988,924) $ 166,112,788 $ (356,435,613)
Investments in Partnership Preference Units
(identified cost basis) (12,223,737) 5,251,055 14,063,518 26,324,228
Investments in other real estate
(net of minority interest in unrealized
loss of controlled subsidiary of
$174,654, $1,906,217, $1,896,900
and $2,116,617, respectively) (2,283,368) (10,230,200) (14,583,748) (7,556,925)
Interest rate swap agreements 7,776,056 (7,299,674) 20,988,204 (8,138,782)
--------------- ---------------- ---------------- ---------------
Net change in unrealized appreciation
(depreciation) $ 30,083,296 $ (260,267,743) $ 186,580,762 $ (345,807,092)
--------------- ---------------- ---------------- ---------------
Net realized and unrealized gain (loss) $ 45,907,200 $ (290,828,264) $ 199,897,029 $ (506,602,497)
--------------- ---------------- ---------------- ---------------
Net increase (decrease) in net assets from
operations $ 49,210,874 $ (290,536,145) $ 207,093,617 $ (505,281,629)
=============== ================ ================ ===============
See notes to unaudited condensed consolidated financial statements
5
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Changes in Net Assets (Unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2003 2002
------------- -------------
Increase (Decrease) in Net Assets:
Net investment income $ 7,196,588 $ 1,320,868
Net realized gain (loss) from investment transactions 13,316,267 (160,795,405)
Net change in unrealized appreciation (depreciation)
of investments 186,580,762 (345,807,092)
---------------- ----------------
Net increase (decrease) in net assets from operations $ 207,093,617 $ (505,281,629)
---------------- ----------------
Transactions in Fund Shares -
Net asset value of Fund Shares issued to Shareholders in
payment of distributions declared $ 18,603,373 $ -
Net asset value of Fund Shares redeemed (65,522,822) (52,980,440)
---------------- ----------------
Net decrease in net assets from Fund Share transactions $ (46,919,449) $ (52,980,440)
---------------- ----------------
Distributions -
Distributions to Shareholders $ (39,320,426) $ -
---------------- ----------------
Total distributions $ (39,320,426) $ -
---------------- ----------------
Net increase (decrease) in net assets $ 120,853,742 $ (558,262,069)
Net assets:
At beginning of period $ 1,620,229,805 $ 2,108,684,133
---------------- ----------------
At end of period $ 1,741,083,547 $ 1,550,422,064
================ ================
See notes to unaudited condensed consolidated financial statements
6
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2003 2002
------------- -------------
Cash Flows From (For) Operating Activities -
Net increase (decrease) in net assets from operations $ 207,093,617 $ (505,281,629)
Adjustments to reconcile net increase (decrease) in net assets from operations
to net cash flows from operating activities -
Net investment income allocated from Belvedere Capital (11,138,839) (8,975,050)
(Increase) decrease in escrow deposits (184,609) 1,066,824
Decrease in receivable for securities sold 29,285,540 -
Decrease in other assets 661,379 808,952
Decrease in dividends and interest receivable 311,242 1,369,450
Decrease in interest payable for open swap agreements (551,790) (11,237)
Decrease in security deposits, accrued interest and
accrued other expenses and liabilities (594,918) (1,120,425)
Decrease in accrued property taxes (741,160) (714,987)
Proceeds from sales of Partnership Preference Units 84,967,714 60,076,602
Decrease in cash due to sale of one multifamily real estate property - (17,946)
(Increase) decrease in short-term investments (20,783,681) 3,919,805
Improvements to rental property (1,117,017) (1,511,479)
Net (increase) decrease in investment in Belvedere Capital (10,866,251) 28,719,502
Minority interest in net income of controlled subsidiary 277,732 367,297
Net realized (gain) loss from investment transactions (13,316,267) 160,795,405
Net change in unrealized (appreciation) depreciation of investments (186,580,762) 345,807,092
-------------- ---------------
Net cash flows from operating activities $ 76,721,930 $ 85,298,176
-------------- ---------------
Cash Flows From (For) Financing Activities -
Repayment of Credit Facility $ (55,000,000) $ (78,000,000)
Repayments on mortgages (959,319) (919,507)
Payments for Fund Shares redeemed (2,430,950) (2,690,609)
Payment on notes payable to minority shareholder - (134,028)
Distributions paid to Shareholders (20,717,053) -
Capital contributed to controlled subsidiary 79,926 -
-------------- ---------------
Net cash flows for financing activities $ (79,027,396) $ (81,744,144)
-------------- ---------------
Net (decrease) increase in cash $ (2,305,466) $ 3,554,032
Cash at beginning of period $ 6,149,096 $ 1,658,511
-------------- ---------------
Cash at end of period $ 3,843,630 $ 5,212,543
============== ===============
See notes to unaudited condensed consolidated financial statements
7
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2003 2002
------------- -------------
Supplemental Disclosure and Non-cash Investing and
Financing Activities -
Interest paid on loan - Credit Facility $ 6,452,294 $ 8,815,879
Interest paid on mortgages $ 10,469,505 $ 11,057,820
Interest paid on swap agreements $ 26,767,458 $ 30,167,534
Market value of securities distributed in payment of
redemptions $ 63,091,872 $ 50,024,781
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 $ - $ 10,276,498
Mortgage disposed of in conjunction with the sale of one
multifamily property in other real estate $ - $ 11,771,520
See notes to unaudited condensed consolidated financial statements
8
BELMAR CAPITAL FUND LLC as of September 30, 2003
Condensed Consolidated Financial Statements (Continued)
Financial Highlights (Unaudited)
For the Nine Months Ended September 30, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value - Beginning of period $ 69.870
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (6) $ 0.311
Net realized and unrealized gain 8.669
- ------------------------------------------------------------------------------------------------------------------------------------
Total income from operations $ 8.980
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders $ (1.700)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (1.700)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value - End of period $ 77.150
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (1) 13.09%
- ------------------------------------------------------------------------------------------------------------------------------------
As a Percentage As a Percentage
of Average Net of Average Gross
Ratios Assets(5) Assets (2)(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses of Consolidated Real Property Subsidiaries
Interest and other borrowing costs (7) 0.64%(8) 0.44%(8)
Operating expenses (7) 0.83%(8) 0.57%(8)
Belmar Capital Fund LLC Expenses
Interest and other borrowing costs (4) 2.65%(8) 1.82%(8)
Investment advisory and administrative fees,
servicing fees and other Fund operating expenses (3)(4) 1.19%(8) 0.81%(8)
-----------------------------------------------
Total expenses 5.31%(8) 3.64%(8)
Net investment income 0.58%(8) 0.40%(8)
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $1,741,084
Portfolio Turnover of Tax-Managed Growth Portfolio (the Portfolio) 14%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. Total return is not computed on an
annualized basis.
(2) Average Gross Assets is defined as the average daily amount of all assets
of Belmar Capital Fund LLC (Belmar Capital) (including Belmar Capital's
interest in Belvedere Capital Fund Company LLC (Belvedere Capital) and
Belmar Capital's ratable share of the assets of its directly and indirectly
controlled subsidiaries), without reduction by any liabilities. For this
purpose, the assets of Belmar Realty Corporation's (Belmar Realty)
controlled subsidiary are reduced by the proportionate interests therein of
investors other than Belmar Realty.
(3) Includes Belmar Capital's share of Belvedere Capital's allocated expenses,
including those expenses allocated from the Portfolio.
(4) Includes the expenses of Belmar Capital and Belmar Realty. Does not include
expenses of the real estate subsidiary majority-owned by Belmar Realty.
(5) For the purpose of calculating ratios, the income and expenses of Belmar
Realty's controlled subsidiary are reduced by the proportionate interests
therein of investors other than Belmar Realty.
(6) Calculated using average shares outstanding.
(7) Includes Belmar Realty's proportional share of expenses incurred by its
majority-owned subsidiary.
(8) Annualized.
See notes to unaudited condensed consolidated financial statements
9
BELMAR CAPITAL FUND LLC as of September 30, 2003
Notes To Condensed 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, 2002 has been derived from the December 31,
2002 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 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
September 30, 2003 and December 31, 2002, the Preferred Shares were valued at
$77.15 and $69.87, respectively, and the Common Shares had no value. The
existence of restructured Fund Shares does not adversely affect Shareholders who
do not make an 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
The following table summarizes the Fund's investment transactions for the nine
months ended September 30, 2003 and September 30, 2002:
Nine Months Ended Nine Months Ended
Investment Transaction September 30, 2003 September 30, 2002
- -----------------------------------------------------------------------------------------------------------------------
Increases in investment in Belvedere Capital $10,000,000 $ 98,233,579
Decreases in investment in Belvedere Capital $62,225,621 $176,977,862
Sales of Partnership Preference Units (1) $84,967,714 $ 60,076,602
- -----------------------------------------------------------------------------------------------------------------------
(1) Sales of Partnership Preference Units for the nine months ended September
30, 2003 and 2002 include certain sales to other funds sponsored by Eaton
Vance Management for which a gain of $4,268,591 and $5,116,279 was
recognized, 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 for which a loss of $1,797,001 was
recognized.
4 Indirect Investment in Portfolio
The following table summarizes the Fund's investment in Tax-Managed Growth
Portfolio (the Portfolio) through Belvedere Capital Fund Company LLC (Belvedere
Capital), for the nine months ended September 30, 2003 and September 30, 2002,
including allocations of income and expenses for the respective periods then
ended:
Nine Months Ended Nine Months Ended
September 30, 2003 September 30, 2002
- -------------------------------------------------------------------------------------------------------------------------
Belvedere Capital's interest in the Portfolio (1) $ 9,775,572,306 $ 8,043,904,602
The Fund's investment in Belvedere Capital (2) $ 1,767,246,710 $ 1,539,506,478
Income allocated to Belvedere Capital from the Portfolio $ 102,346,416 $ 88,799,143
Income allocated to the Fund from Belvedere Capital $ 18,898,113 $ 17,767,431
Expenses allocated to Belvedere Capital from the Portfolio $ 31,352,609 $ 32,657,939
Expenses allocated to the Fund from Belvedere Capital $ 7,759,274 $ 8,792,381
Realized loss allocated to Belvedere Capital from the Portfolio $ (10,803,952) $ (613,666,720)
Realized loss allocated to the Fund from Belvedere Capital $ (3,041,249) $ (164,133,745)
Change in unrealized appreciation (depreciation) allocated to
Belvedere Capital from the Portfolio $ 898,392,188 $(2,038,582,077)
Change in unrealized appreciation (depreciation) allocated to the
Fund from Belvedere Capital $ 166,112,788 $ (356,435,613)
- -------------------------------------------------------------------------------------------------------------------------
(1) As of September 30, 2003 and 2002, the value of Belvedere Capital's
interest in the Portfolio represents 62.1% and 58.6% of the Portfolio's net
assets, respectively.
(2) As of September 30, 2003 and 2002, the Fund's investment in Belvedere
Capital represents 18.1% and 19.1% of Belvedere Capital's net assets,
respectively.
11
A summary of the Portfolio's Statement of Assets and Liabilities at September
30, 2003, December 31, 2002 and September 30, 2002 and its operations for the
nine months ended September 30, 2003, for the year ended December 31, 2002 and
for the nine months ended September 30, 2002 follows:
September 30, December 31, September 30,
2003 2002 2002
--------------------------------------------------------------------
Investments, at value $ 15,720,495,292 $14,544,149,182 $ 13,713,440,772
Other assets 22,166,551 70,073,039 59,906,476
- --------------------------------------------------------------------------------------------------------
Total assets $ 15,742,661,843 $14,614,222,221 $ 13,773,347,248
Total liabilities 241,245 42,700,633 35,785,860
- --------------------------------------------------------------------------------------------------------
Net assets $ 15,742,420,598 $14,571,521,588 $ 13,737,561,388
========================================================================================================
Dividends and interest $ 166,725,898 $ 213,292,082 $ 155,639,717
- --------------------------------------------------------------------------------------------------------
Investment adviser fee $ 49,370,631 $ 71,564,552 $ 55,373,624
Other expenses 1,730,334 2,577,489 1,956,361
- --------------------------------------------------------------------------------------------------------
Total expenses $ 51,100,965 $ 74,142,041 $ 57,329,985
- --------------------------------------------------------------------------------------------------------
Net investment income $ 115,624,933 $ 139,150,041 $ 98,309,732
Net realized losses (17,942,587) (459,996,840) (503,906,340)
Net change in unrealized
appreciation (depreciation) 1,449,036,078 (3,312,547,564) (4,125,048,140)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations $ 1,546,718,424 $(3,633,394,363) $ (4,530,644,748)
- --------------------------------------------------------------------------------------------------------
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 September 30, 2003 and December 31,
2002, Belmar Capital has entered into cancelable interest rate swap agreements
with Merrill Lynch Capital Services, Inc. as listed below.
Notional Initial Unrealized Unrealized
Amount Optional Final Depreciation Depreciation
(000's Fixed Floating Termination Termination At September 30, At December 31,
omitted) Rate Rate Date Date 2003 2002
- -------------- ----------- ------------------ ---------------- ---------------- ---------------------- -----------------------
$27,500 8.96% LIBOR + 0.40% 3/05 3/30 $ 2,676,023 $ 3,589,811
19,146 9.09% LIBOR + 0.40% 4/04 3/30 822,391 1,721,750
43,181 9.20% LIBOR + 0.40% 6/03 3/30 -* 1,544,077
21,766 9.24% LIBOR + 0.40% 4/03 3/30 -* 491,825
38,102 9.11% LIBOR + 0.40% 2/04 3/30 1,129,958 3,020,889
20,659 9.13% LIBOR + 0.40% 11/03 3/30 230,220 1,317,687
23,027 9.05% LIBOR + 0.40% 7/04 3/30 1,378,173 2,366,994
10,773 9.54% LIBOR + 0.40% 4/03 3/30 -* 253,235
12,984 9.50% LIBOR + 0.40% 6/03 3/30 -* 483,956
9,608 9.46% LIBOR + 0.40% 11/03 3/30 111,725 647,043
13,274 9.42% LIBOR + 0.40% 2/04 3/30 410,257 1,111,586
12,063 9.38% LIBOR + 0.40% 4/04 3/30 540,779 1,145,024
10,799 9.35% LIBOR + 0.40% 7/04 3/30 678,962 1,178,045
41,185 9.31% LIBOR + 0.40% 9/04 3/30 3,062,660 4,841,445
7,255 9.26% LIBOR + 0.40% 3/05 3/30 749,500 1,013,121
22,982 9.17% LIBOR + 0.40% 2/03 3/30 -* 163,553
28,305 9.15% LIBOR + 0.40% 4/03 3/30 -* 631,854
32,404 9.13% LIBOR + 0.40% 6/03 3/30 -* 1,146,899
3,383 9.08% LIBOR + 0.40% 11/03 3/30 37,466 213,883
12,062 9.00% LIBOR + 0.40% 2/04 3/30 352,220 936,025
12
24,622 8.985% LIBOR + 0.40% 4/04 3/30 1,040,027 2,167,107
9,184 8.97% LIBOR + 0.40% 7/04 3/30 541,826 927,854
13,454 8.93% LIBOR + 0.40% 9/04 3/30 934,793 1,459,523
17,888 8.87% LIBOR + 0.40% 3/05 3/30 1,706,410 2,283,727
39,407 7.46% LIBOR + 0.40% - 9/10 7,911,394 8,423,378
11,776 8.34% LIBOR + 0.40% 3/05 3/30 975,400 1,287,360
2,338 8.41% LIBOR + 0.40% 9/04 3/30 143,976 220,542
23,636 8.48% LIBOR + 0.40% 2/04 3/30 634,948 1,623,935
20,265 8.60% LIBOR + 0.40% 6/03 3/30 -* 655,632
28,629 8.66% LIBOR + 0.40% 2/03 3/30 -* 189,552
- -------------- ----------- ------------------ ---------------- ---------------- ---------------------- -----------------------
$ 26,069,108 $ 47,057,312
- -------------- ----------- ------------------ ---------------- ---------------- ---------------------- -----------------------
* Agreement was terminated on the Initial Optional Termination Date.
On October 1, 2003, new interest rate swap agreements were entered into to fix
the cost of a portion of Belmar Capital's borrowings under the Credit Facility
(as defined in Note 6 below) established on June 30, 2003. At the same time all
interest rate swap agreements outstanding on September 30, 2003 were terminated,
resulting in realized losses of $26,751,841. The table below identifies the
terms of the interest rate swap agreements effective on October 1, 2003.
Notional Initial
Amount Optional
(000's Fixed Floating Termination Final Termination
omitted) Rate Rate Date Date
- ----------------------------------------------------------------------------------------------
$ 58,363 4.95% LIBOR + 0.20% 2/04 6/10
55,831 4.875% LIBOR + 0.20% 4/04 6/10
43,010 4.755% LIBOR + 0.20% 7/04 6/10
56,978 4.695% LIBOR + 0.20% 9/04 6/10
64,418 4.565% LIBOR + 0.20% 3/05 6/10
110,068 3.9725% LIBOR + 0.20% - 6/10
- ----------------------------------------------------------------------------------------------
6 Debt
Credit Facility - On June 30, 2003, Belmar Capital refinanced the existing
credit facility with Citicorp North America, Inc. with two new credit
arrangements (collectively, the Credit Facility) totaling $700,000,000. The
Credit Facility has a seven-year maturity and will expire on June 25, 2010.
Belmar Capital's obligations under the Credit Facility are secured by a pledge
of its assets, excluding the assets of Bel Apartments.
The credit arrangement with DrKW Holdings, Inc. is for $581,500,000. This credit
arrangement accrues interest at a rate of one-month LIBOR plus 0.20% per annum.
As of September 30, 2003, outstanding borrowings under this credit arrangement
totaled $541,500,000.
The credit arrangement with Merrill Lynch Mortgage Capital is for $118,500,000
and includes the ability to issue letters of credit up to $10,000,000. This
credit arrangement accrues interest at a rate of one-month LIBOR plus 0.38% per
annum. A commitment fee of 0.10% per annum is paid on the unused commitment
amount. Belmar Capital pays all fees associated with issuing the letters of
credit. As of September 30, 2003, there were no outstanding borrowings under
this credit arrangement and there were no letters of credit issued.
13
7 Segment Information
Belmar Capital pursues its investment objective primarily by investing
indirectly in the Portfolio through Belvedere Capital. The Portfolio is a
diversified investment company that emphasizes investments in common stocks of
domestic and foreign growth companies that are considered to be high in quality
and attractive in their long-term investment prospects. Separate from its
investment in Belvedere Capital, Belmar Capital invests in real estate assets
through its subsidiary Belmar Realty Corporation (Belmar Realty). Belmar Realty
invests directly in Partnership Preference Units and indirectly in real property
through a controlled subsidiary, Bel Apartments.
Belmar Capital evaluates performance of the reportable segments based on the net
increase (decrease) in net assets from operations of the respective segment,
which includes net investment income (loss), net realized gain (loss) and
unrealized appreciation (depreciation). The accounting policies of the
reportable segments are the same as those for Belmar Capital on a consolidated
basis. No reportable segments have been aggregated. Reportable information by
segment is as follows:
FOR THE THREE MONTHS ENDED TAX-MANAGED REAL
SEPTEMBER 30, 2003 GROWTH PORTFOLIO* ESTATE TOTAL
- ---------------------------------------------------------------------------------------------------------------------
Revenue $ 3,736,794 $ 19,173,640 $ 22,910,434
Interest expense on mortgages - (3,605,783) (3,605,783)
Interest expense on Credit Facility (194,462) (1,623,297) (1,817,759)
Interest expense on swap agreements - (6,972,899) (6,972,899)
Operating expenses (320,336) (5,820,059) (6,140,395)
Minority interest in net income of controlled
subsidiary - (45,381) (45,381)
- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 3,221,996 $ 1,106,221 $ 4,328,217
Net realized gain 1,277,688 14,546,216 15,823,904
Change in unrealized appreciation (depreciation) 36,814,345 (6,731,049) 30,083,296
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS OF
REPORTABLE SEGMENTS $ 41,314,029 $ 8,921,388 $ 50,235,417
- ---------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED TAX-MANAGED REAL
SEPTEMBER 30, 2002 GROWTH PORTFOLIO* ESTATE TOTAL
- ---------------------------------------------------------------------------------------------------------------------
Revenue $ 3,160,513 $ 21,196,225 $ 24,356,738
Interest expense on mortgages - (3,631,000) (3,631,000)
Interest expense on Credit Facility - (3,143,100) (3,143,100)
Interest expense on swap agreements - (10,118,324) (10,118,324)
Operating expenses (264,551) (5,782,791) (6,047,342)
Minority interest in net income of controlled
subsidiary - (155,365) (155,365)
- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ 2,895,962 $ (1,634,355) $ 1,261,607
Net realized (loss) gain (33,410,557) 2,850,036 (30,560,521)
Change in unrealized appreciation (depreciation) (247,988,924) (12,278,819) (260,267,743)
- ---------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM OPERATIONS OF
REPORTABLE SEGMENTS $(278,503,519) $ (11,063,138) $(289,566,657)
- ---------------------------------------------------------------------------------------------------------------------
14
FOR THE NINE MONTHS ENDED TAX-MANAGED REAL
SEPTEMBER 30, 2003 GROWTH PORTFOLIO* ESTATE TOTAL
- ---------------------------------------------------------------------------------------------------------------------
Revenue $ 11,138,839 $ 61,055,484 $ 72,194,323
Interest expense on mortgages - (10,765,966) (10,765,966)
Interest expense on Credit Facility (685,262) (5,893,254) (6,578,516)
Interest expense on swap agreements - (26,215,668) (26,215,668)
Operating expenses (876,924) (17,371,387) (18,248,311)
Minority interest in net income of controlled
subsidiary - (277,732) (277,732)
- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 9,576,653 $ 531,477 $ 10,108,130
Net realized (loss) gain (3,041,249) 16,357,516 13,316,267
Change in unrealized appreciation (depreciation) 166,112,788 20,467,974 186,580,762
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS OF
REPORTABLE SEGMENTS $ 172,648,192 $ 37,356,967 $ 210,005,159
- ---------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED TAX-MANAGED REAL
SEPTEMBER 30, 2002 GROWTH PORTFOLIO* ESTATE TOTAL
- ---------------------------------------------------------------------------------------------------------------------
Revenue $ 8,975,050 $ 65,839,660 $ 74,814,710
Interest expense on mortgages - (11,257,983) (11,257,983)
Interest expense on Credit Facility - (9,933,521) (9,933,521)
Interest expense on swap agreements - (30,156,297) (30,156,297)
Operating expenses (974,156) (17,108,694) (18,082,850)
Minority interest in net income of controlled
subsidiary - (367,297) (367,297)
- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ 8,000,894 $ (2,984,132) $ 5,016,762
Net realized (loss) gain (164,133,745) 3,338,340 (160,795,405)
Change in unrealized appreciation (depreciation) (356,435,613) 10,628,521 (345,807,092)
- ---------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN NET ASSETS FROM
OPERATIONS OF REPORTABLE SEGMENTS $(512,568,464) $ 10,982,729 $(501,585,735)
- ---------------------------------------------------------------------------------------------------------------------
TAX-MANAGED REAL
AT SEPTEMBER 30, 2003 GROWTH PORTFOLIO* ESTATE TOTAL
- ---------------------------------------------------------------------------------------------------------------------
Segment assets $1,767,246,710 $ 695,234,252 $2,462,480,962
Segment liabilities 61,015,202 643,850,845 704,866,047
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS OF REPORTABLE SEGMENTS $1,706,231,508 $ 51,383,407 $1,757,614,915
- ---------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2002
- ---------------------------------------------------------------------------------------------------------------------
Segment assets $1,674,547,493 $ 766,408,400 $2,440,955,893
Segment liabilities 61,010,849 754,088,495 815,099,344
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS OF REPORTABLE SEGMENTS $1,613,536,644 $ 12,319,905 $1,625,856,549
- ---------------------------------------------------------------------------------------------------------------------
* Belmar Capital invests indirectly in Tax-Managed Growth Portfolio through
Belvedere Capital.
15
The following tables reconcile the reported segment information to the condensed
consolidated financial statements for the periods indicated:
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
------------------ ------------------ ------------------ ------------------
Revenue:
Revenue from reportable segments $ 22,910,434 $ 24,356,738 $ 72,194,323 $ 74,814,710
Unallocated revenue 52,986 1,638 109,704 33,976
------------------ ------------------ ------------------ ------------------
TOTAL REVENUE $ 22,963,420 $ 24,358,376 $ 72,304,027 $ 74,848,686
------------------ ------------------ ------------------ ------------------
Net increase (decrease) in net assets from
operations:
Net increase (decrease) in net assets from
operations of reportable segments $ 50,235,417 $(289,566,657) $ 210,005,159 $(501,585,735)
Unallocated revenue 52,986 1,638 109,704 33,976
Unallocated expenses ** (1,077,529) (971,126) (3,021,246) (3,729,870)
------------------ ------------------ ------------------ ------------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ 49,210,874 $(290,536,145) $ 207,093,617 $(505,281,629)
------------------ ------------------ ------------------ ------------------
** Unallocated expenses include Belmar Capital's costs to operate the Fund
such as servicing and distribution fees as well as other miscellaneous and
administrative costs of Belmar Capital.
SEPTEMBER 30, DECEMBER 31,
2003 2002
----------------- ------------------
Net assets:
Net assets of reportable segments $ 1,757,614,915 $ 1,625,856,549
Unallocated cash 2,853,763 4,683,403
Short-term investments 20,783,681 (1) -
Loan payable - Credit Facility (40,024,517)(1) (10,176,876)
Other liabilities (144,295) (133,271)
----------------- ------------------
TOTAL NET ASSETS $ 1,741,083,547 $ 1,620,229,805
----------------- ------------------
(1) Short-term investments represent temporary investments of cash. Such
amounts may be used to finance the Fund's equity in real estate
investments, to reduce outstanding borrowings under the Credit Facility or
for the short-term liquidity needs of the Fund.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information in this report contains forward-looking statements within the
meaning of the federal securities laws. Forward-looking statements typically are
identified by use of terms such as "may," "will," "should," "might," "expect,"
"anticipate," "estimate," and similar words, although some forward-looking
statements are expressed differently. The actual results of Belmar Capital Fund
LLC (the Fund) could differ materially from those contained in the
forward-looking statements due to a number of factors. The Fund undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise, except as required by
applicable law. Factors that could affect the Fund's performance include a
decline in the U.S. stock markets or in general economic conditions, adverse
developments affecting the real estate industry, or fluctuations in interest
rates.
The following discussion should be read in conjunction with the Fund's unaudited
condensed consolidated financial statements and related notes in Item 1 above.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2003 COMPARED TO THE
QUARTER ENDED SEPTEMBER 30, 2002
PERFORMANCE OF THE FUND.1 The Fund's total return was 2.81% for the quarter
ended September 30, 2003. This return reflects an increase in the Fund's net
asset value per share from $75.04 to $77.15 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 2.65% over the same period. The performance of the Fund
exceeded that of Tax-Managed Growth Portfolio (the Portfolio) by approximately
0.5% during the period. Last year, the Fund had a total return performance of
- -15.70% for the quarter ended September 30, 2002. This return reflected a
decrease in the Fund's net asset value per share from $78.35 to $66.07 during
the period. For comparison, the S&P 500 had a total return of -17.27% over the
same period. The performance of the Fund trailed that of the Portfolio by
approximately 0.6% during that period.
PERFORMANCE OF THE PORTFOLIO. The total return of the Portfolio for the quarter
ended September 30, 2003 was 2.35% compared to the 2.65% return achieved by the
S&P 500 over the same period. The modest gain posted by the S&P 500 during the
quarter is in sharp contrast to the worst broad market quarterly decline in this
decade that was experienced in the quarter ended September 30, 2002. The
Portfolio's total return for the quarter ended September 30, 2002 was -15.11%.
The encouraging fiscal and monetary policies, resilient consumer spending and
positive earnings momentum experienced through the first half of 2003 continued
during the third quarter and contributed to the market's strength during the
quarter, extending its gains for the year.
The performance of the Portfolio slightly trailed the performance of the S&P 500
during the quarter ended September 30, 2003 primarily due to the Portfolio's
relatively more defensive tilt and its continued underweighting of the
information technology sector. Unlike a year ago when it was the worst
performing sector, information technology was by far the best performing sector
of the market during the quarter ended September 30, 2003.
During the quarter ended September 30, 2003, the Portfolio's sector allocation
remained very similar to last year's positioning relative to the market, with no
major sector or industry shifts. Near the end of the quarter there was some
pause in the strong momentum of higher beta stocks, helping the Portfolio's
relative performance.
The Portfolio's stock selection and underweighting of the telecommunication and
health care sectors were particularly beneficial during the quarter ended
September 30, 2003, but were not sufficient to offset the impact of the
Portfolio's underweighting of information technology stocks. Boston Management
and Research (Boston Management), the Portfolio's investment adviser, remained
cautious in the information technology and telecommunications sectors, a
comparable underweight allocation from the same period a year ago.
PERFORMANCE OF REAL ESTATE INVESTMENTS. The Fund's real estate investments are
held through Belmar Realty Corporation (Belmar Realty), a controlled subsidiary
of the Fund. Real estate investments include a portfolio of income-producing
preferred equity interests in operating partnerships (the Partnership Preference
Units) that are affiliated with real estate investment trusts and an interest in
a real estate joint venture (the Real Estate Joint Venture) that is
majority-owned by Belmar Realty.
1 Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that Fund shares, when redeemed, may be
worth more or less than their original cost. Comparison to the S&P 500 is
for reference only. It is not possible to invest directly in an Index.
17
During the quarters ended September 30, 2003 and September 30, 2002, Belmar
Realty sold (or experienced scheduled redemptions of) certain Partnership
Preference Units, recognizing gains of $14.5 million and $2.8 million
respectively, on the transactions (including sales to other investment funds
advised by Boston Management). At September 30, 2003, the estimated fair value
of the Fund's Partnership Preference Units totaled $495.8 million compared to
$558.9 million at September 30, 2002, a decrease of $63.1 million or 11%. This
decrease in value was principally due to fewer Partnership Preference Units held
at September 30, 2003. The per unit value of the remaining Partnership
Preference Units also declined slightly during the quarter. The Fund saw
unrealized depreciation in the estimated fair value of its Partnership
Preference Units of approximately $12.2 million during the quarter ended
September 30, 2003 compared to unrealized appreciation of approximately $5.3
million during the quarter ended September 30, 2002.
Dividends received from Partnership Preference Units for the quarter ended
September 30, 2003 totaled $10.7 million compared to $12.5 million for the
quarter ended September 30, 2002, a decrease of $1.8 million or 14%. The
decrease was due to fewer Partnership Preference Units being held during the
quarter ended September 30, 2003.
During the quarter ended September 30, 2003, real estate operations continued to
be impacted by weak multifamily market fundamentals. Rental income from real
estate operations fell to $8.5 million for the quarter ended September 30, 2003
compared to $8.7 million for the quarter ended September 30, 2002, a decrease of
$0.2 million or 2%. This decrease in rental income resulted primarily from
increased rent concessions or reduced apartment rental rates and lower occupancy
levels at properties owned by Belmar Realty's Real Estate Joint Venture, a trend
that has continued from 2002.
Property operating expenses totaled $4.5 million for the quarter ended September
30, 2003 compared to $4.4 million for the quarter ended September 30, 2002, an
increase of $0.1 million or 2% (property operating expenses are before certain
operating expenses of Belmar Realty of approximately $1.3 million for the
quarter ended September 30, 2003 and approximately $1.4 million for the quarter
ended September 30, 2002). The increase in operating expenses was principally
due to a 1% decrease in property and maintenance expenses offset by a 17%
increase in property taxes and insurance expense.
Even though the U.S. economy showed signs of improvement during the quarter
ended September 30, 2003, significant employment growth has not occurred in most
markets and low interest rates have contributed to the continued development of
new properties. As a result, Boston Management, Belmar Realty's manager, expects
that real estate operating results for Belmar Realty's Real Estate Joint Venture
in 2003 will continue to be modestly below the levels of 2002.
At September 30, 2003, the estimated fair value of the real properties held
through Belmar Realty was $188.6 million compared to $206.1 million at September
30, 2002, a decrease of $17.5 million or 8%. The decrease in estimated real
property values was due to declines in near-term earnings expectations. The
decrease in value was partially offset by decreases in capitalization rates
during the year. The Fund saw unrealized depreciation in the estimated fair
value of its other real estate investments (which includes Belmar Realty's
interest in the Real Estate Joint Venture) of approximately $2.3 million during
the quarter ended September 30, 2003 compared to approximately $10.2 million of
unrealized depreciation during the quarter ended September 30, 2002.
PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the quarter ended September
30, 2003, interest rate swap agreement values appreciated by approximately $7.8
million, due to a slight increase in swap rates and a shortening of effective
maturities as the Fund's interest rate swap agreements approached their initial
optional termination dates. For the quarter ended September 30, 2002, interest
rate swap agreement valuations decreased by $7.3 million due to a decline in
swap rates.
On October 1, 2003, new interest rate swap agreements were entered into to fix
the cost of a portion of Fund borrowings under the Credit Facility established
on June 30, 2003. At the same time, the Fund made payments of approximately
$26.8 million to terminate all interest rate swaps outstanding as of September
30, 2003, realizing a loss in that amount on the transactions. The realized loss
approximated the value of the positions on the books of the Fund. See "Liquidity
and Capital Resources" below for a description of the Credit Facility and
interest rate swap agreements.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 2002
PERFORMANCE OF THE FUND. The Fund's total return was 13.09% for the nine months
ended September 30, 2003. This return reflects an increase in the Fund's net
asset value per share from $69.87 to $77.15 and a distribution of $1.70 per
share during the period. For comparison, the S&P 500 had a total return of
14.71% over the same period. The performance of the Fund exceeded that of the
Portfolio by approximately 2.4% during the period. Last year, the Fund had a
18
total return performance of -24.40% for the nine months ended September 30,
2002. This return reflected a decrease in the Fund's net asset value per share
from $87.37 to $66.07. For comparison, the S&P 500 had a total return of -28.15%
over the same period. The performance of the Fund matched that of the Portfolio
for the nine months ended September 30, 2002.
PERFORMANCE OF THE PORTFOLIO. The total return of the Portfolio for the nine
months ended September 30, 2003 was 10.74% compared to the 14.71% return
achieved by the S&P 500 over the same period. The total return of the Portfolio
for the nine months ended September 30, 2002 was -24.40%.
The first nine months of 2003 remained volatile, but markets proved to be
resilient achieving impressive returns. War angst, a questionable economic
recovery and the SARS outbreak were just a few of the factors contributing to
increased volatility and unsettled investor sentiment during the period. While
the first nine months of 2003 also witnessed reduced geopolitical concerns,
higher consumer confidence and a strong housing market, concerns about inflation
and unemployment developed over the summer and early fall of 2003 and kept the
market and various sectors quite volatile.
The Portfolio's performance trailed the overall market in the first nine months
of 2003, mostly due to a lower exposure to higher beta and lower quality issues
that were the strongest price performers during this period. The Portfolio
maintained a pro-cyclical stance emphasizing the consumer discretionary and
consumer staples sectors, as it did in the first nine months of 2002. Boston
Management continued to de-emphasize health care investments, a directional move
initiated last year which was positive for the Portfolio's relative returns.
During the first nine months of 2003, Boston Management continued to emphasize
industrial company investments, especially in the airfreight logistics and
aerospace defense areas. Airfreight logistics and aerospace defense investments
have been helpful to the Portfolio's longer-term record, but detracted from
results during the nine months ended September 30, 2003.
Lack of earnings visibility reinforced the Portfolio's cautious weighting in the
telecommunications and information technology sectors. Both of the
aforementioned sectors were de-emphasized during the first nine months of last
year as well. The Portfolio's underweight of the telecommunication services
sector during the nine months ended September 30, 2003 continued to be positive
for the Portfolio. Boston Management continued to underweight the Portfolio's
investments in the materials and utilities sectors during the period, a similar
stance to last year's allocation.
PERFORMANCE OF REAL ESTATE INVESTMENTS. During the nine months ended September
30, 2003 and September 30, 2002, Belmar Realty sold (or experienced scheduled
redemptions of) certain Partnership Preference Units, recognizing gains of $16.4
million and $5.1 million, respectively, on the transactions (including sales to
other investment funds advised by Boston Management). At September 30, 2003, the
estimated fair value of the Fund's Partnership Preference Units totaled $495.8
million compared to $558.9 million at September 30, 2002, a decrease of $63.1
million or 11%. The decrease in value was principally due to fewer Partnership
Preference Units held at September 30, 2003, offset in part by increases in the
per unit value of the remaining Partnership Preference Units held by Belmar
Realty. This appreciation in per unit value resulted from declining interest
rates and tighter spreads on real estate securities during the nine months ended
September 30, 2003. The Fund saw unrealized appreciation in the estimated fair
value of its Partnership Preference Units of approximately $14.1 million during
the nine months ended September 30, 2003 compared to unrealized appreciation of
approximately $26.3 million during the nine months ended September 30, 2002.
Dividends received from Partnership Preference Units for the nine months ended
September 30, 2003 totaled $35.3 million compared to $39.6 million for the nine
months ended September 30, 2002, a decrease of $4.3 million or 11%. The decrease
was due to fewer Partnership Preference Units being held during the nine months
ended September 30, 2003.
For the nine months ended September 30, 2003, rental income from properties
owned by Belmar Realty's Real Estate Joint Venture decreased to $25.7 million
from $26.2 million for the nine months ended September 30, 2002, a decline of
$0.5 million or 2%. Property operating expenses increased to $13.5 million for
the nine months ended September 30, 2003 from $13.1 million for the nine months
ended September 30, 2002, an increase of $0.4 million or 3% (property operating
expenses are before certain operating expenses of Belmar Realty of approximately
$3.9 million for the nine months ended September 30, 2003 and approximately $4.0
million for the nine months ended September 30, 2002). The increase in operating
expenses was due to a 4% increase in property and maintenance expenses and a 2%
increase in property taxes and insurance expense during the nine months ended
September 30, 2003. As in 2002, real estate operations during the period were
affected by weak multifamily market fundamentals in most regions with lower
occupancy levels and increased rent concessions.
19
At September 30, 2003, the estimated fair value of the real properties held
through Belmar Realty was $188.6 million compared to $206.1 million at September
30, 2002, a decrease of $17.5 million or 8%. The decrease in real property value
was due to declines in near-term earnings expectations and the economic
downturn. The Fund saw unrealized depreciation of the estimated fair value of
its other real estate investments of approximately $14.6 million during the nine
months ended September 30, 2003 compared to unrealized depreciation of
approximately $7.6 million during the nine months ended September 30, 2002.
PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the nine months ended
September 30, 2003, interest rate swap agreement values appreciated by
approximately $21.0 million compared to depreciating by approximately $8.1
million for the nine months ended September 30, 2002. The appreciation
recognized during 2003 is primarily due to a shortening of effective maturities
as the Fund's interest rate swap agreements approached their initial optional
termination dates. Swap rates did not change significantly during the nine-month
period ended September 30, 2003. The depreciation recognized for the nine months
ended September 30, 2002 was caused by declines in swap rates during the period.
LIQUIDITY AND CAPITAL RESOURCES
Effective June 30, 2003, the Fund refinanced its then existing credit facility
with Citicorp North America by entering into new credit arrangements with DrKW
Holdings, Inc. (DrKW) and Merrill Lynch Mortgage Capital, Inc. (MLMC)
(collectively, the Credit Facility) which together total $700.0 million. The
Credit Facility is secured by a pledge of the Fund's assets, excluding the
assets of Bel Alliance Apartments, LLC, and has a seven-year maturity. The
Credit Facility will expire in June 2010.
The Credit Facility is primarily used to finance the Fund's equity in real
estate investments and will continue to be used for such purpose in the future.
The Credit Facility also provides for selling commissions, organizational
expenses and any short-term liquidity needs of the Fund. Under certain
circumstances, the Fund may increase the size of the Credit Facility and the
amount of outstanding borrowings thereunder for these purposes.
The Credit Facility includes a $581.5 million credit arrangement with DrKW.
Borrowings under the DrKW credit arrangement accrue interest at a rate of
one-month LIBOR plus 0.20% per annum. As of September 30, 2003, outstanding
borrowings under the DrKW credit arrangement totaled $541.5 million.
The Credit Facility also includes a $118.5 million credit arrangement with MLMC,
including up to $10.0 million under letters of credit. Borrowings under the MLMC
credit arrangement accrue interest at a rate of one-month LIBOR plus 0.38% per
annum. As of September 30, 2003, there were no outstanding borrowings under the
MLMC credit arrangement and there were no amounts outstanding under letters of
credit. The unused loan commitment amount totaled approximately $118.5 million.
A commitment fee of 0.10% per annum is paid on the unused commitment amount. The
Fund pays all fees associated with issuing the letters of credit.
The Fund has entered into interest rate swap agreements with respect to its real
estate investments and associated borrowings. Pursuant to these agreements, the
Fund makes periodic payments to the counterparty at predetermined fixed rates,
in exchange for floating-rate payments that fluctuate with one-month LIBOR.
During the terms of the outstanding interest rate swap agreements, changes in
the underlying values of the agreements are recorded as unrealized gains or
losses. On October 1, 2003, new interest rate swap agreements were entered into
to fix a portion of the cost of Fund borrowings under the Credit Facility
established on June 30, 2003. At the same time, all interest rate swap
agreements outstanding on September 30, 2003 were terminated. Under the new
interest rate swap agreements the Fund makes periodic payments to the
counterparty at predetermined fixed rates, in exchange for floating-rate
payments at a predetermined spread plus one-month LIBOR.
As of September 30, 2003 and September 30, 2002, the unrealized depreciation
related to the interest rate swap agreements was approximately $26.1 million and
$52.4 million, respectively.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Fund's discussion and analysis of its financial condition and results of
operations are based upon its unaudited 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
20
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 agreements. Prices are not readily available for these types
of investments and therefore they are fair valued on an ongoing basis by Boston
Management, in its capacity as manager of Belmar Realty, 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 agreements. The fair value of an investment
represents the amount at which Boston Management believes the investment could
be sold in a current transaction between willing parties, that is, other than in
a forced or liquidation sale.
In estimating the fair value of Belmar Realty's investment in Partnership
Preference Units, Boston Management takes into account all relevant factors,
data and information, including 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. With respect to Belmar Realty's other real estate
investments, detailed investment valuations are based on independent valuations
that 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. In determining the fair value of interest rate
swap agreements, Boston Management may consider, among other things, dealer and
counterparty quotes and pricing models. Given that the valuation of real estate
investments and interest rate swap agreements includes many assumptions,
including but not limited to the assumption that the investment could be sold in
a current transaction between willing parties, that is, other than in a forced
or liquidation sale, values may differ from amounts ultimately realized.
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 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 swap agreements may be subject to wide swings in
valuation caused principally by changes in interest rates. Interest rate swap
agreements may be difficult to value since such instruments 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 that may be 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 that may be
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 that may be 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 its real estate
investments that are financed by the Fund with floating rate borrowings under
the Fund's Credit Facility and by fixed-rate secured mortgage debt obligations
of the Real Estate Joint Venture. The interest rates on borrowings under the
Fund's Credit Facility are reset at regular intervals based on a fixed and
predetermined premium to LIBOR for short-term extensions of credit. The Fund has
entered into cancelable interest rate swap agreements to fix the cost of its
borrowings under the Credit Facility and to attempt 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. 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 can expose the Fund to
significant loss.
21
The value of Partnership Preference Units and, to a lesser degree, other real
estate investments is sensitive to interest rate risk. Increases in interest
rates generally will have an adverse affect on the value of Partnership
Preference Units and other real estate investments.
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 and Note 6
to the Fund's unaudited condensed consolidated financial statements in Item 1
above.
Interest Rate Sensitivity
Cost, Principal (Notional) Amount by Contractual Maturity
For the Twelve Months Ended September 30,
Estimated
2004-2008 Thereafter Total Fair Vaue
- -------------------------------------------------------------------------------------------
Rate sensitive
liabilities:
- ------------------------
Long-term debt:
- ------------------------
Fixed-rate mortgages $161,502,581 $161,502,581 $182,000,000
Average interest rate 8.50% 8.50%
- ------------------------
Variable-rate Credit
Facility $541,500,000 $541,500,000 $541,500,000
Average interest rate 1.32% 1.32%
- -------------------------------------------------------------------------------------------
Rate sensitive
derivative financial
instruments:
- ------------------------
Pay fixed / receive
variable interest rate
swap agreements(1) $388,668,000 $388,668,000 $ --
Average pay rate(1) 4.54% 4.54%
Average receive rate(1) 1.32% 1.32%
(1) The terms disclosed are those of the interest rate swap agreements entered
into that are effective on October 1, 2003. See Note 5 to the Fund's
unaudited condensed consolidated financial statements in Item 1 above for
the terms of the interest rate swap agreements in effect on September 30,
2003 and terminated on October 1, 2003 as well as the loss realized as a
result of such termination.
- -------------------------------------------------------------------------------------------
Rate sensitive
investments:
- ------------------------
Fixed-rate Partnership
Preference Units:
- ------------------------
Cabot Industrial
Properties, L.P.,
8.625% Series B
Cumulative Redeemable
Preferred Units,
Callable 4/29/04,
Current Yield: 8.31% $ 55,831,200 $ 55,831,200 $ 67,496,000
Camden Operating,
L.P., 8.50% Series B
Cumulative Redeemable
Perpetual Preferred
Units, Callable
2/23/04, Current
Yield: 8.39% $ 58,869,144 $ 58,869,144 $ 69,123,600
CP Limited
Partnership, 8.125%
Series A Cumulative
Redeemable Preferred
Units, Callable
4/20/03, Current
Yield: 8.04% $ 60,844,550 $ 60,844,550 $ 75,761,700
Essex Portfolio, L.P.,
7.875% Series B
Cumulative Redeemable
Preferred Units,
Calalble 2/6/03,
Current Yield: 8.15% $ 11,997,050 $ 11,997,050 $ 15,701,465
Essex Portfolio, L.P.,
9.30% Series D
Cumulative Redeemable
Preferred Units,
Callable 7/28/04,
Current Yield: 9.04% $ 43,009,575 $ 43,009,575 $ 51,441,200
22
Essex Portfolio, L.P.,
9.125% Series C
Cumulative Redeemable
Preferred Units,
Callable 11/24/03,
Current Yield: 8.98% $ 3,383,200 $ 3,383,200 $ 4,065,624
Kilroy Realty, L.P.,
8.075% Series A
Cumulative Redeemable
Preferred Units,
Callable 2/06/03,
Current Yield: 8.75% $ 9,944,100 $ 9,944,100 $ 12,456,369
Kilroy Realty, L.P.,
9.375% Series C
Redeemable Preferred
Units, Callable
11/24/03, Current
Yield: 9.46% $ 30,266,640 $ 30,266,640 $ 34,703,130
PSA Institutional
Partners, L.P., 9.50%
Series N Cumulative
Redeemable Perpetual
Preferred Units,
Callable 3/17/05,
Current Yield: 9.09% $ 64,418,165 $ 64,418,165 $ 66,736,600
Prentiss Properties
Acquisition Partners,
L.P., 8.30% Series B
Cumulative Redeemable
Perpetual Preferred
Units, Callable
6/25/03, Current
Yield: 8.45% $ 25,492,776 $ 25,492,776 $ 32,599,524
Regency Centers, L.P.,
9.125% Series D
Cumulative Redeemable
Preferred Units,
Callable 9/29/04,
Current Yield: 8.86% $ 12,924,525 $ 12,924,525 $ 15,441,000
Sun Communities
Operating L.P., 8.875%
Series A Cumulative
Redeemable Perpetual
Preferred Units,
Callable 9/29/04,
Current Yield: 8.83% $ 44,052,800 $ 44,052,800 $ 50,280,000
ITEM 4. CONTROLS AND PROCEDURES.
Eaton Vance Management (Eaton Vance), as the Fund's manager, with the
participation of the Fund's Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of the Fund's disclosure controls
and procedures (as defined by Rule 13a-15(e) of the Securities Exchange Act of
1934, as amended) as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Fund's disclosure controls and procedures were effective.
There were no changes in the Fund's internal control over financial reporting
that occurred during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, the Fund's internal
control over financial reporting.
As the Fund's manager, the complete and entire management, control and operation
of the Fund are vested in 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 to
Eaton Vance any significant deficiency in the design or operation of internal
control over financial reporting 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 control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Although in the ordinary course of business, the Fund, Belmar Realty and Belmar
Realty's controlled subsidiary may become involved in legal proceedings, the
Fund is not aware of any material pending legal proceedings to which any of them
is subject.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the three months
ended September 30, 2003.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) The following is a list of all exhibits filed as part of this Form 10-Q:
31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
None.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officer on November 10, 2003.
BELMAR CAPITAL FUND LLC
/s/ Michelle A. Alexander
-------------------------
Michelle A. Alexander
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
25
EXHIBIT INDEX
-------------
31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
26