UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2004
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _________ to _____________
Commission File No. 000-49775
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Belport Capital Fund LLC
------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3551830
-------- ----------
(State of organization) (I.R.S. Employer Identification No.)
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
--------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 617-482-8260
------------
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 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 Securities Exchange Act of 1934).
YES X NO
--- ---
BELPORT CAPITAL FUND LLC
Index to Form 10-Q
Page
PART I FINANCIAL INFORMATION............................................. 3
Item 1. Condensed Consolidated Financial Statements....................... 3
Condensed Consolidated Statements of Assets and Liabilities
as of March 31, 2004 (Unaudited) and December 31, 2003............ 3
Condensed Consolidated Statements of Operations (Unaudited)
for the Three Months Ended March 31, 2004 and 2003................ 4
Condensed Consolidated Statements of Changes in Net Assets
for the Three Months Ended March 31, 2004 (Unaudited) and
the Year Ended December 31, 2003.................................. 6
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 2004 and 2003................ 7
Financial Highlights (Unaudited) for the Three Months Ended
March 31, 2004.................................................... 9
Notes to Condensed Consolidated Financial Statements as of
March 31, 2004 (Unaudited)........................................ 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 18
Item 4. Controls and Procedures........................................... 19
PART II OTHER INFORMATION................................................. 20
Item 1. Legal Proceedings................................................. 20
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities.............................................. 20
Item 3. Defaults Upon Senior Securities................................... 20
Item 4. Submission of Matters to a Vote of Security Holders............... 20
Item 5. Other Information................................................. 20
Item 6. Exhibits and Reports on Form 8-K.................................. 20
Signatures................................................................ 22
Exhibit Index............................................................. 23
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Assets and Liabilities
March 31, 2004 December 31,
(Unaudited) 2003
--------------- ------------
Assets:
Investment in Belvedere Capital Fund Company LLC
(Belvedere Company) $1,639,558,986 $1,611,769,203
Investment in Partnership Preference Units 71,893,466 93,277,111
Investment in other real estate 439,471,111 484,704,890
Short-term investments 5,977,000 4,821,135
--------------- ---------------
Total investments $2,156,900,563 $2,194,572,339
Cash 47,974,204 6,522,994
Escrow deposits - restricted 3,916,800 2,764,808
Open interest swap agreements, at value - 1,763,670
Distributions and interest receivable 222 404,628
Other assets 2,160,968 2,358,005
--------------- ---------------
Total assets $2,210,952,757 $2,208,386,444
--------------- ---------------
Liabilities:
Loan payable - Credit Facility $ 218,500,000 $ 230,500,000
Mortgages payable 361,107,500 361,107,500
Open interest rate swap agreements, at value 3,188,813 -
Payable for Fund Shares redeemed 1,231,784 -
Distributions payable to minority shareholders - 16,800
Special Distributions payable - 17
Security deposits 808,392 863,503
Swap interest payable 119,771 118,147
Accrued expenses:
Interest expense 2,150,571 2,141,722
Property taxes 3,624,913 2,212,615
Other expenses and liabilities 1,736,742 2,224,975
Minority interests in controlled subsidiaries 21,912,592 24,347,753
--------------- ---------------
Total liabilities $ 614,381,078 $ 623,533,032
--------------- ---------------
Net assets $1,596,571,679 $1,584,853,412
--------------- ---------------
Shareholders' Capital $1,596,571,679 $1,584,853,412
--------------- ---------------
Shares outstanding 16,680,712 16,697,292
--------------- ---------------
Net asset value and redemption price per Share $ 95.71 $ 94.92
--------------- ---------------
See notes to unaudited condensed consolidated financial statements
3
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Three Months
Ended Ended
March 31, 2004 March 31, 2003
-------------- --------------
Investment Income:
Dividends allocated from Belvedere Company
(net of foreign taxes of $67,633 and $59,569, respectively) $ 5,655,611 $ 4,857,387
Interest allocated from Belvedere Company 27,444 90,563
Expenses allocated from Belvedere Company (2,452,071) (1,968,349)
-------------- --------------
Net investment income allocated from Belvedere Company $ 3,230,984 $ 2,979,601
Rental income 15,305,001 16,638,248
Distributions from Partnership Preference Units 2,486,858 2,203,828
Interest 107,547 67,253
-------------- --------------
Total investment income $ 21,130,390 $ 21,888,930
-------------- --------------
Expenses:
Investment advisory and administrative fees $ 1,431,926 $ 1,305,729
Property management fees 612,421 659,528
Distribution and servicing fees 789,880 627,665
Interest expense on mortgages 6,223,035 6,329,727
Interest expense on Credit Facility 776,436 1,026,582
Property and maintenance expenses 4,180,810 4,213,973
Property taxes and insurance 1,998,910 1,993,052
Miscellaneous 136,329 227,965
-------------- --------------
Total expenses $ 16,149,747 $ 16,384,221
Deduct-
Reduction of investment advisory and administrative fees $ 398,439 $ 313,437
-------------- --------------
Net expenses $ 15,751,308 $ 16,070,784
-------------- --------------
Net investment income before minority interests
in net income of controlled subsidiaries $ 5,379,082 $ 5,818,146
Minority interests in net income of controlled
subsidiaries (413,957) (658,259)
-------------- --------------
Net investment income $ 4,965,125 $ 5,159,887
-------------- --------------
See notes to unaudited condensed consolidated financial statements
4
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited) (Continued)
Three Months Three Months
Ended Ended
March 31, 2004 March 31, 2003
--------------- ----------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) -
Investment transactions from Belvedere Company (identified cost basis) $ 5,949,484 $ (5,647,765)
Investment transactions in Partnership Preference Units (identified cost basis) 3,661,719 -
Investment transactions in other real estate 4,280,114 -
Interest rate swap agreements (1) (1,280,658) (2,166,915)
--------------- ----------------
Net realized gain (loss) $ 12,610,659 $ (7,814,680)
--------------- ----------------
Change in unrealized appreciation (depreciation) -
Investment in Belvedere Company (identified cost basis) $ 24,452,718 $ (58,653,661)
Investments in Partnership Preference Units (identified cost basis) (4,979,750) 4,296,088
Investments in other real estate (net of minority interests in
unrealized loss of controlled subsidiaries of $(4,224,810)
and $(6,931,836), respectively) (5,943,768) (10,053,812)
Interest rate swap agreements (4,952,483) (253,322)
--------------- ----------------
Net change in unrealized appreciation (depreciation) $ 8,576,717 $ (64,664,707)
--------------- ----------------
Net realized and unrealized gain (loss) $ 21,187,376 $ (72,479,387)
--------------- ----------------
Net increase (decrease) in net assets from operations $ 26,152,501 $ (67,319,500)
=============== ================
(1) Amount represents periodic payments made in connection with interest rate
swap agreements. (Note 5)
See notes to unaudited condensed consolidated financial statements
5
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Changes in Net Assets
Three Months
Ended Year Ended
March 31, 2004 December 31,
(Unaudited) 2003
--------------- ---------------
Increase (Decrease) in Net Assets:
Net investment income $ 4,965,125 $ 19,648,844
Net realized gain (loss) from investment transactions 12,610,659 (10,022,550)
Net change in unrealized appreciation (depreciation) of investments 8,576,717 309,086,814
--------------- ---------------
Net increase in net assets from operations $ 26,152,501 $ 318,713,108
--------------- ---------------
Transactions in Fund Shares -
Net asset value of Fund Shares issued to Shareholders in payment of
distributions declared $ 6,341,090 $ 6,479,733
Net asset value of Fund Shares redeemed (8,085,533) (52,613,896)
--------------- ---------------
Net decrease in net assets from Fund Share transactions $ (1,744,443) $ (46,134,163)
--------------- ---------------
Distributions -
Distributions to Shareholders $ (12,689,791) $ (12,367,580)
Special Distributions to Shareholders - (17)
--------------- ---------------
Total distributions $ (12,689,791) $ (12,367,597)
--------------- ---------------
Net increase in net assets $ 11,718,267 $ 260,211,348
Net assets:
At beginning of period $1,584,853,412 $1,324,642,064
--------------- ---------------
At end of period $1,596,571,679 $1,584,853,412
=============== ===============
See notes to unaudited condensed consolidated financial statements
6
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Three Months
Ended Ended
March 31, 2004 March 31, 2003
--------------- ---------------
Cash Flows From (For) Operating Activities -
Net increase (decrease) in net assets from operations $ 26,152,501 $ (67,319,500)
Adjustments to reconcile net increase (decrease) in net assets from operations
to net cash flows from operating activities -
Net investment income allocated from Belvedere Company (3,230,984) (2,979,601)
Increase in escrow deposits (1,151,992) (1,373,026)
Decrease in receivable for investments sold - 50,221,589
Decrease (increase) in other assets 197,037 (18,349)
Decrease (increase) in distributions and interest receivable 404,406 (55)
Increase (decrease) in interest payable for open swap agreements 1,624 (1,051)
(Decrease) increase in security deposits, accrued interest and accrued other
expenses and liabilities (534,495) 632,621
Increase in accrued property taxes 1,412,298 979,533
Proceeds from sales of Partnership Preference Units 20,065,614 -
Proceeds from sale of investment in other real estate 41,336,126 -
Payments for investment in other real estate - (5,026,960)
Improvements to rental property (615,119) (783,102)
Net increase in investment in Belvedere Company - (41,000,002)
Net interest incurred on interest rate swap agreements (1,280,658) (2,166,915)
Increase in short-term investments (1,155,865) (2,453,022)
Minority interests in net income of controlled subsidiaries 413,957 658,259
Net realized (gain) loss from investment transactions (12,610,659) 7,814,680
Net change in unrealized (appreciation) depreciation of investments (8,576,717) 64,664,707
--------------- ---------------
Net cash flows from operating activities $ 60,827,074 $ 1,849,806
--------------- ---------------
Cash Flows From (For) Financing Activities -
(Repayment of) proceeds from Credit Facility $(12,000,000) $ 5,000,000
Distributions paid to Shareholders (6,348,718) (5,887,847)
Payments for Fund Shares redeemed (1,010,346) (1,008,595)
Distributions paid to minority shareholders (16,800) (843,371)
--------------- ---------------
Net cash flows for financing activities $(19,375,864) $ (2,739,813)
--------------- ---------------
Net increase (decrease) in cash $ 41,451,210 $ (890,007)
Cash at beginning of period $ 6,522,994 $ 7,452,296
--------------- ---------------
Cash at end of period $ 47,974,204 $ 6,562,289
=============== ===============
See notes to unaudited condensed consolidated financial statements
7
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
Three Months Three Months
Ended Ended
March 31, 2004 March 31, 2003
--------------- ---------------
Supplemental Disclosure and Non-cash Investing and Financing Activities -
Interest paid on loan - Credit Facility $ 756,868 $ 795,195
Interest paid on mortgages $ 6,155,627 $ 6,118,316
Interest paid on swap agreements $ 1,279,034 $ 2,167,966
Market value of securities distributed in payment of redemptions $ 5,843,403 $ 15,036,120
Market value of real property and other assets, net of current liabilities,
assumed in conjunction with acquisition of other real estate $ - $ 64,628,785
Mortgage assumed in conjunction with acquisition of other real estate $ - $ 59,601,825
See notes to unaudited condensed consolidated financial statements
8
BELPORT CAPITAL FUND LLC as of March 31, 2004
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financial Highlights (Unaudited)
For the Three Months Ended March 31, 2004
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value - Beginning of period $ 94.920
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (6) $ 0.297
Net realized and unrealized gain 1.253
- -----------------------------------------------------------------------------------------------------------------------------------
Total income from operations $ 1.550
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders $ (0.760)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.760)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value - End of period $ 95.710
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (1) 1.64%
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) 1.29% (9) 0.97% (9)
Operating expenses (7) 1.41% (9) 1.06% (9)
Belport Capital Fund LLC Expenses
Interest and other borrowing costs (4)(8) 0.20% (9) 0.15% (9)
Investment advisory and administrative fees,
servicing fees and other Fund operating expenses (3)(4) 1.10% (9) 0.83% (9)
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 4.00% (9) 3.01% (9)
Net investment income 1.25% (9) 0.94% (9)
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 1,596,572
Portfolio turnover of Tax-Managed Growth Portfolio (the Portfolio) 0.61%
- -----------------------------------------------------------------------------------------------------------------------------------
(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 Belport Capital Fund LLC (Belport Capital) (including Belport Capital's
interest in Belvedere Capital Fund Company LLC (Belvedere Company) and
Belport 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 Belport Realty Corporation's (Belport
Realty) controlled subsidiaries are reduced by the proportionate interests
therein of investors other than Belport Realty.
(3) Includes Belport Capital's share of Belvedere Company's allocated expenses,
including those expenses allocated from the Portfolio.
(4) Includes the expenses of Belport Capital and Belport Realty. Does not
include expenses of the real estate subsidiaries majority-owned by Belport
Realty.
(5) For the purpose of calculating ratios, the income and expenses of Belport
Realty's controlled subsidiaries are reduced by the proportionate interest
therein of investors other than Belport Realty.
(6) Calculated using average shares outstanding.
(7) Includes Belport Realty's proportional share of expenses incurred by its
majority-owned subsidiaries.
(8) Ratios do not include interest incurred in connection with the interest
rate swap agreements. Had such amounts been included, ratios would be
higher.
(9) Annualized.
See notes to unaudited condensed consolidated financial statements
9
BELPORT CAPITAL FUND LLC as of March 31, 2004
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, 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 as of 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, 2003 has been derived from the December 31,
2003 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 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.
The allocation of Belport Capital's net asset value per Share at March 31, 2004
and December 31, 2003, between Preferred and Common Shares that have been
restructured is as follows:
10
Per Share Value At Per Share Value At
March 31, 2004 December 31, 2003
------------------------------------------------------
Preferred Common Preferred Common
Date of Contribution Shares Shares Shares Shares
- --------------------------------------------------------------------------------
May 22, 2001 $ 95.71 $ - $ 94.92 $ -
July 25, 2001 $ 94.71 $ 1.00 $ 94.71 $ 0.21
December 17, 2001 $ 91.87 $ 3.84 $ 91.87 $ 3.05
3 Investment Transactions
The following table summarizes the Fund's investment transactions for the three
months ended March 31, 2004 and March 31, 2003:
Three Months Ended Three Months Ended
Investment Transaction March 31, 2004 March 31, 2003
- ------------------------------------------------------------------------------------------------
Increases in investment in Belvedere Company $ - $ 45,919,932
Decreases in investment in Belvedere Company $ 5,843,403 $ 19,956,050
Acquisitions of other real estate (1) $ - $ 5,026,960
Sales of Partnership Preference Units (2) $ 20,065,614 $ -
Sales of other real estate (3) $ 41,336,126 $ -
- ------------------------------------------------------------------------------------------------
(1) In March 2003, Bel Oakbrook LLC (Bel Oakbrook), a wholly-owned subsidiary
of Belport Realty Corporation (Belport Realty), acquired a 100% ownership
interest in an office building. In May 2003, Belport Realty sold its
interest in Bel Oakbrook to another investment fund advised by Boston
Management and Research (Boston Management). A gain of $323,384 was
recognized on the transaction.
(2) Sales of Partnership Preference Units for the three months ended March 31,
2004 included Partnership Preference Units sold to other investment funds
advised by Boston Management for which a gain of $1,637 was recognized.
(3) In January 2004, a multifamily residential property owned by Monadnock
Property Trust, LLC (Monadnock) was sold to a third party. Belport Capital
recognized a gain of $4,280,114, net of minority interest of such gain of
$1,375,692.
4 Indirect Investment in the Portfolio
The following table summarizes the Fund's investment in Tax-Managed Growth
Portfolio (the Portfolio) through Belvedere Capital Fund Company LLC (Belvedere
Company), for the three months ended March 31, 2004 and March 31, 2003,
including allocations of income, expenses and net realized and unrealized gains
(losses) for the respective periods then ended:
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
- -----------------------------------------------------------------------------------------------------------------------
Belvedere Company's interest in the Portfolio (1) $ 11,520,846,141 $8,400,349,853
The Fund's investment in Belvedere Company (2) $ 1,639,558,986 $1,286,768,268
Income allocated to Belvedere Company from the Portfolio $ 39,365,471 $ 32,398,573
Income allocated to the Fund from Belvedere Company $ 5,683,055 $ 4,947,950
Expenses allocated to Belvedere Company from the Portfolio $ 12,634,511 $ 9,667,954
Expenses allocated to the Fund from Belvedere Company $ 2,452,071 $ 1,968,349
Net realized gain(loss) allocated to Belvedere Company from the Portfolio $ 41,048,575 $ (37,772,155)
Net realized gain(loss) allocated to the Fund from Belvedere Company $ 5,949,484 $ (5,647,765)
Change in unrealized appreciation (depreciation) allocated to Belvedere
Company from the Portfolio $ 163,577,445 $(389,828,192)
Change in unrealized appreciation (depreciation) allocated to the Fund
from Belvedere Company $ 24,452,718 $ (58,653,661)
- -----------------------------------------------------------------------------------------------------------------------
11
(1) As of March 31, 2004 and 2003, the value of Belvedere Company's interest in
the Portfolio represents 63.9% and 61.1% of the Portfolio's net assets,
respectively.
(2) As of March 31, 2004 and 2003, the Fund's investment in Belvedere Company
represents 14.2% and 15.3% of Belvedere Company's net assets, respectively.
A summary of the Portfolio's Statement of Assets and Liabilities, at March 31,
2004, December 31, 2003 and March 31, 2003 and its operations for the three
months ended March 31, 2004, for the year ended December 31, 2003 and for the
three months ended March 31, 2003 follows:
March 31, December 31, March 31,
2004 2003 2003
--------------------------------------------------------------------
Investments, at value $ 18,003,359,532 $ 17,584,390,762 $ 13,797,517,752
Other assets 25,944,066 25,462,745 24,535,362
- ---------------------------------------------------------------------------------------------------------
Total assets $ 18,029,303,598 $ 17,609,853,507 $ 13,822,053,114
Total liabilities 254,697 264,502 73,659,303
- ---------------------------------------------------------------------------------------------------------
Net assets $ 18,029,048,901 $ 17,609,589,005 $ 13,748,393,811
=========================================================================================================
Dividends and interest $ 62,101,320 $ 232,925,912 $ 53,431,732
- ---------------------------------------------------------------------------------------------------------
Investment adviser fee $ 19,348,796 $ 67,584,543 $ 15,490,999
Other expenses 598,921 2,295,653 477,083
- ---------------------------------------------------------------------------------------------------------
Total expenses $ 19,947,717 $ 69,880,196 $ 15,968,082
- ---------------------------------------------------------------------------------------------------------
Net investment income $ 42,153,603 $ 163,045,716 $ 37,463,650
Net realized gain (loss) 64,894,806 70,909,770 (62,969,970)
Net change in unrealized
appreciation (depreciation) 261,922,214 3,174,709,110 (649,928,537)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations $ 368,970,623 $ 3,408,664,596 $ (675,434,857)
- ---------------------------------------------------------------------------------------------------------
5 Interest Rate Swap Agreements
Belport Capital has entered into interest rate swap agreements with Merrill
Lynch Capital Services, Inc. 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.
Interest rate swap agreements open at March 31, 2004 and December 31, 2003 are
listed below.
Notional Initial Unrealized Unrealized
Amount Optional Final Depreciation Appreciation
(000's Fixed Floating Termination Termination at March 31, at December 31,
omitted) Rate Rate Date Date 2004 2003
- -------------- ---------- ----------------- --------------- -------------- ---------------- -------------------
$ 34,905 4.565% LIBOR + 0.20% 3/05 6/10 $ (272,400) $ 170,784
46,160 4.045% LIBOR + 0.20% 2/10 6/10 (990,559) 326,668
109,822 3.945% LIBOR + 0.20% - 6/10 (1,925,854) 1,266,218
- -------------- ---------- ----------------- --------------- -------------- ---------------- -------------------
Total $(3,188,813) $ 1,763,670
- -------------- ---------- ----------------- --------------- -------------- ---------------- -------------------
12
6 Segment Information
Belport Capital pursues its investment objective primarily by investing
indirectly in the Portfolio through Belvedere Company. 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 Company, Belport Capital invests in real estate assets
through its subsidiary, Belport Realty. Belport Realty invests directly and
indirectly in Partnership Preference Units and indirectly in real property
through controlled subsidiaries, Bel Multifamily Property Trust, Monadnock and
Bel Oakbrook (for the period from March 19, 2003, to May 13, 2003).
Belport 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 the Fund on a consolidated basis.
No reportable segments have been aggregated. Reportable information by segment
is as follows:
Tax-Managed
For the Three Months Ended Growth Real
March 31, 2004 Portfolio* Estate Total
- --------------------------------------------------------------------------------------------------------------------
Revenue $ 3,230,984 $ 17,878,759 $ 21,109,743
Interest expense on mortgages - (6,223,035) (6,223,035)
Interest expense on Credit Facility (54,351) (667,735) (722,086)
Operating expenses (299,774) (7,592,203) (7,891,977)
Minority interest in net income of controlled
Subsidiaries - (413,957) (413,957)
- --------------------------------------------------------------------------------------------------------------------
Net investment income $ 2,876,859 $ 2,981,829 $ 5,858,688
Net realized gain 5,949,484 6,661,175 12,610,659
Change in unrealized appreciation (depreciation) 24,452,718 15,876,001) 8,576,717
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations of reportable segments $ 33,279,061 $ (6,232,997) $ 27,046,064
- --------------------------------------------------------------------------------------------------------------------
Tax-Managed
For the Three Months Ended Growth Real
March 31, 2003 Portfolio* Estate Total
- --------------------------------------------------------------------------------------------------------------------
Revenue $ 2,979,601 $ 18,870,046 $ 21,849,647
Interest expense on mortgages - (6,329,727) (6,329,727)
Interest expense on Credit Facility (41,063) (944,455) (985,518)
Operating expenses (238,215) (7,782,704) (8,020,919)
Minority interest in net income of controlled
Subsidiaries - (658,259) (658,259)
- --------------------------------------------------------------------------------------------------------------------
Net investment income $ 2,700,323 $ 3,154,901 $ 5,855,224
Net realized loss (5,647,765) (2,166,915) (7,814,680)
Change in unrealized appreciation (depreciation) (58,653,661) (6,011,046) (64,664,707)
- --------------------------------------------------------------------------------------------------------------------
Net decrease in net assets from operations of
reportable segments $ (61,601,103) $ (5,023,060) $ (66,624,163)
- --------------------------------------------------------------------------------------------------------------------
Tax-Managed
Growth Real
At March 31, 2004 Portfolio* Estate Total
- --------------------------------------------------------------------------------------------------------------------
Segment assets $ 1,639,558,986 $ 563,678,338 $2,203,237,324
Segment liabilities 17,833,366 580,120,750 597,954,116
- --------------------------------------------------------------------------------------------------------------------
Net assets (liabilities) of reportable segments $ 1,621,725,620 $ (16,442,412) $1,605,283,208
- --------------------------------------------------------------------------------------------------------------------
13
At December 31, 2003
- --------------------------------------------------------------------------------------------------------------------
Segment assets $1,611,769,203 $ 589,657,910 $2,201,427,113
Segment liabilities 16,596,400 598,192,300 614,788,700
- --------------------------------------------------------------------------------------------------------------------
Net assets (liabilities) of reportable segments $1,595,172,803 $ (8,534,390) $1,586,638,413
- --------------------------------------------------------------------------------------------------------------------
* Belport Capital invests indirectly in Tax-Managed Growth Portfolio through
Belvedere Company.
The following tables reconcile the reported segment information to the condensed
consolidated financial statements for the periods indicated:
Three Months Three Months
Ended Ended
March 31, 2004 March 31, 2003
---------------- ----------------
Revenue:
Revenue from reportable segments $ 21,109,743 $ 21,849,647
Unallocated amounts:
Interest earned on cash not invested in the Portfolio or in subsidiaries 20,647 39,283
---------------- ----------------
Total revenue $ 21,130,390 $ 21,888,930
---------------- ----------------
Net increase (decrease) in net assets from operations:
Net increase (decrease) in net assets from operations of reportable segments $ 27,046,064 $(66,624,163)
Unallocated amounts:
Interest earned on cash not invested in the Portfolio or in subsidiaries 20,647 39,283
Unallocated amounts (1):
Distribution and servicing fees (789,880) (627,665)
Interest expense on Credit Facility (54,350) (41,064)
Audit, tax and legal fees (46,746) (42,550)
Other operating expenses (23,234) (23,341)
---------------- ----------------
Total net increase (decrease) in net assets from operations $ 26,152,501 $(67,319,500)
---------------- ----------------
March 31, 2004 December 31, 2003
---------------- -------------------
Net assets:
Net assets of reportable segments $1,605,283,208 $1,586,638,413
Unallocated cash (2) 1,738,433 2,138,196
Short-term investments (2) 5,977,000 4,821,135
Loan payable-Credit Facility (3) (16,315,492) (8,568,222)
Other liabilities (111,470) (176,110)
---------------- -------------------
Total net assets $1,596,571,679 $1,584,853,412
---------------- -------------------
(1) Unallocated amounts represent expenses incurred that pertain to the overall
operation of Belport Capital, and do not pertain to either operating
segment.
(2) Unallocated cash and short-term investments represent cash and cash
equivalents not invested in the Portfolio or real estate assets.
(3) Unallocated amount of loan payable - Credit Facility represents borrowings
not specifically used to fund real estate investments. Such borrowings are
generally used to pay selling commissions, organization expenses and other
liquidity needs of the Fund.
14
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 Belport 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 March 31, 2004 Compared to the
Quarter Ended March 31, 2003
(a) Results of Operations.
Increases and decreases in the Fund's net asset value per share are derived from
net investment income or loss, and realized and unrealized gains and losses on
investments. The Fund's net investment income (or loss) is determined by
subtracting the Fund's total expenses from its investment income and then
deducting the minority interest in net income of the controlled subsidiaries of
Belport Realty Corporation (Belport Realty). The Fund's investment income
includes the net investment income allocated to the Fund from Belvedere Capital
Fund Company LLC (Belvedere Company), rental income from the properties owned by
Belport Realty's controlled subsidiaries, partnership income allocated to the
income-producing preferred equity interests in real estate operating
partnerships (Partnership Preference Units) owned by Belport Realty and interest
earned on the Fund's short-term investments (if any). The net investment income
of Belvedere Company allocated to the Fund includes dividends, interest and
expenses allocated to Belvedere Company by Tax-Managed Growth Portfolio (the
Portfolio) less the expenses of Belvedere Company allocated to the Fund. The
Fund's total expenses include the Fund's investment advisory and administrative
fees, distribution and servicing fees, interest expense from mortgages on
properties owned by Belport Realty's controlled subsidiaries, interest expense
on the Fund's credit arrangements (the Credit Facility), property management
fees, property taxes, insurance, maintenance and other expenses relating to the
properties owned by Belport Realty's controlled subsidiaries, and other
miscellaneous expenses. The Fund's realized and unrealized gains and losses are
the result of transactions in, or changes in value of, security investments held
through the Fund's indirect interest (through Belvedere Company) in the
Portfolio, real estate investments held through Belport Realty, the Fund's
interest rate swap agreements and any other direct investments of the Fund, as
well as periodic payments made by the Fund pursuant to interest rate swap
agreements.
Realized and unrealized gains and losses on investments have the most
significant impact on the Fund's net asset value per share and result primarily
from sales of such investments and changes in their underlying value. The
investments of the Portfolio consist primarily of common stocks of domestic and
foreign growth companies that are considered to be high in quality and
attractive in their long-term investment prospects. Because the securities
holdings of the Portfolio are broadly diversified, the performance of the
Portfolio cannot be attributed to one particular stock or one particular
industry or market sector. The performance of the Portfolio and the Fund are
substantially influenced by the overall performance of the U.S. stock market, as
well as by the relative performance versus the overall market of specific stocks
and classes of stocks in which the Portfolio maintains large positions.
Performance of the Fund.1 The Fund's investment objective is to achieve
long-term, after-tax returns for Shareholders. Eaton Vance Management (Eaton
Vance), as the Fund's manager, measures the Fund's success in achieving its
objective based on the investment returns of the Fund, using the Standard &
Poor's 500 Composite Index (the S&P 500) as the Fund's primary performance
benchmark. The S&P 500 is a broad-based unmanaged index of common stocks widely
used as a measure of U.S. stock market performance. Eaton Vance's primary focus
in pursuing total return is on the Fund's common stock portfolio, which consists
of its indirect interest in the Portfolio. In measuring the performance of the
Fund's real estate investments held through Belport Realty, Eaton Vance
considers whether, through current returns and changes in valuation, the real
1 Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Returns are calculated by
determining the percentage change in net asset value with all distributions
reinvested. The Portfolio's return for the period reflects the total return
of another fund that invests in the Portfolio, adjusted for certain fund
expenses. Performance is for the stated time period only and is not
annualized; due to market volatility, the Fund's current performance may be
lower or higher. The performance of the Fund and the Portfolio is compared
to that of their benchmark, the S&P 500. It is not possible to invest
directly in an Index.
15
estate investments achieve returns that over the long-term exceed the cost of
the borrowing incurred to acquire such investments and thereby add to Fund
returns. The Fund has entered into interest rate swap agreements to fix the cost
of its borrowings under the Credit Facility used to acquire Belport Realty's
equity in its real estate investments and mitigate in part the impact of
interest rate changes on the Fund's net asset value.
The Fund's total return was 1.64% for the quarter ended March 31, 2004. This
return reflects an increase in the Fund's net asset value per share from $94.92
to $95.71 and a distribution of $0.76 per share during the period. For
comparison, the S&P 500 had a total return of 1.69% over the same period. The
performance of the Fund trailed that of the Portfolio by approximately 0.48%
during the period. Last year, the Fund's total return was -5.14% for the quarter
ended March 31, 2003. This return reflected a decrease in the Fund's net asset
value per share from $76.75 to $72.14 and a distribution of $0.72 per share
during the period. For comparison, the S&P 500 had a total return of -3.15% over
the same period. The performance of the Fund trailed that of the Portfolio by
approximately 0.43% during th at period.
Performance of the Portfolio. For the quarter ended March 31, 2004, the
Portfolio's total return was 2.12%, compared to -4.71% for the quarter ended
March 31, 2003. International unrest coupled with weak employment, a struggling
dollar and surging oil prices pressured domestic markets in the first quarter of
2004. Like the quarter ended March 31, 2003, volatility was high during the
first quarter of 2004. However, unlike the first quarter of 2003, major indices
experienced positive returns in 2004 as fiscal and monetary stimuli supported
robust corporate earnings and productivity growth. During the first quarter of
2004, companies on average reported better than expected sales trends, increased
dividends and initiated sizeable share buybacks reflecting a steady global
economic recovery. While large capitalization stocks outperformed smaller
capitalization stocks during the first quarter of 2003, small capitalization
stocks outperformed large-cap companies during the later months of 2003, and
continued to do so in the first quarter of 2004. In addition, during the first
quarter of 2004 higher quality stocks regained performance leadership over last
year's prevailing higher volatility stocks.
During the quarter ended March 31, 2004, the Portfolio's sector allocation
remained similar to its allocation at March 31, 2003. The Portfolio's stronger
quarterly performance relative to the S&P 500 during the first quarter of 2004
resulted from its diversified industry exposure and positive stock selection
decisions. During the quarter ended March 31, 2004, the Portfolio remained
underweight in the information technology sector, the market's weakest
performing sector. Stock selection by the Portfolio's investment adviser, Boston
Management and Research ( Boston Management ), in the computer peripherals and
electronic equipment industries was particularly beneficial to the Portfolio's
performance during the first quarter of 2004. Similar to the first quarter of
2003, valuation concerns prompted a de-emphasis of the telecommunication sector
during the first quarter of 2004. However, telecommunication services stocks
generally performed well during the first quarter of 2004. Similar to the first
quarter of 2003, the Portfolio was overweight the industrials sector. During the
first quarter of 2004, attractive valuations and positive secular business
trends helped machinery, building products and airfreight stocks of the
aforementioned sector advance higher.
In the first quarter of 2003, Boston Management began increasing the Portfolio's
exposure to the energy sector, a change from its previous underweight stance
versus the S&P 500. This allocation shift has aided performance, as oil
exploration and other energy equipment and service names benefited from rising
oil prices. Although the Portfolio's relative overweight of the financials
sector contributed to its positive return during the quarter ended March 31,
2004 , the sub-par performance of its commercial bank and capital market stocks
hindered returns during the quarter . While Boston Management remained
optimistic on the consumer, it slightly trimmed the Portfolio's relative
overweight in the consumer discretionary and staples sectors. Portfolio holdings
in leisure, retail, and personal products benefited from continued consumer
spending driven by tax refunds, strong refinancing activity and increases in
wages and salaries. The Portfolio maintained an underweight of the healthcare
sector relative to the S&P 500 during the quarter ended March 31, 2004, but
added to holdings of stronger quarterly performers such as healthcare equipment
and service companies.
Performance of Real Estate Investments. The Fund's real estate investments are
held through Belport Realty . As of March 31, 2004, real estate investments
included majority interests in real estate joint ventures (the Real Estate Joint
Ventures) and a portfolio of Partnership Preference Units that are affiliated
with publicly traded real estate investment trusts (REITs). As of March 31,
2004, the estimated fair value of the Fund's real estate investments represented
23.1% of the Fund's total assets. Adjusting for the minority interest of the
real estate operating company that is the principal minority investor in each
Real Estate Joint Venture as of March 31, 2004, the Fund's real estate
investments represented 27.4% of the Fund's net assets.
During the quarter ended March 31, 2004, one of Belport Realty's Real Estate
Joint Ventures sold a property for approximately $41.3 million recognizing a
16
gain of $4.3 million on the transaction. Pursuant to the Real Estate Joint
Venture's loan agreement with its lender, the proceeds from the sale must be
reinvested in replacement assets in order to maintain certain collateral levels.
As a result, during the quarter ended March 31, 2004, the Real Estate Joint
Venture entered into an agreement to acquire a replacement property for
approximately $36 million and the transaction is scheduled to close during the
quarter ended June 30, 2004. The remaining portion of the sale proceeds is
expected to be invested in another replacement property by the end of 2004.
Like the quarter ended March 31, 2003, operations of Belport Realty's Real
Estate Joint Ventures were impacted by weak multifamily market fundamentals
during the quarter ended March 31, 2004. Rental income from real estate
operations decreased to $15.3 million for the quarter ended March 31, 2004 from
$16.6 million for the quarter ended March 31, 2003, a decline of $1.3 million or
8%. This decrease in rental income resulted principally from fewer properties
held by the Real Estate Joint Ventures as a result of the property sale
discussed above and lower revenues from the remaining properties held by Belport
Realty's Real Estate Joint Ventures. During the quarter ended March 31, 2004,
rental revenue was affected by reduced apartment rental rates, increased rent
concessions and lower occupancy levels at properties owned by the Real Estate
Joint Ventures, trends that continued from 2003.
Property operating expenses for Belport's Real Estate Joint Ventures decreased
to approximately $6.8 million for the quarter ended March 31, 2004 from
approximately $6.9 million for the quarter ended March 31, 2003, a decrease of
$0.1 million or 1% (property operating expenses are before certain operating
expenses of Belport Realty of approximately $0.8 million for the quarter ended
March 31, 2004 and approximately $0.9 million for the quarter ended March 31,
2003). The near-term outlook for multifamily property operations continues to be
weak. While anticipated economic and employment growth is expected to lead to
improvements over the longer term, significant employment growth has not yet
occurred in most markets and low interest rates have contributed to continued
apartment move-outs due to new home purchases and increased competition for new
residents from ongoing development of new multifamily properties. As a result,
Boston Management, Belport Realty's manager, expects that real estate operating
results in 2004 will continue to be similar to 2003's results.
At March 31, 2004, the estimated fair value of the real properties held through
Belport Realty was $439.5 million compared to $542.4 million at March 31, 2003,
a decrease of $102.9 million or 19%. The decrease in estimated real property
value was principally due to fewer properties held by Belport Realty during the
first quarter of 2004 as a result of the May 2003 sale in 2004 of Belport
Realty's investment in Bel Oakbrook LLC and the sale in 2004 of one of the Real
Estate Joint Venture properties described above, as well as modest declines in
the value of Belport Realty's remaining properties. Despite weak market
conditions, declines in asset values for multifamily properties have generally
been modest as lower near-term property earnings expectations have been offset
in part by lower capitalization rates. The Fund saw unrealized depreciation in
the estimated fair value of its other real estate investments (which includes
Belport Realty's interests in Real Estate Joint Ventures) of approximately $5.9
million during the quarter ended March 31, 2004 compared to approximately $10.1
million in unrealized depreciation for the quarter ended March 31, 2003. During
the quarter ended March 31, 2003, property values declined due to declines in
near-term earnings expectations and the economic downturn. However, declines in
asset values for multifamily properties generally were modest during the quarter
ended March 31, 2003 as decreases in capitalization rates largely offset
declining income level expectations.
During the quarter ended March 31, 2004, Belport Realty sold (or experienced
scheduled redemptions of) certain of its Partnership Preference Units for
approximately $20.1 million (including sales to other investment funds advised
by Boston Management), recognizing gains of $3.7 million on the transactions. At
March 31, 2004, the estimated fair value of Belport Realty's Partnership
Preference Units totaled approximately $71.9 million compared to approximately
$100.8 million at March 31, 2003, a decrease of $28.9 million or 29%. While the
decrease in value was principally due to fewer Partnership Preference Units held
at March 31, 2004, the decrease also reflects lower per unit values of the
Partnership Preference Units held at March 31, 2004 due to their lower average
coupon rates. In the current low interest rate environment, many issuers have
been redeeming Partnership Preference Units as Belport Realty's call protections
expire or restructuring the terms of outstanding Partnership Preference Units in
advance of their call dates. As a result, many of the higher-yielding
Partnership Preference Units held by Belport Realty during the quarter ended
March 31, 2003 were no longer held at March 31, 2004. Boston Management expects
this trend to continue through 2004.
The Fund saw unrealized depreciation of the estimated fair value in its
Partnership Preference Units of approximately $5.0 million during the quarter
ended March 31, 2004 compared to unrealized appreciation of approximately $4.3
million for the quarter ended March 31, 2003. For the quarter ended March 31,
2004, net unrealized depreciation of $5.0 million consisted of approximately
$1.9 million of unrealized depreciation as a result of decreases in per unit
values of the Partnership Preference Units held by Belport Realty at March 31,
2004 (as described above), and approximately $3.1 million of unrealized
depreciation resulting from the reclassification of previously recorded
17
unrealized appreciation as realized gains due to sales of Partnership Preference
Units during the quarter ended March 31, 2004. During the quarter ended March
31, 2003, Belport Realty's investments in Partnership Preference Units generally
benefited from declining interest rates and tightening spreads in
income-oriented securities, particularly in real estate-related securities.
Distributions from Partnership Preference Units for the quarter ended March 31,
2004 totaled $2.5 million compared to $2.2 million for the quarter ended March
31, 2003, an increase of $0.3 million or 14%. The increase was principally due
to a one-time special distribution from one issuer made in connection with a
restructuring of its Partnership Preference Units, partially offset by lower
distributions as a result of fewer Partnership Preference Units held on average
during the quarter ended March 31, 2004 and lower average yields on such
Partnership Preference Units.
Performance of Interest Rate Swap Agreements. For the quarter ended March 31,
2004, net realized and unrealized losses on the Fund's interest rate swap
agreements totaled approximately $6.2 million, compared to approximately $2.4
million of net realized and unrealized losses for the quarter ended March 31,
2003. Net realized and unrealized losses on swap agreements for the quarter
ended March 31, 2004 consisted of $4.9 million of unrealized depreciation due to
changes in swap agreement valuations and $1.3 million of periodic payments made
pursuant to outstanding swap agreements (and classified as realized losses on
interest rate swap agreements). For the quarter ended March 31, 2003, the Fund
had unrealized depreciation of $0.3 million due to swap agreement valuation
changes and $2.1 million of swap agreement periodic payments. The negative
impact on Fund performance from changes in swap agreement valuations during the
quarter ended March 31, 2004, was attributable to a decline in swap rates during
the period. During the quarter ended March 31, 2003, relevant swap rates were
substantially unchanged, resulting in minimal impact on Fund performance from
changes in swap agreement valuations during the period.
(b) Liquidity and Capital Resources.
Outstanding Borrowings. The Fund has entered into credit arrangements with DrKW
Holdings, Inc. and Merrill Lynch Mortgage Capital, Inc. (collectively, the
Credit Facility) primarily to finance the Fund's equity in its real estate
investments and will continue to use the Credit Facility for such purpose in the
future. The Credit Facility may also be used for other purposes, including any
short-term liquidity needs of the Fund. In the future, the Fund may increase the
size of the Credit Facility (subject to lender consent) and the amount of
outstanding borrowings thereunder. As of March 31, 2004, the Fund had
outstanding borrowings of $218.5 million and unused loan commitments of $52.4
million under the Credit Facility.
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 at a predetermined spread plus 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
appreciation or depreciation. As of March 31, 2004, the unrealized depreciation
related to the interest rate swap agreements was approximately $3.2 million. As
of March 31, 2003, the unrealized depreciation related to the interest rate swap
agreements was approximately $26.6 million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate 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 Ventures. Partnership
Preference Units are fixed rate instruments whose values will generally decrease
when interest rates rise and increase when interest rates fall. The interest
rates on borrowings under the Fund's Credit Facility are reset at regular
intervals based on one-month LIBOR. The Fund has entered into interest rate swap
agreements to fix the cost of its borrowings under the Credit Facility used to
acquire Belport Realty's equity in its real estate investments and to mitigate
in part 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 Fund's interest rate swap agreements will generally increase in value
when interest rates rise and decrease in value when interest rates fall. 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.
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
18
purposes. This information should be read in conjunction with Note 5 to the
Fund's unaudited condensed consolidated financial statements in Item 1 above.
Interest Rate Sensitivity
Cost, Principal (Notional) Amount
by Contractual Maturity and Callable Date
for the Twelve Months Ended March 31,*
Estimated
2005-2008 2009 Thereafter Total Fair Value
- -----------------------------------------------------------------------------------------------------------------------
Rate sensitive liabilities:
- ------------------------------------------
Long-term debt:
- ------------------------------------------
Fixed-rate mortgages $361,107,500 $361,107,500 $409,600,000
Average interest rate 6.78% 6.78%
- ------------------------------------------
Variable-rate Credit Facility $218,500,000 $218,500,000 $218,500,000
Average interest rate 1.29% 1.29%
- -----------------------------------------------------------------------------------------------------------------------
Rate sensitive derivative
financial instruments:
- ------------------------------------------
Pay fixed/receive variable interest rate
swap agreements $190,887,000 $190,887,000 $ (3,188,813)
Average pay rate 4.08% 4.08%
Average receive rate 1.29% 1.29%
- -----------------------------------------------------------------------------------------------------------------------
Rate sensitive investments:
- ------------------------------------------
Fixed-rate Partnership Preference Units:
- ------------------------------------------
Essex Portfolio, L.P., 7.875% Series B
Cumulative Redeemable Preferred Units,
Callable 12/31/09, Current Yield: 7.58% $ 17,908,335 $ 17,908,335 $ 23,373,945
PSA Institutional Partners, L.P., 6.4%
Series NN Cumulative Redeemable Perpetual
Preferred Units, Callable 3/17/10, Current
Yeild, 6.90% $ 34,905,000 $ 34,905,000 $ 30,134,000
Vornado Realty, L.P., 7% Series D-10
Cumulative Redeemable Preferred Units,
Callable 11/17/08, Current Yield: 7.04%(1) $18,116,184 $ 18,116,184 $ 18,385,521
* The investments listed reflect holdings as of March 31, 2004. The Fund's
current holdings may differ.
(1) Belport Realty's interest in these Partnership Preference Units is held
through Bel Holdings LLC.
Item 4. Controls and Procedures.
Eaton Vance, as the Fund's manager, conducted an evaluation of the effectiveness
of the Fund's disclosure controls and procedures (as defined by Rule 13a-15(e)
of the 1934 Act) as of the end of the period covered by this report, with the
participation of the Fund's Chief Executive Officer and Chief Financial Officer.
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 quarter ended March 31, 2004 that have
materially affected, or are reasonably likely to materially affect, the Fund's
internal control over financial reporting.
19
As the Fund's manager, the complete and entire management, control and operation
of the Fund are vested in Eaton Vance. The Fund's Chief Executive Officer and
Chief Financial Officer intend to report to the Board of Directors of Eaton
Vance, Inc. (the sole trustee of 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, Belport Realty and
Belport Realty's controlled subsidiaries 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, Use of Proceeds and Issuer Purchases of Equity
Securities.
As described in the Fund's Annual Report on Form 10-K for the year ended
December 31, 2003, shares of the Fund may be redeemed by Shareholders on any
business day. Redemptions are met at the net asset value per share of the Fund
(less any applicable redemption fee). The right to redeem is available to all
Shareholders and all outstanding Fund shares are eligible (except for shares
subject to an estate freeze election as described in Item 5 of the Fund's Report
on Form 10-K for the fiscal year ending December 31, 2003). During each month in
the quarter ended March 31, 2004, the total number of shares redeemed and the
average price paid per Share were as follows:
Total No. of Shares Average Price Paid Per
Month Ended Redeemed(1) Share
- ------------------------------------------------------------------------------
January 31, 2004 30,538.589 $95.56
- ------------------------------------------------------------------------------
February 29, 2004 8,177.893 $97.79
- ------------------------------------------------------------------------------
March 31, 2004 45,056.934 $97.89
- ------------------------------------------------------------------------------
Total 83,773.416 $97.69
- ------------------------------------------------------------------------------
(1) All shares redeemed during the periods were redeemed at the option of
Shareholders pursuant to the Fund's redemption policy. The Fund has not
announced any plans or programs to repurchase shares other than at the
option of Shareholders.
Item 3. Defaults Upon Senior Securities.
None.
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 March 31, 2004.
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
20
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.
21
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 May 10, 2004.
BELPORT CAPITAL FUND LLC
/s/ Michelle A. Alexander
-------------------------
Michelle A. Alexander
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
22
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
23