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 June 30, 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
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(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
PART I FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Statements 3
Condensed Consolidated Statements of Assets and Liabilities
as of June 30, 2004 (Unaudited) and December 31, 2003 3
Condensed Consolidated Statements of Operations (Unaudited)
for the Three Months Ended June 30, 2004 and 2003 and for the
Six Months Ended June 30, 2004 and 2003 4
Condensed Consolidated Statements of Changes in Net Assets
for the Six Months Ended June 30, 2004 (Unaudited) and the
Year Ended December 31, 2003 6
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended June 30, 2004 and 2003 7
Financial Highlights (Unaudited) for the Six Months Ended
June 30, 2004 9
Notes to Condensed Consolidated Financial Statements as
of June 30, 2004 (Unaudited) 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 22
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 25
EXHIBIT INDEX 26
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
- --------------------------------------------------------------------------------
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Assets and Liabilities
June 30, 2004 December 31,
(Unaudited) 2003
-------------- -----------------
Assets:
Investment in Belvedere Capital Fund
Company LLC (Belvedere Company) $1,638,833,340 $1,611,769,203
Investment in Partnership Preference Units 64,802,430 93,277,111
Investment in other real estate 480,737,049 484,704,890
Short-term investments 10,112,000 4,821,135
-------------- -----------------
Total investments $2,194,484,819 $2,194,572,339
Cash 10,418,622 6,522,994
Escrow deposits - restricted 4,270,757 2,764,808
Open interest swap agreements, at value 6,002,326 1,763,670
Distributions and interest receivable 408 404,628
Other assets 2,350,588 2,358,005
-------------- -----------------
Total assets $2,217,527,520 $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 - -
Payable for Fund Shares redeemed 3,007,789 -
Distributions payable to minority shareholders - 16,800
Special Distributions payable - 17
Security deposits 896,951 863,503
Swap interest payable 95,025 118,147
Accrued expenses:
Interest expense 2,150,340 2,141,722
Property taxes 3,980,613 2,212,615
Other expenses and liabilities 1,968,632 2,224,975
Minority interests in controlled subsidiaries 23,912,383 24,347,753
-------------- -----------------
Total liabilities $ 615,619,233 $ 623,533,032
-------------- -----------------
Net assets $1,601,908,287 $1,584,853,412
-------------- -----------------
Shareholders' Capital $1,601,908,287 $1,584,853,412
-------------- -----------------
Shares outstanding 16,431,015 16,697,292
-------------- -----------------
Net asset value and redemption price
per Share $ 97.49 $ 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 Six Months Six Months
Ended Ended Ended Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- -------------
Investment Income:
Dividends allocated from Belvedere Company
(net of foreign taxes of $135,599, $92,080,
$203,232 and $151,649, respectively) $ 6,224,854 $ 5,064,663 $ 11,880,465 $ 9,922,050
Interest allocated from Belvedere Company 18,762 158,459 46,206 249,022
Expenses allocated from Belvedere Company (2,418,878) (2,129,108) (4,870,949) (4,097,457)
------------- ------------- ------------- -------------
Net investment income allocated from Belvedere Company $ 3,824,738 $ 3,094,014 $ 7,055,722 $ 6,073,615
Rental income 15,145,342 16,555,469 30,450,343 33,193,717
Distributions from Partnership Preference Units 962,968 2,203,828 3,449,826 4,407,656
Interest 102,667 34,814 210,214 102,067
------------- ------------- ------------- -------------
Total investment income $ 20,035,715 $ 21,888,125 $ 41,166,105 $ 43,777,055
------------- ------------- ------------- -------------
Expenses:
Investment advisory and administrative fees $ 1,410,801 $ 1,373,131 $ 2,842,727 $ 2,678,860
Property management fees 610,545 655,091 1,222,966 1,314,619
Distribution and servicing fees 769,300 655,212 1,559,180 1,282,877
Interest expense on mortgages 6,327,499 6,544,104 12,550,534 12,873,831
Interest expense on Credit Facility 740,419 926,512 1,516,855 1,953,094
Property and maintenance expenses 4,069,423 4,277,044 8,250,233 8,491,017
Property taxes and insurance 2,034,818 2,272,938 4,033,728 4,265,990
Miscellaneous 154,722 610,312 291,051 838,277
------------- ------------- ------------- -------------
Total expenses $ 16,117,527 $ 17,314,344 $ 32,267,274 $ 33,698,565
Deduct-
Reduction of investment advisory
and administrative fees $ 394,659 $ 336,633 $ 793,098 $ 650,070
------------- ------------- ------------- -------------
Net expenses $ 15,722,868 $ 16,977,711 $ 31,474,176 $ 33,048,495
------------- ------------- ------------- -------------
Net investment income before
minority interests in net income of
controlled subsidiaries $ 4,312,847 $ 4,910,414 $ 9,691,929 $ 10,728,560
Minority interests in net income
of controlled subsidiaries (416,038) (544,906) (829,995) (1,203,165)
------------- ------------- ------------- -------------
Net investment income $ 3,896,809 $ 4,365,508 $ 8,861,934 $ 9,525,395
------------- ------------- ------------- -------------
See notes to unaudited condensed consolidated financial statements
4
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited) (Continued)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- -------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) -
Investment transactions and foreign currency
transactions allocated from Belvedere Company
(identified cost basis) $ 2,721,888 $ 2,441,173 $ 8,671,372 $ (3,206,592)
Investment transactions in Partnership Preference
Units (identified cost basis) (87,065) - 3,574,654 -
Investment transactions in other real estate - 323,384 4,280,114 323,384
Interest rate swap agreements(1) (1,334,342) (2,305,806) (2,615,000) (4,472,721)
------------- ------------- ------------- -------------
Net realized gain (loss) $ 1,300,481 $ 458,751 $ 13,911,140 $ (7,355,929)
------------- ------------- ------------- -------------
Change in unrealized appreciation (depreciation) -
Investments and foreign currency allocated from
Belvedere Company (identified cost basis) $ 14,221,133 $166,898,579 $ 38,673,851 $108,244,918
Investments in Partnership Preference Units
(identified cost basis) (1,680,221) 3,578,312 (6,659,971) 7,874,400
Investments in other real estate (net of minority
interests in unrealized gain (loss) of controlled
subsidiaries of $1,543,751, $(1,134,599),
$(2,681,059) and $(8,066,435), respectively) 2,488,357 (2,204,133) (3,455,411) (12,257,945)
Interest rate swap agreements 9,191,139 (5,286,834) 4,238,656 (5,540,156)
------------- ------------- ------------- -------------
Net change in unrealized appreciation (depreciation) $ 24,220,408 $162,985,924 $ 32,797,125 $ 98,321,217
------------- ------------- ------------- -------------
Net realized and unrealized gain $ 25,520,889 $163,444,675 $ 46,708,265 $ 90,965,288
------------- ------------- ------------- -------------
Net increase in net assets from operations $ 29,417,698 $167,810,183 $ 55,570,199 $100,490,683
============= ============= ============= =============
(1) Amounts represent 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
Six Months Ended Year Ended
June 30, 2004 December 31,
(Unaudited) 2003
---------------- ------------
Increase (Decrease) in Net Assets:
Net investment income $ 8,861,934 $ 19,648,844
Net realized gain (loss) from investment
transactions, foreign currency transactions
and interest rate swap agreements 13,911,140 (10,022,550)
Net change in unrealized appreciation
(depreciation) of investments, foreign
currency and interest rate swap agreements 32,797,125 309,086,814
--------------- ---------------
Net increase in net assets from operations $ 55,570,199 $ 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 (32,166,623) (52,613,896)
--------------- ---------------
Net decrease in net assets from Fund Share
transactions $ (25,825,533) $ (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 $ 17,054,875 $ 260,211,348
Net assets:
At beginning of period $1,584,853,412 $1,324,642,064
--------------- ---------------
At end of period $1,601,908,287 $1,584,853,412
=============== ===============
See notes to unaudited condensed consolidated financial statements
6
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Six Months
Ended Ended
June 30, 2004 June 30, 2003
------------- -------------
Cash Flows From (For) Operating Activities -
Net increase in net assets from operations $ 55,570,199 $100,490,683
Adjustments to reconcile net increase in net assets from operations
to net cash flows from operating activities -
Net investment income allocated from Belvedere Company (7,055,722) (6,073,615)
Increase in escrow deposits (1,505,949) (2,445,484)
Decrease in receivable for investments sold - 50,221,589
Decrease in other assets 7,417 122,256
Decrease in distributions and interest receivable 404,220 36
(Decrease) increase in interest payable for open swap agreements (23,122) 15,435
(Decrease) increase in security deposits, accrued interest and
accrued other expenses and liabilities (214,277) 17,017
Increase in accrued property taxes 1,767,998 2,290,702
Proceeds from sales of Partnership Preference Units 25,389,364 -
Proceeds from sale of investment in other real estate 41,336,126 5,356,755
Payments for investments in other real estate (36,157,244) (5,026,960)
Improvements to rental property (1,651,703) (1,903,172)
Net increase in investment in Belvedere Company - (41,000,000)
Net interest incurred on interest rate swap agreements (2,615,000) (4,472,721)
(Increase) decrease in short-term investments (5,290,865) 622,978
Minority interests in net income of controlled subsidiaries 829,995 1,203,165
Net realized (gain) loss from investment transactions (13,911,140) 7,355,929
Net change in unrealized (appreciation) depreciation of
investments (32,797,125) (98,321,217)
------------- -------------
Net cash flows from operating activities $ 24,083,172 $ 8,453,376
------------- -------------
Cash Flows For Financing Activities -
Repayment of mortgage $ - $ (6,410)
Repayment of Credit Facility (12,000,000) -
Distributions paid to Shareholders (6,348,718) (5,887,847)
Payments for Fund Shares redeemed (1,822,026) (2,118,686)
Distributions paid to minority shareholders (16,800) (557,312)
------------- -------------
Net cash flows for financing activities $(20,187,544) $ (8,570,255)
------------- -------------
Net increase (decrease) in cash $ 3,895,628 $ (116,879)
Cash at beginning of period $ 6,522,994 $ 7,452,296
------------- -------------
Cash at end of period $ 10,418,622 $ 7,335,417
============= =============
See notes to unaudited condensed consolidated financial statements
7
BELPORT CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Six Months
Ended Ended
June 30, 2004 June 30, 2003
------------- -------------
Supplemental Disclosure and Non-cash Investing and
Financing Activities -
Interest paid on loan - Credit Facility $ 1,480,832 $ 1,781,333
Interest paid on mortgages $ 12,398,354 $ 12,775,879
Interest paid on swap agreements $ 2,638,122 $ 4,457,286
Market value of securities distributed in payment of redemptions $ 27,336,808 $ 20,250,630
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
Market value of real property and other assets, net of current
liabilities, disposed of in conjunction with sale of other
real estate $ - $ 64,713,609
Mortgage disposed of in conjunction with sale of other real
estate $ - $ 59,595,415
See notes to unaudited condensed consolidated financial statements
8
BELPORT CAPITAL FUND LLC as of June 30, 2004
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FINANCIAL HIGHLIGHTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2004
- --------------------------------------------------------------------------------
Net asset value - Beginning of period $ 94.920
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
- --------------------------------------------------------------------------------
Net investment income(6) $ 0.533
Net realized and unrealized gain 2.797
- --------------------------------------------------------------------------------
TOTAL INCOME FROM OPERATIONS $ 3.330
- --------------------------------------------------------------------------------
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Distributions to Shareholders $ (0.760)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (0.760)
- --------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 97.490
- --------------------------------------------------------------------------------
TOTAL RETURN(1) 3.53%
- --------------------------------------------------------------------------------
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) 1.30%(9) 0.97%(9)
Operating expenses(7) 1.40%(9) 1.05%(9)
Belport Capital Fund LLC Expenses
Interest and other borrowing costs(4)(8) 0.19%(9) 0.14%(9)
Investment advisory and administrative fees,
servicing fees and other Fund operating
expenses(3)(4) 1.10%(9) 0.83%(9)
----------------------------------
Total expenses 3.99%(9) 2.99%(9)
Net investment income 1.12%(9) 0.84%(9)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $1,601,908
Portfolio turnover of Tax-Managed Growth Portfolio (the Portfolio) 1.73%
- --------------------------------------------------------------------------------
(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 June 30, 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 and the statement of changes in net
assets for the year then ended have been derived from the December 31, 2003
audited financial statements but do 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 periods' 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 June 30, 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
June 30, 2004 December 31, 2003
-------------------------------------------------------------------
Date of Contribution Preferred Shares Common Shares Preferred Shares Common Shares
- ------------------------------------------------------------------------------------------
May 23, 2001 $97.49 $ - $94.92 $ -
July 26, 2001 $94.71 $2.78 $94.71 $0.21
December 18, 2001 $92.66 $4.83 $91.87 $3.05
3 Investment Transactions
The following table summarizes the Fund's investment transactions for the six
months ended June 30, 2004 and June 30, 2003:
Six Months Ended Six Months Ended
Investment Transaction June 30, 2004 June 30, 2003
- --------------------------------------------------------------------------------
Increases in investment in Belvedere Company $ - $ 41,000,000
Decreases in investment in Belvedere Company $ 27,336,808 $ 20,250,630
Sales of other real estate(1)(3) $ 41,336,126 $ 5,356,755
Acquisitions of other real estate(1)(3) $ 36,157,244 $ 5,026,960
Sales of Partnership Preference Units(2) $ 25,389,364 $ -
- --------------------------------------------------------------------------------
(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 six months ended June 30,
2004 included Partnership Preference Units sold to other investment funds
advised by Boston Management for which a loss of $85,428 was recognized.
(3) In January 2004, a multifamily residential property owned by Monadnock
Property Trust, LLC (Monadnock) was sold to a third party. Belport Realty
recognized a gain of $4,280,114 on the transaction. In June 2004, Monadnock
then acquired a replacement multifamily residential property with the
proceeds from that sale.
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 six months ended June 30, 2004 and June 30, 2003, including
allocations of income, expenses and net realized and unrealized gains (losses)
for the respective periods then ended:
Six Months Six Months
Ended Ended
June 30, 2004 June 30, 2003
- -------------------------------------------------------------------------------------------------------
Belvedere Company's interest in the Portfolio(1) $ 11,762,239,521 $ 9,599,217,401
The Fund's investment in Belvedere Company(2) $ 1,638,833,340 $ 1,453,987,522
Income allocated to Belvedere Company from the Portfolio $ 83,686,364 $ 66,798,353
Income allocated to the Fund from Belvedere Company $ 11,926,671 $ 10,171,072
Expenses allocated to Belvedere Company from the Portfolio $ 25,387,360 $ 20,113,419
Expenses allocated to the Fund from Belvedere Company $ 4,870,949 $ 4,097,457
Net realized gain (loss) from investment transactions and
foreign currency transactions allocated to Belvedere Company
from the Portfolio $ 72,573,659 $ (17,889,099)
Net realized gain (loss) from investment transactions and
foreign currency transactions allocated to the Fund from
Belvedere Company $ 8,671,372 $ (3,206,592)
Net change in unrealized appreciation (depreciation) of
investments and foreign currency allocated to Belvedere
Company from the Portfolio $ 255,505,090 $ 698,962,649
Net change in unrealized appreciation (depreciation) of
investments and foreign currency allocated to the Fund
from Belvedere Company $ 38,673,851 $ 108,244,918
- -------------------------------------------------------------------------------------------------------
11
(1) As of June 30, 2004 and 2003, the value of Belvedere Company's interest in
the Portfolio represents 64.7% and 61.7% of the Portfolio's net assets,
respectively.
(2) As of June 30, 2004 and 2003, the Fund's investment in Belvedere Company
represents 13.9% and 15.1% of Belvedere Company's net assets, respectively.
A summary of the Portfolio's Statement of Assets and Liabilities, at June 30,
2004, December 31, 2003 and June 30, 2003 and its operations for the six months
ended June 30, 2004, for the year ended December 31, 2003 and for the six months
ended June 30, 2003 follows:
June 30, December 31, June 30,
2004 2003 2003
------------------------------------------------------
Investments, at value $ 18,156,546,589 $ 17,584,390,762 $ 15,616,951,272
Other assets 30,174,170 25,462,745 26,660,614
- --------------------------------------------------------------------------------------------
Total assets $ 18,186,720,759 $ 17,609,853,507 $ 15,643,611,886
Total liabilities 138,607 264,502 93,843,137
- --------------------------------------------------------------------------------------------
Net assets $ 18,186,582,152 $ 17,609,589,005 $ 15,549,768,749
============================================================================================
Dividends and interest $ 131,109,908 $ 232,925,912 $ 109,393,140
- --------------------------------------------------------------------------------------------
Investment adviser fee $ 38,780,667 $ 67,584,543 $ 31,979,032
Other expenses 1,025,267 2,295,653 985,298
- --------------------------------------------------------------------------------------------
Total expenses $ 39,805,934 $ 69,880,196 $ 32,964,330
- --------------------------------------------------------------------------------------------
Net investment income $ 91,303,974 $ 163,045,716 $ 76,428,810
Net realized gain (loss) from
investment transactions and
foreign currency transactions 118,166,339 70,909,770 (29,306,399)
Net change in unrealized
appreciation (depreciation) of
investments and foreign currency 397,547,485 3,174,709,110 1,126,151,279
- --------------------------------------------------------------------------------------------
Net increase in net assets from
operations $ 607,017,798 $ 3,408,664,596 $ 1,173,273,690
- --------------------------------------------------------------------------------------------
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 June 30, 2004 and December 31, 2003 are
listed below.
Notional Initial Unrealized Unrealized
Amount Optional Final Appreciation Appreciation
(000's Fixed Floating Termination Termination at June 30, at December 31,
omitted) Rate Rate Date Date 2004 2003
- ----------------------------------------------------------------------------------------------------
$ 34,905 4.565% LIBOR + 0.20% 3/05 6/10 $ 625,591 $ 170,784
46,160 4.045% LIBOR + 0.20% 2/10 6/10 1,444,992 326,668
109,822 3.945% LIBOR + 0.20% - 6/10 3,931,743 1,266,218
- ----------------------------------------------------------------------------------------------------
Total $6,002,326 $ 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
June 30, 2004 Portfolio* Estate Total
- -----------------------------------------------------------------------------------------------
Revenue $ 3,824,738 $ 16,194,129 $ 20,018,867
Interest expense on mortgages - (6,327,499) (6,327,499)
Interest expense on Credit Facility (51,829) (621,592) (673,421)
Operating expenses (301,534) (7,513,249) (7,814,783)
Minority interest in net income of
controlled subsidiaries - (416,038) (416,038)
- -----------------------------------------------------------------------------------------------
Net investment income $ 3,471,375 $ 1,315,751 $ 4,787,126
Net realized gain (loss) 2,721,888 (1,421,407) 1,300,481
Net change in unrealized appreciation
(depreciation) 14,221,133 9,999,274 24,220,407
- -----------------------------------------------------------------------------------------------
Net increase in net assets from operations
of reportable segments $ 20,414,396 $ 9,893,618 $ 30,308,014
- -----------------------------------------------------------------------------------------------
Tax-Managed
For the Three Months Ended Growth Real
June 30, 2003 Portfolio* Estate Total
- -----------------------------------------------------------------------------------------------
Revenue $ 3,094,014 $ 18,776,535 $ 21,870,549
Interest expense on mortgages - (6,544,104) (6,544,104)
Interest expense on Credit Facility (56,592) (832,861) (889,453)
Operating expenses (237,868) (8,495,397) (8,733,265)
Minority interest in net income of
controlled subsidiaries - (544,906) (544,906)
- -----------------------------------------------------------------------------------------------
Net investment income $ 2,799,554 $ 2,359,267 $ 5,158,821
Net realized gain (loss) 2,441,173 (1,982,422) 458,751
Net change in unrealized appreciation
(depreciation) 166,898,579 (3,912,655) 162,985,924
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations of reportable segments $172,139,306 $ (3,535,810) $168,603,496
- -----------------------------------------------------------------------------------------------
13
Tax-Managed
For the Six Months Ended Growth Real
June 30, 2004 Portfolio* Estate Total
- -----------------------------------------------------------------------------------------------
Revenue $ 7,055,722 $ 34,072,888 $ 41,128,610
Interest expense on mortgages - (12,550,534) (12,550,534)
Interest expense on Credit Facility (106,180) (1,289,327) (1,395,507)
Operating expenses (601,308) (15,105,452) (15,706,760)
Minority interest in net income of
controlled subsidiaries - (829,995) (829,995)
- -----------------------------------------------------------------------------------------------
Net investment income $ 6,348,234 $ 4,297,580 $ 10,645,814
Net realized gain 8,671,372 5,239,768 13,911,140
Net change in unrealized appreciation
(depreciation) 38,673,851 (5,876,727) 32,797,124
- -----------------------------------------------------------------------------------------------
Net increase in net assets from operations
of reportable segments $ 53,693,457 $ 3,660,621 $ 57,354,078
- -----------------------------------------------------------------------------------------------
Tax-Managed
For the Six Months Ended Growth Real
June 30, 2003 Portfolio* Estate Total
- -----------------------------------------------------------------------------------------------
Revenue $ 6,073,615 $ 37,646,581 $ 43,720,196
Interest expense on mortgages - (12,873,831) (12,873,831)
Interest expense on Credit Facility (97,655) (1,777,316) (1,874,971)
Operating expenses (476,083) (16,278,101) (16,754,184)
Minority interest in net income of
controlled subsidiaries - (1,203,165) (1,203,165)
- -----------------------------------------------------------------------------------------------
Net investment income $ 5,499,877 $ 5,514,168 $ 11,014,045
Net realized loss (3,206,592) (4,149,337) (7,355,929)
Net change in unrealized appreciation
(depreciation) 108,244,918 (9,923,701) 98,321,217
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations of reportable segments $110,538,203 $ (8,558,870) $101,979,333
- -----------------------------------------------------------------------------------------------
Tax-Managed Growth Real
At June 30, 2004 Portfolio* Estate Total
- ----------------------------------------------------------------------------------------------------------
Segment assets $1,638,833,340 $568,566,827 $2,207,400,167
Segment liabilities 19,609,592 574,551,145 594,160,737
- ----------------------------------------------------------------------------------------------------------
Net assets (liabilities) of reportable segments $1,619,223,748 $ (5,984,318) $1,613,239,430
- ----------------------------------------------------------------------------------------------------------
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.
14
The following tables reconcile the reported segment information to the condensed
consolidated financial statements for the periods indicated:
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
-------------------------------------------------------------
Revenue:
Revenue from reportable segments $ 20,018,867 $ 21,870,549 $ 41,128,610 $ 43,720,196
Unallocated amounts:
Interest earned on cash not invested in the
Portfolio or in subsidiaries 16,848 17,576 37,495 56,859
-------------------------------------------------------------
TOTAL REVENUE $ 20,035,715 $ 21,888,125 $ 41,166,105 $ 43,777,055
-------------------------------------------------------------
Net increase (decrease) in net assets from operations:
Net increase in net assets from operations of
reportable segments $ 30,308,014 $168,603,496 $ 57,354,078 $101,979,333
Unallocated amounts:
Interest earned on cash not invested in the
Portfolio or in subsidiaries 16,848 17,576 37,495 56,859
Unallocated amounts(1):
Distribution and servicing fees (769,300) (655,212) (1,559,180) (1,282,877)
Interest expense on Credit Facility (74,602) (37,059) (121,348) (78,123)
Audit, tax and legal fees (27,670) (72,912) (82,020) (115,462)
Other operating expenses (35,592) (45,706) (58,826) (69,047)
-------------------------------------------------------------
TOTAL NET INCREASE IN NET ASSETS FROM OPERATIONS $ 29,417,698 $167,810,183 $ 55,570,199 $100,490,683
-------------------------------------------------------------
June 30, 2004 December 31, 2003
Net assets: ----------------- ---------------------
Net assets of reportable segments $1,613,239,430 $1,586,638,413
Unallocated cash(2) 15,353 2,138,196
Short-term investments(2) 10,112,000 4,821,135
Loan payable-Credit Facility(3) (21,315,492) (8,568,222)
Other liabilities (143,004) (176,110)
----------------- ---------------------
TOTAL NET ASSETS $1,601,908,287 $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.
15
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 JUNE 30, 2004 COMPARED TO THE
QUARTER ENDED JUNE 30, 2003
- --------------------------------------------------------------------------------
(a) RESULTS OF OPERATIONS.
- --------------------------
Increases and decreases from operations 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 (or loss) 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 Facility
(described in Item 2(b) below), 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
- ---------------------
1 Total returns are historical and are calculated by determining the
percentage change in net asset value with all distributions reinvested.
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. The Portfolio's total 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.
16
Fund's real estate investments held through Belport Realty, Eaton Vance
considers whether, through current returns and changes in valuation, the real
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 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.
PERFORMANCE OF THE FUND. The Fund's total return was 1.86% for the quarter ended
June 30, 2004. This return reflects an increase in the Fund's net asset value
per share from $95.71 to $97.49 during the period. For comparison, the S&P 500
had a total return of 1.72% over the same period. The performance of the Fund
exceeded that of the Portfolio by approximately 0.55% during the period. Last
year, the Fund had a total return performance of 13.58% for the quarter ended
June 30, 2003. This return reflected an increase in the Fund's net asset value
per share from $72.14 to $81.94 during the period. For comparison, the S&P 500
had a total return of 15.39% over the same period. The performance of the Fund
exceeded that of the Portfolio by approximately 0.04% during that period.
PERFORMANCE OF THE PORTFOLIO. For the quarter ended June 30, 2004, the
Portfolio's total return was 1.31%. This compares to a total return of 1.72% for
the S&P 500. In the second quarter, U.S. equity returns were supported by
strengthening employment trends, robust manufacturing activity and rising
corporate profits. At the same time, uncertainty over the situation in Iraq and
the prospect of rising interest rates and inflation weighed on investors and
held back returns. During the quarter, growth stocks outperformed value stocks,
and small-caps performed better than large-caps and mid-caps.
The Portfolio's modest underperformance during the quarter was attributable in
part to a relative overweighting of certain weaker performing industry groups,
specifically specialty retail and media. In addition, the Portfolio was
underweight internet software and communications equipment stocks, which rallied
during the period. Concerns about future trends in consumer spending caused the
Portfolio to trim its relative overweighting of the discretionary and staples
sectors during the quarter. The Portfolio also reduced healthcare and technology
investments during the quarter, mainly in the lagging biotech and semi-conductor
groups. During the quarter, the Portfolio continued to overweight airfreight and
machinery holdings, which contributed positively to the Portfolio's performance.
The Portfolio benefited from the strong performance of stocks in the food,
staples retailing and commercial bank industries during the quarter, as well as
from increased exposure to energy stocks. Material stocks were also solid
performers during the quarter and, despite the Portfolio's underweight of the
sector versus the S&P 500, the performance of the Portfolio's holdings in the
metals and mining group was noteworthy. Valuation and regulatory concern
prompted a continued de-emphasis of multi-line utilities and diversified telecom
companies.
For the quarter ended June 30, 2003, the Portfolio's total return was 13.54%
compared to the 15.39% total return for the S&P 500. During the quarter, the S&P
500 posted its best quarterly return in five years, with favorable fiscal and
monetary policy developments, progress in Iraq and signs of an improving economy
contributing to a stronger market. The Portfolio's relative underperformance was
attributable primarily to its lower exposure to higher-volatility, lower-quality
stocks that were the strongest performers in the sharp market rally.
PERFORMANCE OF REAL ESTATE INVESTMENTS. The Fund's real estate investments are
held through Belport Realty. As of June 30, 2004, real estate investments
included two real estate joint ventures that operate multifamily properties (the
Real Estate Joint Ventures) and a portfolio of Partnership Preference Units
issued by partnerships affiliated with publicly traded real estate investment
trusts (REITs). As of June 30, 2004, the estimated fair value of the Fund's real
estate investments represented 24.6% of the Fund's total assets on a
consolidated basis. After adjusting for minority interests in the Real Estate
Joint Ventures, the Fund's real estate investments represented 28.6% of the
Fund's net assets as of June 30, 2004.
In January 2004, one of Belport Realty's Real Estate Joint Ventures sold a
property for approximately $41.3 million, for which Belport Realty recognized a
gain of $4.3 million. 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. Accordingly, during the
quarter ended June 30, 2004, the Real Estate Joint Venture acquired a
replacement property for approximately $36.2 million. The remaining portion of
the sale proceeds is expected to be invested in another replacement property by
the end of 2004.
Rental income from real estate operations of Belport Realty's Real Estate Joint
Ventures decreased to $15.1 million for the quarter ended June 30, 2004 from
$16.6 million for the quarter ended June 30, 2003, a decline of $1.5 million or
9%. This decrease in rental income resulted principally from fewer properties
held for the full period by the Real Estate Joint Ventures as a result of the
property sale discussed above and lower revenues from the remaining properties
held by the Real Estate Joint Ventures. Rental revenues were adversely affected
by lower rent rates, increased rent concessions and lower occupancy levels.
17
Property operating expenses for Belport's Real Estate Joint Ventures decreased
to approximately $6.7 million for the quarter ended June 30, 2004 from
approximately $7.2 million for the quarter ended June 30, 2003, a decrease of
$0.5 million or 7% (property operating expenses are before certain operating
expenses of Belport Realty of approximately $0.8 million for the quarter ended
June 30, 2004 and approximately $1.3 million for the quarter ended June 30,
2003). The near-term outlook for multifamily property operations continues to be
weak. While the recent pick-up in economic and employment growth is expected to
lead to improved supply-demand balance in the apartment industry, oversupply
conditions continue to exist in most major markets. As a result, Boston
Management expects that multifamily real estate operating results in 2004 will
continue to be similar to 2003.
At June 30, 2004, the estimated fair value of the real properties indirectly
held through Belport Realty was $480.7 million compared to $475.5 million at
June 30, 2003, a net increase of $5.2 million or 1%. The modest net increase was
due to declines in capitalization rates, offset in part by lower near-term
property earnings expectations. The capitalization rate, a term commonly used in
the real estate industry, is the rate of return percentage applied to actual or
projected income levels to estimate the value of real estate investments.
The Fund saw unrealized appreciation in the estimated fair value of its other
real estate investments (which includes Belport Realty's interests in Real
Estate Joint Ventures) of approximately $2.5 million during the quarter ended
June 30, 2004 compared to unrealized depreciation of approximately $2.2 million
for the quarter ended June 30, 2003. During the quarter ended June 30, 2004,
property values appreciated modestly due to declines in capitalization rates,
offset in part by lower near-term property earnings expectations. During the
quarter ended June 30, 2003, estimated property values declined due to declines
in near-term earnings expectations and the economic downturn. However, declines
in estimated asset values for multifamily properties generally were modest
during the quarter ended June 30, 2003 as decreases in capitalization rates
largely offset declining income level expectations.
During the quarter ended June 30, 2004, Belport Realty sold (or experienced
scheduled redemptions of) certain of its Partnership Preference Units for
approximately $5.3 million (including sales to other investment funds advised by
Boston Management), recognizing a loss of $0.1 million. At June 30, 2004, the
estimated fair value of Belport Realty's Partnership Preference Units totaled
approximately $64.8 million compared to approximately $104.4 million at June 30,
2003, a decrease of $39.6 million or 38%. While the decrease in value was
principally due to fewer Partnership Preference Units held at June 30, 2004, the
decrease also reflects lower per unit values of the Partnership Preference Units
held at June 30, 2004 due to their lower average coupon rates. In the current
low interest rate environment, many issuers have been redeeming Partnership
Preference Units as 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 June 30, 2003 were no longer held at June 30,
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 $1.7 million during the quarter
ended June 30, 2004 compared to unrealized appreciation of approximately $3.6
million for the quarter ended June 30, 2003. For the quarter ended June 30,
2004, net unrealized depreciation of $1.7 million consisted of approximately
$1.6 million of unrealized depreciation as a result of decreases in per unit
values of the Partnership Preference Units held by Belport Realty at June 30,
2004, and approximately $0.1 million of unrealized depreciation resulting from
the recharacterization of previously recorded unrealized appreciation to
realized gains due to sales of Partnership Preference Units during the quarter
ended June 30, 2004. During the quarter ended June 30, 2004, Partnership
Preference Unit values were negatively affected by the rising trend in U.S.
interest rates, partly offset by tighter spreads for credit-sensitive income
securities, including real estate-related securities. In a rising interest rate
environment, values of outstanding Partnership Preference Units generally can be
expected to decline. During the quarter ended June 30, 2003, Belport Realty's
investments in Partnership Preference Units generally benefited from declining
interest rates and tightening spreads in credit-sensitive income securities,
particularly in real estate-related securities.
Distributions from Partnership Preference Units for the quarter ended June 30,
2004 totaled $1.0 million compared to $2.2 million for the quarter ended June
30, 2003, a decrease of $1.2 million or 55%. The decrease was principally due to
fewer Partnership Preference Units held on average, as well as lower average
distribution rates for the Partnership Preference Units held during the quarter
ended June 30, 2004.
PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the quarter ended June 30,
2004, net realized and unrealized gains on the Fund's interest rate swap
agreements totaled approximately $7.9 million, compared to net realized and
unrealized losses of approximately $7.6 million for the quarter ended June 30,
2003. Net realized and unrealized gains on swap agreements for the quarter ended
June 30, 2004 consisted of $9.2 million of unrealized appreciation due to
18
changes in swap agreement valuations offset in part by $1.3 million of periodic
payments made pursuant to outstanding swap agreements (and classified as net
realized losses on interest rate swap agreements). For the quarter ended June
30, 2003, net realized and unrealized losses on swap agreements consisted of
unrealized depreciation of $5.3 million on swap agreement valuation changes and
$2.3 million of swap agreement periodic payments. The positive contribution to
Fund performance for the quarter ended June 30, 2004 from changes in swap
agreement valuations was attributable to an increase in swap rates during the
quarter. The negative impact on Fund performance for the quarter ended June 30,
2003 was attributable to a decline in swap rates during the quarter.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2003
- --------------------------------------------------------------------------------
PERFORMANCE OF THE FUND. The Fund's total return was 3.53% for the six months
ended June 30, 2004. This return reflects an increase in the Fund's net asset
value per share from $94.92 to $97.49 and a distribution of $0.76 per share
during the period. For comparison, the S&P 500 had a total return of 3.44% over
the same period. The performance of the Fund exceeded that of the Portfolio by
approximately 0.08% during the period. Last year, the Fund had a total return
performance of 7.74% for the six months ended June 30, 2003. This return
reflected an increase in the Fund's net asset value per share from $76.75 to
$81.94 and a distribution of $0.72 per share. For comparison, the S&P 500 had a
total return of 11.75% over the same period. The performance of the Fund trailed
that of the Portfolio by 0.45% during that period.
PERFORMANCE OF THE PORTFOLIO. For the six months ended June 30, 2004, the
Portfolio's total return was 3.45%, in line with the 3.44% total return of the
S&P 500. In the period, U.S. equity returns were supported by a strengthening
economy and rising corporate profits. Geopolitical concerns, higher interest
rates and rising inflation were negative factors that held back returns. In the
period, small-cap stocks sharply outperformed large-caps and mid-caps, and value
stocks performed modestly better than growth stocks.
The Portfolio's performance during the first six months of 2004 was driven
primarily by its diversified industry exposure and positive stock selection.
Concerns about future trends in consumer spending caused the Portfolio to trim
its relative overweighting of the discretionary and staples sectors during the
period. The Portfolio also decreased positions in healthcare and technology
stocks during the period. The underweighting of semiconductor equipment and
software industries added to performance. The Portfolio maintained an
overweighting of industrials stocks, and benefited from advances in airfreight,
machinery and building stocks. While the consumer staples and financials sectors
generally did not perform well during the period, the Portfolio's holdings in
those sectors were positive contributors to performance. Another positive
contributor was the Portfolio's growing exposure to the energy sector. The
Portfolio's oil exploration and gas investments benefited from the current
supply-demand imbalances and associated energy price increases. The strong
performance of the Portfolio's holdings in the cyclical metals and mining
industries during the period was also noteworthy. The Portfolio continued to
underweight the utilities and telecom sectors.
For the six months ended June 30, 2003, the Portfolio's total return was 8.19%
compared to the 11.75% total return for the S&P 500. Market performance during
the first six months of 2003 was volatile, with war angst, a questionable
economic recovery and the SARS outbreak among the concerns weighing on investors
toward the beginning of the year. From mid-March through the end of the period,
the U.S. market rallied sharply, with favorable fiscal and monetary policy
developments, progress in Iraq and signs of an improving economy contributing to
the strength. The Portfolio's relative underperformance during the period was
attributable primarily to its lower exposure to higher-volatility, lower-quality
stocks that were the strongest performers in the market rally.
PERFORMANCE OF REAL ESTATE INVESTMENTS. During the six months ended June 30,
2004, one of Belport Realty's Real Estate Joint Ventures sold a property for
approximately $41.3 million and recognizing a 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. Accordingly, the Real Estate Joint
Venture acquired a replacement property for approximately $36.2 million. The
remaining portion of the sale proceeds is expected to be invested in another
replacement property by the end of 2004.
Rental income from real estate operations for Belport Realty's Real Estate Joint
Ventures decreased to $30.5 million for the six months ended June 30, 2004 from
$33.2 million for the six months ended June 30, 2003, a decline of $2.7 million
or 8%. This decrease in rental income resulted principally from fewer properties
held by the Real Estate Joint Ventures for the full period as a result of the
property sale discussed above and lower revenues from the other properties held
by Belport Realty's Real Estate Joint Ventures. Rental revenues were adversely
affected by lower rent rates, increased rent concessions and lower occupancy
levels during the period. Property operating expenses for Belport's Real Estate
Joint Ventures decreased to approximately $13.5 million for the six months ended
June 30, 2004 from approximately $14.1 million for the six months ended June 30,
2003, a decrease of $0.6 million or 4% (property operating expenses are before
19
certain operating expenses of Belport Realty of approximately $1.6 million for
the six months ended June 30, 2004 and approximately $2.2 million for the six
months ended June 30, 2003). The near-term outlook for multifamily property
operations continues to be weak. While the recent pick-up in economic and
employment growth is expected to lead to improved supply-demand balance in the
apartment industry, oversupply conditions continue to exist in most major
markets. As a result, Boston Management expects that multifamily real estate
operating results in 2004 will continue to be similar to 2003.
At June 30, 2004, the estimated fair value of the real properties indirectly
held through Belport Realty was $480.7 million compared to $475.5 million at
June 30, 2003, a net increase of $5.2 million or 1%. The modest net increase was
due to declines in capitalization rates, offset in part by lower near-term
property earnings expectations.
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 $3.5 million during the six months ended
June 30, 2004 compared to approximately $12.3 million in unrealized depreciation
for the six months ended June 30, 2003. During the six months ended June 30,
2004, unrealized depreciation was principally due to the recharacterization of
previously recorded unrealized appreciation to realized gains due to the January
2004 sale of a property owned by one of Belport Realty's Real Estate Joint
Ventures, offset in part by modest increases in estimated property values.
During the six months ended June 30, 2003, estimated property values declined
due to declines in near-term earnings expectations and the economic downturn.
However, declines in estimated asset values for multifamily properties generally
were modest during the six months ended June 30, 2003 as decreases in
capitalization rates largely offset declining earnings expectations.
During the six months ended June 30, 2004, Belport Realty sold (or experienced
scheduled redemptions of) certain of its Partnership Preference Units for
approximately $25.4 million (including sales to other investment funds advised
by Boston Management), recognizing gains of $3.6 million on the transactions.
At June 30, 2004, the estimated fair value of Belport Realty's Partnership
Preference Units totaled approximately $64.8 million compared to approximately
$104.4 million at June 30, 2003, a decrease of $39.6 million or 38%. While the
decrease in value was principally due to fewer Partnership Preference Units held
at June 30, 2004, the decrease also reflects lower per unit values of the
Partnership Preference Units held at June 30, 2004 due to their lower average
coupon rates. In the current low interest rate environment, many issuers have
been redeeming Partnership Preference Units as 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 six months ended June 30,
2003 were no longer held at June 30, 2004. As noted above, Partnership
Preference Unit values can generally be expected to decline in a rising interest
rate environment.
The Fund saw unrealized depreciation of the estimated fair value in its
Partnership Preference Units of approximately $6.7 million during the six months
ended June 30, 2004 compared to unrealized appreciation of approximately $7.9
million for the six months ended June 30, 2003. For the six months ended June
30, 2004, net unrealized depreciation of $6.7 million consisted of approximately
$3.5 million of unrealized depreciation as a result of decreases in per unit
values of the Partnership Preference Units held by Belport Realty at June 30,
2004 (as described above), and approximately $3.2 million of unrealized
depreciation resulting from the recharacterization of previously recorded
unrealized appreciation to realized gains due to sales of Partnership Preference
Units during the six months ended June 30, 2004. During the six months ended
June 30, 2004, Partnership Preference Unit values were negatively affected by
the rising trend in U.S. interest rates, partly offset by tighter spreads for
credit-sensitive income securities, including real estate-related securities. In
a rising interest rate environment, values of outstanding Partnership Preference
Units generally can be expected to decline. During the six months ended June 30,
2003, Belport Realty's investments in Partnership Preference Units generally
benefited from declining interest rates and tightening spreads in
credit-sensitive income securities, particularly in real estate-related
securities.
Distributions from Partnership Preference Units for the six months ended June
30, 2004 totaled $3.5 million compared to $4.4 million for the six months ended
June 30, 2003, a decrease of $0.9 million or 21%. The decrease was principally
due to fewer Partnership Preference Units held on average during the six months
ended June 30, 2004 and to lower average distribution rates on the Partnership
Preference Units, partially offset by a one-time special distribution from one
issuer made in connection with a restructuring of its Partnership Preference
Units.
PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the six months ended June 30,
2004, net realized and unrealized gains on the Fund's interest rate swap
agreements totaled approximately $1.6 million, compared to net realized and
unrealized losses of approximately $10.0 million for the six months ended June
20
30, 2003. Net realized and unrealized gains on swap agreements for the six
months ended June 30, 2004 consisted of $4.2 million of unrealized appreciation
due to changes in swap agreement valuations offset in part by $2.6 million of
periodic payments made pursuant to outstanding swap agreements (and classified
as net realized losses on interest rate swap agreements). For the six months
ended June 30, 2003, net realized and unrealized losses on swap agreements
consisted of unrealized depreciation of $5.5 million on swap agreement valuation
changes and $4.5 million of swap agreement periodic payments. The positive
contribution to Fund performance for the six months ended June 30, 2004 from
changes in swap agreement valuations was attributable to an increase in swap
rates during the quarter. The negative impact on Fund performance for the six
months ended June 30, 2003 from changes in swap valuations was attributable to a
decline in swap rates 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 June 30, 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 June 30, 2004, the unrealized appreciation
related to the interest rate swap agreements was approximately $6.0 million. As
of June 30, 2003, the unrealized depreciation related to the interest rate swap
agreements was approximately $31.9 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
purposes. This information should be read in conjunction with Note 5 to the
Fund's unaudited condensed consolidated financial statements in Item 1 above.
21
Interest Rate Sensitivity
Cost, Principal (Notional) Amount
by Contractual Maturity and Callable Date
for the Twelve Months Ended June 30,*
Estimated
Fair Value as
of June 30,
2005-2008 2009 Thereafter Total 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive liabilities:
- ------------------------------------------
Long-term debt:
- ------------------------------------------
Fixed-rate mortgages $15,307,500 $345,800,000 $361,107,500 $389,700,000
Average interest rate 6.78% 6.78%
- ------------------------------------------
Variable-rate Credit Facility $218,500,000 $218,500,000 $218,500,000
Average interest rate 1.57% 1.57%
- -----------------------------------------------------------------------------------------------------------------------------------
Rate sensitive derivative
financial instruments:
- ------------------------------------------
Pay fixed/receive variable interest rate
swap agreements $190,887,000 $190,887,000 $ 6,002,326
Average pay rate 4.08% 4.08%
Average receive rate 1.57% 1.57%
- -----------------------------------------------------------------------------------------------------------------------------------
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: 7.82% $ 17,908,335 $ 17,908,335 $ 22,649,490
PSA Institutional Partners, L.P., 6.4%
Series NN Cumulative Redeemable
Perpetual Preferred Units, Callable
3/17/10, Current Yield: 7.04% $ 34,905,000 $ 34,905,000 $ 29,536,000
Vornado Realty, L.P., 7% Series D-10
Cumulative Redeemable Preferred Units,
Callable 11/17/08, Current Yield:
7.34%(1) $ 12,705,370 $ 12,705,370 $ 12,616,940
* The amounts listed reflect the Fund's positions as of June 30, 2004. The
Fund's current positions 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 June 30, 2004 that have
materially affected, or are reasonably likely to materially affect, the Fund's
internal control over financial reporting.
22
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 Fund 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 June 30, 2004, the total number of shares redeemed and the
average price paid per share were as follows:
- --------------------------------------------------------------------------------
Total No. of Shares Average Price Paid
Month Ended Redeemed(1) Per Share
- --------------------------------------------------------------------------------
April 30, 2004 124,007.65 $96.73
- --------------------------------------------------------------------------------
May 31, 2004 37,995.92 $93.85
- --------------------------------------------------------------------------------
June 30, 2004 87,693.85 $96.29
- --------------------------------------------------------------------------------
Total 249,697.42 $96.15
- --------------------------------------------------------------------------------
(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 June 30, 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
23
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 August 9, 2004.
BELPORT 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