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, 2005
[ ] 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. 000-25767
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Belair Capital Fund LLC
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3404037
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(State of organization) (I.R.S. Employer Identification No.)
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 617-482-8260
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None
----
(Former Name, Former Address and Former Fiscal Year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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
--- ---
BELAIR CAPITAL FUND LLC
Index to Form 10-Q
Page
PART I FINANCIAL INFORMATION............................................ 1
Item 1. Financial Statements............................................. 1
Condensed Consolidated Statements of Assets and Liabilities
as of March 31, 2005 (Unaudited) and December 31, 2004........... 3
Condensed Consolidated Statements of Operations (Unaudited)
for the Three Months Ended March 31, 2005 and 2004............... 4
Condensed Consolidated Statements of Changes in Net Assets
for the Three Months Ended March 31, 2005 (Unaudited) and
the Year Ended December 31, 2004................................. 6
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 2005 and 2004............... 7
Financial Highlights (Unaudited) for the Three Months Ended
March 31, 2005................................................... 9
Notes to Condensed Consolidated Financial Statements as of
March 31, 2005 (Unaudited).......................................10
Item 2. Management's Discussion and Analysis of Financial Condition
(MD&A) and Results of Operations.................................15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......18
Item 4. Controls and Procedures..........................................21
PART II OTHER INFORMATION................................................21
Item 1. Legal Proceedings................................................21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds......21
Item 3. Defaults Upon Senior Securities..................................22
Item 4. Submission of Matters to a Vote of Security Holders..............22
Item 5. Other Information................................................22
Item 6. Exhibits.........................................................22
SIGNATURES...................................................................23
EXHIBIT INDEX................................................................24
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
- -----------------------------------------------------------------------
BELAIR CAPITAL FUND LLC
Condensed Consolidated Statements of Assets and Liabilities
March 31, 2005 December 31,
(Unaudited) 2004
----------------------- -----------------------
Assets:
Investment in Belvedere Capital Fund Company LLC
(Belvedere Company) $ 1,566,049,935 $ 1,643,447,807
Investment in Partnership Preference Units 319,893,271 203,826,804
Investment in other real estate 178,104,922 339,580,435
Short-term investments 2,275,000 1,891,000
----------------------- -----------------------
Total investments $ 2,066,323,128 $ 2,188,746,046
Cash 5,235,352 9,759,487
Escrow deposits - restricted - 80,839
Open interest rate swap agreements, at value 7,223,690 2,366,785
Distributions and interest receivable 1,177,934 126,778
Other assets 4,925,898 5,158,454
----------------------- -----------------------
Total assets $ 2,084,886,002 $ 2,206,238,389
----------------------- -----------------------
Liabilities:
Loan payable - Credit Facility $ 494,000,000 $ 405,000,000
Mortgages payable 135,000,000 247,630,517
Payable for Fund Shares redeemed 7,453,385 19
Security deposits 425,078 820,256
Swap interest payable 116,582 148,252
Accrued expenses:
Interest expense 798,746 1,545,503
Property taxes 482,805 833,918
Other expenses and liabilities 1,664,539 1,121,854
Minority interests in controlled subsidiaries 8,064,166 19,146,178
----------------------- -----------------------
Total liabilities $ 648,005,301 $ 676,246,497
----------------------- -----------------------
Net assets $ 1,436,880,701 $ 1,529,991,892
----------------------- -----------------------
Shareholders' Capital $ 1,436,880,701 $ 1,529,991,892
----------------------- -----------------------
Shares outstanding 11,748,931 12,058,622
----------------------- -----------------------
Net asset value and redemption price per Share $ 122.30 $ 126.88
----------------------- -----------------------
See notes to unaudited condensed consolidated financial statements
3
BELAIR CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------------------------------
Investment Income:
Dividends allocated from Belvedere Company (net of foreign taxes of $62,722
and $66,409, respectively) $ 6,535,978 $ 5,557,427
Interest allocated from Belvedere Company 48,207 26,538
Expenses allocated from Belvedere Company (2,381,197) (2,410,134)
------------------------------------
Net investment income allocated from
Belvedere Company $ 4,202,988 $ 3,173,831
Rental income 6,593,735 5,511,218
Distributions from Partnership Preference Units 5,305,293 8,470,877
Interest 111,933 105,148
------------------------------------
Total investment income $ 16,213,949 $ 17,261,074
------------------------------------
Expenses:
Investment advisory and administrative fees $ 1,404,095 $ 1,401,115
Property management fees 187,717 218,537
Servicing fees 137,005 167,543
Interest expense on mortgages 2,770,605 2,386,111
Interest expense on Credit Facility 3,267,900 1,670,880
Property and maintenance expenses 1,094,130 1,576,526
Property taxes and insurance 942,293 700,781
Miscellaneous 516,663 136,386
------------------------------------
Total expenses $ 10,320,408 $ 8,257,879
------------------------------------
Net investment income before
minority interests in net income of
controlled subsidiaries $ 5,893,541 $ 9,003,195
Minority interests in net income
of controlled subsidiaries (259,420) (110,236)
------------------------------------
Net investment income $ 5,634,121 $ 8,892,959
------------------------------------
See notes to unaudited condensed consolidated financial statements
4
BELAIR CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited) (Continued)
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------------ ------------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) -
Investment transactions, securities sold short and
foreign currency transactions allocated from
Belvedere Company (identified cost basis) $ (1,353,089) $ 5,850,913
Investment transactions in Partnership
Preference Units (identified cost basis) (3,679) 2,399,543
Investment transactions in other real estate (net of minority
interest in realized loss of controlled subsidiaries of
$(3,550,665) and $0, respectively) 2,326,193 -
Interest rate swap agreements (1) (1,761,821) (3,051,795)
------------------ ------------------
Net realized (loss) gain $ (792,396) $ 5,198,661
------------------ ------------------
Change in unrealized appreciation
(depreciation)
Investments, securities sold short and foreign
currency allocated from Belvedere Company
(identified cost basis) $ (36,552,996) $ 24,013,775
Investment in Partnership Preference Units
(identified cost basis) 628,755 (6,958,051)
Investment in other real estate
(net of minority interest in unrealized appreciation
of controlled subsidiaries of $3,402,756 and
$1,908,131, respectively) 225,324 (1,958,342)
Interest rate swap agreements 4,856,905 (4,873,854)
------------------ ------------------
Net change in unrealized appreciation (depreciation) $ (30,842,012) $ 10,223,528
------------------ ------------------
Net realized and unrealized (loss) gain $ (31,634,408) $ 15,422,189
------------------ ------------------
Net (decrease) increase in net assets from operations $ (26,000,287) $ 24,315,148
================== ==================
(1) Amounts represent periodic payments made in connection with interest rate
swap agreements (Note 4).
See notes to unaudited condensed consolidated financial statements
5
BELAIR CAPITAL FUND LLC
Condensed Consolidated Statements of Changes in Net Assets
Three Months
Ended
March 31, 2005 Year Ended
(Unaudited) December 31, 2004
---------------------- ----------------------
Increase (Decrease) in Net Assets:
Net investment income $ 5,634,121 $ 31,237,747
Net realized (loss) gain from investment transactions, securities sold short,
foreign currency transactions and interest rate swap agreements (792,396) 30,327,282
Net change in unrealized appreciation (depreciation) of investments,
securities sold short, foreign currency and interest rate swap
agreements (30,842,012) 44,982,446
---------------------- ----------------------
Net (decrease) increase in net assets from operations $ (26,000,287) $ 106,547,475
---------------------- ----------------------
Transactions in Fund Shares -
Net asset value of Fund Shares issued to Shareholders in
payment of distributions declared $ 12,687,778 $ 7,259,756
Net asset value of Fund Shares redeemed (51,147,765) (89,817,709)
---------------------- ----------------------
Net decrease in net assets from Fund Share transactions $ (38,459,987) $ (82,557,953)
---------------------- ---------------------
Distributions -
Distributions to Shareholders $ (28,650,917) $ (16,279,479)
---------------------- ----------------------
Total distributions $ (28,650,917) $ (16,279,479)
---------------------- ----------------------
Net (decrease) increase in net assets $ (93,111,191) $ 7,710,043
Net assets:
At beginning of period $ 1,529,991,892 $ 1,522,281,849
---------------------- ---------------------
At end of period $ 1,436,880,701 $ 1,529,991,892
====================== ======================
See notes to unaudited condensed consolidated financial statements
6
BELAIR CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------------- ------------------
Cash Flows From (For) Operating Activities -
Net (decrease) increase in net assets from operations $ (26,000,287) $ 24,315,148
Adjustments to reconcile net (decrease) increase in net assets from
operations to net cash flows for operating activities -
Net investment income allocated from Belvedere Company (4,202,988) (3,173,831)
Increase in interest receivable from other real estate investments (46,105) (43,174)
(Increase) decrease in other assets (993,630) 88,779
Increase in distributions and interest receivable (1,051,156) (558,276)
(Decrease) increase in interest payable for open swap agreements (31,670) 2,289
Increase in security deposits, accrued interest and accrued
other expenses and liabilities 778,063 39,983
Increase in accrued property taxes 146,309 214,891
Purchases of Partnership Preference Units (115,848,417) (48,668,050)
Proceeds from sale of investment in other real estate 42,877,294 -
Proceeds from sales of Partnership Preference Units 407,026 50,715,342
Improvements to rental property (534,855) (328,563)
Decrease in cash due to sale of majority interest in controlled subsidiary (2,199,688) -
Interest incurred on interest rate swap agreements (1,761,821) (3,051,795)
Increase in minority interest 240,000 -
Increase in short-term investments (384,000) (16,694,670)
Minority interests in net income of controlled subsidiaries 259,420 110,236
Net realized loss (gain) from investment transactions, securities sold
short, foreign currency transactions and interest rate swap agreements 792,396 (5,198,661)
Net change in unrealized (appreciation) depreciation of investments,
securities sold short, foreign currency and interest rate
swap agreements 30,842,012 (10,223,528)
------------------- ------------------
Net cash flows for operating activities $ (76,712,097) $ (12,453,880)
------------------- ------------------
Cash Flows From (For) Financing Activities -
Proceeds from Credit Facility $ 89,000,000 $ 63,000,000
Repayment of Credit Facility - (42,000,000)
Payments for Fund Shares redeemed (1,373) (1,758)
Distributions paid to Shareholders (15,963,139) (9,019,723)
Distributions paid to minority shareholders (847,526) (16,800)
------------------- ------------------
Net cash flows from financing activities $ 72,187,962 $ 11,961,719
------------------- ------------------
Net decrease in cash $ (4,524,135) $ (492,161)
Cash at beginning of period $ 9,759,487 $ 8,687,577
------------------- ------------------
Cash at end of period $ 5,235,352 $ 8,195,416
=================== ==================
See notes to unaudited condensed consolidated financial statements
7
BELAIR CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------------- ------------------
Supplemental Disclosure and Non-cash Investing and
Financing Activities -
Interest paid on loan - Credit Facility $ 3,325,463 $ 1,627,008
Interest paid on mortgages $ 2,695,468 $ 2,345,531
Interest paid on swap agreements $ 1,793,491 $ 3,049,506
Market value of securities distributed in payment of
redemptions $ 43,694,775 $ 17,136,551
Market value of real property and other assets, net of
current liabilities, disposed of in conjunction with
sale of other real estate $ 163,004,330 $ -
Market value of minority interest disposed of in
conjunction with sale of other real estate $ 10,585,993 $ -
Mortgage disposed of in conjunction with sale of
other real estate $ 112,630,517 $ -
See notes to unaudited condensed consolidated financial statements
8
BELAIR CAPITAL FUND LLC as of March 31, 2005
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Financial Highlights (Unaudited)
For the Three Months Ended March 31, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value - Beginning of period $ 126.880
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (1) $ 0.471
Net realized and unrealized loss (2.671)
- ------------------------------------------------------------------------------------------------------------------------------------
Total loss from operations $ (2.200)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders $ (2.380)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (2.380)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value - End of period $ 122.300
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (2) (1.71%)
- ------------------------------------------------------------------------------------------------------------------------------------
As a Percentage As a Percentage
of Average Net of Average Gross
Ratios Assets (3) Assets (3)(8)
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses of Consolidated Real Property Subsidiaries
Interest and other borrowing costs (4) 0.62% (9) 0.44% (9)
Operating expenses (4) 0.54% (9) 0.38% (9)
Belair Capital Fund LLC Expenses
Interest and other borrowing costs (5)(6) 0.89% (9) 0.63% (9)
Investment advisory and administrative fees,
servicing fees and other Fund operating expenses (5)(7) 1.16% (9) 0.82% (9)
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 3.21% (9) 2.27% (9)
Net investment income 1.54% (9) 1.09% (9)
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 1,436,881
Portfolio turnover of Tax-Managed Growth Portfolio (the Portfolio) 0.12%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Calculated using average shares outstanding.
(2) 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.
(3) For the purpose of calculating ratios, the income and expenses of Belair
Real Estate Corporation's (Belair Real Estate) controlled subsidiaries are
reduced by the proportionate interests therein of investors other than
Belair Real Estate.
(4) Includes Belair Real Estate's proportional share of expenses incurred by
its controlled subsidiaries.
(5) Includes the expenses of Belair Capital Fund LLC (Belair Capital) and
Belair Real Estate. Does not include expenses of Belair Real Estate's
controlled subsidiaries.
(6) Ratios do not include interest incurred in connection with interest rate
swap agreements. Had such amounts been included, ratios would be higher.
(7) Includes Belair Capital's share of Belvedere Capital Fund Company LLC's
(Belvedere Company) allocated expenses, including those expenses allocated
from the Portfolio.
(8) Average Gross Assets is defined as the average daily amount of all assets
of Belair Capital (not including its investment in Belair Real Estate) plus
all assets of Belair Real Estate minus the sum of their liabilities other
than the principal amount of money borrowed. For this purpose, the assets
of Belair Real Estate's controlled subsidiaries are reduced by the
proportionate interests therein of investors other than Belair Real Estate.
(9) Annualized.
See notes to unaudited condensed consolidated financial statements
9
BELAIR CAPITAL FUND LLC as of March 31, 2005
Notes To Condensed Consolidated Financial Statements (Unaudited)
1 Basis of Presentation
The condensed consolidated interim financial statements of Belair Capital Fund
LLC (Belair Capital) and its subsidiaries (collectively, the Fund) have been
prepared by the Fund, without audit, in accordance with accounting principles
generally accepted in the United States of America for interm financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted as permitted by such rules and regulations. All adjustments, consisting
of normal recurring adjustments, have been included. Management believes that
the disclosures are adequate to present fairly the financial position, results
of operations, cash flows and financial highlights at the dates and for the
periods presented. It is suggested that these interim financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Fund's latest annual report on Form 10-K. Results for interim periods are
not necessarily indicative of those to be expected for the full fiscal year.
The balance sheet at December 31, 2004 and the statement of changes in net
assets for the year then ended have been derived from the December 31, 2004
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.
2 Investment Transactions
The following table summarizes the Fund's investment transactions, other than
short-term obligations, for the three months ended March 31, 2005 and March 31,
2004:
Three Months Ended Three Months Ended
Investment Transaction March 31, 2005 March 31, 2004
- -----------------------------------------------------------------------------------------------------------
Decreases in investment in Belvedere Capital Fund
Company LLC (Belvedere Company) $ 43,694,775 $ 17,136,551
Sale of other real property (1) $ 42,877,294 $ -
Purchases of Partnership Preference Units (2) $ 115,848,417 $ 48,668,050
Sales of Partnership Preference Units (3) $ 407,026 $ 50,715,342
---------------------------------------------------------------------------------------------------------
(1) During the three months ended March 31, 2005, Belair Real Estate sold its
majority interest in Bel Residential Properties Trust (Bel Residential) to
another fund advised by Boston Management and Research (Boston Management)
recognizing a gain of $2,326,193.
(2) Purchases of Partnership Preference Units during the three months ended
March 31, 2005 and March 31, 2004 represent Partnership Preference Units
purchased from other investment funds advised by Boston Management.
(3) Sales of Partnership Preference Units for the three months ended March 31,
2005 and 2004 include Partnership Preference Units sold to other investment
funds advised by Boston Management for which a loss of $3,679 and $997,698
was recognized, respectively.
10
3 Indirect Investment in the Portfolio
The following table summarizes the Fund's investment in Tax-Managed Growth
Portfolio (the Portfolio) through Belvedere Company for the three months ended
March 31, 2005 and March 31, 2004, 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, 2005 March 31, 2004
- -------------------------------------------------------------------------------------------------------------------------
Belvedere Company's interest in the Portfolio (1) $ 12,584,989,585 $ 11,520,846,141
The Fund's investment in Belvedere Company (2) $ 1,566,049,935 $ 1,604,097,252
Income allocated to Belvedere Company from the Portfolio $ 52,138,985 $ 39,365,471
Income allocated to the Fund from Belvedere Company $ 6,584,185 $ 5,583,965
Expenses allocated to Belvedere Company from the Portfolio $ 14,031,081 $ 12,634,511
Expenses allocated to the Fund from Belvedere Company $ 2,381,197 2,410,134
Net realized (loss) gain from investment transactions, securities sold
short and foreign currency transactions allocated to Belvedere Company
from the Portfolio $ (7,321,051) $ 41,048,575
Net realized (loss) gain from investment transactions, securities sold
short and foreign currency transactions allocated to the Fund from
Belvedere Company $ (1,353,089) $ 5,850,913
Net change in unrealized appreciation (depreciation) of investments,
securities sold short and foreign currency allocated to Belvedere
Company from the Portfolio $ (280,637,975) $ 163,577,445
Net change in unrealized appreciation (depreciation) of investments,
securities sold short and foreign currency allocated to the Fund from
Belvedere Company $ (36,552,996) $ 24,013,775
- -------------------------------------------------------------------------------------------------------------------------
(1) As of March 31, 2005 and 2004, the value of Belvedere Company's interest in
the Portfolio represents 67.7% and 63.9% of the Portfolio's net assets,
respectively.
2) As of March 31, 2005 and 2004, the Fund's investment in Belvedere Company
represents 12.4% and 13.9% of Belvedere Company's net assets, respectively.
A summary of the Portfolio's Statement of Assets and Liabilities at March 31,
2005, December 31, 2004 and March 31, 2004 and its operations for the three
months ended March 31, 2005, for the year ended December 31, 2004 and for the
three months ended March 31, 2004 follows:
March 31, December 31, March 31,
2005 2004 2004
---------------------------------------------------------------
Investments, at value $18,468,165,880 $19,139,242,713 $18,003,359,532
Other assets 119,669,991 199,253,595 25,944,066
- -----------------------------------------------------------------------------------------------------------------
Total assets $18,587,835,871 $19,338,496,308 $18,029,303,598
- -----------------------------------------------------------------------------------------------------------------
Loan payable - Line of Credit $ 4,200,000 $ - $ -
Securities sold short, at value - 197,010,000 -
Other liabilities 125,209 343,906 254,697
- -----------------------------------------------------------------------------------------------------------------
Total liabilities $ 4,325,209 $ 197,353,906 $ 254,697
- -----------------------------------------------------------------------------------------------------------------
Net assets $18,583,510,662 $19,141,142,402 $18,029,048,901
=================================================================================================================
11
Dividends and Interest $ 77,449,217 $ 292,265,206 $ 62,101,320
- -----------------------------------------------------------------------------------------------------------------
Investment advisor fee $ 20,297,088 $ 77,609,178 $ 19,348,796
Other expenses 611,649 2,649,363 598,921
Total expense reductions (59,259) (26,706) -
- -----------------------------------------------------------------------------------------------------------------
Net expenses $ 20,849,478 $ 80,231,835 $ 19,947,717
- -----------------------------------------------------------------------------------------------------------------
Net investment income $ 56,599,739 $ 212,033,371 $ 42,153,603
Net realized (loss) gain from investment
transactions, securities sold short and
foreign currency transactions (11,056,277) 152,422,840 64,894,806
Net change in unrealized appreciation
(depreciation) of investments, securities
sold short and foreign currency (422,252,722) 1,317,878,707 261,922,214
- -----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in net assets from
operations $ (376,709,260) $ 1,682,334,918 $ 368,970,623
- -----------------------------------------------------------------------------------------------------------------
4 Interest Rate Swap Agreements
Belair 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, Belair 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, 2005 and December 31, 2004 are listed below.
Notional Initial
Amount Optional Final Unrealized Unrealized
Effective (000's Fixed Floating Termination Termination Appreciation at Appreciation at
Date omitted) Rate Rate Date Date March 31, 2005 December 31, 2004
- ----------------------------------------------------------------------------------------------------------------------
10/03 $ 20,000 4.045% LIBOR + 0.30% - 6/10 $ 753,791 $ 265,191
10/03 61,500 4.865% LIBOR + 0.30% 07/04 6/10 943,865 278,866
10/03 75,000 4.795% LIBOR + 0.30% 09/04 6/10 1,306,762 450,060
10/03 42,000 4.69% LIBOR + 0.30% 02/05 6/10 868,739 354,457
10/03 49,000 4.665% LIBOR + 0.30% 03/05 6/10 1,052,763 442,140
10/03 35,330 4.18% LIBOR + 0.30% 07/09 6/10 1,185,806 362,399
02/04 95,952 5.00% LIBOR + 0.30% 08/04 6/10 1,111,964 213,672
- ----------------------------------------------------------------------------------------------------------------------
Total $378,782 $ 7,223,690 $2,366,785
- ----------------------------------------------------------------------------------------------------------------------
5 Debt
A Credit Facility -- On February 17, 2005, Belair Capital amended its credit
agreement with DrKW Holdings, Inc. to establish a borrowing limit of
$450,000,000 under that agreement. Belair Capital used the proceeds from these
borrowings to finance the Fund's investment in Partnership Preference Units.
Borrowings under this credit arrangement accrue interest at a rate of one-month
LIBOR plus 0.30% per annum. As of March 31, 2005, outstanding borrowings under
this credit arrangement totaled $450,000,000.
There were no changes to the terms of Belair Capital's credit agreement with
Merrill Lynch Mortgage Capital, Inc. during the quarter ended March 31, 2005. As
of March 31, 2005, outstanding borrowings under this credit arrangement totaled
$44,000,000.
B Mortgages -- In February 2005, in conjunction with the sale of Belair Real
Estate's majority interest in Bel Residential (Note 2), the mortgage payable by
Bel Residential was disposed of. At the time of the transaction, the loan
balance was $112,630,517.
12
6 Segment Information
Belair 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 by its investment
adviser to be high in quality and attractive in their long-term investment
prospects. Separate from its investment in Belvedere Company, Belair Capital
invests in real estate assets through its subsidiary, Belair Real Estate. Belair
Real Estate invests directly and indirectly in Partnership Preference Units,
debt and equity investments in private real estate companies and in real
property through controlled subsidiaries, Bel Residential and Elkhorn Property
Trust (for the period during which Belair Real Estate maintained an interest in
each of the controlled subsidiaries).
Belair 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 Belair Capital on a consolidated
basis. No reportable segments have been aggregated. Reportable information by
segment is as follows:
For the Three Months Ended Tax-Managed Real
March 31, 2005 Growth Portfolio* Estate Total
- ---------------------------------------------------------------------------------------------------------------------
Revenue $ 4,202,988 $ 11,974,434 $ 16,177,422
Interest expense on mortgages - (2,770,605) (2,770,605)
Interest expense on Credit Facility - (3,039,147) (3,039,147)
Operating expenses (687,803) (3,354,884) (4,042,687)
Minority interest in net income of controlled
subsidiaries - (259,420) (259,420)
- ---------------------------------------------------------------------------------------------------------------------
Net investment income $ 3,515,185 $ 2,550,378 $ 6,065,563
Net realized (loss) gain (1,353,089) 560,693 (792,396)
Net change in unrealized appreciation (depreciation) (36,552,996) 5,710,984 (30,842,012)
- ---------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in net assets from operations
of reportable segments $(34,390,900) $ 8,822,055 $(25,568,845)
- ---------------------------------------------------------------------------------------------------------------------
For the Three Months Ended Tax-Managed Real
March 31, 2004 Growth Portfolio* Estate Total
- ---------------------------------------------------------------------------------------------------------------------
Revenue $ 3,173,831 $ 14,034,549 $ 17,208,380
Interest expense on mortgage - (2,386,111) (2,386,111)
Interest expense on Credit Facility - (1,570,627) (1,570,627)
Operating expenses (699,664) (3,275,833) (3,975,497)
Minority interest in net income of controlled
subsidiary - (110,236) (110,236)
- ---------------------------------------------------------------------------------------------------------------------
Net investment income $ 2,474,167 $ 6,691,742 $ 9,165,909
Net realized gain (loss) 5,850,913 (652,252) 5,198,661
Net change in unrealized appreciation (depreciation) 24,013,775 (13,790,247) 10,223,528
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations
of reportable segments $ 32,338,855 $ (7,750,757) $ 24,588,098
- ---------------------------------------------------------------------------------------------------------------------
13
Tax-Managed Growth Real
At March 31, 2005 Portfolio* Estate Total
- ---------------------------------------------------------------------------------------------------------------------
Segment assets $1,566,049,935 $513,356,224 $2,079,406,159
Segment liabilities 7,453,385 603,510,123 610,963,508
- ---------------------------------------------------------------------------------------------------------------------
Net assets (liabilities) of reportable segments $1,558,596,550 $(90,153,899) $1,468,442,651
- ---------------------------------------------------------------------------------------------------------------------
At December 31, 2004
- ---------------------------------------------------------------------------------------------------------------------
Segment assets $1,643,447,807 $ 557,178,367 $2,200,626,174
Segment liabilities 19 655,203,581 655,203,600
- ---------------------------------------------------------------------------------------------------------------------
Net assets (liabilities) of reportable segments $1,643,447,788 $ (98,025,214) $1,545,422,574
- ---------------------------------------------------------------------------------------------------------------------
* Belair 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 Ended Three Months Ended
March 31, 2005 March 31, 2004
---------------------- -----------------------
Revenue:
Revenue from reportable segments $ 16,177,422 $ 17,208,380
Unallocated amounts:
Interest earned on cash not invested in the
Portfolio or in subsidiaries 36,527 52,694
---------------------- -----------------------
Total revenue $ 16,213,949 $ 17,261,074
---------------------- -----------------------
Net increase (decrease) in net assets from operations:
Net (decrease) increase in net assets from operations of reportable
segments $ (25,568,845) $ 24,588,098
Unallocated investment income:
Interest earned on cash not invested in the
Portfolio or in subsidiaries 36,527 52,694
Unallocated expenses (1):
Servicing fees (137,005) (167,543)
Interest expense on Credit Facility (228,753) (100,253)
Audit, tax and legal fees (89,604) (45,101)
Other operating expenses (12,607) (12,747)
---------------------- -----------------------
Total net (decrease) increase in net assets from operations
$ (26,000,287) $ 24,315,148
---------------------- -----------------------
(1) Unallocated expenses represent costs incurred that pertain to the overall
operation of Belair Capital, and do not pertain to either operating
segment.
March 31, 2005 December 31, 2004
-------------------- --- ----------------------
Net assets:
Net assets of reportable segments $1,468,442,651 $ 1,545,422,574
Unallocated amounts:
Cash (1) 3,204,843 3,721,215
Short-term investments (1) 2,275,000 1,891,000
Loan payable - Credit Facility (2) (36,865,429) (20,836,553)
Other liabilities (176,364) (206,344)
-------------------- --- ----------------------
Total net assets $ 1,436,880,701 $1,529,991,892
-------------------- --- ----------------------
(1) Unallocated cash and short-term investments represent cash and cash
equivalents not invested in the Portfolio or real estate assets.
(2) 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 (MD&A) 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 Belair 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.
(a) RESULTS OF OPERATIONS.
Increases and decreases in the Fund's net asset value per share are based on 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 net investment income (or loss) attributable to the minority
interest in controlled subsidiaries of Belair Real Estate Corporation (Belair
Real Estate). 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 Belair Real Estate's
controlled subsidiaries, partnership income allocated to the income-producing
preferred equity interests in real estate operating partnerships (Partnership
Preference Units) owned directly or indirectly by Belair Real Estate 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
and interest 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, servicing fees, interest expense from mortgages on properties owned by
Belair Real Estate'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 Belair Real Estate'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 Belair Real Estate, 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 by its investment adviser 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.
MD&A AND RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2005 COMPARED TO
THE QUARTER ENDED MARCH 31, 2004
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 S&P 500 Index
as the Fund's primary performance benchmark. The S&P 500 Index is a broad-based
unmanaged index of common stocks widely used as a measure of U.S. stock market
(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 non-Portfolio expenses of that fund. 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 Index. It is not possible to invest directly in an
Index.
15
performance. Eaton Vance's primary focus in pursuing total return is on the
Fund's common stock portfolio, which consists of its indirect interests in the
Portfolio. In measuring the performance of the Fund's real estate investments,
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 borrowings incurred to acquire such investments and thereby add to
Fund returns. The Fund has entered into interest rate swap agreements to fix a
substantial portion of the borrowing costs under the Credit Facility used to
acquire equity in its real estate investments and to mitigate in part the impact
of interest rate changes on the Fund's net asset value.
The Fund's total return was -1.71% for the quarter ended March 31, 2005. This
return reflects a decrease in the Fund's net asset value per share from $126.88
to $122.30 and a distribution of $2.38 per share during the period. The total
return of the S&P 500 Index was -2.15% over the same period. The performance of
the Fund exceeded that of the Portfolio by approximately 0.27% during the
period. Last year, the Fund had a total return performance of 1.60% for the
quarter ended March 31, 2004. This return reflected an increase in the Fund's
net asset value per share from $119.60 to $120.22 and a distribution of $1.28
per share during the period. The S&P 500 Index had a total return of 1.69% over
the same period. The performance of the Fund trailed that of the Portfolio by
approximately 0.52% during that period.
PERFORMANCE OF THE PORTFOLIO. For the quarter ended March 31, 2005, the
Portfolio had a total return of -1.98%, compared to a total return of 2.12%
during the quarter ended March 31, 2004. The total return of the Portfolio
exceeded the total return of the S&P 500 Index by 0.17% in the first quarter of
2005 and 0.43% in the first quarter of 2004. Although most U.S. public companies
have continued to demonstrate solid profitability and earnings growth, market
performance in the first quarter was hampered by rising interest rates and
growing inflation fears amid resurging oil prices. As expected, the Federal
Reserve raised the federal funds target rate to 2.75%, the seventh increase in
this short-term interest rate benchmark since June of last year. During the
quarter, investors favored defensive, higher-yielding stocks over cyclicals,
technology stocks and other high volatility stocks. The tech-heavy NASDAQ
Composite Index lost over 8% during the quarter.
Utilities and energy were the best performing sectors of the S&P 500 Index,
while telecommunications and technology were the poorest performing sectors.
Market leading industries in the first quarter included: oil and gas, health
care providers and personal products. In contrast, information technology
consulting, auto manufacturers and multi-line insurers were among the worst
performing industry groups.
The Portfolio's relative performance versus the S&P 500 Index was driven
primarily by industry and sector exposure and stock selection. The Portfolio
benefited from the continued overweighting of the energy sector, as oil and gas
related investments advanced during the quarter on rising commodity prices. The
Portfolio's relative performance also benefited from underweight positions in
the lagging information technology and telecommunication sectors. Relative
performance was adversely affected by an overweighting of the lagging industrial
sector and an underweighting of the utilities sector, which was among the
strongest performers in a defensive market. Favorable stock selection within the
thrift bank, media and catalog retailer industries was also beneficial to the
overall results.
PERFORMANCE OF REAL ESTATE INVESTMENTS. The Fund's real estate investments are
held through Belair Real Estate. As of March 31, 2005, real estate investments
included an interest in a real estate joint venture (Real Estate Joint Venture),
Elkhorn Property Trust (Elkhorn), and a portfolio of Partnership Preference
Units. Elkhorn owns industrial distribution properties. On February 17, 2005,
Belair Real Estate sold its interest in a second Real Estate Joint Venture, Bel
Residential Properties Trust (Bel Residential), to another fund advised by
Boston Management and Research (Boston Management), Belair Real Estate's
manager. Belair Real Estate recognized a gain of approximately $2.3 million on
the sale. As of March 31, 2005, the estimated fair value of the Fund's real
estate investments represented 23.9% of the Fund's total assets on a
consolidated basis. After adjusting for the minority interest in the Real Estate
Joint Venture, the Fund's real estate investments represented 32.5% of the
Fund's net assets as of March 31, 2005.
During the quarter ended March 31, 2005, rental income from real estate
operations was approximately $6.6 million compared to approximately $5.5 million
for the quarter ended March 31, 2004, an increase of $1.1 million or 20%. This
increase in rental income was due to Belair Real Estate's ownership of interests
in two Real Estate Joint Ventures for much of the quarter ended March 31, 2005
compared to an ownership interest in only one Real Estate Joint Venture during
the quarter ended March 31, 2004. During the quarter ended March 31, 2004,
rental income decreased due to reduced apartment rental rates and increased rent
concessions at the multifamily properties owned by Bel Residential.
During the quarter ended March 31, 2005, property operating expenses were
approximately $2.2 million compared to approximately $2.5 million for the
quarter ended March 31, 2004, a decrease of $0.3 million or 12% (property
operating expenses are before certain operating expenses of Belair Real Estate
of approximately $1.1 million for the quarter ended March 31, 2005 and $0.8
million for the quarter ended March 31, 2004). The decrease in property
operating expenses was principally due to Belair Real Estate's sale of its
16
interests in Bel Residential during the quarter ended March 31, 2005 offset in
part by the operating expenses of properties owned by Elkhorn. Property
operating expenses for the quarter ended March 31, 2004 were substantially
unchanged from the quarter ended March 31, 2003.
For many industrial distribution properties, reduced rent levels are likely to
continue over the near term as above-market leases mature and space is re-leased
at current market rates. Boston Management expects that improvements in
industrial distribution property operating performance will occur over the
longer term.
At March 31, 2005, the estimated fair value of the real properties indirectly
held through Belair Real Estate was approximately $172.1 million compared to
approximately $158.7 million at March 31, 2004, a net increase of $13.4 million
or 8%. The net increase in estimated real property values at March 31, 2005 as
compared to March 31, 2004 resulted from Belair Real Estate's acquisition of
Elkhorn in the third quarter of 2004, offset in part by its sale of Bel
Residential in February 2005. The modest increase in estimated real property
values at March 31, 2004 resulted from lower capitalization rates, which offset
the impact on property values of lower near-term income expectations.
Despite weak real estate operating conditions over the past several years,
property values in the U.S. have remained stable or increased modestly as lower
near-term property earning expectations have generally been offset by lower
capitalization and discount rates applied in valuing the properties.
Capitalization rates and discount rates, terms commonly used in the real estate
industry, are the rate of return percentages applied to actual or projected
income levels to estimate the value of real estate investments.
During the quarter ended March 31, 2005, the Fund saw net unrealized
appreciation of the estimated fair value of its other real estate investments
(which includes Elkhorn) of approximately $0.2 million compared to unrealized
depreciation of approximately $2.0 million during the quarter ended March 31,
2004. Net unrealized appreciation of approximately $0.2 million during the
quarter ended March 31, 2005 consisted of approximately $1.6 million of
unrealized appreciation in the value of the properties of Elkhorn, offset in
part by the reclassification of previously recorded unrealized appreciation as
realized gains in the amount of $1.4 million of Belair Real Estate's interest in
Bel Residential during the quarter.
During the quarter ended March 31, 2005, Belair Real Estate sold certain of its
Partnership Preference Units totaling approximately $0.4 million (representing
sales to other investment funds advised by Boston Management), recognizing a net
loss of approximately $4,000 on the transactions. During the quarter ended March
31, 2005, Belair Real Estate also acquired interests in additional Partnership
Preference Units (representing acquisitions from other investment funds advised
by Boston Management) for a total of approximately $115.8 million. At March 31,
2005, the estimated fair value of Belair Real Estate's Partnership Preference
Units totaled approximately $319.9 million compared to approximately $311.4
million at March 31, 2004, a net increase of $8.5 million or 3%. The net
increase in value was principally due to more Partnership Preference Units held
at March 31, 2005 compared to March 31, 2004. The decrease in value at March 31,
2004 as compared to March 31, 2003 was principally due to fewer Partnership
Preference Units held. The decrease also reflected the lower per unit values of
Partnership Preference Units held at March 31, 2004 due to their lower average
coupon rates. In the current low interest rate environment, issuers have been
redeeming Partnership Preference Units as Belair Real Estate'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 Belair Real Estate on March 31, 2004 were
no longer held at March 31, 2005.
During the quarter ended March 31, 2005, the Fund saw net unrealized
appreciation of the estimated fair value of its Partnership Preference Units of
approximately $0.6 million compared to net unrealized depreciation of
approximately $7.0 million during the quarter ended March 31, 2004. The net
unrealized appreciation of approximately $0.6 million during the quarter ended
March 31, 2005 occurred as a result of increases in the per unit values of
Partnership Preference Units held by Belair Real Estate at March 31, 2005. The
net unrealized depreciation in the first quarter of 2004 of $7.0 million
consisted of approximately $3.3 million of unrealized depreciation resulting
from decreases in per unit values of the Partnership Preference Units held by
Belair Real Estate at March 31, 2004 and approximately $3.7 million of
unrealized depreciation resulting from the reclassification of previously
recorded unrealized appreciation as realized gains due to sales of Partnership
Preference Units during the quarter ended March 31, 2004.
Distributions from Partnership Preference Units for the quarter ended March 31,
2005 totaled approximately $5.3 million compared to approximately $8.5 million
for the quarter ended March 31, 2004, a decrease of $3.2 million or 38%. The
decrease was principally due to fewer Partnership Preference Units held on
average during the quarter as well as to lower average distribution rates.
Distributions from Partnership Preference Units for the quarter ended March 31,
17
2004 compared to March 31, 2003 decreased due to fewer Partnership Preference
Units held on average, as well as to lower average distribution rates for the
Partnership Preference Units held during the quarter ended March 31, 2004.
PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the quarter ended March 31,
2005, net realized and unrealized gains on the Fund's interest rate swap
agreements totaled approximately $3.1 million, compared to net realized and
unrealized losses of approximately $7.9 million for the quarter ended March 31,
2004. Net realized and unrealized gains on swap agreements in 2005 consisted of
$4.9 million of net unrealized gains due to changes in swap agreement
valuations, offset by $1.8 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 March 31, 2004, the Fund had net
unrealized losses of $4.9 million due to swap agreement valuation changes and
$3.0 million of swap agreement periodic payments. The positive impact on Fund
performance for the quarter ended March 31, 2005 from changes in swap agreement
valuations was attributable to an increase in swap rates during the period. The
negative impact on Fund performance for the quarter ended March 31, 2004 from
changes in swap valuations was due primarily due 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 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 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, 2005, the Fund had outstanding borrowings of $494.0
million and $56.0 million of unused loan commitments under the Credit Facility.
During the quarter ended March 31, 2005, the Fund amended its loan agreement
with DrKW Holdings, Inc. to establish a borrowing limit of $450 million under
that agreement.
The Fund has entered into interest rate swap agreements with respect to a
substantial portion of its real estate investments and associated borrowings.
Pursuant to these agreements, the Fund makes periodic payments to the
counterparty at predetermined fixed rates in exchange for floating-rate payments
that fluctuate with one-month LIBOR. During the terms of the outstanding
interest rate swap agreements, changes in the underlying values of the
agreements are recorded as unrealized appreciation or depreciation. As of March
31, 2005, the unrealized appreciation related to the interest rate swap
agreements was approximately $7.2 million. As of March 31, 2004, the unrealized
depreciation related to the interest rate swap agreements was approximately $3.2
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 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 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 a substantial portion of its borrowings under the Credit Facility
used to acquire equity in 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 4 and Note 5
to the Fund's unaudited condensed consolidated financial statements in Item 1
above.
18
Interest Rate Sensitivity
Cost, Principal (Notional) Amount
by Contractual Maturity and Callable Date
for the Twelve Months Ended March 31,*
Estimated Fair
Value as of
2006 2007 2008 2009 2010 Thereafter Total March 31, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive
liabilities:
- ------------------------
Long-term debt:
- ------------------------
Fixed-rate mortgages $135,000,000 $135,000,000 $136,700,000
Average interest rate 5.67% 5.67%
- ------------------------
Variable-rate Credit
Facility $494,000,000 $494,000,000 $494,000,000
Average interest rate 3.18% 3.18%
- ------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive derivative
financial instruments:
- ------------------------
Pay fixed/receive
variable interest rate
swap agreements $378,782,000 $378,782,000 $ 7,223,690
Average pay rate 4.73% 4.73%
Average receive rate 3.17% 3.17%
- ------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive
investments:
- ------------------------
Fixed-rate Partnership
Preference Units:
- ------------------------
Camden Operating, L.P.,
7% Series B Cumulative
Redeemable Perpetual
Preferred Units,
Callable 12/2/08,
Current Yield: 7.01% $ 4,161,360 $ 4,161,360 $ 3,995,200
Colonial Realty
Limited Partnership,
7.25% Series B
Cumulative Redeemable
Perpetual Preferred
Units, Callable
8/24/09, Current
Yield: 7.17% $35,205,087 $ 35,205,087 $ 37,436,600
Essex Portfolio, L.P.,
7.875% Series D
Cumulative Redeemable
Preferred Units,
Callable 7/28/10,
Current Yield: 7.72% $ 28,232,050 $ 28,232,050 $ 28,064,630
19
Estimated Fair
Value as of
2006 2007 2008 2009 2010 Thereafter Total March 31, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Kilroy Realty, L.P.,
7.45% Series A Cumulative
Redeemable Preferred
Units, Callable 9/30/09,
Current Yield: 7.80% $43,574,145 $ 43,574,145 $ 42,524,556
Liberty Property L.P.,
7.45% Series B Cumulative
Redeemable Preferred
Units, Callable 8/31/09,
Current Yield: 7.16% $38,002,560 $ 38,002,560 $ 39,260,000
MHC Operating Limited
Partnership, 8.0625%
Series D Cumulative
Redeemable Perpetual
Preference Units,
Callable 3/24/10,
Current Yield: 7.89% $50,000,000 $ 50,000,000 $ 51,120,000
National Golf
Operating Partnership,
L.P., 11% Series A
Cumulative Redeemable
Preferred Units,
Callable 2/6/03,
Current Yield: 10.91% $31,454,184 $ 31,454,184 $ 33,299,889
National Golf
Operating Partnership,
L.P., 11% Series B
Cumulative Redeemable
Preferred Units,
Callable 2/6/03,
Current Yield: 10.91% $ 5,000,000 $ 5,000,000 $ 5,042,000
PSA Institutional
Partners, L.P., 6.40%
Series NN Cumulative
Redeemable Perpetual
Preferred Units,
Callable 3/17/10,
Current Yield: 6.64% $37,541,670 $ 37,541,670 $ 36,165,000
Regency Centers, L.P.,
7.45% Series D
Cumulative Redeemable
Preferred Units,
Callable
9/29/09, Current
Yield: 7.14% $19,310,868 $ 19,310,868 $ 18,788,400
Vornado Realty, L.P.,
7% Series D-10
Cumulative Redeemable
Preferred Units,
Callable 11/17/08,
Current Yield: $23,491,580 $ 23,491,580 $ 24,196,996
6.94%(1)
- ------------------------
Note Receivable:
- ------------------------
20
Estimated Fair
Value as of
2006 2007 2008 2009 2010 Thereafter Total March 31, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed-rate note
receivable, 8%
$ 2,070,580 $ 2,070,580 $ 2,443,396
* The amounts listed reflect the Fund's positions as of March 31, 2005. The
Fund's current positions may differ.
(1) Belair Real Estate's interest in these Partnership Preference Units is held
in whole or in part through Bel Holdings LLC.
ITEM 4. CONTROLS AND PROCEDURES.
Eaton Vance, as the Fund's manager, evaluated 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. The Fund's
disclosure controls and procedures are the controls and other procedures that
the Fund designed to ensure that it records, processes, summarizes and reports
in a timely manner the information that the Fund must disclose in reports that
it files or submits to the Securities and Exchange Commission. Based on that
evaluation, the Fund's Chief Executive Officer and Chief Financial Officer
concluded that, as of March 31, 2005, the Fund's disclosure controls and
procedures were effective. During the quarter, the Fund adopted additional
internal controls relating to its real estate investments, including the
establishment of a valuation committee to oversee the implementation of the
valuation policies relating to the Fund's real estate and other investments.
There were no other changes in the Fund's internal control over financial
reporting that occurred during the quarter ended March 31, 2005 that have
materially affected or are reasonably likely to materially affect, the Fund's
internal control over financial reporting.
As the Fund's manager, the complete and entire management, control and operation
of the Fund are vested in Eaton Vance. The Fund's 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.
Effective April 15, 2005, Eaton Vance appointed James L. O'Connor interim Chief
Financial Officer to serve during Michelle A. Green's maternity leave, which is
expected to continue for three to four months.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Although in the ordinary course of business, the Fund and its directly and
indirectly 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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
As described in the Fund's Annual Report on Form 10-K for the year ended
December 31, 2004, 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.
21
The right to redeem is available to all shareholders and all outstanding Fund
shares are eligible. During each month in the quarter ended March 31, 2005, 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
- -----------------------------------------------------------------------
January 31, 2005 46,390.421 $122.31
- -----------------------------------------------------------------------
February 28, 2005 247,777.239 $123.77
- -----------------------------------------------------------------------
March 31, 2005 120,781.840 $125.54
- -----------------------------------------------------------------------
Total 414,949.500 $124.55
- -----------------------------------------------------------------------
(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, 2005.
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:
4.1(b) Amendment No. 2 dated February 17, 2005 to the Loan and Security
Agreement between Belair Capital Fund LLC and DrKW Holdings, Inc.
31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
None.
22
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, 2005.
BELAIR CAPITAL FUND LLC
/s/ James L. O'Connor
---------------------
James L. O'Connor
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
23
EXHIBIT INDEX
-------------
4.1(b) Amendment No. 2 dated February 17, 2005 to the Loan and Security
Agreement between Belair Capital Fund LLC and DrKW Holdings, Inc.
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
24