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. 000-50258
---------
Belrose Capital Fund LLC
------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3613468
-------- ----------
(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
--- ---
BELROSE 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.........................................20
PART II OTHER INFORMATION...............................................20
Item 1. Legal Proceedings...............................................20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.....20
Item 3. Defaults Upon Senior Securities.................................21
Item 4. Submission of Matters to a Vote of Security Holders.............21
Item 5. Other Information...............................................21
Item 6. Exhibits........................................................21
SIGNATURES..................................................................22
EXHIBIT INDEX...............................................................23
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- --------------------------------------------------------------------------------
BELROSE 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) $ 1,710,328,336 $ 1,757,804,676
Investment in Partnership Preference Units 75,355,958 59,581,395
Investment in other real estate 527,614,027 498,389,878
Short-term investments 3,068,000 721,000
------------------------ -------------------
Total investments $ 2,316,366,321 $ 2,316,496,949
Cash 6,686,654 5,348,786
Escrow deposits - restricted 2,164,240 2,160,740
Open interest rate swap agreements, at value 5,310,344 556,139
Distributions and interest receivable 255 343
Other assets 7,876,546 8,505,884
------------------------ -------------------
Total assets $ 2,338,404,360 $ 2,333,068,841
------------------------ -------------------
Liabilities:
Loan payable - Credit Facility $ 270,000,000 $ 236,000,000
Mortgages payable 359,850,000 359,850,000
Payable for Fund Shares redeemed - 3,958,764
Security deposits 1,438,594 1,443,878
Swap interest payable 518,292 46,549
Accrued expenses:
Interest expense 2,178,189 2,166,072
Property taxes 1,450,902 1,188,106
Other expenses and liabilities 4,416,630 4,354,953
Minority interests in controlled subsidiaries 37,037,941 29,833,094
------------------------ -------------------
Total liabilities $ 676,890,548 $ 638,841,416
------------------------ -------------------
Net assets $ 1,661,513,812 $ 1,694,227,425
------------------------ -------------------
Shareholders' Capital $ 1,661,513,812 $ 1,694,227,425
------------------------ -------------------
Shares outstanding 16,610,209 16,604,562
------------------------ -------------------
Net asset value and redemption price per Share $ 100.03 $ 102.03
------------------------ -------------------
See notes to unaudited condensed consolidated financial statements
3
BELROSE CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Three Months
Ended Ended
March 31, 2005 March 31, 2004
----------------------- ----------------------
Investment Income:
Dividends allocated from Belvedere Company
(net of foreign taxes of $68,064 and $69,016, respectively) $ 7,066,692 $ 5,768,065
Interest allocated from Belvedere Company 51,809 27,983
Expenses allocated from Belvedere Company (2,570,773) (2,500,325)
----------------------- ----------------------
Net investment income allocated from Belvedere Company $ 4,547,728 $ 3,295,723
Rental income 15,213,128 16,210,789
Distributions from Partnership Preference Units 1,112,391 2,774,410
Interest 82,446 59,187
----------------------- ----------------------
Total investment income $ 20,955,693 $ 22,340,109
----------------------- ----------------------
Expenses:
Investment advisory and administrative fees $ 1,451,882 $ 1,407,583
Property management fees 565,923 646,527
Distribution and servicing fees 795,626 821,760
Interest expense on mortgages 6,126,770 6,579,441
Interest expense on Credit Facility 1,830,236 740,230
Property and maintenance expenses 4,965,674 4,459,360
Property taxes and insurance 2,130,282 2,030,202
Miscellaneous 608,228 152,447
----------------------- ----------------------
Total expenses $ 18,474,621 $ 16,837,550
Deduct-
Reduction of investment advisory and administrative fees 410,790 410,995
----------------------- ----------------------
Net expenses $ 18,063,831 $ 16,426,555
----------------------- ----------------------
Net investment income before minority interests in net income of
controlled subsidiaries $ 2,891,862 $ 5,913,554
Minority interests in net income of controlled subsidiaries (205,899) (473,208)
----------------------- ----------------------
Net investment income $ 2,685,963 $ 5,440,346
----------------------- ----------------------
See notes to unaudited condensed consolidated financial statements
4
BELROSE CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited) (Continued)
Three Months Three Months
Ended Ended
March 31, 2005 March 31, 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) $ (1,016,998) $ 6,066,514
Investment transactions in Partnership
Preference Units (identified cost basis) - 3,048,719
Interest rate swap agreements (1) (699,274) (995,428)
-------------------- --------------------
Net realized (loss) gain $ (1,716,272) $ 8,119,805
-------------------- --------------------
Change in unrealized appreciation (depreciation) -
Investments, securities sold short and foreign currency allocated
from Belvedere Company (identified cost basis) $ (39,817,107) $ 24,802,728
Investments in Partnership Preference Units
(identified cost basis) 774,563 (3,836,606)
Investments in other real estate (net of minority interests in
unrealized appreciation (depreciation) of controlled subsidiaries
of $6,754,025 and $(1,019,085), respectively) 21,623,959 349,224
Interest rate swap agreements 4,754,205 (4,364,327)
-------------------- --------------------
Net change in unrealized appreciation (depreciation) $ (12,664,380) $ 16,951,019
-------------------- --------------------
Net realized and unrealized (loss) gain $ (14,380,652) $ 25,070,824
-------------------- --------------------
Net (decrease) increase in net assets from operations $ (11,694,689) $ 30,511,170
==================== ====================
(1) Amounts represent periodic payments made in connection with interest rate
swap agreements (Note 5).
See notes to unaudited condensed consolidated financial statements
5
BELROSE CAPITAL FUND LLC
Condensed Consolidated Statements of Changes in Net Assets
Three Months
Ended Year Ended
March 31, 2005 December 31,
(Unaudited) 2004
--------------------- --------------------
Increase (Decrease) in Net Assets:
Net investment income $ 2,685,963 $ 17,520,056
Net realized (loss) gain from investment transactions, securities sold
short, foreign currency transactions and interest rate swap agreements (1,716,272) 37,095,580
Net change in unrealized appreciation (depreciation) of
investments, securities sold short, foreign currency and interest
rate swap agreements (12,664,380) 62,187,846
--------------------- --------------------
Net (decrease) increase in net assets from operations $ (11,694,689) $ 116,803,482
--------------------- --------------------
Transactions in Fund Shares -
Net asset value of Fund Shares issued to Shareholders in
payment of distributions declared $ 9,236,397 $ 5,415,563
Net asset value of Fund Shares redeemed (8,837,993) (47,331,125)
--------------------- --------------------
Net increase (decrease) in net assets from Fund Share transactions $ 398,404 $ (41,915,562)
--------------------- --------------------
Distributions -
Distributions to Shareholders $ (21,417,328) $ (13,115,253)
--------------------- --------------------
Total distributions $ (21,417,328) $ (13,115,253)
--------------------- --------------------
Net (decrease) increase in net assets $ (32,713,613) $ 61,772,667
Net assets:
At beginning of period $ 1,694,227,425 $ 1,632,454,758
--------------------- --------------------
At end of period $ 1,661,513,812 $ 1,694,227,425
===================== ====================
See notes to unaudited condensed consolidated financial statements
6
BELROSE CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Three Months
Ended Ended
March 31, 2005 March 31, 2004
---------------------- ---------------------
Cash Flows From (For) Operating Activities -
Net (decrease) increase in net assets from operations $ (11,694,689) $ 30,511,170
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 (4,547,728) (3,295,723)
Increase in escrow deposits (3,500) (17,507)
Decrease in other assets 629,338 683,243
Decrease in distributions and interest receivable 88 400,739
Increase in interest payable for open swap agreements 471,743 1,300
Increase in security deposits, accrued interest and accrued
other expenses and liabilities 68,510 740,084
Increase (decrease) in accrued property taxes 262,796 (209,330)
Purchases of Partnership Preference Units (15,000,000) (44,530,740)
Proceeds from sales of Partnership Preference Units - 19,568,229
Improvements to rental property (846,165) (859,875)
(Increase) decrease in short-term investments (2,347,000) 1,509,214
Interest incurred on interest rate swap agreements (699,274) (995,428)
Increase in minority interest 240,000 -
Minority interests in net income of controlled subsidiaries 205,899 473,208
Net realized loss (gain) from investment transactions, securities sold short,
foreign currency transactions and interest rate swap agreements 1,716,272 (8,119,805)
Net change in unrealized (appreciation) depreciation of investments,
securities sold short, foreign currency and interest rate swap agreements 12,664,380 (16,951,019)
---------------------- ---------------------
Net cash flows for operating activities $ (18,879,330) $ (21,092,240)
---------------------- ---------------------
Cash Flows From (For) Financing Activities -
Proceeds from Credit Facility $ 34,000,000 $ 85,000,000
Repayment of Credit Facility - (52,300,000)
Payments for Fund Shares redeemed (1,606,794) (1,608,751)
Distributions paid to minority shareholders - (16,800)
Distributions paid to Shareholders (12,180,931) (7,699,690)
Capital contributed by controlled subsidiary 4,923 -
---------------------- ---------------------
Net cash flows from financing activities $ 20,217,198 $ 23,374,759
---------------------- ---------------------
Net increase in cash $ 1,337,868 $ 2,282,519
Cash at beginning of period $ 5,348,786 $ 6,535,905
---------------------- ---------------------
Cash at end of period $ 6,686,654 $ 8,818,424
====================== =====================
See notes to unaudited condensed consolidated financial statements
7
BELROSE CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
Three Months Three Months
Ended Ended
March 31, 2005 March 31, 2004
------------------------ -----------------------
Supplemental Disclosure and Non-cash Investing and
Financing Activities -
Interest paid on loan - Credit Facility $ 1,804,366 $ 709,343
Interest paid on mortgages $ 5,999,202 $ 6,476,132
Interest paid on swap agreements $ 227,531 $ 994,128
Market value of securities distributed in payment of redemptions $ 11,189,963 $ 2,990,615
See notes to unaudited condensed consolidated financial statements
8
BELROSE 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 $ 102.030
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ---------------------------------------------------------------------------------------------------------------
Net investment income (1) $ 0.161
Net realized and unrealized loss (0.871)
- ---------------------------------------------------------------------------------------------------------------
Total loss from operations $ (0.710)
- ---------------------------------------------------------------------------------------------------------------
Distributions
- ---------------------------------------------------------------------------------------------------------------
Distributions to Shareholders $ (1.290)
- ---------------------------------------------------------------------------------------------------------------
Total distributions $ (1.290)
- ---------------------------------------------------------------------------------------------------------------
Net asset value - End of period $ 100.030
- ---------------------------------------------------------------------------------------------------------------
Total Return (2) (0.67)%
- ---------------------------------------------------------------------------------------------------------------
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) 1.19% (9) 0.89% (9)
Operating expenses (4) 1.50% (9) 1.13% (9)
Belrose Capital Fund LLC Expenses
Interest and other borrowing costs (5)(6) 0.45% (9) 0.34% (9)
Investment advisory and administrative fees, distribution
and servicing fees and other Fund operating expenses (5)(7) 1.17% (9) 0.88% (9)
----------------------- ----------------------
Total expenses 4.31% 3.24%
Net investment income 0.65% (9) 0.49% (9)
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 1,661,514
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 Belrose
Realty Corporation's (Belrose Realty) controlled subsidiaries are reduced
by the proportionate interest therein of investors other than Belrose
Realty.
(4) Includes Belrose Realty's proportional share of expenses incurred by its
controlled subsidiaries.
(5) Includes the expenses of Belrose Capital Fund LLC (Belrose Capital) and
Belrose Realty. Does not include expenses of Belrose Realty'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 Belrose 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 Belrose Capital (including Belrose Capital's interest in Belvedere
Company and Belrose 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 Belrose Realty's controlled
subsidiaries are reduced by the proportionate interests therein of
investors other than Belrose Realty.
(9) Annualized.
See notes to unaudited condensed consolidated financial statements
9
BELROSE 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 Belrose Capital Fund
LLC (Belrose 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, 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.
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 Belrose 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 7.75% 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 Fund Shares, plus any returns
thereon in excess of the fixed annual priority of the Preferred Shares. The
existence of restructured Fund Shares does not adversely affect Shareholders who
do not participate in the election nor do the restructured Fund Shares have
preferential rights to Fund Shares that have not been restructured. Shareholders
who subdivide Fund Shares under this election sacrifice certain rights and
privileges that they would otherwise have with respect to the Fund Shares so
divided, including redemption rights and voting and consent rights. Upon the
twentieth anniversary of the issuance of the associated undivided Fund Shares to
the original holders thereof, Preferred and Common Shares will automatically
convert into full and fractional undivided Fund Shares.
The allocation of Belrose Capital's net asset value per Share of $100.03 and
$102.03 as of March 31, 2005 and December 31, 2004, respectively, between
Preferred and Common shares that have been restructured is as follows:
10
Per Share Value At Per Share Value At
March 31, 2005 December 31, 2004
--------------------------------------------------------------------------------------------
Preferred Common Preferred Common
Date of Contribution Shares Shares Shares Shares
- -----------------------------------------------------------------------------------------------------------------------
February 19, 2003 $ 79.53 $ 20.50 $ 79.48 $ 22.55
- -----------------------------------------------------------------------------------------------------------------------
3 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) $ 11,189,963 $ 2,990,615
Purchases of Partnership Preference Units (1) $ 15,000,000 $ 44,530,740
Sales of Partnership Preference Units $ - $ 19,568,229
----------------------------------------------------------------------------------------------------------------
(1) Purchases of Partnership Preference Units during the three months ended
March 31, 2004 represent Partnership Preference Units purchased from other
investment funds advised by Boston Management and Research (Boston
Management). There were no Partnership Preference Units purchased from
other investment funds advised by Boston Management during the three months
ended March 31, 2005.
4 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) $ 1,710,328,336 $ 1,672,002,450
Income allocated to Belvedere Company from the Portfolio $ 52,138,985 $ 39,365,471
Income allocated to the Fund from Belvedere Company $ 7,118,501 $ 5,796,048
Expenses allocated to Belvedere Company from the Portfolio $ 14,031,081 $ 12,634,511
Expenses allocated to the Fund from Belvedere Company $ 2,570,773 $ 2,500,325
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 $ (1,016,998) $ 6,066,514
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 $ (39,817,107) $ 24,802,728
- ----------------------------------------------------------------------------- ---------------------------------------------
(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 13.6% and 14.5% of Belvedere Company's net assets, respectively.
11
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
============================================================================================================
Dividends and interest $ 77,449,217 $ 292,265,206 $ 62,101,320
- ------------------------------------------------------------------------------------------------------------
Investment adviser 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
- ------------------------------------------------------------------------------------------------------------
5 Interest Rate Swap Agreements
Belrose 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, Belrose 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.
Unrealized Unrealized
Notional Initial Appreciation Appreciation
Amount Optional Final (Depreciation) at (Depreciation) at
Effective (000's Fixed Floating Termination Termination March 31, December 31,
Date omitted) Rate Rate Date Date 2005 2004
- -----------------------------------------------------------------------------------------------------------------------------
10/03 $ 31,588 4.180% LIBOR + 0.30% 7/09 6/10 $ 1,060,210 $ 324,014
10/03 37,943 4.160% LIBOR + 0.30% 11/09 6/10 1,278,250 373,892
10/03 83,307 4.045% LIBOR + 0.30% - 6/10 3,139,784 1,104,607
06/04 40,000 4.875% LIBOR + 0.00% - 6/12 (167,900) (1,246,374)
- -----------------------------------------------------------------------------------------------------------------------------
Total $192,838 $ 5,310,344 $ 556,139
- -----------------------------------------------------------------------------------------------------------------------------
12
6 Segment Information
Belrose 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, Belrose Capital
invests in real estate assets through its subsidiary Belrose Realty. Belrose
Realty invests directly in Partnership Preference Units and indirectly in real
property through controlled subsidiaries, Bel Apartment Properties Trust,
Katahdin Property Trust LLC, Bel Communities Property Trust and Deerfield
Property Trust (for the period during which Belrose Realty maintained an
interest in each of the controlled subsidiaries).
Belrose 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 Belrose Capital on a consolidated
basis. No reportable segments have been aggregated. Reportable information by
segment is as follows:
Tax-Managed
For the Three Months Ended Growth Real
March 31, 2005 Portfolio* Estate Total
- ---------------------------------------------------------------------------------------------------------------------
Revenue $ 4,547,728 $ 16,373,091 $ 20,920,819
Interest expense on mortgages - (6,126,770) (6,126,770)
Interest expense on Credit Facility - (1,409,282) (1,409,282)
Operating expenses (333,833) (8,875,544) (9,209,377)
Minority interest in net income of controlled
subsidiaries - (205,899) (205,899)
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 4,213,895 $ (244,404) $ 3,969,491
Net realized loss (1,016,998) (699,274) (1,716,272)
Net change in unrealized (depreciation) appreciation (39,817,107) 27,152,727 (12,664,380)
- ---------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in net assets from operations
of reportable segments $(36,620,210) $ 26,209,049 $(10,411,161)
- ---------------------------------------------------------------------------------------------------------------------
Tax-Managed
For the Three Months Ended Growth Real
March 31, 2004 Portfolio* Estate Total
- ---------------------------------------------------------------------------------------------------------------------
Revenue $ 3,295,723 $ 19,021,305 $ 22,317,028
Interest expense on mortgages - (6,579,441) (6,579,441)
Interest expense on Credit Facility - (614,391) (614,391)
Operating expenses (301,807) (7,925,863) (8,227,670)
Minority interest in net income of controlled
subsidiaries - (473,208) (473,208)
- ---------------------------------------------------------------------------------------------------------------------
Net investment income $ 2,993,916 $ 3,428,402 $ 6,422,318
Net realized gain 6,066,514 2,053,291 8,119,805
Net change in unrealized appreciation (depreciation) 24,802,728 (7,851,709) 16,951,019
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations
of reportable segments $ 33,863,158 $ (2,370,016) $ 31,493,142
- --------------------------------------------------------------------------------------------------------------------
13
Tax-Managed Growth Real
At March 31, 2005 Portfolio* Estate Total
- ------------------------------------------------------------------------------------------------------------------
Segment assets $ 1,710,328,336 $ 624,323,469 $ 2,334,651,805
Segment liabilities - 612,173,873 612,173,873
- ------------------------------------------------------------------------------------------------------------------
Net assets of reportable segments $ 1,710,328,336 $ 12,149,596 $ 1,722,477,932
- ------------------------------------------------------------------------------------------------------------------
At December 31, 2004
- ------------------------------------------------------------------------------------------------------------------
Segment assets $ 1,757,804,676 $ 574,172,316 $ 2,331,976,992
Segment liabilities 3,958,764 589,131,572 593,090,336
- ------------------------------------------------------------------------------------------------------------------
Net assets (liabilities) of reportable segments $ 1,753,845,912 $ (14,959,256) $ 1,738,886,656
- ------------------------------------------------------------------------------------------------------------------
* Belrose Capital invests indirectly in Tax-Managed Growth Portfolio through
Belvedere Company.
The following tables reconcile the reported segment information to the condensed
consolidated financial statements for the periods indicated:
Three Months Three Months
Ended Ended
March 31, 2005 March 31, 2004
----------------------- ---------------------
Revenue:
Revenue from reportable segments $ 20,920,819 $ 22,317,028
Unallocated amounts:
Interest earned on cash not invested in the Portfolio or in
subsidiaries 34,874 23,081
----------------------- ---------------------
Total revenue $ 20,955,693 $ 22,340,109
----------------------- ---------------------
Net increase (decrease) in net assets from operations:
Net (decrease) increase in net assets from operations of reportable
segments $ (10,411,161) $ 31,493,142
Unallocated investment income:
Interest earned on cash not invested in the Portfolio or in
subsidiaries 34,874 23,081
Unallocated expenses (1):
Distribution and servicing fees (795,626) (821,760)
Interest expense on Credit Facility (420,954) (125,839)
Audit, tax and legal fees (81,369) (36,773)
Other operating expenses (20,453) (20,681)
----------------------- ---------------------
Total net (decrease) increase in net assets from operations $ (11,694,689) $ 30,511,170
----------------------- ---------------------
(1) Unallocated expenses represent costs incurred that pertain to the overall
operation of Belrose Capital, and do not pertain to either operating
segment.
March 31, 2005 December 31, 2004
-------------------- ----------------------
Net assets:
Net assets of reportable segments $ 1,722,477,932 $ 1,738,886,656
Unallocated amounts:
Cash (1) 684,555 370,849
Short-term investments (1) 3,068,000 721,000
Loan payable - Credit Facility (2) (64,508,412) (45,508,412)
Other liabilities (208,263) (242,668)
-------------------- ----------------------
Total net assets $ 1,661,513,812 $ 1,694,227,425
-------------------- ----------------------
(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 Belrose 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 Belrose Realty Corporation (Belrose
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 Belrose Realty'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 Belrose 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 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, distribution and
servicing fees, interest expense from mortgages on properties owned by Belrose
Realty's controlled subsidiaries, interest expense on the Fund's Credit Facility
(as described in Item 2(b) below), property management fees, property taxes,
insurance, maintenance and other expenses relating to the properties owned by
Belrose 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 Belrose 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 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
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
(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
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 port ion 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 -0.67% for the quarter ended March 31, 2005. This
return reflects a decrease in the Fund's net asset value per share from $102.03
to $100.03 and a distribution of $1.29 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 1.31% during the
period. Last year, the Fund had a total return performance of 1.89% for the
quarter ended March 31, 2004 . This return reflected an increase in the Fund's
net asset value per share from $95.84 to $96.87 and a distribution of $0.77 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 0.23% during th at 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 Belrose Realty. As of March 31, 2005, real estate investments
included three real estate joint ventures (the Real Estate Joint Ventures), Bel
Communities Property Trust (Bel Communities), Deerfield Property Trust
(Deerfield) and Katahdin Property Trust, LLC (Katahdin), and a portfolio of
Partnership Preference Units. Bel Communities and Katahdin own multifamily
properties and Deerfield owns industrial distribution properties. As of March
31, 2005, the estimated fair value of the Fund's real estate investments
represented 25.8% 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 29.8% 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 $15.2 million compared to approximately $16.2
million for the quarter ended March 31, 2004, a decrease of $1.0 million or 6%.
This decrease in rental income was due to the fact that rental revenues of the
properties owned by Deerfield during the quarter ended March 31, 2005 were less
than the rental revenues of the multifamily properties owned by Bel Apartment
Properties Trust (Bel Apartment) during the quarter ended March 31, 2004.
Belrose Realty sold its interest in Bel Apartment in November 2004. During the
quarter ended March 31, 2004, rental income decreased due to reduced apartment
rental rates, increased rent concessions and lower occupancy levels at
properties owned by Bel Apartment, Bel Communities and Katahdin.
During the quarter ended March 31, 2005, property operating expenses were
approximately $7.7 million compared to approximately $7.1 million for the
quarter ended March 31, 2004, an increase of $0.6 million or 8% (property
operating expenses are before certain operating expenses of Belrose Realty of
approximately $1.2 million for the quarter ended March 31, 2005 and $0.8 million
16
for the quarter ended March 31, 2004). The increase in property operating
expenses was principally due to repair costs during the quarter ended March 31,
2005 related to hurricane damage in 2004 at certain Florida multifamily
properties owned by Katahdin. The increase was partially offset by the fact that
property operating expenses of the properties owned by Deerfield during the
quarter ended March 31, 2005 were less than operating expenses of the
multifamily properties owned by Bel Apartment during the quarter ended March 31,
2004. Property operating expenses for the quarter ended March 31, 2004 were
substantially unchanged from the quarter ended March 31, 2003.
The recent pick-up in economic and employment growth is expected to lead to
improved supply-demand balance in the apartment industry. However, oversupply
conditions continue to exist in many major markets. Boston Management and
Research (Boston Management), Belrose Realty's manager, expects that multifamily
real estate operating results for 2005 will be similar to 2004, but that
improvements in multifamily property operating performance will occur over the
longer term. 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 Belrose Realty was approximately $526.1 million compared to
approximately $473.7 million at March 31, 2004, a net increase of $52.4 million,
or 11%. The net increase in estimated real property values at March 31, 2005 as
compared to March 31, 2004 resulted principally from the acquisition of an
interest in Deerfield in the third quarter of 2004 and increases in multifamily
property values at Bel Communities and Katahdin. This increase was offset in
part by Belrose Realty's sale of its interest in Bel Apartment in November 2004.
The modest increase in estimated real property values at March 31, 2004 resulted
from lower capitalization rates in a lower-return environment, 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 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 the Real Estate Joint Ventures) of approximately $21.6 million
compared to unrealized appreciation of approximately $0.3 million during the
quarter ended March 31, 2004. Net unrealized appreciation of approximately $21.6
million during the quarter ended March 31, 2005 was due principally to net
increases in the estimated fair values of the properties in two of Belrose
Realty's three Real Estate Joint Ventures, offset slightly by modest net
decreases in estimated fair values of the properties in the third Real Estate
Joint Venture. The net increases in estimated property values reflected the
results of updated independent appraisals of a portion of the properties in each
Real Estate Joint Venture and, for Katahdin, increases in the estimated value of
other properties that were not recently re-appraised to reflect current
appraisal results for similar properties, in accordance with the Fund's
valuation procedures. The increases resulted primarily from lower discount and
capitalization rates applied in valuing the properties.
During the quarter ended March 31, 2005, Belrose Realty acquired interests in
additional Partnership Preference Units for a total of $15.0 million. At March
31, 2005, the estimated fair value of Belrose Realty's Partnership Preference
Units totaled approximately $75.4 million compared to approximately $80.9
million at March 31, 2004, a net decrease of $5.5 million or 7%. The net
decrease in value was principally due to the lower per unit values of
Partnership Preference Units held at March 31, 2005 as compared to March 31,
2004. Partnership Preference Units increased in value at March 31, 2004 as
compared to March 31, 2003 primarily due to the increase in the number of
Partnership Preference Units held. In the current low interest rate environment,
issuers have been redeeming Partnership Preference Units as Belrose Realty's
call protections expire or restructuring the terms of outstanding Partnership
Preference Units in advance of their call dates. As a result, many of the
higher-yielding Partnership Preference Units held by Belrose Realty during the
quarter ended March 31, 2004 were no longer held at March 31, 2005.
During the quarter ended March 31, 2005, the Fund saw net unrealized
appreciation in the estimated fair value of its Partnership Preference Units of
approximately $0.8 million compared to net unrealized depreciation of
approximately $3.8 million during the quarter ended March 31, 2004. The net
unrealized appreciation of approximately $0.8 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 Belrose Realty at March 31, 2005. The net
unrealized depreciation in the first quarter of 2004 of $3.8 million consisted
of approximately $1.4 million of unrealized depreciation as a result of
decreases in per unit values of the Partnership Preference Units held by Belrose
17
Realty at March 31, 2004 and approximately $2.4 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 $1.1 million compared to approximately $2.8 million
for the quarter ended March 31, 2004, a decrease of $1.7 million or 61%. The
decrease was principally due to lower average distribution rates. Distributions
from Partnership Preference Units for the quarter ended March 31, 2004 compared
to March 31, 2003 increased due to the larger number of 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 $4.1 million, compared to net realized and
unrealized losses of $5.4 million for the quarter ended March 31, 2004. Net
realized and unrealized gains on swap agreements for the quarter ended March 31,
2005 consisted of $4.8 million of net unrealized gains due to changes in swap
agreement valuations, offset in part by $0.7 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 $4.4 million due to swap agreement valuation
changes and $1.0 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 from changes in swap
agreement valuations for the quarter ended March 31, 2004 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 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 $270.0
million and $2.2 million of unused loan commitments under the Credit Facility.
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 and three 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 $5.3 million. As of March 31, 2004, the unrealized
depreciation related to the interest rate swap agreements was approximately $2.9
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 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 and three
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.
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
2006-2009 2010 Thereafter Total March 31, 2005
- ------------------------------------------------------------------------------------------------------------
Rate sensitive
liabilities:
- ------------------------
Long-term debt:
- ------------------------
Fixed-rate mortgages $359,850,000 $359,850,000 $382,700,000
Average interest rate 6.67% 6.67%
- ------------------------
Variable-rate Credit
Facility $270,000,000 $270,000,000 $270,000,000
Average interest rate 3.19% 3.19%
- ------------------------------------------------------------------------------------------------------------
Rate sensitive derivative
financial instruments:
- ------------------------
Pay fixed/receive
variable interest rate
swap agreements $192,838,000 $192,838,000 $ 5,310,344
Average pay rate 4.26% 4.26%
Average receive rate 3.16% 3.16%
- ------------------------------------------------------------------------------------------------------------
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: 7.73% $11,370,510 $ 11,370,510 $ 11,463,008
Essex Portfolio, L.P.,
7.875% Series D
Cumulative Redeemable
Preferred Units,
Callable 7/28/10,
Current Yield: 7.72% $ 12,642,150 $ 12,642,150 $ 12,756,650
Liberty Property L.P.,
7.45% Series B Cumulative
Redeemable Preferred
Units, Callable 8/31/09,
Current Yield: 7.16% $18,130,840 $ 18,130,840 $ 18,200,000
MHC Operating Limited
Partnership, 8.0625%
Series D Cumulative
Redeemable Perpetual
Preference Units,
Callable 3/24/10,
Current Yield: 7.89% $15,000,000 $ 15,000,000 $ 15,336,000
PSA Institutional
Partners, L.P., 6.40%
Series NN Cumulative
Redeemable Perpetual
Preferred Units,
Callable 3/17/10,
Current Yield: 6.64% $17,727,904 $ 17,727,904 $ 17,600,300
* The amounts listed reflect the Fund's positions as of March 31, 2005. The
Fund's current positions may differ.
19
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 (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 Annual
Report on Form 10-K for the fiscal year ending December 31, 2004). 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 31,119.319 $99.45
- -------------------------------------------------------------------
February 28, 2005 - -
- -------------------------------------------------------------------
March 31, 2005 57,782.845 $98.84
- -------------------------------------------------------------------
Total 88,901.164 $98.95
- -------------------------------------------------------------------
(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.
20
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:
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.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officer on May 10, 2005.
BELROSE CAPITAL FUND LLC
/s/ James L. O'Connor
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James L. O'Connor
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
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EXHIBIT INDEX
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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
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