BELCREST CAPITAL FUND LLC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the quarterly period ended June 30, 2004
-------------

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from _________ to _____________

Commission File No. 000-30509
---------

Belcrest Capital Fund LLC
-------------------------
(Exact name of registrant as specified in its charter)

Massachusetts 04-3453080
------------- ----------
(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 [ ]

\

BELCREST CAPITAL FUND LLC
Index to Form 10-Q

PART I FINANCIAL INFORMATION Page

Item 1. Condensed Consolidated Financial Statements 3

Condensed Consolidated Statements of Assets and Liabilities
as of June 30, 2004 (Unaudited) and December 31, 2003 3

Condensed Consolidated Statements of Operations (Unaudited)
for the Three Months Ended June 30, 2004 and 2003 and for
the Six Months Ended June 30, 2004 and 2003 4

Condensed Consolidated Statements of Changes in Net Assets
for the Six Months Ended June 30, 2004 (Unaudited) and the
Year Ended December 31, 2003 6

Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended June 30, 2004 and 2003 7

Financial Highlights (Unaudited) for the Six Months Ended
June 30, 2004 9

Notes to Condensed Consolidated Financial Statements as of
June 30, 2004 (Unaudited) 10

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18

Item 3. Quantitative and Qualitative Disclosures About Market Risk 24

Item 4. Controls and Procedures 27

PART II OTHER INFORMATION

Item 1. Legal Proceedings 27

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities 27

Item 3. Defaults Upon Senior Securities 28

Item 4. Submission of Matters to a Vote of Security Holders 28

Item 5. Other Information 28

Item 6. Exhibits and Reports on Form 8-K 28

SIGNATURES 29

EXHIBIT INDEX 30

2

PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
- --------------------------------------------------------------------------------

BELCREST CAPITAL FUND LLC
Condensed Consolidated Statements of Assets and Liabilities

June 30, 2004 December 31,
(Unaudited) 2003
------------- ------------
Assets:
Investment in Belvedere Capital Fund
Company LLC (Belvedere Company) $2,791,311,368 $2,801,412,510
Investment in Partnership Preference Units 490,352,610 458,160,352
Investment in other real estate 505,901,007 613,004,358
Short-term investments 14,816,000 48,059,348
-------------- --------------
Total investments $3,802,380,985 $3,920,636,568
Cash 3,335,486 5,842,185
Escrow deposits - restricted 7,406,374 10,925,963
Open interest rate swap agreements, at value 11,003,861 3,006,128
Distributions and interest receivable 1,554,495 676,240
Other assets 5,022,416 7,425,731
-------------- --------------
Total assets $3,830,703,617 $3,948,512,815
-------------- --------------

Liabilities:
Loan payable - Credit Facility $ 690,000,000 $ 652,000,000
Mortgages payable 396,103,507 513,988,494
Payable for Fund Shares redeemed 4,100,000 -
Distributions payable to minority shareholders - 16,800
Special Distributions payable - 1,059
Security deposits 1,883,189 2,017,195
Due to bank - cash overdraft - 6,723,986
Swap interest payable 387,459 397,212
Accrued expenses:
Interest expense 2,890,598 3,552,170
Property taxes 4,325,918 8,998,462
Other expenses and liabilities 6,075,713 8,629,435
Minority interests in controlled subsidiaries 10,218,086 23,003,410
-------------- --------------
Total liabilities $1,115,984,470 $1,219,328,223
-------------- --------------

Net assets $2,714,719,147 $2,729,184,592

-------------- --------------
Shareholders' Capital $2,714,719,147 $2,729,184,592
-------------- --------------

Shares outstanding 25,037,939 26,024,771
-------------- --------------

Net asset value and redemption price per Share $ 108.42 $ 104.87
-------------- --------------

See notes to unaudited condensed consolidated financial statements

3

BELCREST CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited)

Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- -------------

Investment Income:
Dividends allocated from Belvedere Company
(net of foreign taxes of $232,683, $164,063,
$349,131 and $270,464, respectively) $ 10,672,509 $ 9,017,540 $ 20,436,957 $ 17,754,326
Interest allocated from Belvedere Company 32,147 270,744 79,566 445,125
Expenses allocated from Belvedere Company (4,147,327) (3,779,091) (8,383,203) (7,344,086)
------------- ------------- ------------- -------------
Net investment income allocated from
Belvedere Company $ 6,557,329 $ 5,509,193 $ 12,133,320 $ 10,855,365
Distributions from Partnership Preference Units 11,426,255 13,761,364 24,935,907 27,582,996
Rental income 21,305,123 27,829,915 45,896,352 56,085,153
Interest 210,314 102,235 398,723 232,712
------------- ------------- ------------- -------------
Total investment income $ 39,499,021 $ 47,202,707 $ 83,364,302 $ 94,756,226
------------- ------------- ------------- -------------

Expenses:
Investment advisory and administrative fees $ 2,576,359 $ 2,543,883 $ 5,205,572 $ 5,076,036
Property management fees 793,189 1,047,140 1,732,562 2,130,116
Distribution and servicing fees 970,114 841,720 1,972,715 1,630,669
Interest expense on mortgages 8,297,581 10,460,223 17,942,775 20,808,729
Interest expense on Credit Facility 2,584,072 3,358,045 5,056,824 6,980,072
Property and maintenance expenses 8,042,515 9,803,574 17,334,642 18,793,406
Property taxes and insurance 3,016,817 3,966,456 6,335,757 7,820,492
Miscellaneous 377,876 445,721 699,179 732,781
------------- ------------- ------------- -------------
Total expenses $ 26,658,523 $ 32,466,762 $ 56,280,026 $ 63,972,301
Deduct-
Reduction of investment advisory
and administrative fees 672,247 591,171 1,355,445 1,138,016
------------- ------------- ------------- -------------
Net expenses $ 25,986,276 $ 31,875,591 $ 54,924,581 $ 62,834,285
------------- ------------- ------------- -------------
Net investment income before
minority interests in net income of
controlled subsidiaries $ 13,512,745 $ 15,327,116 $ 28,439,721 $ 31,921,941
Minority interests in net income (loss)
of controlled subsidiaries 120,908 (593,558) (124,797) (1,550,963)
------------- ------------- ------------- -------------
Net investment income $ 13,633,653 $ 14,733,558 $ 28,314,924 $ 30,370,978
------------- ------------- ------------- -------------

See notes to unaudited condensed consolidated financial statements

4

BELCREST CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited) (Continued)

Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- -------------

Realized and Unrealized Gain (Loss)
Net realized gain (loss) -
Investment transactions and foreign currency
transactions allocated from Belvedere Company
(identified cost basis) $ 10,588,185 $ 5,373,336 $ 20,886,828 $ (5,079,542)
Investment transactions in Partnership Preference
Units (identified cost basis) (1,819,877) - (725,501) 624,980
Investment transactions in other real estate - - (14,221,385) -
Interest rate swap agreements(1) (5,207,455) (12,211,185) (10,136,122) (24,501,680)
------------- ------------- ------------- -------------
Net realized gain (loss) $ 3,560,853 $ (6,837,849) $ (4,196,180) $(28,956,242)
------------- ------------- ------------- -------------

Change in unrealized appreciation (depreciation) -
Investments and foreign currency allocated from
Belvedere Company (identified cost basis) $ 18,087,307 $296,363,723 $ 60,936,323 $188,870,533
Investments in Partnership Preference Units
(identified cost basis) (8,932,756) 3,194,118 (15,871,280) 35,982,841
Investments in other real estate (net of minority
interests in unrealized gain (loss) of
controlled subsidiaries of $(15,860,162),
$(74,162), $(9,734,526) and $(4,241,305),
respectively) 13,303,926 (287,912) 24,388,223 (24,892,309)
Interest rate swap agreements 16,690,969 10,312,089 7,997,733 19,247,142
------------- ------------- ------------- -------------
Net change in unrealized appreciation (depreciation) $ 39,149,446 $309,582,018 $ 77,450,999 $ 219,208,207
------------- ------------- ------------- -------------

Net realized and unrealized gain $ 42,710,299 $302,744,169 $ 73,254,819 $ 190,251,965
------------- ------------- ------------- -------------

Net increase in net assets
from operations $ 56,343,952 $317,477,727 $101,569,743 $ 220,622,943
============= ============= ============= =============

(1) Amount represents periodic payments made in connection with interest rate
swap agreements. (Note 4)

See notes to unaudited condensed consolidated financial statements

5

BELCREST CAPITAL FUND LLC
Condensed Consolidated Statements of Changes in Net Assets

Six Months
Ended Year Ended
June 30, 2004 December 31,
(Unaudited) 2003
--------------- ---------------
Increase (Decrease) in Net Assets:
Net investment income $ 28,314,924 $ 56,327,694
Net realized loss from investment transactions,
foreign currency transactions and interest
rate swap agreements (4,196,180) (36,317,202)
Net change in unrealized appreciation
(depreciation) of investments, foreign
currency and interest rate swap agreements 77,450,999 575,006,241
--------------- ---------------
Net increase in net assets from operations $ 101,569,743 $ 595,016,733
--------------- ---------------

Transactions in Fund Shares -
Net asset value of Fund Shares issued to
Shareholders in payment of distributions
declared $ 4,033,847 $ 4,796,611
Net asset value of Fund Shares redeemed (109,930,473) (158,225,543)
--------------- ---------------
Net decrease in net assets from Fund Share
transactions $ (105,896,626) $ (153,428,932)
--------------- ---------------

Distributions -
Distributions to Shareholders $ (10,138,562) $ (11,893,682)
Special Distributions to Shareholders - (1,059)
--------------- ---------------
Total distributions $ (10,138,562) $ (11,894,741)
--------------- ---------------

Net (decrease) increase in net assets $ (14,465,445) $ 429,693,060

Net assets:
At beginning of period $2,729,184,592 $2,299,491,532
--------------- ---------------
At end of period $2,714,719,147 $2,729,184,592
=============== ===============

See notes to unaudited condensed consolidated financial statements

6

BELCREST CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)

Six Months Six Months
Ended Ended
June 30, 2004 June 30, 2003
-------------- --------------

Cash Flows From (For) Operating Activities -
Net increase in net assets from operations $ 101,569,743 $ 220,622,943
Adjustments to reconcile net increase in net assets from
operations to net cash flows (for) from operating activities -
Net investment income allocated from Belvedere Company (12,133,320) (10,855,365)
Decrease in escrow deposits 1,597,988 1,437,150
Decrease in receivable for investments sold - 73,554,369
Increase in interest receivable from other real estate investments (141,312) (105,359)
Decrease in other assets 1,947,737 1,022,858
(Increase) decrease in distributions and interest receivable (878,255) 1,815,781
Decrease in interest payable for open swap agreements (9,753) (393,375)
Increase in security deposits, accrued interest and accrued
other expenses and liabilities 511,833 1,452,320
Decrease in due to bank - cash overdraft (6,723,986) -
Decrease in accrued property taxes (4,427,497) (3,325,726)
Purchases of Partnership Preference Units (139,065,289) -
Proceeds from sales of Partnership Preference Units 90,276,250 -
Payments for investments in other real estate (39,182,672) -
Proceeds from sale of investment in other real estate 28,699,431 -
Improvements to rental property (2,161,810) (2,292,729)
Decrease in cash due to sale of majority interest in
controlled subsidiary (983,616) -
Net increase in investment in Belvedere Company - (23,700,000)
Interest incurred on interest rate swap agreements (10,136,122) (24,501,680)
Decrease in short-term investments 33,243,348 1,016,852
Minority interests in net income of controlled subsidiaries 124,797 1,550,963
Net realized loss from investment transactions 4,196,180 28,956,242
Net change in unrealized (appreciation) depreciation of
investments (77,450,999) (219,208,207)
-------------- --------------
Net cash flows (for) from operating activities $ (31,127,324) $ 47,047,037
-------------- --------------

Cash Flows From (For) Financing Activities -
Proceeds from (Repayment of) Credit Facility $ 38,000,000 $ (37,200,000)
Repayments on mortgages (2,597,977) (2,289,183)
Payments for Fund Shares redeemed (1,772,860) (1,400,326)
Distributions paid to Shareholders (6,105,774) (7,097,071)
Distributions paid to minority shareholders (16,800) -
Capital contributed to controlled subsidiaries 1,114,036 -
-------------- --------------
Net cash flows from (for) financing activities $ 28,620,625 $ (47,986,580)
-------------- --------------

Net decrease in cash $ (2,506,699) $ (939,543)

Cash at beginning of period $ 5,842,185 $ 12,216,034
-------------- --------------
Cash at end of period $ 3,335,486 $ 11,276,491
============== ==============

See notes to unaudited condensed consolidated financial statements

7

BELCREST CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)

Six Months Six Months
Ended Ended
June 30, 2004 June 30, 2003
-------------- --------------

Supplemental Disclosure and Non-cash Investing and
Financing Activities -
Interest paid on loan - Credit Facility $ 4,968,301 $ 6,954,019
Interest paid on mortgages $ 18,378,973 $ 20,539,336
Interest paid on swap agreements $ 10,145,875 $ 24,895,055
Market value of securities distributed in payment of
redemptions $ 104,057,613 $ 56,798,118
Market value of real property and other assets, net
of current liabilities, assumed in conjunction with
acquisition of other real estate investment $ 48,978,340 $ -
Market value of real property and other assets, net
of current liabilities, disposed of in conjunction with
sale of other real estate $ 155,855,342 $ -
Mortgage disposed of in conjunction with sale of other
real estate $ 120,901,649 $ -
Partnership Preference Units exchanged for an equity investment
in real estate companies and an investment in note receivable $ - $ (6,440,043)
Market value of an equity investment in real estate companies $ - $ 3,087,607
Investment in note receivable $ - $ 3,352,436

See notes to unaudited condensed consolidated financial statements

8

BELCREST CAPITAL FUND LLC as of June 30, 2004
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FINANCIAL HIGHLIGHTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2004
- --------------------------------------------------------------------------------
Net asset value - Beginning of period $ 104.870
- --------------------------------------------------------------------------------

INCOME (LOSS) FROM OPERATIONS
- --------------------------------------------------------------------------------
Net investment income(6) , $ 1.106
Net realized and unrealized gain 2.834
- --------------------------------------------------------------------------------
Total income from operations $ 3.940
- --------------------------------------------------------------------------------

DISTRIBUTIONS
- --------------------------------------------------------------------------------
Distributions to Shareholders $ (0.390)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (0.390)
- --------------------------------------------------------------------------------

NET ASSET VALUE - END OF PERIOD $ 108.420
- --------------------------------------------------------------------------------

TOTAL RETURN(1) 3.77%
- --------------------------------------------------------------------------------

As a Percentage As a Percentage
of Average Net of Average Gross
RATIOS Assets(5) Assets (2)(5)
- --------------------------------------------------------------------------------
Expenses of Consolidated Real Property
Subsidiaries
Interest and other borrowing costs(7) 1.30%(9) 0.94%(9)
Operating expenses(7) 1.87%(9) 1.35%(9)
Belcrest Capital Fund LLC Expenses
Interest and other borrowing costs(4)(8) 0.37%(9) 0.27%(9)
Investment advisory and administrative fees,
servicing fees and other Fund operating
expenses(3)(4) 1.08%(9) 0.78%(9)
---------------------------------
Total expenses 4.62%(9) 3.34%(9)

Net investment income 2.09%(9) 1.51%(9)
- --------------------------------------------------------------------------------

SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 2,714,719
Portfolio turnover of Tax-Managed Growth Portfolio (the Portfolio) 1.73%
- --------------------------------------------------------------------------------
(1) Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. Total return is not computed on an
annualized basis.
(2) Average Gross Assets is defined as the average daily amount of all assets
of Belcrest Capital Fund LLC (Belcrest Capital) (not including its
investment in Belcrest Realty Corporation (Belcrest Realty)) plus all
assets of Belcrest Realty minus the sum of each entity's liabilities other
than the principal amount of money borrowed. For this purpose, the assets
and liabilities of Belcrest Realty's controlled subsidiaries are reduced by
the proportionate interests therein of investors other than Belcrest
Realty.
(3) Includes Belcrest Capital's share of Belvedere Capital Fund Company LLC's
allocated expenses, including those expenses allocated from the Portfolio.
(4) Includes the expenses of Belcrest Capital and Belcrest Realty. Does not
include expenses of the real estate subsidiaries majority-owned by Belcrest
Realty.
(5) For the purpose of calculating ratios, the income and expenses of Belcrest
Realty's controlled subsidiaries are reduced by the proportionate interests
therein of investors other than Belcrest Realty.
(6) Calculated using average shares outstanding.
(7) Includes Belcrest Realty's proportional shares of expenses incurred by its
majority-owned subsidiaries.
(8) Ratios do not include interest incurred in connection with interest rate
swap agreements. Had such amounts been included, ratios would be higher.
(9) Annualized.

See notes to unaudited condensed consolidated financial statements

9

BELCREST CAPITAL FUND LLC as of June 30, 2004
Notes to Condensed Consolidated Financial Statements (Unaudited)

1 Organization and Basis of Presentation

The condensed consolidated interim financial statements of Belcrest Capital Fund
LLC (Belcrest Capital) and its subsidiaries (collectively, the Fund) have been
prepared, without audit, in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted as permitted by such rules and regulations. All adjustments, consisting
of normal recurring adjustments, have been included. Management believes that
the disclosures are adequate to present fairly the financial position, results
of operations, cash flows and financial highlights as of the dates and for the
periods presented. It is suggested that these interim financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Fund's latest annual report on Form 10-K. Results for interim periods are
not necessarily indicative of those to be expected for the full fiscal year.

The balance sheet at December 31, 2003 and the statement of changes in net
assets for the year then ended have been derived from the December 31, 2003
audited financial statements but do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements as permitted by the
instructions to Form 10-Q and Article 10 of Regulation S-X.

Certain amounts in the prior periods' condensed consolidated financial
statements have been reclassified to conform with the current period
presentation.

During the quarter ended June 30, 2004, Belcrest Realty Corporation (Belcrest
Realty) made an indirect investment in real property through a newly established
controlled subsidiary, Allagash Property Trust (Allagash), as described below.
The consolidated financial statements include the accounts of Allagash and all
material intercompany accounts and transactions have been eliminated.

SUBSIDIARY-

Allagash - On May 3, 2004, Belcrest Realty entered into an agreement to
establish and acquire a majority interest in a controlled subsidiary, Allagash.
On June 30, 2004 , Allagash acquired a majority interest in five industrial
properties located in three states (California, Florida and North Carolina). On
August 4, 2004, Allagash acquired an additional sixteen industrial properties
located in six states (Florida, New York, New Jersey, Ohio, Pennsylvania and
South Carolina). Belcrest Realty owns 100% of the Class A Units of Allagash,
representing 60% of the voting interests in Allagash and a minority shareholder
(the Allagash Minority Shareholder) owns 100% of the Class B units, representing
40% of the voting interests in Allagash. The Class B equity interest is recorded
as a minority interest on the Consolidated Statements of Assets and Liabilities.
The primary distinctions between the two classes of shares are the distribution
priority and voting rights. Belcrest Realty has priority in distributions and
has greater voting rights than the holder of the Class B units. From and after
August 4, 2012, either Belcrest Realty or the Allagash Minority Shareholder may
cause a liquidation of Allagash and, if Belcrest Realty makes that election, the
Allagash Minority Shareholder has the right either to purchase the shares of
Allagash owned by Belcrest Realty or to acquire the assets of Allagash, in
either case at a price determined through an appraisal of the assets.

10

2 Investment Transactions

The following table summarizes the Fund's investment transactions for the six
months ended June 30, 2004 and June 30, 2003:

Six Months Ended Six Months Ended
Investment Transaction June 30, 2004 June 30, 2003
- --------------------------------------------------------------------------------
Increases in investment in Belvedere Company $ - $ 23,700,000
Decreases in investment in Belvedere Company $104,057,613 $ 56,798,118
Acquisition of other real property(1) $ 39,182,672 $ -
Sales of other real property(2) $ 28,699,431 $ -
Purchases of Partnership Preference Units(3) $139,065,289 $ -
Sales of Partnership Preference Units(4) $ 90,276,250 $ -

(1) On June 30, 2004, Belcrest Realty purchased an indirect investment in real
property through a controlled subsidiary, Allagash, as described below. At
the date of the transaction, the value of Belcrest Realty's interest in its
real property investment in Allagash was $39,192,344.
(2) During the six months ended June 30, 2004, Belcrest Realty sold its
majority interest in Casco Property Trust, LLC (Casco) to another
investment fund advised by Boston Management and Research (Boston
Management), for which a loss of $14,221,385 was recognized.
(3) Purchases of Partnership Preference Units during the six months ended June
30, 2004 represent Partnership Preference Units purchased from other
investment funds advised by Boston Management. There were no purchases for
the six months ended June 30, 2003.
(4) Sales of Partnership Preference Units for the six months ended June 30,
2004 include Partnership Preference Units sold to other investment funds
advised by Boston Management for which a loss of $1,660,672 was recognized.
There were no sales for the six months ended June 30, 2003.

On May 3, 2004, Belcrest Realty entered into an agreement to establish and
acquire a majority interest in a controlled subsidiary, Allagash. On June 30,
2004, Allagash acquired a majority interest in five separate industrial
properties. The seller retained a minority interest in the properties and an
affiliate of the Allagash Minority Shareholder manages the properties. When
Allagash acquired the real estate investment, a portion of the real estate's
purchase price was allocated to the estimated fair value of favorable in-place
leases in accordance with Statement of Financial Accounting Standards 141. At
June 30, 2004, the real estate investment balance includes the estimated fair
value of net in-place leases totaling $391,274 at acquisition. The properties
are leased under fixed-term operating leases on a long-term basis. At June 30,
2004, the minimum lease payments expected to be received by Allagash on leases
with lease periods greater than one year are as follows:

Twelve Months Ending June 30, Amount
------------------------------------------------------
2005 $ 3,893,115
2006 3,530,899
2007 2,098,175
2008 1,608,795
2009 1,208,628
Thereafter 2,411,312
-----------
$14,750,924
===========

On August 4, 2004, the Fund made an additional investment in Allagash of
$380,489,883. Allagash concurrently acquired a majority interest in an
additional sixteen industrial properties. An affiliate of the Allagash Minority
Shareholder manages the properties. All of the Allagash properties are leased
under fixed-term operating leases on a long-term basis.

11

In May 2004, Bel Alliance Properties, LLC (Bel Alliance), a controlled
subsidiary of Belcrest Realty, agreed to sell all of its multifamily residential
properties to an affiliate of the Bel Alliance minority shareholder (Affiliate).
According to the agreement, Bel Alliance is expected to receive net proceeds of
$51,278,004 as consideration for all of its interest in the multifamily
properties and expects not to retain any contingent liabilities associated with
the mortgage debt secured by the properties or other liabilities. Concurrent
with this sale, Belcrest Realty has agreed to buy the outstanding minority
interest in Bel Alliance for a nominal amount. Although there is no assurance
that the transaction will be consummated, the transaction is expected to close
by the end of September 2004. The Fund had an increase in net unrealized
appreciation of $14,240,859 for the quarter ended June 30, 2004 as a result of
the terms of the agreement.

During the six months ended June 30, 2003, the Fund exchanged Partnership
Preference Units in the amount of $6,440,043 for an equity investment in two
private real estate companies affiliated with the issuer of such formerly held
Partnership Preference Units and a note receivable in the amounts of $3,087,607
and $3,352,436, respectively. The secured note receivable (valued at $3,735,199
as of June 30, 2004 and $3,457,794 as of June 30, 2003) earns interest of 8% per
annum and matures in February 2013 or on demand.

3 Indirect Investment in the Portfolio

The following table summarizes the Fund's investment in Tax-Managed Growth
Portfolio (the Portfolio) through Belvedere Capital Fund Company LLC (Belvedere
Company), for the six months ended June 30, 2004 and June 30, 2003, including
allocations of income, expenses and net realized and unrealized gains (losses)
for the respective periods then ended:

Six Months Ended Six Months Ended
June 30, 2004 June 30, 2003
- ----------------------------------------------------------------------------------------------------------------------

Belvedere Company's interest in the Portfolio(1) $ 11,762,239,521 $ 9,599,217,401
The Fund's investment in Belvedere Company(2) $ 2,791,311,368 $ 2,584,612,221
Income allocated to Belvedere Company from the Portfolio $ 83,686,364 $ 66,798,353
Income allocated to the Fund from Belvedere Company $ 20,516,523 $ 18,199,451
Expenses allocated to Belvedere Company from the Portfolio $ 25,387,360 $ 20,113,419
Expenses allocated to the Fund from Belvedere Company $ 8,383,203 $ 7,344,086
Net realized gain (loss) from investment transactions and foreign currency
transactions allocated to Belvedere Company from the Portfolio $ 72,573,659 $ (17,889,099)
Net realized gain (loss) from investment transactions and foreign currency
transactions allocated to the Fund from Belvedere Company $ 20,886,828 $ (5,079,542)
Net change in unrealized appreciation (depreciation) of investments and
foreign currency allocated to Belvedere Company from the Portfolio $ 255,505,090 $ 698,962,649
Net change in unrealized appreciation (depreciation) of investments and
foreign currency allocated to the Fund from Belvedere Company $ 60,936,323 $ 188,870,533
---------------------------------------------------------------------------------------------------------------------

(1) As of June 30, 2004 and 2003, the value of Belvedere Company's interest in
the Portfolio represents 64.7% and 61.7% of the Portfolio's net assets,
respectively.
(2) As of June 30, 2004 and 2003, the Fund's investment in Belvedere Company
represents 23.7% and 26.9% of Belvedere Company's net assets, respectively.

A summary of the Portfolio's Statement of Assets and Liabilities at June 30,
2004, December 31, 2003 and June 30, 2003 and its operations for the six months
ended June 30, 2004, for the year ended December 31, 2003 and for the six months
ended June 30, 2003 follows:

12

June 30, December 31, June 30,
2004 2003 2003
----------------------------------------------------------

Investments, at value $ 18,156,546,589 $ 17,584,390,762 $ 15,616,951,272
Other assets 30,174,170 25,462,745 26,660,614
- --------------------------------------------------------------------------------------------
Total assets $ 18,186,720,759 $ 17,609,853,507 $ 15,643,611,886
Total liabilities 138,607 264,502 93,843,137
- --------------------------------------------------------------------------------------------
Net assets $ 18,186,582,152 $ 17,609,589,005 $ 15,549,768,749
============================================================================================
Dividends and interest $ 131,109,908 $ 232,925,912 $ 109,393,140
- --------------------------------------------------------------------------------------------
Investment adviser fee $ 38,780,667 $ 67,584,543 $ 31,979,032
Other expenses 1,025,267 2,295,653 985,298
- --------------------------------------------------------------------------------------------
Total expenses $ 39,805,934 $ 69,880,196 $ 32,964,330
- --------------------------------------------------------------------------------------------
Net investment income $ 91,303,974 $ 163,045,716 $ 76,428,810
Net realized gain (loss) from
investment transactions and
foreign currency transactions 118,166,339 70,909,770 (29,306,399)
Net change in unrealized
appreciation (depreciation) from
investments and foreign currency 397,547,485 3,174,709,110 1,126,151,279
-------------------------------------------------------------------------------------
Net increase in net assets from
operations $ 607,017,798 $ 3,408,664,596 $ 1,173,273,690
- --------------------------------------------------------------------------------------------

4 Interest Rate Swap Agreements

Belcrest 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, Belcrest Capital has agreed to
make periodic payments at fixed rates in exchange for payments at floating
rates. The notional or contractual amounts of these instruments may not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these investments is meaningful only when
considered in conjunction with all related assets, liabilities and agreements.
Interest rate swap agreements open at June 30, 2004 and December 31, 2003 are
listed below.

Notional Initial Unrealized Unrealized
Amount Optional Final Appreciation Appreciation
Effective (000's Fixed Floating Termination Termination at June 30, at December 31,
Date omitted) Rate Rate Date Date 2004 2003
- ------------------------------------------------------------------------------------------------------------------------

02/04 $ 78,620 5.00% LIBOR + 0.30% 08/04 06/10 $ 655,028 $ -
10/03 78,620 5.05% LIBOR + 0.30% 02/04 06/10 -* 197,524
10/03 128,116 4.865% LIBOR + 0.30% 07/04 06/10 1,552,824 451,953
10/03 170,000 4.795% LIBOR + 0.30% 09/04 06/10 2,426,987 695,087
10/03 63,526 4.69% LIBOR + 0.30% 02/05 06/10 1,098,759 305,966
10/03 55,375 4.665% LIBOR + 0.30% 03/05 06/10 993,589 272,239
10/03 80,965 4.145% LIBOR + 0.30% 03/10 06/10 2,500,869 527,521
10/03 47,253 4.045% LIBOR + 0.30% - 06/10 1,691,706 544,812
06/10 3,870 6.29% LIBOR + 0.30% - 07/15 18,775 11,026
06/04 248,768 4.875% LIBOR + 0.00% - 06/12 65,324** -
- -------------------------------------------------------------------------------------------------------------------------
$11,003,861 $3,006,128
- -------------------------------------------------------------------------------------------------------------------------

* Agreement was terminated on the Initial Optional Termination Date.

** On May 3, 2004, Belcrest Capital entered into a forward interest rate swap
agreement with Merrill Lynch Capital Services, Inc. in anticipation of its
future investment in a controlled subsidiary, Allagash, for the purpose of
hedging the interest rate of substantially all of the expected fixed-rate
mortgage financing of the real property over the expected 8-year term. Such
agreement was terminated in July 2004 and the Fund realized a loss of $3,758,467
upon termination.

13

5 Debt

Credit Facility - In August 2004, additional borrowings under the Credit
Facility in the amount of $138,000,000 were used to purchase an additional
interest in the real estate investment Allagash, a real estate subsidiary of
Belcrest Realty. This borrowing accrues interest at a rate of one-month LIBOR
plus 0.38% per annum.

On August 4, 2004, Allagash acquired a majority interest in sixteen industrial
properties (see Note 2). To finance the Fund's investment in the properties
acquired by Allagash, Belcrest Capital increased the amount available under its
credit arrangement with Merrill Lynch Mortgage Capital, Inc. (Merrill Lynch) by
$138,000,000 under a temporary arrangement (the Temporary Arrangement) and
borrowed that amount. The borrowing under the Temporary Arrangement accrues
interest at a rate of one-month LIBOR plus 0.90% and is for a term of sixty
days, subject to a thirty-day extension. Any unused amount of the increase
pertaining to the Temporary Arrangement is subject to a commitment fee of 0.10%
per annum. The assets of Belcrest Capital, excluding the assets of Bel Alliance,
Bel Santa Ana LLC (Bel Santa Ana), and Allagash secure all borrowings under the
credit arrangement with Merrill Lynch.

Allagash expects to obtain first mortgage financing for its investment in real
properties in the third and fourth quarters of 2004. The proceeds from such
first mortgage financing will be used to repay Belcrest Capital, and
accordingly, Belcrest Capital will repay its borrowings under the Temporary
Arrangement and a portion of other borrowings under the Credit Facility.

Mortgages - In February 2004, in conjunction with the sale of Belcrest Realty's
majority interest in Casco (Note 2), the mortgage payable by Casco was assumed
by the buyer. At the time of the transaction, the loan balance was $120,901,649.

Rental property held by Belcrest Realty's controlled subsidiaries is financed
through mortgages issued to the controlled subsidiaries. The mortgages are
secured by a rental property or properties. The mortgages are generally without
recourse to Belcrest Realty and Belcrest Capital, except, in the case of Casco
(for the period from January 1, 2004 to February 24, 2004), for certain
liabilities associated with fraud, misrepresentation, misappropriation of funds,
or breach of material covenants, and liabilities arising from environmental
conditions involving or affecting the rental property subject to the mortgages.
Belcrest Capital and Belcrest Realty have received indemnification from the
Casco Minority Shareholder for certain of such potential liabilities. The
mortgage debt obligation of Bel Santa Ana is generally without recourse to
Belcrest Realty, Belcrest Capital and Shareholders. Belcrest Capital and
Belcrest Realty may, however, be directly or indirectly responsible for certain
liabilities constituting exceptions to the generally non-recourse nature of the
mortgage indebtedness, including liabilities associated with fraud,
misrepresentation, misappropriation of funds, or breach of material covenants.

The mortgage agreements relating to the rental properties held by Bel Alliance
require certain covenants be met, including a covenant that trade payables and
accrued expenses incurred in the ordinary course of business in the aggregate
will not exceed 1% of the outstanding principal balance of the loan. At June 30,
2004, this covenant was not met for certain mortgage agreements, of which the
aggregate principal balance at June 30, 2004 totaled $167,038,894, or 42% of the
total Bel Alliance mortgages outstanding. The mortgage agreements provide for a
cure period of 30 days after written notification from the lenders, with a
further extension of up to 60 additional days. As of June 30, 2004, the lenders
had not provided such notice. It is uncertain as to whether the lenders will
seek to enforce the provisions of the mortgage agreements. Bel Alliance may
choose not to commit additional equity to cure certain of these technical
defaults. If the lenders pursue enforcement and a mutually acceptable
arrangement with the lenders cannot be reached, the result could be a
foreclosure on some or all of those investment properties that secure such
mortgages. Based on the current valuations of the affected properties and the
related mortgages, however, the Fund's current net investment in Bel Alliance
would not be negatively impacted if a foreclosure on some or all of those
investment properties that secure such mortgages were to occur. The eventual

14

outcome of this matter cannot be determined at this time. The mortgages are
generally without recourse to the other assets of Bel Alliance, Belcrest Capital
and Belcrest Realty. The technical default of certain mortgage agreements does
not affect Belcrest Capital's liquidity.

During the six months ended June 30, 2004, Bel Alliance chose not to commit
additional equity to rental properties operating at deficits for payment of
principal and interest due on certain mortgages related to rental properties
operating at deficits. The rental properties are the only source of security for
these mortgages. As a result, Bel Alliance has reduced the carrying value of
certain mortgage notes by $16,817,675 as of June 30, 2004 and $22,432,314 as of
December 31, 2003 to the estimated fair value of the underlying real estate.

6 Segment Information

Belcrest Capital pursues its investment objective primarily by investing
indirectly in the Portfolio through Belvedere Company. The Portfolio is a
diversified investment company that emphasizes investments in common stocks of
domestic and foreign growth companies that are considered to be high in quality
and attractive in their long-term investment prospects. Separate from its
investment in Belvedere Company, Belcrest Capital invests in real estate assets
through its subsidiary Belcrest Realty. Belcrest Realty 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 Santa Ana, Bel Alliance, Casco (Note 2) and Allagash (Note 1).

Management services for the real property held by Bel Alliance are provided by
an affiliate of its minority shareholder. The management agreement provides for
a management fee and allows for reimbursement of payroll and other direct
expenses incurred by the manager in conjunction with managing properties.
Belcrest Realty is currently disputing certain expenditures, allocations and
reimbursements by the property manager under the management agreement.

Belcrest Capital evaluates performance of the reportable segments based on the
net increase (decrease) in net assets from operations of the respective segment,
which includes net investment income (loss), net realized gain (loss) and
unrealized appreciation (depreciation). The accounting policies of the
reportable segments are the same as those for the Fund on a consolidated basis.
No reportable segments have been aggregated. Reportable information by segment
is as follows:

For the Three Months Ended Tax Managed Real
June 30, 2004 Growth Portfolio* Estate Total
- -----------------------------------------------------------------------------------------------

Revenue $ 6,557,329 $ 32,807,759 $ 39,365,088
Interest expense on mortgages - (8,297,581) (8,297,581)
Interest expense on Credit Facility - (2,480,709) (2,480,709)
Operating expenses (585,153) (13,459,041) (14,044,194)
Minority interest in net income of
controlled subsidiaries - 120,908 120,908
- -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 5,972,176 $ 8,691,336 $ 14,663,512
Net realized gain (loss) 10,588,185 (7,027,332) 3,560,853
Change in unrealized appreciation
(depreciation) 18,087,307 21,062,139 39,149,446
- -----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS OF REPORTABLE SEGMENTS $ 34,647,668 $ 22,726,143 $ 57,373,811
- -----------------------------------------------------------------------------------------------

15

For the Three Months Ended Tax Managed Real
June 30, 2003 Growth Portfolio* Estate Total
- -----------------------------------------------------------------------------------------------
Revenue $ 5,509,193 $ 41,665,584 $ 47,174,777
Interest expense on mortgages - (10,460,223) (10,460,223)
Interest expense on Credit Facility - (3,290,885) (3,290,885)
Operating expenses (344,123) (16,753,045) (17,097,168)
Minority interest in net income of
controlled subsidiaries - (593,558) (593,558)
- -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 5,165,070 $ 10,567,873 $ 15,732,943
Net realized gain (loss) 5,373,336 (12,211,185) (6,837,849)
Change in unrealized appreciation
(depreciation) 296,363,723 13,218,295 309,582,018
- -----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS OF REPORTABLE SEGMENTS $306,902,129 $ 11,574,983 $318,477,112
- -----------------------------------------------------------------------------------------------

For the Six Months Ended Tax Managed Real
June 30, 2004 Growth Portfolio* Estate Total
- -----------------------------------------------------------------------------------------------
Revenue $ 12,133,320 $ 70,995,901 $ 83,129,221
Interest expense on mortgages - (17,942,775) (17,942,775)
Interest expense on Credit Facility - (4,854,551) (4,854,551)
Operating expenses (1,137,178) (28,653,002) (29,790,180)
Minority interest in net income of
controlled subsidiaries - (124,797) (124,797)
- -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 10,996,142 $ 19,420,776 $ 30,416,918
Net realized gain (loss) 20,886,828 (25,083,008) (4,196,180)
Change in unrealized appreciation
(depreciation) 60,936,323 16,514,676 77,450,999
- -----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS OF REPORTABLE SEGMENTS $ 92,819,293 $ 10,852,444 $103,671,737
- -----------------------------------------------------------------------------------------------

For the Six Months Ended Tax Managed Real
June 30, 2003 Growth Portfolio* Estate Total
- -----------------------------------------------------------------------------------------------
Revenue $ 10,855,365 $ 83,795,387 $ 94,650,752
Interest expense on mortgages - (20,808,729) (20,808,729)
Interest expense on Credit Facility - (6,840,471) (6,840,471)
Operating expenses (693,912) (32,548,882) (33,242,794)
Minority interest in net income of
controlled subsidiaries - (1,550,963) (1,550,963)
- -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 10,161,453 $ 22,046,342 $ 32,207,795
Net realized loss (5,079,542) (23,876,700) (28,956,242)
Change in unrealized appreciation
(depreciation) 188,870,533 30,337,674 219,208,207
- -----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS OF REPORTABLE SEGMENTS $193,952,444 $ 28,507,316 $222,459,760
- -----------------------------------------------------------------------------------------------

Tax-Managed Growth Real
At June 30, 2004 Portfolio* Estate Total
- ------------------------------------------------------------------------------------------------------------
Segment assets $2,791,311,368 $1,024,558,717 $3,815,870,085
Segment liabilities 4,100,000 1,096,720,711 1,100,820,711
- ------------------------------------------------------------------------------------------------------------
NET ASSETS (LIABILITIES) OF REPORTABLE SEGMENTS $2,787,211,368 $ (72,161,994) $2,715,049,374
- ------------------------------------------------------------------------------------------------------------

At December 31, 2003
- ------------------------------------------------------------------------------------------------------------
Segment assets $2,801,412,510 $1,099,020,956 $3,900,433,466
Segment liabilities 1,059 1,197,408,196 1,197,409,255
- ------------------------------------------------------------------------------------------------------------
NET ASSETS (LIABILITIES) OF REPORTABLE SEGMENTS $2,801,411,451 $ (98,387,240) $2,703,024,211
- ------------------------------------------------------------------------------------------------------------

* Belcrest Capital invests indirectly in Tax-Managed Growth Portfolio through
Belvedere Company.

16

The following tables reconcile the reported segment information to the condensed
consolidated financial statements for the periods indicated:

Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
-----------------------------------------------------------------------

Revenue:
Revenue from reportable segments $ 39,365,088 $ 47,174,777 $ 83,129,221 $ 94,650,752
Unallocated amounts:
Interest earned on cash not invested in
the Portfolio or in subsidiaries 133,933 27,930 235,081 105,474
-----------------------------------------------------------------------
TOTAL REVENUE $ 39,499,021 $ 47,202,707 $ 83,364,302 $ 94,756,226
-----------------------------------------------------------------------
Net increase (decrease) in net assets
from operations:
Net increase in net assets from
operations of reportable segments $ 57,373,811 $ 318,477,112 $ 103,671,737 $ 222,459,760
Unallocated amounts:
Interest earned on cash not invested
in the Portfolio or in subsidiaries 133,933 27,930 235,081 105,474
Unallocated amounts(1):
Distribution and servicing fees (970,114) (841,720) (1,972,715) (1,630,669)
Interest expense on Credit Facility (103,363) (67,160) (202,273) (139,601)
Audit, tax and legal fees (61,321) (80,076) (114,625) (112,201)
Other operating expenses (28,994) (38,359) (47,462) (59,820)
-----------------------------------------------------------------------
TOTAL NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 56,343,952 $ 317,477,727 $ 101,569,743 $ 220,622,943
-----------------------------------------------------------------------

June 30, 2004 December 31, 2003
--------------------------------------
Net assets:
Net assets of reportable segments $2,715,049,374 $2,703,024,211
Unallocated cash(2) 17,532 20,001
Short-term investments(2) 14,816,000 48,059,348
Loan payable-Credit Facility(3) (14,989,056) (14,989,056)
Other liabilities (174,703) (6,929,912)
--------------------------------------
TOTAL NET ASSETS $2,714,719,147 $2,729,184,592
--------------------------------------

(1) Unallocated amounts represent expenses incurred that pertain to the overall
operation of Belcrest Capital, and do not pertain to either operating
segment.
(2) Unallocated cash and short-term investments represents cash and cash
equivalents not invested in the Portfolio or real estate assets.
(3) Unallocated amount of loan payable - Credit Facility represents borrowings
not specifically used to fund real estate investments. Such borrowings are
generally used to pay selling commissions, organization expenses and other
liquidity needs of the Fund.

17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
- --------------------------------------------------------------------------------

THE INFORMATION IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. FORWARD-LOOKING STATEMENTS TYPICALLY ARE
IDENTIFIED BY USE OF TERMS SUCH AS "MAY," "WILL," "SHOULD," "MIGHT," "EXPECT,"
"ANTICIPATE," "ESTIMATE," AND SIMILAR WORDS, ALTHOUGH SOME FORWARD-LOOKING
STATEMENTS ARE EXPRESSED DIFFERENTLY. THE ACTUAL RESULTS OF BELCREST CAPITAL
FUND LLC (THE FUND) COULD DIFFER MATERIALLY FROM THOSE CONTAINED IN THE
FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS. THE FUND UNDERTAKES NO
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A
RESULT OF NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE, EXCEPT AS REQUIRED BY
APPLICABLE LAW. FACTORS THAT COULD AFFECT THE FUND'S PERFORMANCE INCLUDE A
DECLINE IN THE U.S. STOCK MARKETS OR IN GENERAL ECONOMIC CONDITIONS, ADVERSE
DEVELOPMENTS AFFECTING THE REAL ESTATE INDUSTRY, OR FLUCTUATIONS IN INTEREST
RATES.

The following discussion should be read in conjunction with the Fund's unaudited
condensed consolidated financial statements and related notes in Item 1 above.

RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2004 COMPARED TO THE
QUARTER ENDED JUNE 30, 2003
- --------------------------------------------------------------------------------

(a) RESULTS OF OPERATIONS.
- --------------------------

Increases and decreases from operations in the Fund's net asset value per share
are derived from net investment income (or loss) and realized and unrealized
gains and losses on investments. The Fund's net investment income (or loss) is
determined by subtracting the Fund's total expenses from its investment income
and then deducting the minority interest in net income (or loss) of the
controlled subsidiaries of Belcrest Realty Corporation (Belcrest 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 Belcrest Realty's controlled subsidiaries,
partnership income allocated to the income-producing preferred equity interests
in real estate operating partnerships (Partnership Preference Units) owned by
Belcrest Realty and interest earned on the Fund's short-term investments (if
any). The net investment income of Belvedere Company allocated to the Fund
includes dividends, interest and expenses allocated to Belvedere Company by
Tax-Managed Growth Portfolio (the Portfolio) less the expenses of Belvedere
Company allocated to the Fund. The Fund's total expenses include the Fund's
investment advisory and administrative fees, distribution and servicing fees,
interest expense from mortgages on properties owned by Belcrest Realty's
controlled subsidiaries, interest expense on the Fund's Credit Facility
(described in Item 2(b) below), property management fees, property taxes,
insurance, maintenance and other expenses relating to the properties owned by
Belcrest 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 Belcrest Realty, the Fund's interest rate swap
agreements and any other direct investments of the Fund, as well as periodic
payments made by the Fund pursuant to interest rate swap agreements.

Realized and unrealized gains and losses on investments have the most
significant impact on the Fund's net asset value per share and result primarily
from sales of such investments and changes in their underlying value. The
investments of the Portfolio consist primarily of common stocks of domestic and
foreign growth companies that are considered to be high in quality and
attractive in their long-term investment prospects. Because the securities
holdings of the Portfolio are broadly diversified, the performance of the
Portfolio cannot be attributed to one particular stock or one particular
industry or market sector. The performance of the Portfolio and the Fund are
substantially influenced by the overall performance of the U.S. stock market, as
well as by the relative performance versus the overall market of specific stocks
and classes of stocks in which the Portfolio maintains large positions.

PERFORMANCE OF THE FUND.(1) The Fund's investment objective is to achieve
long-term, after-tax returns for Shareholders. Eaton Vance Management (Eaton
Vance), as the Fund's manager, measures the Fund's success in achieving its
objective based on the investment returns of the Fund, using the Standard &
Poor's 500 Composite Index (the S&P 500) as the Fund's primary performance
benchmark. The S&P 500 is a broad-based unmanaged index of common stocks widely
used as a measure of U.S. stock market performance. Eaton Vance's primary focus
in pursuing total return is on the Fund's common stock portfolio, which consists
of its indirect interest in the Portfolio. In measuring the performance of the

- -----------------------------
(1) Total returns are historical and are calculated by determining the
percentage change in net asset value with all distributions reinvested.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. The Portfolio's total return for the
period reflects the total return of another fund that invests in the
Portfolio, adjusted for certain fund expenses. Performance is for the
stated time period only and is not annualized; due to market volatility,
the Fund's current performance may be lower or higher. The performance of
the Fund and the Portfolio is compared to that of their benchmark, the S&P
500. It is not possible to invest directly in an Index.

18

Fund's real estate investments held through Belcrest Realty, Eaton Vance
considers whether, through current returns and changes in valuation, the real
estate investments achieve returns that over the long-term exceed the cost of
the borrowing incurred to acquire such investments and thereby add to Fund
returns. The Fund has entered into interest rate swap agreements to fix the cost
of borrowings under the Credit Facility used to acquire Belcrest Realty's equity
in its real estate investments and to mitigate in part the impact of interest
rate changes on the Fund's net asset value.

The Fund's total return was 2.10% for the quarter ended June 30, 2004. This
return reflects an increase in the Fund's net asset value per share from $106.19
to $108.42 during the period. For comparison, the S&P 500 had a total return of
1.72% over the same period. The performance of the Fund exceeded that of the
Portfolio by approximately 0.79% during the period. Last year, the Fund had a
total return performance of 14.75% for the quarter ended June 30, 2003. This
return reflected an increase in the Fund's net asset value per share from $79.01
to $90.66 during the period. For comparison, the S&P 500 had a total return of
15.39% over the same period. The performance of the Fund exceeded that of the
Portfolio by approximately 1.21% during that period.

PERFORMANCE OF THE PORTFOLIO. For the quarter ended June 30, 2004, the
Portfolio's total return was 1.31%. This compares to a total return of 1.72% for
the S&P 500. In the second quarter, U.S. equity returns were supported by
strengthening employment trends, robust manufacturing activity and rising
corporate profits. At the same time, uncertainty over the situation in Iraq and
the prospect of rising interest rates and inflation weighed on investors and
held back returns. During the quarter, growth stocks outperformed value stocks,
and small-caps performed better than large-caps and mid-caps.

The Portfolio's modest underperformance during the quarter was attributable in
part to a relative overweighting of certain weaker performing industry groups,
specifically specialty retail and media. In addition, the Portfolio was
underweight internet software and communications equipment stocks, which rallied
during the period. Concerns about future trends in consumer spending caused the
Portfolio to trim its relative overweighting of the discretionary and staples
sectors during the quarter. The Portfolio also reduced healthcare and technology
investments during the quarter, mainly in the lagging biotech and semi-conductor
groups. During the quarter, the Portfolio continued to overweight airfreight and
machinery holdings, which contributed positively to the Portfolio's performance.
The Portfolio benefited from the strong performance of stocks in the food,
staples retailing and commercial bank industries during the quarter, as well as
from increased exposure to energy stocks. Material stocks were also solid
performers during the quarter and, despite the Portfolio's underweight of the
sector versus the S&P 500, the performance of the Portfolio's holdings in the
metals and mining group was noteworthy. Valuation and regulatory concern
prompted a continued de-emphasis of multi-line utilities and diversified telecom
companies.

For the quarter ended June 30, 2003, the Portfolio's total return was 13.54%
compared to the 15.39% total return for the S&P 500. During the quarter, the S&P
500 posted its best quarterly return in five years, with favorable fiscal and
monetary policy developments, progress in Iraq and signs of an improving economy
contributing to a stronger market. The Portfolio's relative underperformance was
attributable primarily to its lower exposure to higher-volatility, lower-quality
stocks that were the strongest performers in the sharp market rally.

PERFORMANCE OF REAL ESTATE INVESTMENTS. The Fund's real estate investments are
held through Belcrest Realty. As of June 30, 2004, real estate investments
consisted primarily of a portfolio of Partnership Preference Units issued by
partnerships affiliated with publicly traded and private real estate investment
trusts (REITs) and three subsidiary companies: Allagash Property Trust
(Allagash), Bel Alliance Properties, LLC (Bel Alliance) and Bel Santa Ana LLC
(Bel Santa Ana). Allagash and Bel Alliance are real estate joint ventures that
operate industrial and multifamily properties, respectively (Real Estate Joint
Ventures). Bel Santa Ana owns a property subject to a long-term triple net lease
(Net Leased Property). As of June 30, 2004, the estimated fair value of the
Fund's real estate investments represented 26.0% of the Fund's total assets on a
consolidated basis. After adjusting for minority interests in Allagash and Bel
Alliance, the Fund's real estate investments represented 36.3% of the Fund's net
assets as of June 30, 2004.

On June 30, 2004, Belcrest Realty's newly formed subsidiary Allagash acquired a
majority interest in certain industrial properties from ProLogis, a publicly
traded REIT, for approximately $39.2 million. ProLogis retained a minority
interest in the properties. In May 2004, Belcrest Realty entered into agreements
with ProLogis to form ProLogis Six Rivers Limited Partnership (Six Rivers) (in
association with subsidiaries of other investment funds advised by Boston
Management) and to merge Six Rivers with Keystone Property Trust, a
publicly-traded REIT (Keystone). The transactions contemplated by these
agreements were consummated on August 4, 2004. As a result of the transactions,
Allagash acquired a partnership interest in Six Rivers. In addition, Prologis
acquired a minority interest in Allagash. Through its interest in Six Rivers,
Allagash owns a majority of the economic interest in certain industrial
properties acquired through the merger of Six Rivers and Keystone for
approximately $475.6 million. It is anticipated that in the third and fourth
quarters of 2004 Allagash will obtain first mortgage financing secured by the

19

properties equal to approximately 60-65% of the property value. The Fund has
provided interim financing for Allagash, as described below in "Liquidity and
Capital Resources."

Rental income from multifamily real estate property operations fell to $21.3
million for the quarter ended June 30, 2004 from $27.8 million for the quarter
ended June 30, 2003, a decrease of $6.5 million or 23%. The decrease in rental
income was principally due to the sale of Belcrest Realty's interest in Casco
Property Trust, LLC (Casco) in February 2004 and also due to lower rental
revenue for Bel Alliance. Bel Alliance's rental income declined to approximately
$20.1 million for the quarter ended June 30, 2004 from approximately $21.4
million for the quarter ended June 30, 2003, a decrease of $0.3 million or 1%.
Rental revenue for Bel Alliance was adversely affected by reduced apartment
rental rates, increased rent concessions and lower occupancy levels during the
quarter. Rental income from commercial office properties (through Bel Santa Ana)
was $1.2 million for the quarters ended June 30, 2004 and 2003. Belcrest Realty
does not record property operating expenses for Bel Santa Ana, as such expenses
are assumed by the tenant under the terms of the lease agreement.

Property operating expenses for multifamily property operations decreased to
approximately $11.9 million for the quarter ended June 30, 2004 from
approximately $14.8 million for the quarter ended June 30, 2003, a net decrease
of $2.9 million or 20% (property operating expenses are before certain operating
expenses of Belcrest Realty of approximately $1.6 million for the quarter ended
June 30, 2004 and approximately $2.0 million for the quarter ended June 30,
2003). The net decrease in multifamily property operating expenses was
principally due to the sale of Belcrest Realty's interest in Casco in February
2004 and also due to lower property operating expenses for Bel Alliance.
Property operating expenses for Bel Alliance were approximately $12.0 million
for the quarter ended June 30, 2004 compared to approximately $12.6 million for
the quarter ended June 30, 2003, a decrease of $0.6 million or 5%. The near-term
outlook for multifamily property operations continues to be weak. While the
recent pick-up in economic and employment growth is expected to lead to improved
supply-demand balance in the apartment industry, oversupply conditions continue
to exist in most major markets. As a result, Boston Management expects that
multifamily real estate operating results in 2004 will continue to be similar to
2003.

Because Allagash held no investments in property until June 30, 2004, it had no
significant impact on real estate operations during the quarter then ended. As
of August 4, 2004, Allagash owns a controlling interest in 21 industrial
properties, which consist of industrial distribution properties located in eight
states. ProLogis, the largest REIT specializing in industrial distribution
properties, provides day-to-day operating management of these properties. The
terms of the Allagash joint venture are similar to the Bel Alliance joint
venture. Belcrest Realty's investment in Allagash will be valued in
substantially the same manner as its investment in Bel Alliance and it is
subject to substantially similar risks, as well as risks specifically associated
with industrial distribution properties (such as changing transportation and
logistics patterns and tenant credit). The mortgage financing to be obtained by
Allagash will be secured by the properties it owns and is expected to be without
recourse to Belcrest Realty, the Fund or its Shareholders. Pursuant to an
agreement between Belcrest Realty and ProLogis, Belcrest Realty is obligated to
make capital contributions to Allagash if required to fund certain items such as
debt service, insurance or property taxes. In 2004, industrial properties in the
United States have experienced increased demand for space in most markets after
three years of occupancy and rental rate declines. However, reduced rent levels
may continue over the near term as above-market leases mature and space is
released at current market rates. As a result, Boston Management expects that
improvements in industrial property operating performance will occur over the
longer term.

At June 30, 2004, the estimated fair value of the real properties held through
Belcrest Realty was $499.1 million compared to $624.9 million at June 30, 2003,
a net decrease of $125.8 million or 20%. The net decrease was principally due to
the February 2004 sale of Casco, offset in part by the properties acquired by
Allagash on June 30, 2004.

The Fund saw net unrealized appreciation of the estimated fair value in its
other real estate investments (which includes Allagash, Bel Alliance and Bel
Santa Ana) of approximately $13.3 million during the quarter ended June 30, 2004
compared to unrealized depreciation of approximately $0.3 million for the
quarter ended June 30, 2003. Net unrealized appreciation of $13.3 million for
the quarter ended June 30, 2004 included approximately $14.2 million of net
unrealized appreciation as a result of the agreement to sell Bel Alliance.

In May 2004, Bel Alliance agreed to sell all of its multifamily residential
properties to an affiliate of the minority interest holder in Bel Alliance. Upon
consummation of the transaction, Belcrest Realty is expected to receive net
proceeds of approximately $51.3 million as consideration for all of its interest
in the multifamily residential properties and expects not to retain any
contingent liabilities associated with the mortgage debt secured by the
properties or other liabilities. Concurrent with this sale, Belcrest Realty has
agreed to buy the outstanding minority interest in Bel Alliance for a nominal
amount. Although there can be no assurance that the transaction will be
consummated, it is expected to close by the end of September 2004. Reflecting

20

the anticipated sale, an increase of approximately $14.2 million of unrealized
appreciation is reported on the Fund's unaudited financial statements for the
quarter ended June 30, 2004 included in Item 1 above.

During the quarter ended June 30, 2004, Belcrest Realty sold certain Partnership
Preference Units totaling approximately $36.2 million (including sales to other
investment funds advised by Boston Management), recognizing losses of
approximately $1.8 million on the transactions. At June 30, 2004, the estimated
fair value of Belcrest Realty's Partnership Preference Units totaled $490.4
million compared to $578.0 million at June 30, 2003, a net decrease of $87.7
million or 15%. This net decrease was due to fewer Partnership Preference Units
held at June 30, 2004 and to decreases in the per unit values of the Partnership
Preference Units held at June 30, 2004 due principally to their lower average
coupon rates. In the current low interest rate environment, many issuers have
been redeeming Partnership Preference Units as call protections expire or
restructuring the terms of outstanding Partnership Preference Units in advance
of their call dates. As a result, many of the higher-yielding Partnership
Preference Units held by Belcrest Realty during the six months ended June 30,
2003 were no longer held at June 30, 2004. Boston Management expects this trend
to continue through 2004.

The Fund saw unrealized depreciation of the estimated fair value in its
Partnership Preference Units of approximately $8.9 million during the quarter
ended June 30, 2004 compared to unrealized appreciation of approximately $3.2
million for the quarter ended June 30, 2003. For the quarter ended June 30,
2004, net unrealized depreciation of $8.9 million consisted of approximately
$8.7 million of unrealized depreciation as a result of decreases in per unit
values of the Partnership Preference Units held by Belcrest Realty at June 30,
2004, and approximately $0.2 million of unrealized depreciation resulting from
the recharacterization of previously recorded unrealized appreciation to
realized gains due to sales of Partnership Preference Units during the quarter
ended June 30, 2004. During the quarter ended June 30, 2004, Partnership
Preference Unit values were negatively affected by the rising trend in U.S.
interest rates, partly offset by tighter spreads for credit-sensitive income
securities, including real estate-related securities. In a rising interest rate
environment, values of outstanding Partnership Preference Units generally can be
expected to decline. During the quarter ended June 30, 2003, Belcrest Realty's
investments in Partnership Preference Units generally benefited from declining
interest rate levels and tightening spreads in credit-sensitive income
securities, particularly in real estate-related securities.

Distributions received from Partnership Preference Units for the quarter ended
June 30, 2004 totaled $11.4 million compared to $13.8 million for the quarter
ended June 30, 2003, a decrease of $2.4 million or 17%. The decrease was
principally 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 June 30, 2004.

PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the quarter ended June 30,
2004, net realized and unrealized gains on the Fund's interest rate swap
agreements totaled approximately $11.5 million, compared to net realized and
unrealized losses of approximately $1.9 million for the quarter ended June 30,
2003. Net realized and unrealized gains on swap agreements for the quarter ended
June 30, 2004 consisted of $16.7 million of unrealized appreciation due to
changes in swap agreement valuations offset in part by $5.2 million of periodic
payments made pursuant to outstanding swap agreements (and classified as net
realized losses on interest rate swap agreements). For the quarter ended June
30, 2003, unrealized appreciation of $10.3 million on swap agreement valuation
changes was offset by $12.2 million of swap agreement periodic payments. The
positive contribution to Fund performance for the quarter ended June 30, 2004
from changes in swap agreement valuations was attributable to an increase in
swap rates during the quarter. The positive contribution for the quarter ended
June 30, 2003 from changes in swap valuations was due primarily to the exercise
of early termination options on a number of swap agreements and the remaining
swaps approaching their initial optional termination dates. The appreciation was
offset in part by a slight decline in swap rates.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2003
- --------------------------------------------------------------------------------

PERFORMANCE OF THE FUND. The Fund's total return was 3.77% for the six months
ended June 30, 2004. This return reflects an increase in the Fund's net asset
value per share from $104.87 to $108.42 and a distribution of $0.39 per share
during the period. For comparison, the S&P 500 had a total return of 3.44% over
the same period. The performance of the Fund exceeded that of the Portfolio by
approximately 0.32% during the period. Last year, the Fund had a total return
performance of 9.86% for the six months ended June 30, 2003. This return
reflected an increase in the Fund's net asset value per share from $82.94 to
$90.66 and a distribution of $0.43 per share. For comparison, the S&P 500 had a
total return of 11.75% over the same period. The performance of the Fund
exceeded that of the Portfolio by 1.67% during that period.

PERFORMANCE OF THE PORTFOLIO. For the six months ended June 30, 2004, the
Portfolio's total return was 3.45%, in line with the 3.44% total return of the
S&P 500. In the period, U.S. equity returns were supported by a strengthening
economy and rising corporate profits. Geopolitical concerns, higher interest
rates and rising inflation were negative factors that held back returns. In the
21

period, small-cap stocks sharply outperformed large-caps and mid-caps, and value
stocks performed modestly better than growth stocks.

The Portfolio's performance during the first six months of 2004 was driven
primarily by its diversified industry exposure and positive stock selection.
Concerns about future trends in consumer spending caused the Portfolio to trim
its relative overweighting of the discretionary and staples sectors during the
period. The Portfolio also decreased positions in healthcare and technology
stocks during the period. The underweighting of semiconductor equipment and
software industries added to performance. The Portfolio maintained an
overweighting of industrials stocks, and benefited from advances in airfreight,
machinery and building stocks. While the consumer staples and financials sectors
generally did not perform well during the period, the Portfolio's holdings in
those sectors were positive contributors to performance. Another positive
contributor was the Portfolio's growing exposure to the energy sector. The
Portfolio's oil exploration and gas investments benefited from the current
supply-demand imbalances and associated energy price increases. The strong
performance of the Portfolio's holdings in the cyclical metals and mining
industries during the period was also noteworthy. The Portfolio continued to
underweight the utilities and telecom sectors.

For the six months ended June 30, 2003, the Portfolio's total return was 8.19%
compared to an 11.75% total return for the S&P 500. Market performance during
the first six months of 2003 was volatile, with war angst, a questionable
economic recovery and the SARS outbreak among the concerns weighing on investors
toward the beginning of the year. From mid-March through the end of the period,
the U.S. market rallied sharply, with favorable fiscal and monetary policy
developments, progress in Iraq and signs of an improving economy contributing to
the strength. The Portfolio's relative underperformance during the period was
attributable primarily to its lower exposure to higher-volatility, lower-quality
stocks that were the strongest performers in the market rally.

PERFORMANCE OF REAL ESTATE INVESTMENTS. During the six months ended June 30,
2004, Belcrest Realty purchased and sold certain real estate investments. In
February 2004, Belcrest Realty sold its majority interest in Casco for
approximately $28.7 million to another fund advised by Boston Management.
Belcrest Realty recognized a loss of $14.2 million on the sale. The loss
represented the realization of previously recorded unrealized depreciation of
the value of Belcrest Realty's investment in Casco. Belcrest Realty's newly
formed subsidiary Allagash acquired certain industrial properties on June 30,
2004 and August 4, 2004. In May 2004, Bel Alliance agreed to sell all of its
real estate assets to an affiliate of the minority interest holder in Bel
Alliance.

Rental income from multifamily real estate property operations fell to $45.9
million for the six months ended June 30, 2004 from $56.1 million for the six
months ended June 30, 2003, a net decrease of $10.2 million or 18%. The net
decrease in rental income was principally due to the sale of Casco in February
2004 and also due to lower rental revenue for Bel Alliance. Bel Alliance's
rental income declined to approximately $40.0 million for the quarter ended June
30, 2004 from approximately $43.2 million for the six months ended June 30,
2003, a decrease of $3.2 million or 7%. Rental revenue for Bel Alliance was
adversely affected by reduced apartment rental rates, increased rent concessions
and lower occupancy levels during the period. As noted above, Belcrest Realty's
other Real Estate Joint Venture, Allagash, acquired certain industrial
properties on June 30, 2004. Because these properties were acquired on the last
day of the six month period, they had no significant impact on real estate
operating results for the period. Rental income from commercial office
properties (through Bel Santa Ana) was $2.3 million for the six months ended
June 30, 2004 and 2003. Belcrest Realty does not record property operating
expenses for Bel Santa Ana, as such expenses are assumed by the tenant under the
terms of the lease agreement.

Property operating expenses for multifamily property operations decreased to
approximately $25.4 million for the six months ended June 30, 2004 from
approximately $28.7 million for the six months ended June 30, 2003, a net
decrease of $3.3 million or 11% (property operating expenses are before certain
operating expenses of Belcrest Realty of approximately $3.3 million for the six
months ended June 30, 2004 and approximately $3.8 million for the six months
ended June 30, 2003). This net decrease in expenses was primarily due to the
sale of Casco in February 2004 and also due to lower property operating expenses
for Bel Alliance. Property operating expenses for Bel Alliance were
approximately $23.8 million for the six months ended June 30, 2004 compared to
approximately $24.2 million for the six months ended June 30, 2003, a decrease
of $0.4 million or 2%. The near-term outlook for multifamily property operations
continues to be weak. While the recent pick-up in economic and employment growth
is expected to lead to improved supply-demand balance in the apartment industry,
oversupply conditions continue to exist in most major markets. As a result,
Boston Management expects that multifamily real estate operating results in 2004
will continue to be similar to 2003.

22

At June 30, 2004, the estimated fair value of the real properties held through
Belcrest Realty was $499.1 million compared to $624.9 million at June 30, 2003,
a net decrease of $125.8 million or 20%. The net decrease was due to the
February 2004 sale of Casco, offset in part by the properties acquired by
Allagash on June 30, 2004.

The Fund saw net unrealized appreciation of the estimated fair value in its
other real estate investments (which includes Allagash, Bel Alliance and Bel
Santa Ana and formerly also included Casco) of approximately $24.4 million
during the six months ended June 30, 2004 compared to unrealized depreciation of
approximately $24.9 million for the six months ended June 30, 2003. Net
unrealized appreciation of $24.4 million for the six months ended June 30, 2004
included approximately $14.2 million of unrealized appreciation in the value of
Belcrest Realty's interest in Bel Alliance as a result of the agreement to sell
its real estate assets and approximately $15.0 million of unrealized
appreciation due to the recharacterization of previously recorded unrealized
depreciation to realized losses in the amount of $15.0 million due to the
February 2004 sale of Casco.

During the six months ended June 30, 2004, Belcrest Realty sold (or experienced
scheduled redemptions of) certain of its Partnership Preference Units totaling
approximately $90.3 million (including sales to other investment funds advised
by Boston Management), recognizing losses of approximately $0.7 million on the
transactions. During the six months ended June 30, 2004, Belcrest Realty also
acquired interests in additional Partnership Preference Units from other
investment funds advised by Boston Management totaling approximately $139.1
million. At June 30, 2004, the estimated fair value of Belcrest Realty's
Partnership Preference Units totaled $490.4 million compared to $578.1 million
at June 30, 2003, a decrease of $87.7 million or 15%. The decrease was due to
fewer Partnership Preference Units held at June 30, 2004 and to decreases in the
per unit values of the Partnership Preference Units held at June 30, 2004 due
principally to their lower average coupon rates. In the current low interest
rate environment, many issuers have been redeeming Partnership Preference Units
as call protections expire or restructuring the terms of outstanding Partnership
Preference Units in advance of their call dates. As a result, many of the
higher-yielding Partnership Preference Units held by Belcrest Realty during the
six months ended June 30, 2003 were no longer held at June 30, 2004. Boston
Management expects this trend to continue through 2004.

The Fund saw net unrealized depreciation of the estimated fair value in its
Partnership Preference Units of approximately $15.9 million during the six
months ended June 30, 2004 compared to net unrealized appreciation of
approximately $36.0 million for the six months ended June 30, 2003. For the six
months ended June 30, 2004, net unrealized depreciation of $15.9 million
consisted of approximately $14.4 million of unrealized depreciation as a result
of decreases in per unit values of the Partnership Preference Units held by
Belcrest Realty at June 30, 2004 and approximately $1.4 million of unrealized
depreciation resulting from the reclassification of previously recorded
unrealized appreciation to realized gains due to sales of Partnership Preference
Units during the six months ended June 30, 2004. During the six months ended
June 30, 2004, Partnership Preference Unit values were negatively affected by
the rising trend in U.S. interest rates, partly offset by tighter spreads for
credit-sensitive income securities, including real estate-related securities. In
a rising interest rate environment, values of outstanding Partnership Preference
Units generally can be expected to decline. During the six months ended June 30,
2003, Belcrest Realty's investments in Partnership Preference Units generally
benefited from declining interest rates and tightening spreads in
credit-sensitive income securities, particularly in real estate-related
securities.

Distributions received from Partnership Preference Units for the six months
ended June 30, 2004 totaled $24.9 million compared to $27.6 million for the six
months ended June 30, 2003, a decrease of $2.7 million or 10%. The decrease was
principally due to fewer Partnership Preference Units held on average and to
lower average distribution rates for the Partnership Preference Units held
during the six months ended June 30, 2004, partially offset by a one-time
special distribution from one issuer made in connection with a restructuring of
its Partnership Preference Units.

PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the six months ended June 30,
2004, net realized and unrealized losses on the Fund's interest rate swap
agreements totaled approximately $2.1 million, compared to net realized and
unrealized losses of approximately $5.3 million for the six months ended June
30, 2003. Net realized and unrealized losses on swap agreements for the six
months ended June 30, 2004 consisted of $8.0 million of unrealized appreciation
due to changes in swap agreement valuations offset by $10.1 million of periodic
payments made pursuant to outstanding swap agreements (and classified as net
realized losses on interest rate swap agreements). For the six months ended June
30, 2003, unrealized appreciation of $19.2 million on swap agreement valuation
changes were offset by $24.5 million of swap agreement periodic payments. The
positive contribution to Fund performance for the six months ended June 30, 2004
from changes in swap agreement valuations was attributable to an increase in
swap rates during the period. The positive contribution to Fund performance for
the six months ended June 30, 2003 from changes in swap valuations was primarily
due to the exercise of early termination options on a number of swap agreements

23

and many of the remaining swap contracts approaching their initial optional
termination dates. Swap rates declined during the six months ended June 30,
2003, offsetting some of the appreciation from approaching early termination
dates.

(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 short-term
liquidity needs of the Fund. In the future, the Fund may increase the size of
the Credit Facility (subject to lender consent) and the amount of outstanding
borrowings thereunder. As of June 30, 2004, the Fund had outstanding borrowings
of $690.0 million and unused loan commitments of $138.0 million under the Credit
Facility.

In August 2004, the Fund made borrowings under its credit arrangement with
Merrill Lynch Mortgage Capital, Inc. (MLMC) in the amount of $138 million. At
that time, the Fund also temporarily increased the amount available under its
credit arrangement with MLMC by $138 million and borrowed that amount. The Fund
used the total proceeds from these borrowings to finance the acquisitions by
Allagash of interests in certain industrial properties. The additional $138
million of borrowings is at a rate of LIBOR plus 0.90% and is for a period of up
to sixty-days (subject to a 30-day extension, if needed). Allagash expects to
obtain first mortgage financing for its properties in the third and fourth
quarters of 2004, the proceeds from which will be used to repay borrowings
obtained by the Fund in August 2004 to facilitate the Allagash acquisitions.

The Fund has entered into interest rate swap agreements with respect to its real
estate investments and associated borrowings. Pursuant to these agreements, the
Fund makes periodic payments to the counterparty at predetermined fixed rates,
in exchange for floating-rate payments at a predetermined spread plus one-month
LIBOR. During the terms of the outstanding interest rate swap agreements,
changes in the underlying values of the agreements are recorded as unrealized
appreciation or depreciation. As of June 30, 2004, the unrealized appreciation
related to the interest rate swap agreements was approximately $11.0 million. As
of June 30, 2003, the unrealized depreciation related to the interest rate swap
agreements was approximately $42.5 million.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- -------------------------------------------------------------------

INTEREST RATE RISK. The Fund's primary exposure to interest rate risk arises
from its real estate investments that are financed by the Fund with floating
rate borrowings under the Fund's Credit Facility and by fixed-rate secured
mortgage debt obligations of the Real Estate Joint Ventures and Net Leased
Property. Partnership Preference Units are fixed rate instruments whose values
will generally decrease when interest rates rise and increase when interest
rates fall. The interest rates on borrowings under the Fund's Credit Facility
are reset at regular intervals based on one-month LIBOR. The Fund has entered
into interest rate swap agreements to fix the cost of its borrowings under the
Credit Facility used to acquire Belcrest Realty's equity in its real estate
investments and to mitigate in part the impact of interest rate changes on the
Fund's net asset value. Under the terms of the interest rate swap agreements,
the Fund makes cash payments at fixed rates in exchange for floating rate
payments that fluctuate with one 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 4 and Note 5
to the Fund's unaudited condensed consolidated financial statements in Item 1
above.

24

Interest Rate Sensitivity
Cost, Principal (Notional) Amount
by Contractual Maturity and Callable Date
for the Twelve Months Ended June 30,*

Estimated
Fair Value as of
June 30,
2005 2006-2008 2009 Thereafter Total 2004
- ------------------------------------------------------------------------------------------------------------------------------------

Rate sensitive liabilities:
- --------------------------------
Long-term debt:
- --------------------------------
Fixed-rate mortgages $94,833.608 $318,087,574 $412,921,182 $407,000,000

Average interest rate 7.22% 7.95% 7.78%
- --------------------------------
Variable-rate Credit Facility $690,000,000 $690,000,000 $690,000,000

Average interest rate 1.67% 1.67%
- ------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive derivative
financial instruments:
- --------------------------------
Pay fixed/receive variable
interest rate swap
agreements(**) $876,493,000 $876,493,000 $ 11,003,861

Average pay rate(**) 4.74% 4.74%

Average receive rate(**) 1.65% 1.65%
- ------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive investments:
- --------------------------------
Fixed-rate Partnership
Preference Units:
- --------------------------------
Cabot Industrial Properties,
L.P., 8.625% Series B
Cumulative Redeemable
Preferred Units, Callable
4/29/04, Current Yield: 8.55% $15,569,810 $ 15,569,810 $ 14,624,700

Camden Operating, L.P., 7%
Series B Cumulative Redeemable
Perpetual Preferred Units,
Callable 12/2/08, Current
Yield: 7.29% $55,645,413 $ 55,645,413 $ 53,564,600

Colonial Realty Limited
Partnership, 7.25% Series B
Cumulative Redeemable
Perpetual Preferred Units,
Callable 2/24/09, Current
Yield: 7.68% $34,244,840 $ 34,244,840 $ 33,054,000

Liberty Property L.P., 9.25%
Series B Cumulative Redeemable
Preferred Units, Callable
7/28/04, Current Yield: 9.18% $46,625,000 $ 46,625,000 $ 46,979,350

25

Estimated
Fair Value as of
June 30,
2005 2006-2008 2009 Thereafter Total 2004
- ------------------------------------------------------------------------------------------------------------------------------------
MHC Operating Limited
Partnership, 9% Series D
Cumulative Redeemable
Perpetual Preference Units,
Callable 9/29/04, Current
Yield: 8.96% $55,000,000 $ 55,000,000 $ 55,242,000

National Golf Operating
Partnership, L.P., 9.30%
Series A Cumulative Redeemable
Preferred Units, Callable
2/6/03, Current Yield: 9.45% $27,877,518 $ 27,877,518 $ 31,055,040

National Golf Operating
Partnership, L.P., 9.30%
Series B Cumulative Redeemable
Preferred Units, Callable
2/6/03, Current Yield: 9.45% $29,833,200 $ 29,833,200 $ 29,520,000

PSA Institutional Partners,
L.P., 6.40% Series NN
Cumulative Redeemable
Perpetual Preferred Units,
Callable 3/17/10, Current
Yield: 7.04% $ 55,375,000 $ 55,375,000 $ 50,324,800

Price Development Company,
L.P., 8.95% Series B
Cumulative Redeemable
Preferred Partnership Units,
Callable 7/28/04, Current
Yield: 8.94% $44,089,925 $ 44,089,925 $ 44,446,000

Regency Centers, L.P., 9.125%
Series D Cumulative Redeemable
Preferred Units, Callable
9/29/04, Current Yield: 9.01% $50,598,110 $ 50,598,110 $ 50,615,000

Sun Communities Operating
L.P., 8.875% Series A
Cumulative Redeemable
Perpetual Preferred Units,
Callable
9/29/04, Current Yield: 8.82% $20,942,560 $ 20,942,560 $ 20,120,000

Urban Shopping Centers,
L.P., 9.45% Series D
Cumulative Redeemable
Perpetual Preferred Units,
Callable 10/1/04, Current $60,000,000 $ 60,000,000 $ 60,807,120
Yield: 9.32%
- --------------------------------

26

Estimated
Fair Value as of
June 30,
2005 2006-2008 2009 Thereafter Total 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Note Receivable:
- --------------------------------
Fixed-rate note receivable, 8%
$ 3,352,436 $ 3,352,436 $ 3,735,200

* The amounts listed reflect the Fund's positions as of June 30, 2004. The
Fund's current positions may differ.

** The terms disclosed are those of the interest rate swap agreements that are
in effect as of June 30, 2004. As discussed in Note 4 to the Fund's
unaudited condensed consolidated financial statements in Item 1 above,
during July 2004 certain interest rate swap agreements were terminated,
resulting in a change of the average pay rate and average receive rate to
4.68% and 1.67%, respectively.

ITEM 4. CONTROLS AND PROCEDURES.
- --------------------------------

Eaton Vance, as the Fund's manager, conducted an evaluation of the effectiveness
of the Fund's disclosure controls and procedures (as defined by Rule 13a-15(e)
of the 1934 Act) as of the end of the period covered by this report, with the
participation of the Fund's Chief Executive Officer and Chief Financial Officer.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Fund's disclosure controls and procedures were
effective. There were no changes in the Fund's internal control over financial
reporting that occurred during the quarter ended June 30, 2004 that have
materially affected, or are reasonably likely to materially affect, the Fund's
internal control over financial reporting.

As the Fund's manager, the complete and entire management, control and operation
of the Fund are vested in Eaton Vance. The Fund's Chief Executive Officer and
Chief Financial Officer intend to report to the Board of Directors of Eaton
Vance, Inc. (the sole trustee of Eaton Vance) any significant deficiency in the
design or operation of internal control over financial reporting which could
adversely affect the Fund's ability to record, process, summarize and report
financial data, and any fraud, whether or not material, that involves management
or other employees who have a significant role in the Fund's internal control
over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.
- --------------------------

Although in the ordinary course of business, the Fund, Belcrest Realty and
Belcrest Realty's controlled subsidiaries may become involved in legal
proceedings, the Fund is not aware of any material pending legal proceedings to
which any of them is subject.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
- --------------------------------------------------------------------------------

As described in the Fund's Annual Report on Form 10-K for the year ended
December 31, 2003, shares of the Fund may be redeemed by Fund shareholders on
any business day. Redemptions are met at the net asset value per share of the
Fund (less any applicable redemption fee). The right to redeem is available to
all shareholders and all outstanding Fund shares are eligible. During each month
in the quarter ended June 30, 2004, the total number of shares redeemed and the
average price paid per share were as follows:

- --------------------------------------------------------------------------------
Total No. of Shares Average Price Paid
Month Ended Redeemed(1) Per Share
- --------------------------------------------------------------------------------
April 30, 2004 134,347.32 $106.75
- --------------------------------------------------------------------------------
May 31, 2004 92,266.30 $104.57
- --------------------------------------------------------------------------------
June 30, 2004 316,089.29 $108.27
- --------------------------------------------------------------------------------
Total 542,702.91 $107.48
- --------------------------------------------------------------------------------

27

(1) All shares redeemed during the periods were redeemed at the option of
shareholders pursuant to the Fund's redemption policy. The Fund has not
announced any plans or programs to repurchase shares other than at the
option of shareholders.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- ----------------------------------------

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------

No matters were submitted to a vote of security holders during the three months
ended June 30, 2004.

ITEM 5. OTHER INFORMATION.
- --------------------------

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
- -----------------------------------------

(a) The following is a list of all exhibits filed as part of this Form 10-Q:

4.2(b) Form of Amendment No. 2 dated August 3, 2004 to Loan and Security
Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., as
Agent, the Lenders referred to therein and Merrill Lynch Capital
Services, 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.

28

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officer on August 9, 2004.

BELCREST CAPITAL FUND LLC

/s/ Michelle A. Alexander
-------------------------
Michelle A. Alexander
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)

29

EXHIBIT INDEX
-------------

4.2(b) Form of Amendment No. 2 dated August 3, 2004 to Loan and Security
Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., as
Agent, the Lenders referred to therein and Merrill Lynch Capital
Services, 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

30