BELROSE 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 September 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. 000-50258
---------

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

Delaware 04-3613468
-------- ----------
(State of organization) (I.R.S. Employer Identification No.)

The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
--------------------- -----
(Address of principal executive offices) (Zip Code)

Registrant's telephone number: 617-482-8260

None
----
(Former Name, Former Address and Former Fiscal Year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

YES X NO
--- ---

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).

YES X NO
--- ---

BELROSE CAPITAL FUND LLC
Index to Form 10-Q

PART I FINANCIAL INFORMATION Page

Item 1. Condensed Consolidated Financial Statements 3

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

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

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

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

Financial Highlights (Unaudited) for the Nine Months Ended
September 30, 2004 9

Notes to Condensed Consolidated Financial Statements as of
September 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 25

Item 4. Controls and Procedures 26

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 27

Item 4. Submission of Matters to a Vote of Security Holders 27

Item 5. Other Information 27

Item 6. Exhibits and Reports on Form 8-K 27

SIGNATURES 29

EXHIBIT INDEX 30

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

BELROSE CAPITAL FUND LLC
Condensed Consolidated Statements of Assets and Liabilities

September 30, 2004 December 31,
(Unaudited) 2003
------------------ ---------------
Assets:
Investment in Belvedere Capital Fund
Company LLC (Belvedere Company) $1,640,254,572 $1,640,828,100
Investment in Partnership Preference Units 30,359,050 56,717,736
Investment in other real estate 681,902,757 473,491,403
Short-term investments 3,943,000 7,614,214
------------------ ---------------
Total investments $2,356,459,379 $2,178,651,453
Cash 8,744,119 6,535,905
Escrow deposits - restricted 2,238,040 2,436,133
Distributions and interest receivable 223 400,960
Other assets 9,121,563 3,660,997
Open interest rate swap agreements, at value - 1,423,867
------------------ ---------------
Total assets $2,376,563,324 $2,193,109,315
------------------ ---------------

Liabilities:
Loan payable - Credit Facility $ 336,900,000 $ 183,300,000
Mortgages payable 344,219,483 344,219,483
Open interest rate swap agreements, at value 849,305 -
Distributions payable to minority
shareholders - 16,800
Security deposits 1,758,078 968,110
Swap interest payable 548,426 79,280
Accrued expenses:
Interest expense 2,359,520 2,319,122
Property taxes 3,602,093 1,959,252
Other expenses and liabilities 6,339,164 1,782,021
Minority interests in controlled
subsidiaries 68,369,176 26,010,489
------------------ ---------------
Total liabilities $ 764,945,245 $ 560,654,557
------------------ ---------------

Net assets $1,611,618,079 $1,632,454,758

------------------ ---------------
Shareholders' Capital $1,611,618,079 $1,632,454,758
------------------ ---------------

Shares outstanding 16,827,460 17,032,796
------------------ ---------------

Net asset value and redemption price per
Share $ 95.77 $ 95.84
------------------ ---------------

See notes to unaudited condensed consolidated financial statements

3

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

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 2004 September 30,2003 September 30, 2004 September 30, 2003
------------------ ----------------- ------------------ ------------------

Investment Income:
Dividends allocated from Belvedere Company
(net of foreign taxes of $68,612, $44,519,
$276,451, and $195,966 respectively) $ 6,173,400 $ 5,318,515 $ 18,319,356 $ 15,125,124
Interest allocated from Belvedere Company 10,441 44,016 57,649 290,984
Expenses allocated from Belvedere Company (2,474,560) (2,276,006) (7,452,829) (6,320,138)
------------------ ----------------- ------------------ ------------------
Net investment income allocated from
Belvedere Company $ 3,709,281 $ 3,086,525 $ 10,924,176 $ 9,095,970
Rental income 19,062,668 16,072,897 51,585,979 48,493,177
Distributions from Partnership Preference Units 659,581 1,198,456 4,611,765 3,393,494
Interest 75,126 24,312 197,303 70,688
------------------ ----------------- ------------------ ------------------
Total investment income $ 23,506,656 $ 20,382,190 $ 67,319,223 $ 61,053,329
------------------ ----------------- ------------------ ------------------

Expenses:
Investment advisory and administrative fees $ 1,524,040 $ 1,284,136 $ 4,360,203 $ 3,652,975
Property management fees 711,468 640,785 2,012,238 1,942,519
Distribution and servicing fees 797,907 731,562 2,427,312 2,028,314
Interest expense on mortgages 6,579,568 6,579,654 19,738,667 19,738,536
Interest expense on Credit Facility 1,448,252 653,188 2,979,309 2,133,780
Property and maintenance expenses 7,756,602 4,795,722 16,752,195 13,523,760
Property taxes and insurance 2,263,306 1,721,795 6,323,810 6,038,108
Miscellaneous 361,054 279,318 737,029 865,029
------------------ ----------------- ------------------ ------------------
Total expenses $ 21,442,197 $ 16,686,160 $ 55,330,763 $ 49,923,021
Deduct-
Reduction of investment advisory
and administrative fees 403,123 372,161 1,223,965 1,022,522
------------------ ----------------- ------------------ ------------------
Net expenses $ 21,039,074 $ 16,313,999 $ 54,106,798 $ 48,900,499
------------------ ----------------- ------------------ ------------------
Net investment income before
minority interests in net income of
controlled subsidiaries $ 2,467,582 $ 4,068,191 $ 13,212,425 $ 12,152,830
Minority interests in net income
of controlled subsidiaries (292,336) (526,835) (1,274,058) (1,500,532)
------------------ ----------------- ------------------ ------------------
Net investment income $ 2,175,246 $ 3,541,356 $ 11,938,367 $ 10,652,298
------------------ ----------------- ------------------ ------------------

See notes to unaudited condensed consolidated financial statements

4

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

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 2004 September 30, 2003 September 30, 2004 September 30, 2003
------------------ ------------------ ------------------ ------------------

Realized and Unrealized Gain (Loss)
Net realized gain (loss) -
Investment transactions and foreign
currency transactions allocated from
Belvedere Company (identified cost basis) $ 8,534 $ 1,072,597 $ 8,798,135 $ (1,848,037)
Investment transactions in Partnership
Preference Units (identified cost basis) 6,774,970 - 4,995,589 -
Interest rate swap agreements (1) (1,180,708) (1,189,097) (3,244,660) (3,371,735)
------------------ ----------------- ------------------ ------------------
Net realized gain (loss) $ 5,602,796 $ (116,500) $ 10,549,064 $ (5,219,772)
------------------ ----------------- ------------------ ------------------

Change in unrealized appreciation (depreciation) -
Investments and foreign currency
allocated from Belvedere Company
(identified cost basis) $(39,334,050) $ 29,866,436 $ 17,792 $139,042,412
Investments in Partnership Preference Units
(identified cost basis) (6,480,980) (289,158) (8,097,776) 6,882,831
Investments in other real estate (net of minority
interests in unrealized gain (loss) of controlled
subsidiaries of $128,921, $1,186,107,
$462,845 and $(3,462,083) respectively) (1,167,830) (1,125,102) (79,793) 2,822,783
Interest rate swap agreements (6,024,532) 4,311,912 (2,273,172) (630,404)
------------------ ----------------- ------------------ ------------------
Net change in unrealized appreciation
(depreciation) $(53,007,392) $ 32,764,088 $(10,432,949) $148,117,622
------------------ ----------------- ------------------ ------------------

Net realized and unrealized gain (loss) $(47,404,596) $ 32,647,588 $ 116,115 $142,897,850
------------------ ----------------- ------------------ ------------------

Net increase in net assets from operations $(45,229,350) $ 36,188,944 $ 12,054,482 $153,550,148
================== ================= ================== ==================

(1) Amounts include periodic payments made in connection with interest rate
swap agreements of $1,241,162, $1,189,097, $3,305,114 and $3,371,735,
respectively (Note 5).

See notes to unaudited condensed consolidated financial statements

5

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

Nine Months
Ended
September 30, 2004 Year Ended
(Unaudited) December 31, 2003
------------------ -----------------

Increase (Decrease) in Net Assets:
Net investment income $ 11,938,367 $ 15,279,642
Net realized gain from investment
transactions, foreign currency
transactions and interest rate swap
agreements 10,549,064 2,449,130
Net change in unrealized appreciation
(depreciation) of investments, foreign
currency and interest rate swap agreements (10,432,949) 311,836,713
------------------ -----------------
Net increase in net assets from operations $ 12,054,482 $ 329,565,485
------------------ -----------------

Transactions in Fund Shares -
Investment securities contributed $ - 95,047,136
Less - Selling commissions - (325,083)
------------------ -----------------
Net contributions $ - $ 94,722,053
Net asset value of Fund Shares issued to
Shareholders in payment of distributions
declared $ 5,415,563 $ 348,050
Net asset value of Fund Shares redeemed (25,191,471) (33,374,471)
------------------ -----------------
Net (decrease) increase in net assets from
Fund Share transactions $ (19,775,908) $ 61,695,632
------------------ -----------------

Distributions -
Distributions to Shareholders $ (13,115,253) $ (808,014)
------------------ -----------------
Total distributions $ (13,115,253) $ (808,014)
------------------ -----------------

Net (decrease) increase in net assets $ (20,836,679) $ 390,453,103

Net assets:
At beginning of period $1,632,454,758 $1,242,001,655
------------------ ---------------
At end of period $1,611,618,079 $1,632,454,758
================== ===============

See notes to unaudited condensed consolidated financial statements

6

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

Nine Months Nine Months
Ended Ended
September 30, 2004 September 30, 2003
------------------ ------------------

Cash Flows From (For) Operating Activities -
Net increase in net assets from operations $ 12,054,482 $ 153,550,148
Adjustments to reconcile net increase in net assets from operations
to net cash flows for operating activities -
Net investment income allocated from Belvedere Company (10,924,176) (9,095,970)
Decrease in escrow deposits 198,093 649,732
(Increase) decrease in other assets (5,352,607) 299,130
Decrease in distributions and interest receivable 400,737 39,079
Increase in interest payable for open swap agreements 469,146 24,661
Increase (decrease) in security deposits, accrued interest and
other expenses and liabilities 5,348,797 (1,198,370)
Increase in accrued property taxes 1,573,593 1,096,839
Purchases of Partnership Preference Units (57,172,890) (8,033,600)
Proceeds from sales of Partnership Preference Units 80,429,389 -
Payments for investment in other real estate (162,569,648) -
Improvements to rental property (4,819,269) (3,346,868)
Decrease (increase) in short-term investments 3,671,214 (1,091,036)
Net decrease in investment in Belvedere Company - 1,651,420
Net interest incurred on interest rate swap agreements (3,305,114) (3,371,735)
Payment received on termination of interest rate swap agreements 60,454 -
Minority interests in net income of controlled subsidiaries 1,274,058 1,500,532
Net realized (gain) loss from investment transactions, foreign
currency transactions and interest rate swap agreements (10,549,064) 5,219,772
Net change in unrealized (appreciation) depreciation of investments,
foreign currency and interest rate swap agreements 10,432,949 (148,117,622)
------------------ ------------------
Net cash flows for operating activities $(138,779,856) $ (10,223,888)
------------------ ------------------

Cash Flows From (For) Financing Activities -
Net proceeds from Credit Facility $ 153,600,000 $ 16,000,000
Payments on behalf of investors (selling commissions) - (325,083)
Payments for Fund Shares redeemed (4,877,840) (4,444,014)
Distributions paid to minority shareholders (34,400) -
Distributions paid to Shareholders (7,699,690) (459,964)
Capital contributed to controlled subsidiaries - 105,717
------------------ ------------------
Net cash flows from financing activities $ 140,988,070 $ 10,876,656
------------------ ------------------

Net increase in cash $ 2,208,214 $ 652,768

Cash at beginning of period $ 6,535,905 $ 7,214,141
------------------ ------------------
Cash at end of period $ 8,744,119 $ 7,866,909
================== ==================

See notes to unaudited condensed consolidated financial statements

7

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

Nine Months Nine Months
Ended Ended
September 30, 2004 September 30, 2003
------------------ ------------------

Supplemental Disclosure and Non-cash Investing and
Financing Activities -
Securities contributed by Shareholders, invested in
Belvedere Company $ - $ 95,047,136
Interest paid on loan - Credit Facility $ 2,889,177 $ 2,190,433
Interest paid on mortgages $ 19,428,741 $ 19,428,610
Interest paid on swap agreements $ 2,835,968 $ 3,347,074
Market value of securities distributed in payment of
redemptions $ 20,313,631 $ 20,270,134
Market value of real property and other assets, net of
current liabilities, assumed in conjunction with the
acquisition of other real estate $ 203,196,919 $ -
Market value of minority interests assumed in
conjunction with the acquisition of other real estate $ 40,639,384 $ -

See notes to unaudited condensed consolidated financial statements

8

BELROSE CAPITAL FUND LLC as of September 30, 2004
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Financial Highlights (Unaudited)

For the Nine Months Ended September 30, 2004
- --------------------------------------------------------------------------------
Net asset value - Beginning of period $ 95.840
- --------------------------------------------------------------------------------

Income (loss) from operations
- --------------------------------------------------------------------------------
Net investment income(6) $ 0.703
Net realized and unrealized loss(9) (0.003)
- --------------------------------------------------------------------------------
Total income from operations $ 0.700
- --------------------------------------------------------------------------------

Distributions
- --------------------------------------------------------------------------------
Distributions to Shareholders $ (0.770)
- --------------------------------------------------------------------------------
Total distributions $ (0.770)
- --------------------------------------------------------------------------------

Net asset value - End of period $ 95.770
- --------------------------------------------------------------------------------

Total Return(1) 0.73%
- --------------------------------------------------------------------------------

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%(10) 0.98%(10)
Operating expenses(7) 1.65%(10) 1.25%(10)
Belrose Capital Fund LLC Expenses
Interest and other borrowing costs(4)(8) 0.24%(10) 0.18%(10)
Investment advisory and administrative fees,
servicing fees and other Fund operating
expenses(3)(4) 1.11%(10) 0.84%(10)
---------------------------------
Total expenses 4.30% 3.25%

Net investment income 0.98%(10) 0.74%(10)
- --------------------------------------------------------------------------------

Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $1,611,618
Portfolio turnover of Tax-Managed Growth Portfolio (the Portfolio) 2.41%
- --------------------------------------------------------------------------------

(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 Belrose Capital Fund LLC (Belrose Capital) (including Belrose Capital's
interest in Belvedere Capital Fund Company LLC (Belvedere Company) and
Belrose Capital's ratable share of the assets of its directly and
indirectly controlled subsidiaries), without reduction by any liabilities.
For this purpose, the assets of Belrose Realty Corporation's (Belrose
Realty) controlled subsidiaries are reduced by the proportionate interests
therein of investors other than Belrose Realty.
(3) Includes Belrose Capital's share of Belvedere Company's allocated expenses,
including those expenses allocated from the Portfolio.
(4) Includes the expenses of Belrose Capital and Belrose Realty. Does not
include expenses of the real estate subsidiaries majority-owned by Belrose
Realty.
(5) For the purpose of calculating ratios, the income and expenses of Belrose
Realty's controlled subsidiaries are reduced by the proportionate interest
therein of investors other than Belrose Realty.
(6) Calculated using average shares outstanding.
(7) Includes Belrose Realty's proportional share of expenses incurred by its
majority-owned subsidiaries.
(8) Ratios do not include interest incurred in connection with the interest
rate swap agreements. Had such amounts been included, ratios would be
higher.
(9) The per share amount is not in accord with the net realized and unrealized
gain (loss) on investments for the period because of the timing of
redemptions of Fund Shares and the amount of the per share realized and
unrealized gains and losses at such time.
(10) Annualized.

See notes to unaudited condensed consolidated financial statements

9

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

1. Organization and Basis of Presentation

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

The balance sheet at December 31, 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 nine months ended September 30, 2004, Belrose Realty Corporation
(Belrose Realty) made indirect investments in real property through a newly
established controlled subsidiary, Deerfield Property Trust (Deerfield), as
described below. The consolidated financial statements include the accounts of
Deerfield and all material intercompany accounts and transactions have been
eliminated.

Subsidiary-

Deerfield- On May 3, 2004, Belrose Realty entered into an agreement to establish
and acquire a majority interest in a controlled subsidiary, Deerfield. On June
30, 2004, Deerfield acquired a majority interest in three industrial
distribution properties located in two states (Georgia and Ohio). On August 4,
2004, Deerfield acquired an additional fifteen industrial distribution
properties located in five states (Florida, New Jersey, Ohio, Pennsylvania and
South Carolina). Belrose Realty owns 100% of the Class A Units of Deerfield,
representing 60% of the voting interests in Deerfield and a minority shareholder
(the Deerfield Minority Shareholder) owns 100% of the Class B units,
representing 40% of the voting interests in Deerfield. 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. Belrose Realty has
priority in distributions and has greater voting rights than the holder of the
Class B units. From and after August 4, 2013, either Belrose Realty or the
Deerfield Minority Shareholder may cause a liquidation of Deerfield and, if
Belrose Realty makes that election, the Deerfield Minority Shareholder has the
right either to purchase either the shares of Deerfield owned by Belrose Realty
or to acquire the assets of Deerfield, in either case at a price determined
through an appraisal of the assets of Deerfield.

10

2. Estate Freeze

Shareholders in Belrose Capital are entitled to restructure their Fund Share
interests under what is termed an Estate Freeze Election. Under this election,
Fund Shares are divided into Preferred Shares and Common Shares. Preferred
Shares have a preferential right over the corresponding Common Shares equal to
(i) 95% of the original capital contribution made in respect of the undivided
Shares from which the Preferred Shares and Common Shares were derived, plus (ii)
an annuity priority return equal to 7.75% of the Preferred Shares' preferential
interest in the original capital contribution of the undivided Fund Shares. The
associated Common Shares are entitled to the remaining 5% of the original
capital contribution in respect of the undivided Shares, plus any returns
thereon in excess of the fixed annual priority of the Preferred Shares. The
existence of restructured Fund Shares does not adversely affect Shareholders who
do not participate in the election nor do the restructured Fund Shares have
preferential rights to Fund Shares that have not been restructured. Shareholders
who subdivide Fund Shares under this election sacrifice certain rights and
privileges that they would otherwise have with respect to the Fund Shares so
divided, including redemption rights and voting and consent rights. Upon the
twentieth anniversary of the issuance of the associated undivided Fund Shares to
the original holders thereof, Preferred and Common Shares will automatically
convert into full and fractional undivided Fund Shares. The allocation of
Belrose Capital's net asset value per Share at September 30, 2004 and December
31, 2003, between Preferred and Common shares that have been restructured is as
follows:

Per Share Value At Per Share Value At
September 30, 2004 December 31, 2003
-----------------------------------------------------
Preferred Common Preferred Common
Date of Contribution Shares Shares Shares Shares
- --------------------------------------------------------------------------------
February 19, 2003 $ 78.11 $ 17.66 $ 74.80 $ 21.04

3. Investment Transactions

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

Nine Months Ended Nine Months Ended
Investment Transaction September 30, 2004 September 30, 2003
- -----------------------------------------------------------------------------------------

Increases in investment in Belvedere Company $ - $ 95,047,136
Decreases in investment in Belvedere Company $ 20,313,631 $ 21,921,554
Acquisition of other real property(1) $162,569,648 $ -
Purchases of Partnership Preference Units(2) $ 57,172,890 $ 8,033,600
Sales of Partnership Preference Units(3) $ 80,429,389 $ -

(1) On June 30, 2004 and August 4, 2004, Belrose Realty purchased an indirect
investment in real property through a controlled subsidiary, Deerfield
for $9,339,576 and $153,230,072, respectively (Note 1).
(2) Purchases of Partnership Preference Units during the nine months ended
September 30, 2004 and September 30, 2003, represent Partnership Preference
Units purchased from other investment funds advised by Boston Management
and Research (Boston Management).
(3) Sales of Partnership Preference Units for the nine months ended September
30, 2004 include Partnership Preference Units sold to other investment
funds advised by Boston Management for which a gain of $1,946,870 was
recognized. There were no sales for the nine months ended September 30,
2003.

On May 3, 2004, Belrose Realty entered into an agreement to establish and
acquire a majority interest in a controlled subsidiary, Deerfield. During the
nine months ended September 30, 2004, Deerfield acquired a majority interest in
eighteen separate industrial distribution properties. The seller retained a
minority interest in the properties and an affiliate of the Deerfield Minority
Shareholder manages the properties. A portion of the Fund's indirect investment
in Deerfield represents a partial interest in certain property management
contracts. Other interested parties to the property management contracts include
an affiliate of the Deerfield Minority Shareholder. This partial interest
provides for Deerfield to receive cash flows from management fees and certain
other fees over the life of the contracts in amounts that exceed certain
preferred payments to other interested parties. The estimated value of
Deerfield's interest in the management contracts is approximately $1,500,000.
Such value was estimated based upon discounting expected cash flows over the
terms of the agreements. The value of such interests will be reviewed at least
annually and may be adjusted if there has been a significant change in economic
circumstances since the most recent valuation.

11

When Deerfield acquired the real estate investment, a portion of the real
estate's purchase price was allocated to the estimated fair value of in-place
leases in accordance with Statement of Financial Accounting Standards 141. At
September 30, 2004, the real estate investment balance includes the estimated
fair value of net favorable in-place leases totaling $77,516 at acquisition. The
properties are leased under fixed-term operating leases on a long-term basis. At
September 30, 2004, the minimum lease payments expected to be received by
Deerfield on leases with lease periods greater than one year are as follows:

Twelve Months Ending September 30, Amount
------------------------------------------------------
2005 $11,842,985
2006 9,628,634
2007 7,026,971
2008 6,441,022
2009 5,786,917
Thereafter 15,493,332
-----------
$56,219,861

In November 2004, Belrose Realty sold its majority interest in Bel Apartment
Properties Trust (Bel Apartment) to another fund advised by Boston Management,
for which a loss of approximately $1,500,000 was recognized.

4. Indirect Investment in the Portfolio

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

Nine Months Nine Months
Ended Ended
September 30, September 30,
2004 2003
- -------------------------------------------------------------------------------------------------------------------

Belvedere Company's interest in the Portfolio(1) $11,744,785,646 $9,775,572,306
The Fund's investment in Belvedere Company(2) $ 1,640,254,572 $1,483,730,463
Income allocated to Belvedere Company from the Portfolio $ 127,279,355 $ 102,346,416
Income allocated to the Fund from Belvedere Company $ 18,377,005 $ 15,416,108
Expenses allocated to Belvedere Company from the Portfolio $ 38,377,075 $ 31,352,609
Expenses allocated to the Fund from Belvedere Company $ 7,452,829 $ 6,320,138
Net realized gain (loss) from investment transactions and foreign currency
transactions allocated to Belvedere Company from the Portfolio $ 72,613,080 $ (10,803,952)
Net realized gain (loss) from investment transactions and foreign currency
transactions allocated to the Fund from Belvedere Company $ 8,798,135 $ (1,848,037)
Net change in unrealized appreciation (depreciation) of investments and
foreign currency allocated to Belvedere Company from the Portfolio $ (18,939,820) $ 898,392,188
Net change in unrealized appreciation (depreciation) of investments and
foreign currency allocated to the Fund from Belvedere Company $ 17,792 $ 139,042,412
- ------------------------------------------------------------------------------------------------------------------

(1) As of September 30, 2004 and 2003, the value of Belvedere Company's
interest in the Portfolio represents 65.9% and 62.1% of the Portfolio's net
assets, respectively.
(2) As of September 30, 2004 and 2003, the Fund's investment in Belvedere
Company represents 14.0% and 15.2% of Belvedere Company's net assets,
respectively.

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

12

September 30, December 31, September 30,
2004 2003 2003
----------------------------------------------------
Investments, at value $17,792,133,580 $17,584,390,762 $15,720,495,292
Other assets 38,445,443 25,462,745 22,166,551
- --------------------------------------------------------------------------------
Total assets $17,830,579,023 $17,609,853,507 $15,742,611,843
Loan Payable-Line of Credit 15,200,000 - -
Other liabilities 218,380 264,502 241,245
- --------------------------------------------------------------------------------
Total liabilities $ 15,418,380 $ 264,502 $ 241,245
- --------------------------------------------------------------------------------
Net assets $17,815,160,643 $17,609,589,005 $15,742,420,598
================================================================================
Dividends and interest $ 197,869,361 $ 232,925,912 $ 166,725,898
- --------------------------------------------------------------------------------
Investment adviser fee $ 57,812,972 $ 67,584,543 $ 49,370,631
Other expenses 1,911,200 2,295,653 1,730,334
- --------------------------------------------------------------------------------
Total expenses $ 59,724,172 $ 69,880,196 $ 51,100,965
- --------------------------------------------------------------------------------
Net investment income $ 138,145,189 $ 163,045,716 $ 115,624,933
Net realized gain (loss)
from investment
transactions and foreign
currency transactions 118,172,446 70,909,770 (17,942,587)
Net change in unrealized
appreciation (depreciation)
of investments and foreign
currency (29,473,230) 3,174,709,110 1,449,036,078
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 226,844,405 $ 3,408,664,596 $ 1,546,718,424
- --------------------------------------------------------------------------------

5. Interest Rate Swap Agreements

Belrose Capital has entered into interest rate swap agreements with Merrill
Lynch Capital Services, Inc. in connection with its real estate investments and
the associated borrowings. Under such agreements, Belrose Capital has agreed to
make periodic payments at fixed rates in exchange for payments at floating
rates. The notional or contractual amounts of these instruments may not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these investments is meaningful only when
considered in conjunction with all related assets, liabilities and agreements.
Interest rate swap agreements open at September 30, 2004 and December 31, 2003
are listed below.

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

10/03 $31,588 4.180% LIBOR + 0.30% 7/09 6/10 $ 94,517 $ 210,531
10/03 37,943 4.160% LIBOR + 0.30% 11/09 6/10 94,703 252,843
10/03 83,307 4.045% LIBOR + 0.30% - 6/10 503,085 960,493
06/04 40,000 4.875% LIBOR + 0.00% - 6/12 (1,541,610)* -
- ------------------------------------------------------------------------------------------------------------------
Total $ (849,305) $1,423,867
- ------------------------------------------------------------------------------------------------------------------

* On May 3, 2004, Belrose Capital entered into a $108,168,000 forward
interest rate swap agreement with Merrill Lynch Capital Services, Inc. in
anticipation of its future investment in a controlled subsidiary Deerfield
for the purpose of hedging Belrose Realty's proportionate share of the
interest rate of substantially all of the expected fixed-rate mortgage
financing of the real property over the expected 8-year term. A portion of
this agreement was terminated in July 2004 and the Fund realized a gain of
$60,454 upon the partial termination. Belrose Capital retains a $40,000,000
notional amount in this interest rate swap agreement as of September 30,
2004.

13

6. Debt

In August 2004, Belrose Capital made borrowings under its credit arrangement
with Merrill Lynch Mortgage Capital, Inc. (Merrill Lynch) in the amount of
$57,000,000. At that time, Belrose Capital also increased the amount available
with Merrill Lynch under a temporary arrangement (the Temporary Arrangement) by
$66,000,000 and borrowed that amount. Belrose Capital used the proceeds from
these borrowings to finance the Fund's investment in Deerfield (Note 3). 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 Belrose Capital, excluding the assets of Bel Apartment Properties
Trust (Bel Apartment), Katahdin Property Trust LLC (Katahdin), Bel Communities
Property Trust (Bel Communities) and Deerfield, secure all borrowings under the
credit arrangements with Merrill Lynch.

On October 6, 2004, Deerfield obtained first mortgage financing for its
investment in real properties in the amount of $123,000,000. The mortgage note,
which bears interest at a fixed rate of 5.71% per annum, is secured by all of
the Deerfield properties and is without recourse to Belrose Realty, Belrose
Capital and its Shareholders. Pursuant to an agreement between Belrose Realty
and the Deerfield Minority Shareholder, Belrose Realty may (but is not obligated
to) make loans to Deerfield to fund certain items such as debt service,
insurance or property taxes. Interest payments are due monthly, starting
December 1, 2004, with the unpaid principal due on September 1, 2012. The
proceeds from this financing were subsequently distributed to Belrose Realty and
the Deerfield Minority Shareholder in accordance with their equity interests.
The proceeds from this transaction along with other funds available were used to
repay Belrose Capital's borrowings under the Temporary Arrangement as well as a
portion of other borrowings under the Credit Facility. Pursuant to its terms,
the Temporary Arrangement expired on October 29, 2004. As of November 9, 2004,
outstanding borrowings under the credit arrangement with DrKW totaled
$216,000,000 while there were no outstanding borrowings under the credit
arrangement with Merrill Lynch.

7. Segment Information

Belrose Capital pursues its investment objective primarily by investing
indirectly in the Portfolio through Belvedere Company. The Portfolio is a
diversified investment company that emphasizes investments in common stocks of
domestic and foreign growth companies that are considered to be high in quality
and attractive in their long-term investment prospects. Separate from its
investment in Belvedere Company, Belrose Capital invests in real estate assets
through its subsidiary Belrose Realty. Belrose Realty invests directly in
Partnership Preference Units and indirectly in real property through controlled
subsidiaries, Bel Apartment, Katahdin, Bel Communities and Deerfield (Note 1).

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

14

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

Revenue $ 3,709,281 $ 19,749,341 $ 23,458,622
Interest expense on mortgages - (6,579,568) (6,579,568)
Interest expense on Credit Facility - (1,187,566) (1,187,566)
Operating expenses (295,422) (11,855,387) (12,150,809)
Minority interest in net income of controlled
subsidiaries - (292,336) (292,336)
- ----------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 3,413,859 $ (165,516) $ 3,248,343
Net realized gain 8,534 5,594,262 5,602,796
Net change in unrealized appreciation (depreciation) (39,334,050) (13,673,342) (53,007,392)
- ----------------------------------------------------------------------------------------------------------------
Net decrease in net assets from operations of
reportable segments $ (35,911,657) $ (8,244,596) $ (44,156,253)
- ----------------------------------------------------------------------------------------------------------------

Tax-Managed
For the Three Months Ended Growth Real
September 30, 2003 Portfolio* Estate Total
- ----------------------------------------------------------------------------------------------------------------
Revenue $ 3,086,525 $ 17,291,184 $ 20,377,709
Interest expense on mortgages - (6,579,654) (6,579,654)
Interest expense on Credit Facility - (599,191) (599,191)
Operating expenses (239,468) (7,992,486) (8,231,954)
Minority interest in net income of controlled
subsidiaries - (526,835) (526,835)
- ----------------------------------------------------------------------------------------------------------------
Net investment income $ 2,847,057 $ 1,593,018 $ 4,440,075
Net realized gain (loss) 1,072,597 (1,189,097) (116,500)
Net change in unrealized appreciation (depreciation) 29,866,436 2,897,652 32,764,088
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations of
reportable segments $ 33,786,090 $ 3,301,573 $ 37,087,663
- ----------------------------------------------------------------------------------------------------------------

Tax-Managed
For the Nine Months Ended Growth Real
September 30, 2004 Portfolio* Estate Total
- ----------------------------------------------------------------------------------------------------------------
Revenue $ 10,924,176 $ 56,283,822 $ 67,207,998
Interest expense on mortgages - (19,738,667) (19,738,667)
Interest expense on Credit Facility - (2,443,033) (2,443,033)
Operating expenses (914,326) (27,854,888) (28,769,214)
Minority interest in net income of controlled
subsidiaries - (1,274,058) (1,274,058)
- ----------------------------------------------------------------------------------------------------------------
Net investment income $ 10,009,850 $ 4,973,176 $ 14,983,026
Net realized gain 8,798,135 1,750,929 10,549,064
Net change in unrealized appreciation (depreciation) 17,792 (10,450,741) (10,432,949)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations
of reportable segments $ 18,825,777 $ (3,726,636) $ 15,099,141
- ----------------------------------------------------------------------------------------------------------------

15

Tax-Managed
For the Nine Months Ended Growth Real
September 30, 2003 Portfolio* Estate Total
- ----------------------------------------------------------------------------------------------------------------
Revenue $ 9,095,970 $ 51,945,066 $ 61,041,036
Interest expense on mortgages - (19,738,536) (19,738,536)
Interest expense on Credit Facility - (2,005,753) (2,005,753)
Operating expenses (658,521) (23,956,756) (24,615,277)
Minority interest in net income of controlled
subsidiaries - (1,500,532) (1,500,532)
- ----------------------------------------------------------------------------------------------------------------
Net investment income $ 8,437,449 $ 4,743,489 $ 13,180,938
Net realized loss (1,848,037) (3,371,735) (5,219,772)
Net change in unrealized appreciation (depreciation) 139,042,412 9,075,210 148,117,622
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations of
reportable segments $ 145,631,824 $ 10,446,964 $ 156,078,788
- ----------------------------------------------------------------------------------------------------------------

Tax-Managed
Growth Real
At September 30, 2004 Portfolio* Estate Total
- ----------------------------------------------------------------------------------------------------------------
Segment assets $1,640,254,572 $ 732,270,389 $2,372,524,961
Segment liabilities - 723,458,560 723,458,560
- ----------------------------------------------------------------------------------------------------------------

Net assets of reportable segments $1,640,254,572 $ 8,811,829 $1,649,066,401
- ----------------------------------------------------------------------------------------------------------------

At December 31, 2003
- ----------------------------------------------------------------------------------------------------------------
Segment assets $1,640,828,100 $ 544,254,775 $2,185,082,875
Segment liabilities - 533,483,765 533,483,765
- ----------------------------------------------------------------------------------------------------------------

Net assets of reportable segments $1,640,828,100 $ 10,771,010 $1,651,599,110
- ----------------------------------------------------------------------------------------------------------------

* Belrose 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 Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
----------------------------------------------------------------------------------

Revenue:
Revenue from reportable segments $ 23,458,622 $ 20,377,709 $ 67,207,998 $ 61,041,036
Unallocated amounts:
Interest earned on cash not invested
in the Portfolio or in subsidiaries 48,034 4,481 111,225 12,293
----------------------------------------------------------------------------------
Total revenue $ 23,506,656 $ 20,382,190 $ 67,319,223 $ 61,053,329
----------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations:
Net (decrease) increase in net assets
from operations of reportable $ (44,156,253) $ 37,087,663 $ 15,099,141 $ 156,078,788
segments
Unallocated investment income:
Interest earned on cash not invested
in the Portfolio or in subsidiaries 48,034 4,481 111,225 12,293
Unallocated expenses(1):
Distribution and servicing fees (797,907) (731,562) (2,427,312) (2,028,314)
Audit, tax and legal fees (37,177) (37,178) (113,065) (240,839)
Interest expense on Credit Facility (260,686) (53,997) (536,276) (128,027)
Other operating expenses (25,361) (80,463) (79,231) (143,753)
----------------------------------------------------------------------------------
Total net (decrease) increase in net
assets from operations $ (45,229,350) $ 36,188,944 $ 12,054,482 $ 153,550,148
----------------------------------------------------------------------------------

September 30, 2004 December 31, 2003
------------------ -----------------
Net assets:
Net assets of reportable segments $1,649,066,401 $1,651,599,110
Unallocated amounts:
Cash(2) 95,363 412,226
Short-term investments(2) 3,943,000 7,614,214
Loan payable - Credit Facility(3) (41,311,478) (27,026,426)
Other liabilities (175,207) (144,366)
------------------ -----------------
Total net assets $1,611,618,079 $1,632,454,758
------------------ -----------------

(1) Unallocated expenses represent costs incurred that pertain to the overall
operation of Belrose Capital, and do not pertain to either operating
segment.

(2) Unallocated cash and short-term investments represent cash and cash
equivalents not invested in the Portfolio or real estate assets.

(3) Unallocated amount of loan payable - Credit Facility represents borrowings
not specifically used to fund real estate investments. Such borrowings are
generally used to pay selling commissions, organization expenses and other
liquidity needs of the Fund.

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 Belrose Capital Fund
LLC (the Fund) could differ materially from those contained in the
forward-looking statements due to a number of factors. The Fund undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise, except as required by
applicable law. Factors that could affect the Fund's performance include a
decline in the U.S. stock markets or in general economic conditions, adverse
developments affecting the real estate industry, or fluctuations in interest
rates.

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

RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2004 COMPARED TO THE
QUARTER ENDED SEPTEMBER 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 Belrose Realty Corporation (Belrose Realty). The
Fund's investment income includes the net investment income allocated to the
Fund from Belvedere Capital Fund Company LLC (Belvedere Company), rental income
from the properties owned by Belrose Realty's controlled subsidiaries,
partnership income allocated to the income-producing preferred equity interests
in real estate operating partnerships (Partnership Preference Units) owned by
Belrose Realty and interest earned on the Fund's short-term investments (if
any). The net investment income of Belvedere Company allocated to the Fund
includes dividends, 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 Belrose Realty's
controlled subsidiaries, interest expense on the Fund's Credit Facility (as
described in Item 2(b) below), property management fees, property taxes,
insurance, maintenance and other expenses relating to the properties owned by
Belrose Realty's controlled subsidiaries, and other miscellaneous expenses. The
Fund's realized and unrealized gains and losses are the result of transactions
in, or changes in value of, security investments held through the Fund's
indirect interest (through Belvedere Company) in the Portfolio, real estate
investments held through Belrose Realty, the Fund's interest rate swap
agreements and any other direct investments of the Fund, as well as periodic
payments made by the Fund pursuant to interest rate swap agreements.

Realized and unrealized gains and losses on investments have the most
significant impact on the Fund's net asset value per share and result primarily
from sales of such investments and changes in their underlying value. The
investments of the Portfolio consist primarily of common stocks of domestic and
foreign growth companies that are considered 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 S&P 500 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
- ----------------------------
(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

is on the Fund's common stock portfolio, which consists of its indirect interest
in the Portfolio. In measuring the performance of the Fund's real estate
investments held through Belrose 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 Belrose 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 -2.72% for the quarter ended September 30, 2004.
This return reflects a decrease in the Fund's net asset value per share from
$98.44 to $95.77 during the period. The total return of the S&P 5 00 w as -1.87%
over the same period. The performance of the Fund trailed that of the Portfolio
by approximately 0.68% during the period. Last year, the Fund had a total return
performance of 2.53% for the quarter ended September 30, 2003. This return
reflected an increase in the Fund's net asset value per share from $83.43 to
$85.54 during the period. The S&P 500 had a total return of 2.65% over the same
period. The performance of the Fund exceeded that of the Portfolio by
approximately 0.18% during th at period.

PERFORMANCE OF THE PORTFOLIO. For the quarter ended September 30, 2004, the
Portfolio's total return was - experienced a loss of 2.04%, slightly lower worse
than the S&P 500 Index, which posted a -declined 1.87% return during the
quarter. The third quarter of 2004 was disappointing for equity returns, as
pre-election jitters and moderating earnings growth expectations in the face of
rising oil prices and higher short-term interest rates weighed on the markets.

During the third quarter of 2004, value stocks generally outperformed growth
stocks. The Portfolio's modest underperformance during this period was
attributable in part to a relative underweight of the market's strongest
performing industries, specifically electric utilities, diversified telecom and
metals. Investor anxiety over higher short-term interest rates and the
unrelenting surge in oil prices pressured economically sensitive sectors,
particularly consumer discretionary and information technology stocks. The
Portfolio benefited from a decreased exposure to media, specialty retail and
semiconductor industries during the quarter ended September 30, 2004. The
Portfolio's ongoing emphasis of the energy sector was also beneficial, as energy
stocks advanced on record high oil prices. Within the financials sector,
recognizing increased interest rate risk, the Portfolio correctly redeployed
assets in less interest-sensitive industries. The Portfolio's de-emphasis of the
pharmaceuticals was also helpful, given political and company specific headwinds
faced by health care stocks in the third quarter of 2004.

For the quarter ended September 30, 2003, the Portfolio's total return was 13.54
2.35 % compared to the 2.65 15.39 % total return for achieved by the S&P 500.
Favorable fiscal and monetary policies, resilient consumer spending and positive
earnings momentum contributed to the market's strength during the third quarter
of 2003. The Portfolio's stock selection and underweighting of the
telecommunication and health care sectors were beneficial during the quarter
ended September 30, 2003, but not sufficient to offset the impact of the
Portfolio's underweighting during that quarter of the information technnology
sector (the best performing sector during the quarter). 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 Belrose Realty. As of September 30, 2004, real estate investments
included four real estate joint ventures (Real Estate Joint Ventures) and a
portfolio of Partnership Preference Units issued by partnerships affiliated with
publicly traded real estate investment trusts (REITs). The Real Estate Joint
Ventures operate multifamily or industrial distribution properties. As of
September 30, 2004, the estimated fair value of the Fund's real estate
investments represented 30.0% of the Fund's total assets on a consolidated
basis. After adjusting for minority interests in the Real Estate Joint Ventures,
the Fund's real estate investments represented 35.8% of the Fund's net assets as
of September 30, 2004.

On August 4, 2004, Deerfield Property Trust (Deerfield), a Real Estate Joint
Venture, through its interest in ProLogis Six Rivers Limited Partnership (Six
Rivers), participated in the merger of Six Rivers with Keystone Property Trust
(Keystone), a publicly-held REIT . As part of the Keystone transaction,
Deerfield increased its ownership interest in the properties acquired during the
quarter ended June 30, 2004 to 100% and acquired a partnership interest in Six
Rivers. Through its interest in Six Rivers, Deerfield acquired 100% of the
economic interest in certain industrial distribution properties for
approximately $191.5 million. Belrose Realty owns a majority interest in
Deerfield, ProLogis owns a minority interest in Deerfield and ProLogis or an
affiliate thereof manages the properties. Deerfield obtained first mortgage
financing of $123.0 million on October 6, 2004, which is secured by the
properties it owns and is without recourse to Belrose Realty, the Fund or its
Shareholders. Pursuant to an agreement between Belrose Realty and ProLogis,
Belrose Realty may (but is not obligated to) make loans to Deerfield to fund
certain items such as debt service, insurance or property taxes.

19

During the quarter ended September 30, 2004, rental income from real estate
operations was approximately $19.1 million compared to approximately $16.1
million for the quarter ended September 30, 2003, an increase of $3.0 million or
19%. This increase in rental income was due to income from the industrial
distribution properties acquired on June 30 and August 4, 2004, and an increase
in income from multifamily properties due to modest increases in apartment
rental rates net of concessions during the quarter. For the quarter ended
September 30, 2003, rental income increased principally due to the greater
number of properties held as compared to the same quarter in 2002 offset in part
by increased rent concessions or reduced apartment rental rates and lower
occupancy levels at properties owned by the Real Estate Joint Ventures during
the quarter.

During the quarter ended September 30, 2004, property operating expenses were
approximately $10.7 million compared to approximately $7.2 million for the
quarter ended September 30, 2003, an increase of 49% (property operating
expenses are before certain operating expenses of Belrose Realty of
approximately $1.2 million for the quarter ended September 30, 2004 and $0.8
million for the quarter ended September 30, 2003). The net increase in property
operating expenses was principally due to the expenses of the industrial
distribution properties acquired on June 30 and August 4, 2004, and also due to
a 7% increase in property taxes and insurance expenses at multifamily properties
as well as a 5% increase in property and maintenance expenses at multifamily
properties during the quarter. During the quarter ended September 30, 2003,
property operating expenses increased principally due to the greater number of
properties held through the Real Estate Joint Ventures during the quarter.

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. Boston Management expects
that multifamily real estate operating results for the remainder of 2004 will
continue to be similar to 2003. In 2004, many industrial markets in the United
States began to experience increased demand for space after several years of
occupancy and rental rate declines. For many industrial distribution properties,
reduced rent levels are likely to continue over the near term as above-market
leases mature and space is released at current market rates. Boston Management
expects that improvements in multifamily and industrial distribution property
operating performance will occur over the longer term.

At September 30, 2004, the estimated fair value of the real properties
indirectly held through Belrose Realty (including the interest in property
management contracts described in Note 3 to the Fund's unaudited condensed
consolidated financial statements in Item 1 above) was approximately $681.9
million compared to approximately $473.3 million at September 30, 2003, a net
increase of $208.6 million or 44%. The net increase in estimated real property
values at September 30, 2004 as compared to September 30, 2003 was principally
due to the properties acquired by Deerfield. The increase in estimated property
values at September 30, 2003 as compared to September 30, 2002 was primarily due
to the greater number of properties held through the Real Estate Joint Ventures
during the third quarter of 2003. In addition, estimated property values
increased slightly due to decreases in capitalization rates, which partially
offset declining income level expectations during that quarter. The
capitalization rate, a term commonly used in the real estate industry, is the
rate of return percentage applied to actual or projected income levels to
estimate the value of real estate investments.

During the quarter ended September 30, 2004, the Fund saw net unrealized
depreciation of the estimated fair value of its other real estate investments
(which includes the Real Estate Joint Ventures) of approximately $1.2 million
compared to unrealized depreciation of approximately $1.1 million during the
quarter ended September 30, 2003. Net unrealized depreciation during the quarter
ended September 30, 2004 consisted of approximately $0.8 million of unrealized
depreciation due to certain legal and transaction costs associated with
Deerfield's acquisitions and approximately $0.4 million of net unrealized
depreciation resulting from declines in estimated property values. Unrealized
depreciation during the quarter ended September 30, 2003 resulted from decreases
in estimated property values during the quarter.

In November 2004, Belrose Realty sold its interest in one of its Real Estate
Joint Ventures, Bel Apartment Properties Trust, for approximately $32.4 million
to another investment fund advised by Boston Management, recognizing a loss of
$1.5 million on the transaction.

During the quarter ended September 30, 2004, Belrose Realty sold certain of its
Partnership Preference Units totaling approximately $39.3 million (representing
sales to other investment funds advised by Boston Management), recognizing a
gain of approximately $6.8 million on the transactions. At September 30, 2004,
the estimated fair value of Belrose Realty's Partnership Preference Units
totaled approximately $30.4 million compared to approximately $56.8 million at
September 30, 2003, a net decrease of $26.4 million or 47%. While the net
decrease in value was due principally to fewer Partnership Preference Units held
at September 30, 2004, the net decrease also reflects lower per unit values of
the Partnership Preference Units held at September 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

20

Preference Units in advance of their call dates. As a result, many of the
higher-yielding Partnership Preference Units held by Belrose Realty during the
quarter ended September 30, 2003 were no longer held at September 30, 2004.
Boston Management expects this trend to continue through 2004. At September 30,
2003, the estimated fair value of Partnership Preference Units had increased
principally due to a greater number of units held as compared to September 30,
2002.

During the quarter ended September 30, 2004, the Fund saw net unrealized
depreciation in the estimated fair value of its Partnership Preference Units of
approximately $6.5 million compared to net unrealized depreciation of
approximately $0.3 million during the quarter ended September 30, 2003. Net
unrealized depreciation of approximately $6.5 million during the third quarter
of 2004 resulted from the recharacterization of previously recorded unrealized
appreciation to realized gains due to sales of Partnership Preference Units
during the quarter ended September 30, 2004.

Distributions from Partnership Preference Units for the quarter ended September
30, 2004 totaled approximately $0.7 million compared to approximately $1.2
million for the quarter ended September 30, 2003, a decrease of $0.5 million or
42%. The decrease was principally due to fewer Partnership Preference Units held
on average, as well as lower average distribution rates for the Partnership
Preference Units held during the quarter ended September 30, 2004. During the
quarter ended September 30, 2003, distributions increased due to the greater
number of Partnership Preference Units held as compared to the same quarter in
2002.

PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the quarter ended September
30, 2004, net realized and unrealized losses on the Fund's interest rate swap
agreements totaled approximately $7.2 million, compared to net realized and
unrealized gains of approximately $3.1 million for the quarter ended September
30, 2003. Net realized and unrealized losses on swap agreements for the quarter
ended September 30, 2004 consisted of $6.0 million of unrealized depreciation
due to changes in swap agreement valuations and $1.2 million of periodic
payments made pursuant to outstanding swap agreements (and classified as net
realized losses on the interest rate swap agreements). For the quarter ended
September 30, 2003, net realized and unrealized gains on swap agreements
consisted of unrealized appreciation of $4.3 million on swap agreement valuation
changes, offset in part by $1.2 million of swap agreement periodic payments. The
negative impact on Fund performance for the quarter ended September 30, 2004
from changes in swap agreement valuations was attributable to a decline in swap
rates during the period. The positive contribution to Fund performance for the
quarter ended September 30, 2003 was attributable to an increase in swap rates
during the period.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 2003

PERFORMANCE OF THE FUND. The Fund's total return was 0.73% for the nine months
ended September 30, 2004. This return reflects a decrease in the Fund's net
asset value per share from $95.84 to $95.77 and a distribution of $0.77 per
share during the period. The S&P 500 had a total return of 1.51% over the same
period. The performance of the Fund trailed that of the Portfolio by
approximately 0.60% during the period. Last year, the Fund had a total return
performance of 11.36% for the nine months ended September 30, 2003. This return
reflected an increase in the Fund's net asset value per share from $76.86 to
$85.54 and a distribution of $0.05 per share. The S&P 500 had a total return of
14.71% over the same period. The performance of the Fund exceeded that of the
Portfolio by 0.62% during that period.

PERFORMANCE OF THE PORTFOLIO. For the nine months ended September 30, 2004, the
Portfolio's total return was 1.33%, slightly lower than the S&P 500 Index, which
returned 1.51% for the period. U.S. equity markets remained range-bound during
the period, restrained by investor anxiety over higher short-term interest
rates, rising energy prices and moderating consumer spending. Geopolitical and
economic concerns were offset by low inflation levels, continued earnings
strength and attractive valuations. Investors returned to quality,
dividend-paying stocks, avoiding last year's high volatility, low quality
investments. During the first nine months of 2004, mid-cap stocks outperformed
large-caps and small-caps, and value stocks trounced growth investments.

The Portfolio's modest underperformance during this period was attributable in
part to adverse stock selection within the market's lagging sectors. Investments
within media, retail and health care service industries detracted from returns.
The Portfolio maintained an overweight of industrials stocks and benefited from
advances in airfreight, defense and machinery holdings. While the information
technology and consumer staples sectors lagged the market during the first nine
months of 2004, the Portfolio's allocation and investment selections within
computer peripherals and food products were beneficial. The Portfolio's ongoing
emphasis of the commodity-related investments in the energy and materials
sectors was also positive, as stocks advanced on higher commodity prices. During
the nine months ended September 30, 2004, the Portfolio continued to underweight
the utilities and telecom sectors.

21

For the nine months ended September 30, 2003, the Portfolio's total return was
10.74% compared to the 14.71% total return achieved by the S&P 500. In March of
2003, equity markets began a sharp rally coincident with U.S. military success
in Iraq and the development of stronger economic conditions domestically. 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 nine months ended September
30, 2004, Belrose Realty purchased certain real estate investments. On June 30,
2004, Deerfield acquired a majority interest in certain industrial distribution
properties from ProLogis for approximately $9.3 million. ProLogis retained a
minority interest in the properties. In May 2004, Belrose Realty entered into
agreements with ProLogis to form Six Rivers (in association with subsidiaries of
other investment funds advised by Boston Management) and to merge Six Rivers
with Keystone. The transactions contemplated by these agreements were
consummated on August 4, 2004. As a result of the transactions, Deerfield
acquired a partnership interest in Six Rivers. In addition, ProLogis acquired a
minority interest in Deerfield. Through its interest in Six Rivers, Deerfield
owns 100% of the economic interest in certain industrial distribution properties
acquired through the merger of Six Rivers and Keystone for approximately $191.5
million. On October 6, 2004, Deerfield obtained first mortgage financing of
approximately $123.0 million secured by its properties. At the time of
acquisition, the Fund provided interim financing for Deerfield.

During the nine months ended September 30, 2004, rental income from real estate
operations was approximately $51.6 million compared to approximately $48.5 for
the nine months ended September 30, 2003, an increase of $3.1 million or 6%.
This increase was due to income from the industrial distribution properties
acquired on June 30 and August 4, 2004, as well as modest increases in apartment
rental rates net of concessions during the period. For the nine months ended
September 30, 2003, rental income increased principally due to the greater
number of Real Estate Joint Ventures held through Belrose Realty during the
period (and the longer period of time for which such Real Estate Joint Ventures
were held) compared to the period ended September 30, 2002. During this period,
multifamily properties were affected by weak multifamily market fundamentals in
most regions with low occupancy levels and increased rent concessions.

During the nine months ended September 30, 2004, property operating expenses
were approximately $25.1 million compared to approximately $21.5 million for the
nine months ended September 30, 2003, a net increase of $3.6 million or 17%
(property operating expenses are before certain operating expenses of Belrose
Realty of approximately $2.8 million for the nine months ended September 30,
2004 and $2.5 million for the nine months ended September 30, 2003). The
increase in property operating expenses during the nine months ended September
30, 2004 was principally due to the expenses of the industrial distribution
properties acquired on June 30 and August 4, 2004. During the nine months ended
September 30, 2003, property operating expenses increased principally due to the
greater number of Real Estate Joint Ventures held through Belrose Realty during
the period (and the longer period of time for which such Real Estate Joint
Ventures were held) compared to the period ended September 30, 2002. The near
term outlook for multifamily property operations continues to be weak. As
discussed above, 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. Additionally,
while conditions in many industrial markets began to improve in 2004, reduced
rental rates are likely to continue over the near term.

The estimated fair value of the real properties indirectly held through Belrose
Realty was approximately $681.9 million at September 30, 2004 compared to
approximately $473.3 million at September 30, 2003, a net increase of $208.6
million or 44%. The net increase in estimated real property values at September
30, 2004 as compared to September 30, 2003 was principally due to the properties
acquired by Deerfield. The increase in estimated property values at September
30, 2003 was primarily due to the greater number of Real Estate Joint Ventures
held at September 30, 2003 as compared to September 30, 2002. In addition,
estimated property values increased slightly during that period due to decreases
in capitalization rates, which partially offset declining income level
expectations.

During the nine months ended September 30, 2004, the Fund saw net unrealized
depreciation in the estimated fair value of its other real estate investments
(which includes the Real Estate Joint Ventures) of approximately $0.1 million
compared to net unrealized appreciation of approximately $2.8 million during the
nine months ended September 30, 2003. Net unrealized depreciation of $0.1
million during the nine months ended September 30, 2004 was due to modest net
depreciation in the value of Belrose Realty's interests in the Real Estate Joint
Ventures and certain legal and transaction costs associated with the Deerfield
acquisitions. Unrealized appreciation during the nine months ended September 30,
2003 was due to modest increases in estimated asset values during the period.

22

During the nine months ended September 30, 2004, Belrose Realty sold (or
experienced scheduled redemptions of) certain of its Partnership Preference
Units totaling approximately $80.4 million (including sales to other investment
funds advised by Boston Management), recognizing gains of approximately $5.0
million on the transactions. During the nine months ended September 30, 2004,
Belrose Realty also acquired interests in additional Partnership Preference
Units from other investment funds advised by Boston Management totaling
approximately $57.2 million. At September 30, 2004, the estimated fair value of
Belrose Realty's Partnership Preference Units totaled approximately $30.4
million compared to approximately $56.8 million at September 30, 2003, a
decrease of $26.4 million or 47%. The decrease was principally due to fewer
Partnership Preference Units held on average, as well as lower average
distribution rates for the Partnership Preference Units held during the nine
months ended September 30, 2004. During the nine months ended September 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. At September 30, 2003, the increase
in the estimated fair value of the Fund's Partnership Preference Units was
principally due to the greater number of Partnership Preference Units held at
September 30, 2003 as compared to September 30, 2002 and to net increases in the
per unit value of the Partnership Preference Units during the period.

The Fund saw net unrealized depreciation in the estimated fair value of its
Partnership Preference Units of approximately $8.1 million during the nine
months ended September 30, 2004 compared to net unrealized appreciation of
approximately $6.9 million for the nine months ended September 30, 2003. The net
unrealized depreciation of approximately $8.1 million in the first nine months
of 2004 consisted of approximately $2.3 million of unrealized depreciation
resulting from decreases in per unit values of the Partnership Preference Units
held by Belrose Realty during the period and approximately $5.8 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 nine months ended September 30, 2004. Net unrealized
appreciation during the nine months ended September 30, 2003 resulted from
increases in per unit values of Partnership Preference Units and the greater
number of Partnership Preference Units held during the period.

Distributions from Partnership Preference Units for the nine months ended
September 30, 2004 totaled approximately $4.6 million compared to approximately
$3.4 million for the nine months ended September 30, 2003, an increase of $1.2
million or 35%. The increase was due to the larger number of Partnership
Preference Units held on average during the nine months ended September 30, 2004
and to a one-time special distribution from one issuer made in connection with a
restructuring of its Partnership Preference Units. For the nine months ended
September 30, 2003, distributions increased due to the larger number of
Partnership Preference Units held during the first three quarters of 2003 as
compared to the period ended September 30, 2002.

PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the nine months ended
September 30, 2004, net realized and unrealized losses on the Fund's interest
rate swap agreements totaled approximately $5.5 million, compared to net
realized and unrealized losses of approximately $4.0 million for the nine months
ended September 30, 2003. Net realized and unrealized losses on swap agreements
for the nine months ended September 30, 2004 consisted of $2.3 million of
unrealized depreciation due to changes in swap agreement valuations and $3.3
million of periodic payments made pursuant to outstanding swap agreements (and
classified as net realized losses on interest rate swap agreements). For the
nine months ended September 30, 2003, net realized and unrealized losses on swap
agreements consisted of unrealized depreciation of $0.6 million on swap
agreement valuation changes and $3.4 million of swap agreement periodic
payments. The negative impact on Fund performance for the nine months ended
September 30, 2004 from changes in swap agreement valuations was attributable to
a decline in swap rates during the period. The negative impact on Fund
performance for the nine months ended September 30, 2003 from changes in swap
valuations was due to a modest decline in swap rates with shorter terms during
the period.

(b) LIQUIDITY AND CAPITAL RESOURCES.

OUTSTANDING BORROWINGS. The Fund has entered into credit arrangements with DrKW
Holdings, Inc. and Merrill Lynch Mortgage Capital, Inc. (collectively, the
Credit Facility) primarily to finance the Fund's real estate investments and
will continue to use the Credit Facility for such purpose in the future. The
Credit Facility may also be used for other purposes, including any 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 September 30, 2004, the Fund had outstanding
borrowings of $336.9 million and no unused loan commitments under the Credit
Facility.

In August 2004, the Fund made borrowings under its credit arrangement with
Merrill Lynch Mortgage Capital, Inc. (Merrill Lynch) in the amount of $57
million. At that time, the Fund also temporarily increased the amount available
under its credit arrangement with Merrill Lynch by $66.0 million and borrowed

23

that amount. The additional $66.0 million of borrowings was at a rate of
one-month LIBOR plus 0.90% and was for a term of up to sixty-days. The Fund used
the total proceeds from these borrowings to finance the acquisitions by
Deerfield of interests in certain industrial distribution properties. On October
6, 2004, Deerfield obtained first mortgage financing for its properties, the
proceeds from which were used to reduce the Fund's Merrill Lynch borrowings. As
of November 9, 2004, there were no outstanding borrowings under the Merrill
Lynch credit arrangement. There was a $2.1 million letter of credit issued.

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 that fluctuate with one or three month
LIBOR. During the terms of the outstanding interest rate swap agreements,
changes in the underlying values of the agreements are recorded as unrealized
appreciation or depreciation. As of September 30, 2004, the unrealized
depreciation related to the interest rate swap agreements was approximately $0.8
million. As of September 30, 2003, the unrealized depreciation related to the
interest rate swap agreements was approximately $12.2 million.

(c) CRITICAL ACCOUNTING ESTIMATES.

The Fund's critical accounting estimates are described in Item 7(e) of its
Annual Report on Form 10-K for the year ended December 31, 2003. The Fund's
critical accounting estimates as they relate to Real Estate Joint Ventures have
been updated to reflect the valuation of Belrose Realty's interest in Deerfield.
The following discussion replaces the discussion of such estimates included in
the Fund's Annual Report. The discussion of the Fund's critical accounting
estimates included in the Annual Report is otherwise unchanged.

REAL ESTATE JOINT VENTURES. Boston Management determines the estimated fair
value of the Fund's interest in each Real Estate Joint Venture based primarily
on annual appraisals of the properties owned by such Real Estate Joint Venture
(provided such appraisals are available) and an allocation of the equity value
of the Real Estate Joint Venture between the Fund and the Operating Partner.
Appraisals of Real Estate Joint Venture properties may be conducted more
frequently than once a year if Boston Management determines that significant
changes in economic circumstances that may materially impact estimated property
values have occurred since the most recent appraisal.

In deriving the estimated value of a property, an appraiser considers numerous
factors, including the expected future cash flows from the property, recent sale
prices for similar properties and, if applicable, the replacement cost of the
property in order to derive an indication of the amount that a prudent, informed
purchaser-investor would pay for the property. More specifically, the appraiser
considers the revenues and expenses of the property and the estimated future
growth or decline thereof, which may be based on tenant quality, property
condition, neighborhood change, market trends, interest rates, inflation rates
or other factors deemed relevant by the appraiser. The appraiser estimates
operating cash flows from the property and the sale proceeds of a hypothetical
transaction at the end of a hypothetical holding period. The cash flows are
discounted to their present values using a market-derived discount rate and are
added together to obtain a value indication. This value indication is compared
to the value indication that results from applying a market-derived
capitalization rate to a single years' stabilized net operating income for the
property. The assumed capitalization rate may be extracted from local market
transactions or, when transaction evidence is lacking, obtained from trade
sources. The appraiser considers the value indications derived by these two
methods, as well as the value indicated by recent market transactions involving
similar properties, in order to produce a final value estimate for the property.

Appraisals of properties owned by each Real Estate Joint Venture are conducted
by independent appraisers who are licensed in their respective states and not
affiliated with Eaton Vance or the Operating Partners. Each appraisal is
conducted in accordance with the Uniform Standards Board and the Code of
Professional Appraisal Practice of the Appraisal Institute (as well as other
relevant standards). Boston Management reviews the appraisal of each property
and generally relies on the assumptions and judgments made by the appraiser.
Property appraisals are inherently uncertain because they apply assumed discount
rates, capitalization rates, growth rates and inflation rates to the appraiser's
estimated stabilized cash flows, and due to the unique characteristics of a
property, which may affect its value but may not be taken into account. If the
assumptions and estimates used by the appraisers to determine the value of the
properties owned by the Real Estate Joint Ventures were to change, it may
materially impact the estimated fair value of the Real Estate Joint Ventures.
When a property owned by a Real Estate Joint Venture has not been appraised
(such as when the Real Estate Joint Venture recently acquired the property),
Boston Management determines the estimated fair value of the property based on
the transaction value of the property, which equals the total acquisition cost
of the property exclusive of certain legal and transaction costs. Once an
appraisal of that property has been conducted, Boston Management will base the
estimated fair value of the property on the estimated value as determined by the
appraiser. Appraisals of newly acquired properties are conducted throughout the

24

year following the acquisition. If the appraised value of the property differs
significantly from the transaction value of the property, it may materially
impact the estimated fair value of the Real Estate Joint Venture.

Boston Management determines the estimated fair value of the Fund's equity
interest in each Real Estate Joint Venture based on an estimate of the
allocation of equity interests between the Fund and the Operating Partner. This
allocation is calculated by a third party specialist, provided appraisals have
been conducted of all of the properties owned by the Real Estate Joint Venture.
The specialist uses a financial model that considers the (i) terms of the joint
venture agreement relating to allocation of distributable cash flow, (ii) the
duration of the joint venture; and (iii) the projected property values and cash
flows from the properties based on estimates made by the appraisers. The
estimated allocation of equity interests between the Fund and the Operating
Partner of each Real Estate Joint Venture is prepared quarterly and reviewed by
Boston Management. When the properties owned by a Real Estate Joint Venture have
not been appraised (such as when the Real Estate Joint Venture recently acquired
the properties), Boston Management allocates equity interests in the Real Estate
Joint Venture based on the contractual ownership interests of Belrose Realty and
the Operating Partner. Once appraisals have been conducted of all of the
properties owned by the Real Estate Joint Venture, the estimated fair value of
the Fund's equity interest in the Real Estate Joint Venture will be determined
by the third party specialist using the financial model described above. Interim
valuations of Real Estate Joint Venture assets may be adjusted to reflect
significant changes in economic circumstances, and the results of operations and
distributions. If the estimate of the allocation of equity interests in the Real
Estate Joint Ventures were to change (because, for example, the appraisers'
estimate of property values or projected cash flows of the Real Estate Joint
Ventures changed), it may materially impact the estimated fair value of the Real
Estate Joint Ventures. As of September 30, 2004, all of the properties owned by
the Real Estate Joint Ventures have been appraised, except for those owned by
Deerfield. The properties owned by Deerfield were acquired on June 30, 2004 and
August 4, 2004.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

INTEREST RATE RISK. The Fund's primary exposure to interest rate risk arises
from its real estate investments that are financed by the Fund with floating
rate borrowings under the Fund's Credit Facility and by fixed-rate secured
mortgage debt obligations of the Real Estate Joint Ventures. Partnership
Preference Units are fixed rate instruments whose values will generally decrease
when interest rates rise and increase when interest rates fall. The interest
rates on borrowings under the Fund's Credit Facility are reset at regular
intervals based on one-month LIBOR. The Fund has entered into interest rate swap
agreements to fix the cost of a substantial portion of its borrowings under the
Credit Facility used to acquire Belrose 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 or three month LIBOR. The Fund's interest rate
swap agreements will generally increase in value when interest rates rise and
decrease in value when interest rates fall. In the future, the Fund may use
other interest rate hedging arrangements (such as caps, floors and collars) to
fix or limit borrowing costs. The use of interest rate hedging arrangements is a
specialized activity that can expose the Fund to significant loss.

The following table summarizes the contractual maturities and weighted-average
interest rates associated with the Fund's significant non-trading financial
instruments. The Fund has no market risk sensitive instruments held for trading
purposes. This information should be read in conjunction with Note 5 and Note 6
to the Fund's unaudited condensed consolidated financial statements in Item 1
above.

25

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

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

Rate sensitive liabilities:
- -----------------------------
Long-term debt:
- -----------------------------
Fixed-rate mortgages $344,219,483 $344,219,483 $396,400,000

Average interest rate 7.53% 7.53%
- -----------------------------
Variable-rate Credit Facility $336,900,000 $336,900,000 $336,900,000

Average interest rate 2.27% 2.27%
- ------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive derivative
financial instruments:
- -----------------------------

Pay fixed/receive variable
interest rate swap agreements $192,838,000 $192,838,000 $ (849,305)

Average pay rate 4.26% 4.26%

Average receive rate 2.12% 2.12%
- ------------------------------------------------------------------------------------------------------------------------------------
Rate sensitive investments:
- -----------------------------
Fixed-rate Partnership
Preference Units:
- -----------------------------
Essex Portfolio, L.P., 7.875%
Series D Cumulative Redeemable
Preferred Units, Callable 7/28/10,
Current Yield: 7.82% $ 12,642,150 $ 12,642,150 $ 12,593,050

Liberty Property L.P., 9.25%
Series B Cumulative Redeemable
Preferred Units, Callable 7/28/04,
Current Yield: 9.11% $18,130,840 $ 18,130,840 $ 17,766,000

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

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. During the quarter, the Fund adopted additional internal control
procedures as a result of the Deerfield acquisitions. There were no other
changes in the Fund's internal control over financial reporting that occurred
during the quarter ended September 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.

26

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

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

As described in the Fund's Annual Report on Form 10-K for the year ended
December 31, 2003, shares of the Fund may be redeemed by Fund shareholders on
any business day. Redemptions are met at the net asset value per share of the
Fund (less any applicable redemption fee). The right to redeem is available to
all shareholders and all outstanding Fund shares are eligible (except for shares
subject to an estate freeze election as described in Item 5 of the Fund's Annual
Report on Form 10-K for the fiscal year ending December 31, 2003). During each
month in the quarter ended September 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
- -------------------------------------------------------------------------------
July 31, 2004 10,212.449 $95.90
- -------------------------------------------------------------------------------
August 31, 2004 9,936.032 $94.36
- -------------------------------------------------------------------------------
September 30, 2004 87,271.977 $95.66
- -------------------------------------------------------------------------------
Total 107,420.458 $95.59
- -------------------------------------------------------------------------------

(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 September 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) 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

27

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 November 9, 2004.

BELROSE CAPITAL FUND LLC

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

29

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

4.2(b) 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