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. 000-49775 --------- Belport Capital Fund LLC ------------------------ (Exact name of registrant as specified in its charter) Delaware 04-3551830 -------- ---------- (State of organization) (I.R.S. Employer Identification No.) The Eaton Vance Building 255 State Street Boston, Massachusetts 02109 --------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number: 617-482-8260 ------------ None ---- (Former Name, Former Address and Former Fiscal Year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- ---- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). YES X NO --- ---- BELPORT CAPITAL FUND LLC Index to Form 10-Q PART I FINANCIAL INFORMATION Page Item 1. Condensed Consolidated Financial Statements 3 Condensed Consolidated Statements of Assets and Liabilities as of 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 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Item 4. Controls and Procedures 23 PART II OTHER INFORMATION Item 1. Legal Proceedings 23 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 23 Item 3. Defaults Upon Senior Securities 24 Item 4. Submission of Matters to a Vote of Security Holders 24 Item 5. Other Information 24 Item 6. Exhibits and Reports on Form 8-K 24 SIGNATURES 25 EXHIBIT INDEX 26 PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements - -------------------------------------------------------------------------------- BELPORT 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) $ 1,583,004,294 $ 1,611,769,203 Investment in Partnership Preference Units 117,579,147 93,277,111 Investment in other real estate 490,151,151 484,704,890 Short-term investments 7,170,000 4,821,135 ------------------ ---------------- Total investments $ 2,197,904,592 $ 2,194,572,339 Cash 12,687,474 6,522,994 Escrow deposits - restricted 4,810,828 2,764,808 Open interest swap agreements, at value 979,341 1,763,670 Distributions and interest receivable 306,702 404,628 Other assets 2,828,687 2,358,005 ------------------ ---------------- Total assets $ 2,219,517,624 $ 2,208,386,444 ------------------ ---------------- Liabilities: Loan payable - Credit Facility $ 270,900,000 $ 230,500,000 Mortgages payable 361,107,500 361,107,500 Payable for Fund Shares redeemed 962,696 - Distributions payable to minority shareholders - 16,800 Special Distributions payable - 17 Security deposits 878,771 863,503 Swap interest payable 78,800 118,147 Accrued expenses: Interest expense 2,107,583 2,141,722 Property taxes 5,416,123 2,212,615 Other expenses and liabilities 2,124,519 2,224,975 Minority interests in controlled subsidiaries 26,283,226 24,347,753 ------------------ ---------------- Total liabilities $ 669,859,218 $ 623,533,032 ------------------ ---------------- Net assets $ 1,549,658,406 $ 1,584,853,412 ------------------ ---------------- Shareholders' Capital $ 1,549,658,406 $ 1,584,853,412 ------------------ ---------------- Shares outstanding 16,217,971 16,697,292 ------------------ ---------------- Net asset value and redemption price per Share $ 95.55 $ 94.92 ------------------ ---------------- See notes to unaudited condensed consolidated financial statements 3 BELPORT CAPITAL FUND LLC Condensed Consolidated Statements of Operations (Unaudited) Three Months Three Months 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 $66,327, $44,380, $269,559 and $196,029, respectively) $ 5,968,963 $ 5,295,899 $ 17,849,428 $ 15,217,949 Interest allocated from Belvedere Company 10,118 43,854 56,324 292,876 Expenses allocated from Belvedere Company (2,393,853) (2,265,990) (7,264,802) (6,363,447) ------------------ ----------------- ------------------ ------------------ Net investment income allocated from Belvedere Company $ 3,585,228 $ 3,073,763 $ 10,640,950 $ 9,147,378 Rental income 16,068,245 16,226,618 46,518,588 49,420,335 Distributions from Partnership Preference Units 2,002,344 2,203,828 5,452,170 6,611,484 Interest 64,345 20,118 274,559 122,185 ------------------ ----------------- ------------------ ------------------ Total investment income $ 21,720,162 $ 21,524,327 $ 62,886,267 $ 65,301,382 ------------------ ----------------- ------------------ ------------------ Expenses: Investment advisory and administrative fees $ 1,435,242 $ 1,359,990 $ 4,277,969 $ 4,038,850 Property management fees 640,521 649,639 1,863,487 1,964,258 Distribution and servicing fees 758,512 695,626 2,317,692 1,978,503 Interest expense on mortgages 6,285,822 6,259,976 18,836,356 19,133,807 Interest expense on Credit Facility 1,121,445 776,631 2,638,300 2,729,725 Property and maintenance expenses 4,566,306 4,483,495 12,816,539 12,974,512 Property taxes and insurance 1,934,688 1,656,809 5,968,416 5,922,799 Miscellaneous 481,167 171,115 772,218 1,009,392 ------------------ ----------------- ------------------ ------------------ Total expenses $ 17,223,703 $ 16,053,281 $ 49,490,977 $ 49,751,846 Deduct- Reduction of investment advisory and administrative fees $ 386,317 361,133 $ 1,179,415 $ 1,011,203 ------------------ ----------------- ------------------ ------------------ Net expenses $ 16,837,386 $ 15,692,148 $ 48,311,562 $ 48,740,643 ------------------ ----------------- ------------------ ------------------ Net investment income before minority interests in net income of controlled subsidiaries $ 4,882,776 $ 5,832,179 $ 14,574,705 $ 16,560,739 Minority interests in net income of controlled subsidiaries (455,411) (642,577) (1,285,406) (1,845,742) ------------------ ----------------- ------------------ ------------------ Net investment income $ 4,427,365 $ 5,189,602 $ 13,289,299 $ 14,714,997 ------------------ ----------------- ------------------ ------------------ See notes to unaudited condensed consolidated financial statements 4 BELPORT 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) $ 4,950 $ 1,052,602 $ 8,676,322 $ (2,153,990) Investment transactions in Partnership Preference Units (identified cost basis) (288,879) - 3,285,775 - Investment transactions in other real estate (net of minority interests in realized gain (loss) of controlled subsidiaries of $33,073, $0, $1,304,340, $0, respectively) 111,352 - 4,391,466 323,384 Interest rate swap agreements(1) (1,192,010) (2,366,173) (3,807,010) (6,838,894) ------------------ ------------------ ------------------ ------------------ Net realized gain (loss) $ (1,364,587) $ (1,313,571) $ 12,546,553 $ (8,669,500) ------------------ ------------------ ------------------ ------------------ Change in unrealized appreciation (depreciation) - Investments and foreign currency allocated from Belvedere Company (identified cost basis) $ (38,494,617) $ 30,013,572 $ 179,234 $138,258,490 Investments in Partnership Preference Units (identified cost basis) 2,319,789 (1,126,750) (4,340,182) 6,747,650 Investments in other real estate (net of minority interests in unrealized gain (loss) of controlled subsidiaries of $2,026,786, $(512,237) $(654,273) and $(8,578,672), respectively) 5,880,607 (1,195,070) 2,425,196 (13,453,015) Interest rate swap agreements (5,022,985) 6,479,551 (784,329) 939,395 ------------------ ------------------ ------------------ ------------------ Net change in unrealized (depreciation) appreciation $ (35,317,206) $ 34,171,303 $ (2,520,081) $132,492,520 ------------------ ------------------ ------------------ ------------------ Net realized and unrealized gain (loss) $ (36,681,793) $ 32,857,732 $ 10,026,472 $123,823,020 ------------------ ------------------ ------------------ ------------------ Net (decrease) increase in net assets from operations $ (32,254,428) $ 38,047,334 $ 23,315,771 $138,538,017 ================== ================== ================== ================== (1) Amounts include periodic payments made in connection with interest rate swap agreements of $1,192,010, $2,366,173, $3,807,010 and $6,838,894, respectively (Note 5). See notes to unaudited condensed consolidated financial statements 5 BELPORT 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 $ 13,289,299 $ 19,648,844 Net realized gain (loss) from investment transactions, foreign currency transactions and interest rate swap agreements 12,546,553 (10,022,550) Net change in unrealized (depreciation) appreciation of investments, foreign currency and interest rate swap agreements (2,520,081) 309,086,814 ------------------ ----------------- Net increase in net assets from operations $ 23,315,771 $ 318,713,108 ------------------ ----------------- Transactions in Fund Shares - Net asset value of Fund Shares issued to Shareholders in payment of distributions declared $ 6,341,090 $ 6,479,733 Net asset value of Fund Shares redeemed (52,162,076) (52,613,896) ------------------ ----------------- Net decrease in net assets from Fund Share transactions $ (45,820,986) $ (46,134,163) ------------------ ----------------- Distributions - Distributions to Shareholders $ (12,689,791) $ (12,367,580) Special Distributions to Shareholders - (17) ------------------ ----------------- Total distributions $ (12,689,791) $ (12,367,597) ------------------ ----------------- Net (decrease) increase in net assets $ (35,195,006) $ 260,211,348 Net assets: At beginning of period $1,584,853,412 $1,324,642,064 ------------------ ----------------- At end of period $1,549,658,406 $1,584,853,412 ================== ================= See notes to unaudited condensed consolidated financial statements 6 BELPORT 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 $ 23,315,771 $ 138,538,017 Adjustments to reconcile net increase in net assets from operations to net cash flows (for) from operating activities - Net investment income allocated from Belvedere Company (10,640,950) (9,147,378) Increase in escrow deposits (2,046,020) (3,178,986) Decrease in receivable for investments sold - 50,221,589 (Increase) decrease in other assets (470,682) 202,354 Decrease in distributions and interest receivable 97,926 43 (Decrease) increase in interest payable for open swap agreements (39,347) 14,880 Decrease in security deposits, accrued interest and accrued other expenses and liabilities (119,327) (1,427,870) Increase in accrued property taxes 3,203,508 3,602,090 Purchases of Partnership Preference Units (54,518,164) - Proceeds from sales of Partnership Preference Units 29,161,721 - Proceeds from sale of investment in other real estate 41,336,126 5,356,755 Payments for investments in other real estate (36,157,244) (5,026,960) Improvements to rental property (3,158,414) (3,202,700) Net increase in investment in Belvedere Company - (41,000,000) Net interest incurred on interest rate swap agreements (3,807,010) (6,838,894) Increase in short-term investments (2,348,865) (2,030,109) Minority interests in net income of controlled subsidiaries 1,285,406 1,845,742 Net realized (gain) loss from investment transactions, foreign currency transactions and interest rate swap agreements (12,546,553) 8,669,500 Net change in unrealized (appreciation) depreciation of investments, foreign currency and interest rate swap agreements 2,520,081 (132,492,520) ------------------ ------------------ Net cash flows (for) from operating activities $ (24,932,037) $ 4,105,553 ------------------ ------------------ Cash Flows From (For) Financing Activities - Repayment of mortgage $ - $ (6,411) Proceeds from Credit Facility 40,400,000 4,500,000 Distributions paid to Shareholders (6,348,718) (5,887,847) Payments for Fund Shares redeemed (2,937,965) (3,143,412) Distributions paid to minority shareholders (16,800) (612,529) ------------------ ------------------ Net cash flows from (for) financing activities $ 31,096,517 $ (5,150,199) ------------------ ------------------ Net increase (decrease) in cash $ 6,164,480 $ (1,044,646) Cash at beginning of period $ 6,522,994 $ 7,452,296 ------------------ ------------------ Cash at end of period $ 12,687,474 $ 6,407,650 ================== ================== See notes to unaudited condensed consolidated financial statements 7 BELPORT 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 - Interest paid on loan - Credit Facility $ 2,586,235 $ 2,480,614 Interest paid on mortgages $ 18,645,464 $ 18,968,446 Interest paid on swap agreements $ 3,846,357 $ 6,824,014 Market value of securities distributed in payment of redemptions $ 48,261,415 $ 36,366,118 Market value of real property and other assets, net of current liabilities, assumed in conjunction with acquisition of other real estate $ - $ 64,628,785 Mortgage assumed in conjunction with acquisition of other real estate $ - $ 59,601,825 Market value of real property and other assets, net of current liabilities, disposed of in conjunction with sale of other real estate $ - $ 64,713,609 Mortgage disposed of in conjunction with sale of other real estate $ - $ 59,595,415 See notes to unaudited condensed consolidated financial statements 8 BELPORT CAPITAL FUND LLC as of 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 $ 94.920 - -------------------------------------------------------------------------------- Income (loss) from operations - -------------------------------------------------------------------------------- Net investment income(6) $ 0.804 Net realized and unrealized gain 0.586 - -------------------------------------------------------------------------------- Total income from operations $ 1.390 - -------------------------------------------------------------------------------- Distributions - -------------------------------------------------------------------------------- Distributions to Shareholders $ (0.760) - -------------------------------------------------------------------------------- Total distributions $ (0.760) - -------------------------------------------------------------------------------- Net asset value - End of period $ 95.550 - -------------------------------------------------------------------------------- Total Return(1) 1.47% - -------------------------------------------------------------------------------- As a Percentage As a Percentage of Average Net of Average Gross Ratios Assets(5) Assets(2)(5) - -------------------------------------------------------------------------------- Expenses of Consolidated Real Property Subsidiaries Interest and other borrowing costs(7) 1.30%(9) 0.97%(9) Operating expenses(7) 1.45%(9) 1.08%(9) Belport Capital Fund LLC Expenses Interest and other borrowing costs(4)(8) 0.22%(9) 0.17%(9) Investment advisory and administrative fees, servicing fees and other Fund operating expenses(3)(4) 1.10%(9) 0.82%(9) - -------------------------------------------------------------------------------- Total expenses 4.07%(9) 3.04%(9) Net investment income 1.13%(9) 0.84%(9) - -------------------------------------------------------------------------------- Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period (000's omitted) $ 1,549,658 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 Belport Capital Fund LLC (Belport Capital) (including Belport Capital's interest in Belvedere Capital Fund Company LLC (Belvedere Company) and Belport Capital's ratable share of the assets of its directly and indirectly controlled subsidiaries), without reduction by any liabilities. For this purpose, the assets of Belport Realty Corporation's (Belport Realty) controlled subsidiaries are reduced by the proportionate interests therein of investors other than Belport Realty. (3) Includes Belport Capital's share of Belvedere Company's allocated expenses, including those expenses allocated from the Portfolio. (4) Includes the expenses of Belport Capital and Belport Realty. Does not include expenses of the real estate subsidiaries majority-owned by Belport Realty. (5) For the purpose of calculating ratios, the income and expenses of Belport Realty's controlled subsidiaries are reduced by the proportionate interest therein of investors other than Belport Realty. (6) Calculated using average shares outstanding. (7) Includes Belport Realty's proportional share of expenses incurred by its majority-owned subsidiaries. (8) Ratios do not include interest incurred in connection with the interest rate swap agreements. Had such amounts been included, ratios would be higher. (9) Annualized. See notes to unaudited condensed consolidated financial statements 9 BELPORT CAPITAL FUND LLC as of September 30, 2004 Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The condensed consolidated interim financial statements of Belport Capital Fund LLC (Belport Capital) and its subsidiaries (collectively, the Fund) have been prepared, without audit, in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations, cash flows and financial highlights as of the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the financial statements and the notes thereto included in the Fund's latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the full fiscal year. The balance sheet at December 31, 2003 and the statement of changes in net assets for the year then ended have been derived from the December 31, 2003 audited financial statements but do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements as permitted by the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain amounts in the prior periods' condensed consolidated financial statements have been reclassified to conform with the current period presentation. 2. Estate Freeze Shareholders in Belport Capital are entitled to restructure their Fund Share interests under what is termed an Estate Freeze Election. Under this election, Fund Shares are divided into Preferred Shares and Common Shares. Preferred Shares have a preferential right over the corresponding Common Shares equal to (i) 95% of the original capital contribution made in respect of the undivided Shares from which the Preferred Shares and Common Shares were derived, plus (ii) an annuity priority return equal to 8.5% of the Preferred Shares' preferential interest in the original capital contribution of the undivided Fund Shares. The associated Common Shares are entitled to the remaining 5% of the original capital contribution in respect of the undivided Shares, plus any returns thereon in excess of the fixed annual priority of the Preferred Shares. The existence of restructured Fund Shares does not adversely affect Shareholders who do not make an election nor do the restructured Fund Shares have preferential rights to Fund Shares that have not been restructured. Shareholders who subdivide Fund Shares under this election sacrifice certain rights and privileges that they would otherwise have with respect to the Fund Shares so divided, including redemption rights and voting and consent rights. Upon the twentieth anniversary of the issuance of the associated undivided Fund Shares to the original holders thereof, Preferred and Common Shares will automatically convert into full and fractional undivided Fund Shares. The allocation of Belport Capital's net asset value per Share at September 30, 2004 and December 31, 2003, between Preferred and Common Shares that have been restructured is as follows: 10 Per Share Value At Per Share Value At September 30, 2004 December 31, 2003 ----------------------------------------------------- Preferred Common Preferred Common Date of Contribution Shares Shares Shares Shares - -------------------------------------------------------------------------------- May 23, 2001 $95.55 $ - $94.92 $ - July 26, 2001 $94.71 $0.84 $94.71 $0.21 December 18, 2001 $91.87 $3.68 $91.87 $3.05 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 $ - $ 41,000,000 Decreases in investment in Belvedere Company $ 48,261,415 $ 36,366,118 Sales of other real estate(1)(4) $ 41,336,126 $ 5,356,755 Acquisitions of other real estate(1)(4) $ 36,157,244 $ 5,026,960 Purchases of Partnership Preference Units(2) $ 54,518,164 $ - Sales of Partnership Preference Units(3) $ 29,161,721 $ - - ----------------------------------------------------------------------------------------- (1) In March 2003, Bel Oakbrook LLC (Bel Oakbrook), a wholly-owned subsidiary of Belport Realty Corporation (Belport Realty), acquired a 100% ownership interest in an office building. In May 2003, Belport Realty sold its interest in Bel Oakbrook to another investment fund advised by Boston Management and Research (Boston Management). A gain of $323,384 was recognized on the transaction. (2) Purchases of Partnership Preference Units during the nine months ended September 30, 2004 represent Partnership Preference Units purchased from other investment funds advised by Boston Management. There were no purchases for the nine months ended September 30, 2003. (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 loss of $374,307 was recognized. (4) In January 2004, a multifamily residential property owned by Monadnock Property Trust, LLC (Monadnock) was sold to a third party. Belport Realty recognized a gain of $4,391,466 on the transaction. In June 2004, Monadnock then acquired a replacement multifamily residential property with the proceeds from that sale. 4. Indirect Investment in the Portfolio The following table summarizes the Fund's investment in Tax-Managed Growth Portfolio (the Portfolio) through Belvedere Capital Fund Company LLC (Belvedere Company) for the 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) $ 1,583,004,294 $ 1,472,011,971 Income allocated to Belvedere Company from the Portfolio $ 127,279,355 $ 102,346,416 Income allocated to the Fund from Belvedere Company $ 17,905,752 $ 15,510,825 Expenses allocated to Belvedere Company from the Portfolio $ 38,377,075 $ 31,352,609 Expenses allocated to the Fund from Belvedere Company $ 7,264,802 $ 6,363,447 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 $ 8,676,322 $ (2,153,990) Net change in unrealized (depreciation) appreciation of investments and foreign currency allocated to Belvedere Company from the Portfolio $ (18,939,820) $ 898,392,188 Net change in unrealized (depreciation) appreciation of investments and foreign currency allocated to the Fund from Belvedere Company $ 179,234 $ 138,258,490 - ------------------------------------------------------------------------------------------------------------------- 11 (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 13.5% and 15.1% 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: 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 $15,742,661,843 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 Belport Capital has entered into interest rate swap agreements with Merrill Lynch Capital Services, Inc. in connection with its real estate investments and the associated borrowings. Under such agreements, Belport Capital has agreed to make periodic payments at fixed rates in exchange for payments at floating rates. The notional or contractual amounts of these instruments may not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these investments is meaningful only when considered in conjunction with all related assets, liabilities and agreements. Interest rate swap agreements open at September 30, 2004 and December 31, 2003 are listed below. 12 Notional Initial Amount Optional Final Unrealized Unrealized Effective (000's Fixed Floating Termination Termination Appreciation at Appreciation at Date omitted) Rate Rate Date Date September 30, 2004 December 31, 2003 - ------------------------------------------------------------------------------------------------------------------ $ 34,905 4.565% LIBOR + 0.20% 3/05 6/10 $ 200,315 $ 170,784 46,160 4.045% LIBOR + 0.20% 2/10 6/10 115,815 326,668 109,822 3.945% LIBOR + 0.20% - 6/10 663,211 1,266,218 - ------------------------------------------------------------------------------------------------------------------ Total $ 979,341 $1,763,670 - ------------------------------------------------------------------------------------------------------------------ 6. Segment Information Belport Capital pursues its investment objective primarily by investing indirectly in the Portfolio through Belvedere Company. The Portfolio is a diversified investment company that emphasizes investments in common stocks of domestic and foreign growth companies that are considered to be high in quality and attractive in their long-term investment prospects. Separate from its investment in Belvedere Company, Belport Capital invests in real estate assets through its subsidiary, Belport Realty. Belport Realty invests directly and indirectly in Partnership Preference Units and indirectly in real property through controlled subsidiaries, Bel Multifamily Property Trust, Monadnock and Bel Oakbrook (for the period from March 19, 2003, to May 13, 2003). Belport Capital evaluates performance of the reportable segments based on the net increase (decrease) in net assets from operations of the respective segment, which includes net investment income (loss), net realized gain (loss) and unrealized appreciation (depreciation). The accounting policies of the reportable segments are the same as those for the Fund on a consolidated basis. No reportable segments have been aggregated. Reportable information by segment is as follows: Tax-Managed For the Three Months Ended Growth Real September 30, 2004 Portfolio* Estate Total - ---------------------------------------------------------------------------------------------------------------- Revenue $ 3,585,228 $ 18,100,886 $ 21,686,114 Interest expense on mortgages - (6,285,822) (6,285,822) Interest expense on Credit Facility (78,501) (953,228) (1,031,729) Operating expenses (288,087) (8,312,770) (8,600,857) Minority interest in net income of controlled subsidiaries - (455,411) (455,411) - ---------------------------------------------------------------------------------------------------------------- Net investment income $ 3,218,640 $ 2,093,655 $ 5,312,295 Net realized gain (loss) 4,950 (1,369,537) (1,364,587) Net change in unrealized appreciation (depreciation) (38,494,617) 3,177,412 (35,317,205) - ---------------------------------------------------------------------------------------------------------------- Net (decrease) increase in net assets from operations of reportable segments $ (35,271,027) $ 3,901,530 $ (31,369,497) - ---------------------------------------------------------------------------------------------------------------- Tax-Managed For the Three Months Ended Growth Real September 30, 2003 Portfolio* Estate Total - ---------------------------------------------------------------------------------------------------------------- Revenue $ 3,073,763 $ 18,446,362 $ 21,520,125 Interest expense on mortgages - (6,259,976) (6,259,976) Interest expense on Credit Facility (66,129) (679,437) (745,566) Operating expenses (247,516) (7,640,351) (7,887,867) Minority interest in net income of controlled subsidiaries - (642,577) (642,577) - ---------------------------------------------------------------------------------------------------------------- Net investment income $ 2,760,118 $ 3,224,021 $ 5,984,139 Net realized gain (loss) 1,052,602 (2,366,173) (1,313,571) Net change in unrealized appreciation (depreciation) 30,013,572 4,157,731 34,171,303 - ---------------------------------------------------------------------------------------------------------------- Net increase in net assets from operations of reportable segments $ 33,826,292 $ 5,015,579 $ 38,841,871 - ---------------------------------------------------------------------------------------------------------------- 13 Tax-Managed For the Nine Months Ended Growth Real September 30, 2004 Portfolio* Estate Total - ---------------------------------------------------------------------------------------------------------------- Revenue $ 10,640,950 $ 52,173,774 $ 62,814,724 Interest expense on mortgages - (18,836,356) (18,836,356) Interest expense on Credit Facility (184,681) (2,242,555) (2,427,236) Operating expenses (889,395) (23,418,222) (24,307,617) Minority interest in net income of controlled subsidiaries - (1,285,406) (1,285,406) - ---------------------------------------------------------------------------------------------------------------- Net investment income $ 9,566,874 $ 6,391,235 $ 15,958,109 Net realized gain 8,676,322 3,870,231 12,546,553 Net change in unrealized appreciation (depreciation) 179,234 (2,699,315) (2,520,081) - ---------------------------------------------------------------------------------------------------------------- Net increase in net assets from operations of reportable segments $ 18,422,430 $ 7,562,151 $ 25,984,581 - ---------------------------------------------------------------------------------------------------------------- Tax-Managed For the Nine Months Ended Growth Real September 30, 2003 Portfolio* Estate Total - ---------------------------------------------------------------------------------------------------------------- Revenue $ 9,147,378 $ 56,092,943 $ 65,240,321 Interest expense on mortgages - (19,133,807) (19,133,807) Interest expense on Credit Facility (163,784) (2,456,753) (2,620,537) Operating expenses (723,599) (23,918,452) (24,642,051) Minority interest in net income of controlled subsidiaries - (1,845,742) (1,845,742) - ---------------------------------------------------------------------------------------------------------------- Net investment income $ 8,259,995 $ 8,738,189 $ 16,998,184 Net realized loss (2,153,990) (6,515,510) (8,669,500) Net change in unrealized appreciation (depreciation) 138,258,490 (5,765,970) 132,492,520 - ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from operations of reportable segments $ 144,364,495 $ (3,543,291) $ 140,821,204 - ---------------------------------------------------------------------------------------------------------------- Tax-Managed Real At September 30, 2004 Growth Portfolio* Estate Total - ---------------------------------------------------------------------------------------------------------------- Segment assets $1,583,004,294 $627,575,513 $2,210,579,807 Segment liabilities 17,563,849 629,383,532 646,947,381 - ---------------------------------------------------------------------------------------------------------------- Net assets (liabilities) of reportable segments $1,565,440,445 $ (1,808,019) $1,563,632,426 - ---------------------------------------------------------------------------------------------------------------- At December 31, 2003 - ---------------------------------------------------------------------------------------------------------------- Segment assets $1,611,769,203 $589,657,910 $2,201,427,113 Segment liabilities 16,596,400 598,192,300 614,788,700 - ---------------------------------------------------------------------------------------------------------------- Net assets (liabilities) of reportable segments $1,595,172,803 $ (8,534,390) $1,586,638,413 - ---------------------------------------------------------------------------------------------------------------- * Belport Capital invests indirectly in Tax-Managed Growth Portfolio through Belvedere Company. 14 The following tables reconcile the reported segment information to the condensed consolidated financial statements for the periods indicated: Three Months Three Months 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 $ 21,686,114 $ 21,520,125 $ 62,814,724 $ 65,240,321 Unallocated amounts: Interest earned on cash not invested in the portfolio or in subsidiaries 34,048 4,202 71,543 61,061 ---------------------------------------------------------------------------------- Total revenue $ 21,720,162 $ 21,524,327 $ 62,886,267 $ 65,301,382 ---------------------------------------------------------------------------------- Net increase (decrease) in net assets from operations: Net (decrease) increase in net assets from operations of reportable segments $(31,369,497) $38,841,871 $ 25,984,581 $140,821,204 Unallocated investment income: Interest earned on cash not invested in the portfolio or in subsidiaries 34,048 4,202 71,543 61,06 Unallocated expenses(1): Distribution and servicing fees (758,512) (695,626) (2,317,692) (1,978,503) Interest expense on Credit Facility (89,716) (31,065) (211,064) (109,188) Audit, tax and legal fees (47,261) (48,505) (129,281) (163,967) Other operating expenses (23,490) (23,543) (82,316) (92,590) ---------------------------------------------------------------------------------- Total net (decrease) increase in net assets from operations $(32,254,428) $ 38,047,334 $ 23,315,771 $138,538,017 ---------------------------------------------------------------------------------- Net assets: September 30, 2004 December 31, 2003 ------------------ ----------------- Net assets of reportable segments $1,563,632,426 $1,586,638,413 Unallocated amounts: Cash(2) 1,767,817 2,138,196 Short-term investments(2) 7,170,000 4,821,135 Loan payable-Credit Facility(3) (22,738,278) (8,568,222) Other liabilities (173,559) (176,110) ------------------ ----------------- Total net assets $1,549,658,406 $1,584,853,412 ------------------ ----------------- (1) Unallocated expenses represent costs incurred that pertain to the overall operation of Belport Capital, and do not pertain to either operating segment. (2) Unallocated cash and short-term investments represent cash and cash equivalents not invested in the Portfolio or real estate assets. (3) Unallocated amount of loan payable - Credit Facility represents borrowings not specifically used to fund real estate investments. Such borrowings are generally used to pay selling commissions, organization expenses and other liquidity needs of the Fund. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information in this report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements typically are identified by use of terms such as "may," "will," "should," "might," "expect," "anticipate," "estimate," and similar words, although some forward-looking statements are expressed differently. The actual results of Belport Capital Fund (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 Belport Realty Corporation (Belport Realty). The Fund's investment income includes the net investment income allocated to the Fund from Belvedere Capital Fund Company LLC (Belvedere Company), rental income from the properties owned by Belport Realty's controlled subsidiaries, partnership income allocated to the income-producing preferred equity interests in real estate operating partnerships (Partnership Preference Units) owned by Belport Realty and interest earned on the Fund's short-term investments (if any). The net investment income of Belvedere Company allocated to the Fund includes dividends, interest and expenses allocated to Belvedere Company by Tax-Managed Growth Portfolio (the Portfolio) less the expenses of Belvedere Company allocated to the Fund. The Fund's total expenses include the Fund's investment advisory and administrative fees, distribution and servicing fees, interest expense from mortgages on properties owned by Belport Realty's controlled subsidiaries, interest expense on the Fund's Credit Facility (described in Item 2(b) below), property management fees, property taxes, insurance, maintenance and other expenses relating to the properties owned by Belport Realty's controlled subsidiaries, and other miscellaneous expenses. The Fund's realized and unrealized gains and losses are the result of transactions in, or changes in value of, security investments held through the Fund's indirect interest (through Belvedere Company) in the Portfolio, real estate investments held through Belport Realty, the Fund's interest rate swap agreements and any other direct investments of the Fund, as well as periodic payments made by the Fund pursuant to interest rate swap agreements. Realized and unrealized gains and losses on investments have the most significant impact on the Fund's net asset value per share and result primarily from sales of such investments and changes in their underlying value. The investments of the Portfolio consist primarily of common stocks of domestic and foreign growth companies that are considered to be high in quality and attractive in their long-term investment prospects. Because the securities holdings of the Portfolio are broadly diversified, the performance of the Portfolio cannot be attributed to one particular stock or one particular industry or market sector. The performance of the Portfolio and the Fund are substantially influenced by the overall performance of the U.S. stock market, as well as by the relative performance versus the overall market of specific stocks and classes of stocks in which the Portfolio maintains large positions. PERFORMANCE OF THE FUND.1 The Fund's investment objective is to achieve long-term, after-tax returns for Shareholders. Eaton Vance Management (Eaton Vance), as the Fund's manager, measures the Fund's success in achieving its objective based on the investment returns of the Fund, using the 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. 16 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 Belport Realty, Eaton Vance considers whether, through current returns and changes in valuation, the real estate investments achieve returns that over the long-term exceed the cost of the borrowing incurred to acquire such investments and thereby add to Fund returns. The Fund has entered into interest rate swap agreements to fix the cost of borrowings under the Credit Facility used to acquire Belport Realty's equity in its real estate investments and to mitigate in part the impact of interest rate changes on the Fund's net asset value. The Fund's total return was -1.99% for the quarter ended September 30, 2004. This return reflects a decrease in the Fund's net asset value per share from $97.49 to $95.55 during the period. The total return of the S&P 500 was -1.87% over the same period. The performance of the Fund exceeded that of the Portfolio by approximately 0.05% during the period. Last year, the Fund had a total return performance of 2.72% for the quarter ended September 30, 2003. This return reflected an increase in the Fund's net asset value per share from $81.94 to $84.17 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 0.37% during that period. PERFORMANCE OF THE PORTFOLIO. For the quarter ended September 30, 2004, the Portfolio's total return was -2.04%, slightly lower than the S&P 500 Index, which posted a -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 redeployed assets in less interest-sensitive industries. The Portfolio's de-emphasis of 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 2.35% compared to the 2.65% total return 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). PERFORMANCE OF REAL ESTATE INVESTMENTS. The Fund's real estate investments are held through Belport Realty. As of September 30, 2004, real estate investments included two real estate joint ventures that operate multifamily properties (Real Estate Joint Ventures) and a portfolio of Partnership Preference Units issued by partnerships affiliated with publicly traded real estate investment trusts (REITs). As of September 30, 2004, the estimated fair value of the Fund's real estate investments represented 27.4% 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 33.3% of the Fund's net assets as of September 30, 2004. During the quarter ended September 30, 2004, rental income from real estate operations was approximately $16.1 million compared to $16.2 million for the quarter ended September 30, 2003, a decrease of $0.1 million or 1%. This decrease in rental income resulted principally from fewer properties held during the quarter by the Real Estate Joint Ventures as a result of the sale of a property held by one Real Estate Joint Venture during the first quarter of 2004, offset by the purchase of a replacement property in the second quarter of 2004. The decrease also resulted from lower revenues from the remaining properties held by the Real Estate Joint Ventures. Rental revenues were adversely affected by lower apartment rental rates and increased rent concessions during the quarter. For the quarter ended September 30, 2003, rental income decreased primarily from increased rent concessions or reduced apartment rental rates and lower occupancy levels at properties owned by the Real Estate Joint Ventures during the quarter. 17 During the quarter ended September 30, 2004, property operating expenses were approximately $7.1 million compared to approximately $6.8 million for the quarter ended September 30, 2003, an increase of 5% (property operating expenses are before certain operating expenses of Belport Realty of approximately $1.2 million for the quarter ended September 30, 2004 and $0.9 million for the quarter ended September 30, 2003). The net increase in property operating expenses was due to an 18% increase in property taxes and insurance expenses as well as a 2% increase in property and maintenance expenses during the quarter. The increase in property taxes and insurance expenses during the quarter ended September 30, 2004 as compared to the quarter ended September 30, 2003 was principally due to a one time insurance credit received in 2003. During the quarter ended September 30, 2003, property operating expenses decreased principally due to a 25% decrease in property taxes and insurance expense, offset in part by a 7% increase in property and maintenance expenses. 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. At September 30, 2004, the estimated fair value of the real properties indirectly held through Belport Realty was approximately $490.2 million compared to approximately $475.1 million at September 30, 2003, a net increase of $15.1 million or 3%. The net increase in estimated real property values at September 30, 2004 as compared to September 30, 2003 was due to declines in capitalization rates, offset in part by lower near term property earnings expectations. The capitalization rate, a term commonly used in the real estate industry, is the rate of return percentage applied to actual or projected income levels to estimate the value of real estate investments. The decrease in estimated property values at September 30, 2003 as compared to September 30, 2002 resulted from declines in near term earnings expectations and the economic downturn. Decreases in capitalization rates partially offset declining income level expectations during the quarter. During the quarter ended September 30, 2004, the Fund saw unrealized appreciation of the estimated fair value of its other real estate investments (which includes the Real Estate Joint Ventures) of approximately $5.9 million compared to unrealized depreciation of approximately $1.2 million during the quarter ended September 30, 2003. Unrealized appreciation during the quarter ended September 30, 2004 consisted of approximately $5.9 million of unrealized appreciation resulting from increases in estimated property values. Unrealized depreciation during the quarter ended September 30, 2003 resulted from decreases in estimated property values during the quarter. During the quarter ended September 30, 2004, Belport Realty sold (or experienced scheduled redemptions of) certain of its Partnership Preference Units totaling approximately $3.8 million (including sales to other investment funds advised by Boston Management), recognizing a loss of approximately $0.3 million on the transactions. During the quarter ended September 30, 2004, Belport Realty also acquired interests in additional Partnership Preference Units (including acquisitions from other investment funds advised by Boston Management) totaling approximately $54.5 million. At September 30, 2004, the estimated fair value of Belport Realty's Partnership Preference Units totaled approximately $117.6 million compared to approximately $103.3 million at September 30, 2003, a net increase of $14.3 million or 14%. The net increase in value was principally due to the increase in the number of Partnership Preference Units held at September 30, 2004. At September 30, 2003, the estimated fair value of Partnership Preference Units had increased due to low interest rates and tight spreads on real estate securities as compared to September 30, 2002. During the quarter ended September 30, 2004, the Fund saw unrealized appreciation of the estimated fair value of its Partnership Preference Units of approximately $2.3 million compared to unrealized depreciation of approximately $1.1 million during the quarter ended September 30, 2003. The net unrealized appreciation of approximately $2.3 million during the third quarter of 2004 consisted of approximately $1.9 million of unrealized appreciation resulting from modest increases in per unit values of the Partnership Preference Units held by Belport Realty at September 30, 2004, and approximately $0.4 million of unrealized appreciation resulting from the recharacterization of previously recorded unrealized depreciation to realized losses 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 $2.0 million compared to approximately $2.2 million for the quarter ended September 30, 2003, a decrease of $0.2 million or 9%. 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 from Partnership Preference Units were unchanged compared to the same quarter in 2002. 18 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 $6.2 million, compared to net realized and unrealized gains of approximately $4.1 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 $5.0 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 interest rate swap agreements). For the quarter ended September 30, 2003, net realized and unrealized gains on swap agreements consisted of unrealized appreciation of $6.5 million on swap agreement valuation changes, offset in part by $2.4 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 from changes in swap agreement valuations 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 1.47% for the nine months ended September 30, 2004. This return reflects an increase in the Fund's net asset value per share from $94.92 to $95.55 and a distribution of $0.76 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 exceeded that of the Portfolio by approximately 0.14% during the period. Last year, the Fund had a total return performance of 10.68% for the nine months ended September 30, 2003. This return reflected an increase in the Fund's net asset value per share from $76.75 to $84.17 and a distribution of $0.72 per share. The S&P 500 had a total return of 14.71% over the same period. The performance of the Fund trailed that of the Portfolio by 0.06% 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. 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, one of Belport Realty's Real Estate Joint Ventures sold a property for approximately $41.3 million recognizing a gain of $4.4 million on the transaction. Pursuant to the Real Estate Joint Venture's loan agreement, the proceeds from the sale must be reinvested in replacement assets in order to maintain certain collateral levels. Accordingly, the Real Estate Joint Venture acquired a replacement property for approximately $36.2 million. In September 2004, the Real Estate Joint Venture entered into an agreement to purchase a second replacement property for approximately $12.7 million. The purchase will be funded in part by the remaining sale proceeds and also by additional capital contributions and is expected to close by the end of 2004. During the nine months ended September 30, 2004, rental income from real estate operations was approximately $46.5 million compared to approximately $49.4 million for the nine months ended September 30, 2003, a net decrease of $2.9 million or 6%. This decrease in rental income resulted principally from fewer 19 properties held by the Real Estate Joint Ventures for the full period as a result of the property sale discussed above and lower revenues from the other properties held by Belport Realty's Real Estate Joint Ventures. Rental revenues were adversely affected by lower rent rates, increased rent concessions and lower occupancy levels during the period. During the nine months ended September 30, 2003, rental income decreased primarily due to increased rent concessions or reduced apartment rents and lower occupancy levels at properties owned by the Real Estate Joint Ventures during the period. During the nine months ended September 30, 2004, property operating expenses were approximately $20.6 million compared to approximately $20.9 million for the nine months ended September 30, 2003, a net decrease of $0.3 million or 1% (property operating expenses are before certain operating expenses of Belport Realty of approximately $2.8 million for the nine months ended September 30, 2004 and $3.0 million for the nine months ended September 30, 2003). The decrease in property operating expenses during the nine months ended September 30, 2004 was due to a modest decrease in property and maintenance expenses. During the nine months ended September 30, 2003, operating expenses increased due to a 9% increase in property and maintenance expenses offset in part by a 3% decrease in property taxes and insurance expense. 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. The estimated fair value of the real properties indirectly held through Belport Realty was approximately $490.2 million at September 30, 2004 compared to approximately $475.1 million at September 30, 2003, a net increase of $15.1 million or 3%. The net increase in estimated real property values at September 30, 2004 as compared to September 30, 2003 was due to declines in capitalization rates, offset in part by lower near term property earnings expectations. The decrease in estimated property values at September 30, 2003 as compared to September 30, 2002 resulted from declines in near term earnings expectations and the economic downturn. Declines in estimated property values were generally modest as decreases in capitalization rates partially offset declining income level expectations. During the nine months ended September 30, 2004, the Fund saw unrealized depreciation in the estimated fair value of its other real estate investments (which includes the Real Estate Joint Ventures) of approximately $2.4 million compared to unrealized depreciation of approximately $13.5 million during the nine months ended September 30, 2003. Net unrealized appreciation of $2.4 million for the nine months ended September 30, 2004 was due to modest increases in estimated property values partially offset by the recharacterization of previously unrealized appreciation to realized gains due to the January 2004 sale of a property owned by one of Belport Realty's Real Estate Joint Ventures. Unrealized depreciation during the nine months ended September 30, 2003 primarily resulted from decreases in estimated property values during the period. During the nine months ended September 30, 2004, Belport Realty sold (or experienced scheduled redemptions of) certain of its Partnership Preference Units totaling approximately $29.2 million (including sales to other investment funds advised by Boston Management), recognizing gains of approximately $3.3 million on the transactions. During the nine months ended September 30, 2004, Belport Realty also acquired interests in additional Partnership Preference Units from other investment funds advised by Boston Management totaling approximately $54.5 million. At September 30, 2004, the estimated fair value of Belport Realty's Partnership Preference Units totaled approximately $117.6 million compared to approximately $103.3 million at September 30, 2003, an increase of $14.3 million or 14%. 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 Partnership Preference Units was principally due to low interest rates and tighter spreads on the real estate securities during the nine months ended September 30, 2003. The Fund saw net unrealized depreciation of the estimated fair value in its Partnership Preference Units of approximately $4.3 million during the nine months ended September 30, 2004 compared to unrealized appreciation of approximately $6.7 million for the nine months ended September 30, 2003. The net unrealized depreciation of approximately $4.3 million in the first nine months of 2004 consisted of approximately $1.6 million of unrealized depreciation resulting from decreases in per unit values of the Partnership Preference Units held by Belport Realty during the period and approximately $2.7 million of unrealized depreciation resulting from the recharacterization of previously recorded unrealized appreciation to realized gains due to sales of Partnership 20 Preference Units during the nine months ended September 30, 2004. Unrealized appreciation during the nine months ended September 30, 2003 resulted from increases in per unit values of Partnership Preference Units during the period. Distributions from Partnership Preference Units for the nine months ended September 30, 2004 totaled approximately $5.5 million compared to approximately $6.6 million for the nine months ended September 30, 2003, a decrease of $1.1 million or 17%. The decrease was principally due to fewer Partnership Preference Units held on average and to lower average distribution rates on the Partnership Preference Units held during the nine months ended September 30, 2004, partially offset by a one-time special distribution from one issuer made in connection with a restructuring of its Partnership Preference Units. During the nine months ended September 30, 2003, distributions from Partnership Preference Units were unchanged compared to the same period in 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 $4.6 million, compared to net realized and unrealized losses of approximately $5.9 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 $0.8 million of unrealized depreciation due to changes in swap agreement valuations and $3.8 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 appreciation of $0.9 million on swap agreement valuation changes, offset by $6.8 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 positive contribution to Fund performance for the nine months ended September 30, 2003 from changes in swap valuations was attributable to a modest increase in swap rates during the period. (b) LIQUIDITY AND CAPITAL RESOURCES. OUTSTANDING BORROWINGS. The Fund has entered into credit arrangements with DrKW Holdings, Inc. and Merrill Lynch Mortgage Capital, Inc. (collectively, the Credit Facility) primarily to finance the Fund's real estate investments and will continue to use the Credit Facility for such purpose in the future. The Credit Facility may also be used for other purposes, including any 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 $270.9 million and no unused loan commitments under the Credit Facility. The Fund has entered into interest rate swap agreements with respect to its real estate investments and associated borrowings. Pursuant to these agreements, the Fund makes periodic payments to the counterparty at predetermined fixed rates, in exchange for floating-rate payments that fluctuate with one-month LIBOR. During the terms of the outstanding interest rate swap agreements, changes in the underlying values of the agreements are recorded as unrealized appreciation or depreciation. As of September 30, 2004, the unrealized appreciation related to the interest rate swap agreements was approximately $1.0 million. As of September 30, 2003, the unrealized depreciation related to the interest rate swap agreements was approximately $25.4 million. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. INTEREST RATE RISK. The Fund's primary exposure to interest rate risk arises from its real estate investments that are financed by the Fund with floating rate borrowings under the Fund's Credit Facility and by fixed-rate secured mortgage debt obligations of the Real Estate Joint Ventures. Partnership Preference Units are fixed rate instruments whose values will generally decrease when interest rates rise and increase when interest rates fall. The interest rates on borrowings under the Fund's Credit Facility are reset at regular intervals based on one-month LIBOR. The Fund has entered into interest rate swap agreements to fix the cost of a substantial portion of its borrowings under the Credit Facility used to acquire Belport Realty's equity in its real estate investments and to mitigate in part the impact of interest rate changes on the Fund's net asset value. Under the terms of the interest rate swap agreements, the Fund makes cash payments at fixed rates in exchange for floating rate payments that fluctuate with one-month LIBOR. The Fund's interest rate swap agreements will generally increase in value when interest rates rise and decrease in value when interest rates fall. In the future, the Fund may use other interest rate hedging arrangements (such as caps, floors and collars) to fix or limit borrowing costs. The use of interest rate hedging arrangements is a specialized activity that can expose the Fund to significant loss. 21 The following table summarizes the contractual maturities and weighted-average interest rates associated with the Fund's significant non-trading financial instruments. The Fund has no market risk sensitive instruments held for trading purposes. This information should be read in conjunction with Note 5 to the Fund's unaudited condensed consolidated financial statements in Item 1 above. 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 2005-2008 2009 Thereafter Total September 30, 2004 - ------------------------------------------------------------------------------------------------------------------------------------ Rate sensitive liabilities: - ------------------------ Long-term debt: - ------------------------ Fixed-rate mortgages $15,307,500 $345,800,000 $361,107,500 $401,000,000 Average interest rate 7.89% 6.73% 6.78% - ------------------------ Variable-rate Credit Facility $270,900,000 $270,900,000 $270,900,000 Average interest rate 2.07% 2.07% - ------------------------------------------------------------------------------------------------------------------------------------ Rate sensitive derivative financial instruments: - ------------------------ Pay fixed/receive variable interest rate swap agreements $190,887,000 $190,887,000 $ 979,341 Average pay rate 4.08% 4.08% Average receive rate 2.04% 2.04% - ------------------------------------------------------------------------------------------------------------------------------------ Rate sensitive investments: - ------------------------ Fixed-rate Partnership Preference Units: - ------------------------ Camden Operating, L.P., 7.0% Series B Cumulative Redeemable Perpetual Preferred Units, Callable 12/2/08, Current Yield: 7.16% $16,916,830 $ 16,916,830 $ 17,115,000 Colonial Realty Limited Partnership, 7.25% Series B Cumulative Redeemable Perpetual Preferred Units, Callable 2/24/09, Current Yield: 7.42% $19,274,040 $ 19,274,040 $ 19,532,000 Essex Portfolio, L.P., 7.875% Series B Cumulative Redeemable Preferred Units, Callable 12/31/09, Current Yield: 7.83% $ 17,908,335 $ 17,908,335 $ 22,626,990 PSA Institutional Partners, L.P., 6.4% Series NN Cumulative Redeemable Perpetual Preferred Units, Callable 3/17/10, Current Yield: 6.82% $ 32,220,000 $ 32,220,000 $ 28,140,000 Regency Centers, L.P., 9.125% Series D Cumulative Redeemable Preferred Units, Callable 9/29/04, Current Yield: 9.02% $18,327,294 $ 18,327,294 $ 18,207,000 22 Vornado Realty, L.P., 7.0% Series D-10 Cumulative Redeemable Preferred Units, Callable 11/17/08, Current Yield: 7.02%(1) $11,329,133 $ 11,329,133 $ 11,958,157 * The amounts listed reflect the Fund's positions as of September 30, 2004. The Fund's current positions may differ. (1) Belport Realty's interest in these Partnership Preference Units is held through Bel Holdings LLC. ITEM 4. CONTROLS AND PROCEDURES. Eaton Vance, as the Fund's manager, conducted an evaluation of the effectiveness of the Fund's disclosure controls and procedures (as defined by Rule 13a-15(e) of the 1934 Act) as of the end of the period covered by this report, with the participation of the Fund's Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Fund's disclosure controls and procedures were effective. There were no changes in the Fund's internal control over financial reporting that occurred during the quarter ended 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. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Although in the ordinary course of business, the Fund, Belport Realty and Belport Realty's controlled subsidiaries may become involved in legal proceedings, the Fund is not aware of any material pending legal proceedings to which any of them is subject. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES. As described in the Fund's Annual Report on Form 10-K for the year ended December 31, 2003, shares of the Fund may be redeemed by Fund shareholders on any business day. Redemptions are met at the net asset value per share of the Fund (less any applicable redemption fee). The right to redeem is available to all shareholders and all outstanding Fund shares are eligible (except for shares subject to an estate freeze election as described in Item 5 of the Fund's 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: 23 Total No. of Shares Average Price Paid Month Ended Redeemed(1) Per Share - ----------------------------------------------------------------- July 31, 2004 68,863.232 $93.75 - ----------------------------------------------------------------- August 31, 2004 103,923.100 $93.24 - ----------------------------------------------------------------- September 30, 2004 40,257.619 $91.08 - ----------------------------------------------------------------- Total 213,043.950 $92.04 - ----------------------------------------------------------------- (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: 31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K: None. 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized officer on November 9, 2004. BELPORT CAPITAL FUND LLC /s/ Michelle A. Green --------------------- Michelle A. Green Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 25 EXHIBIT INDEX ------------- 31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 26