<PAGE>
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IMPERIAL SPECIAL INVESTMENTS, INC.
Semi-Annual Report
June 30, 2000
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TABLE OF CONTENTS
Financial Statements of Imperial Special Investments, Inc.
<TABLE>
<CAPTION>
Page
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<S> <C>
Portfolio of Investments 1
Statement of Assets and Liabilities 3
Statement of Operations 4
Statement of Changes in Net Assets 5
Statement of Cash Flows 6
Financial Highlights 7
Notes to Financial Statements 8
</TABLE>
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<PAGE>
IMPERIAL SPECIAL INVESTMENTS, INC.
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PORTFOLIO OF INVESTMENTS as of June 30, 2000
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Investment Securities:
U.S. Government Agencies: 4.35% of net assets
<TABLE>
<CAPTION>
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Date Coupon Par Market
CUSIP Description Issued Maturity Rate % Value Value
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<S> <C> <C> <C> <C> <C> <C>
3134A2T32 FED HOME LOAN MTG 01/19/99 01/19/01 5.250 $ 5,000,000 $ 4,959,375
3133M7NV4 FED HOME LOAN BANK 02/23/99 02/23/01 5.180 5,000,000 4,946,875
31331HWJ2 FED FARM CREDIT BANK NOTE 04/01/99 04/02/01 5.125 5,000,000 4,928,125
31364GK32 FNMA 04/23/99 04/24/01 5.300 5,000,000 4,930,469
31364GQ36 FNMA 05/12/99 05/15/01 5.440 10,000,000 9,864,063
31364GR27 FNMA MED TERM NOTE 05/14/99 05/15/01 5.440 5,000,000 4,932,031
3133M9DV1 FED HOME LOAN BANK 07/09/99 07/09/01 6.045 5,000,000 4,956,250
3133M9DV1 FED HOME LOAN BANK 07/09/99 07/09/01 6.045 5,000,000 4,956,250
31364G2P3 FNMA 07/13/99 07/17/01 6.000 5,000,000 4,949,219
31364G4R7 FNMA 08/06/99 08/06/01 6.030 5,000,000 4,948,437
3133M9F49 FED HM LN BK BD - FHLB 07/15/99 08/15/01 5.875 5,000,000 4,932,812
3133M9F49 FED HM LN BK BD - FHLB 07/15/99 08/15/01 5.875 5,000,000 4,932,812
31364G5D7 FNMA MED TERM NOTE 08/20/99 08/20/01 6.230 5,000,000 4,957,813
31364GYN3 FNMA 03/15/99 09/17/01 5.650 5,000,000 4,916,407
31331HG35 FED FARM CREDIT BANK-FFCB 10/05/99 10/01/01 6.000 5,000,000 4,936,719
3133MAT74 FED HOME LOAN BANK NOTE 02/09/00 02/15/02 6.750 5,000,000 4,920,313
3133MAT74 FED HOME LOAN BANK NOTE 02/09/00 02/15/02 6.750 5,000,000 4,920,313
31359MEN9 FED NTL MTG ASSN-FNMA 03/08/99 03/15/02 5.375 10,000,000 9,715,625
3133M8LG7 FED HOME LOAN BANK NOTE 04/23/99 04/25/02 5.250 5,000,000 4,832,813
3134A3RE8 FED HOME LOAN MORTGAGE CORP 05/14/99 05/15/02 5.500 10,000,000 9,706,250
3134A3RE8 FED HOME LOAN MORTGAGE CORP 05/14/99 05/15/02 5.500 10,000,000 9,706,250
31364GT41 FNMA MED TERM NOTE 06/07/99 06/07/02 6.010 10,000,000 9,773,438
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22 Total Total U.S. Government Agencies (cost: $133,966,157) $135,000,000 $ 132,622,659
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<CAPTION>
U.S. Government Guaranteed Notes - SBA: 8.05% of net assets
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Date Coupon Par Market
CUSIP Description Issued Maturity Rate % Value Value
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<S> <C> <C> <C> <C> <C> <C>
83164FMX9 SBA ADJ RATE;MO;P-2.25 03/01/00 02/25/10 7.250 $ 11,014,941 $ 11,014,941
83164FLK8 SBA ADJ RATE;QT;-2.15 01/01/00 05/25/11 6.850 1,002,807 1,005,313
83164FPF5 SBA ADJ RATE;QT;P-2.25 04/01/00 03/25/12 6.750 34,612,289 34,612,289
83164FKQ6 SBA ADJ RATE;QT;-2.15 12/01/99 07/25/15 6.850 3,968,228 3,978,148
83164FN34 SBA ADJ RATE;MO;P-2.25 03/01/00 01/25/17 7.250 13,368,314 13,368,314
83164FPG3 SBA ADJ RATE;QT;P-2.25 04/01/00 02/25/17 6.750 9,839,478 9,839,478
83164FGV0 SBA ADJ RATE;QT;-2.15 09/01/99 01/25/19 6.850 3,021,443 3,028,996
83164DQD4 SBA ADJ RATE;QT;P-2.375 11/01/95 11/25/20 6.625 5,784,391 5,755,470
83164ESB4 SBA ADJ RATE;QT;-2.625 04/01/98 04/25/23 6.375 1,999,435 1,969,444
83164E2F3 SBA ADJ RATE;QT;P-2.50 01/01/99 01/25/24 6.500 18,990,026 18,800,126
83164FA38 SBA ADJ RATE;MO;P-1.375 05/01/99 02/25/24 8.125 18,728,991 19,138,781
83164FGU2 SBA ADJ RATE;QT;P-2.15 09/01/99 09/25/24 6.850 4,727,199 4,739,017
83164FLM4 SBA ADJ RATE;QT;-2.15 01/01/00 11/25/24 6.850 6,019,286 6,034,334
83164FM43 SBA ADJ RATE;QT;P-2.375 03/01/00 12/25/24 6.625 12,219,644 12,158,546
83164FM50 SBA ADJ RATE;MO;P-2.25 03/01/00 01/25/25 7.250 22,343,986 22,343,986
83164FPW8 SBA ADJ RATE;QT;P-2.25 04/01/00 04/25/25 6.750 47,471,366 47,471,366
83164FRK2 SBA ADJ RATE;QT;P-2.25 06/01/00 05/25/25 6.750 29,976,777 29,920,571
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17 Total Total U.S. Government Guaranteed Notes - SBA (cost: $245,641,729) $245,088,601 $ 245,179,120
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</TABLE>
1
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IMPERIAL SPECIAL INVESTMENTS, INC.
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PORTFOLIO OF INVESTMENTS as of June 30, 2000
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<TABLE>
<S> <C>
Investment in Imperial Special Holdings, LLC, (87.11% of net assets) (cost: $2,658,804,790) (1) $2,653,389,509
Short-term investments-money market account with Imperial Bank (0.24% of net assets) (cost: $7,340,521) 7,340,521
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Total Investments (99.75% of net assets) (cost: $3,045,753,197) (2) 3,038,531,809
Cash and Other Assets in Excess of Liabilities (0.25%) 7,682,120
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Net Assets (100.00%) $3,046,213,929
==============
</TABLE>
<TABLE>
<S> <C>
(1) Related party for which Imperial Bank provides management services.
(2) The tax cost of securities is the same as the cost basis for financial statement purposes.
Gross unrealized appreciation $ 39,136
Gross unrealized depreciation (7,260,524)
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Net unrealized depreciation $ (7,221,388)
============
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
IMPERIAL SPECIAL INVESTMENTS, INC.
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STATEMENT OF ASSETS AND LIABILITIES as of June 30, 2000
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ASSETS:
<S> <C>
Investments (cost $3,045,753,197) $3,038,531,809
Cash 568,324
Receivables:
Accounts receivable - principal paydowns 2,325,032
Accounts receivable - Imperial Bank 33,333
Interest receivable - investments 4,766,402
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Total assets 3,046,224,900
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LIABILITIES:
Accounts payable 10,971
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Total liabilities 10,971
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NET ASSETS (equivalent to $101.45 per share, based on 30,025,919 shares
of beneficial interest authorized and outstanding, $0.01 par value) $3,046,213,929
===============
Net Assets Consist of:
Par value $ 300,259
Paid in capital 3,002,291,601
Undistributed net investment income 50,843,457
Unrealized loss on investments (7,221,388)
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Net assets $3,046,213,929
===============
</TABLE>
See Accompanying Notes to Financial Statements
3
<PAGE>
IMPERIAL SPECIAL INVESTMENTS, INC.
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STATEMENT OF OPERATIONS
For the period from May 1, 2000 (commencement of operations) through
June 30, 2000
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<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 50,490,491
Dividends 513,452
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Total investment income 51,003,943
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EXPENSES:
Accounting fees 133,333
Asset custodial fees 11,842
Insurance expense 10,000
Directors' fees 5,000
Miscellaneous Expense 311
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Total expenses 160,486
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Net investment income 50,843,457
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REALIZED AND UNREALIZED LOSS FROM INVESTMENTS:
Unrealized loss on investments (7,221,388)
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Net increase in net assets resulting from operations $ 43,622,069
=============
</TABLE>
See Accompanying Notes to Financial Statements
4
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IMPERIAL SPECIAL INVESTMENTS, INC.
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STATEMENT OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
For the period from
May 1, 2000
through
June 30, 2000
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<S> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 50,843,457
Unrealized loss on investments (7,221,388)
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Net increase in net assets resulting from operations 43,622,069
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DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income -
CAPITAL SHARE TRANSACTIONS:
Shares issued 3,002,591,860
Shares retired (1,000)
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Net increase from capital share transactions 3,002,590,860
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Total increase in net assets $ 3,046,212,929
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NET ASSETS:
Beginning of period 1,000
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End of period (including undistributed net investment income of $50,843,457) $ 3,046,213,929
===================
SUMMARY OF CAPITAL TRANSACTIONS:
Shares issued 30,025,919
Shares retired (10)
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Net increase in shares outstanding 30,025,909
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Number of shares at beginning of period 10
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Number of shares at end of period 30,025,919
===================
</TABLE>
See Accompanying Notes to Financial Statements
5
<PAGE>
IMPERIAL SPECIAL INVESTMENTS, INC.
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STATEMENT OF CASH FLOWS
For the period from May 1, 2000 (commencement of operations) through
June 30, 2000
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<TABLE>
<S> <C>
Cash Flows From Operating Activities:
Net investment income $ 50,843,457
Purchase of money market investments (37,310,000)
Redemption of money market investments 29,969,479
Purchase of investment securities (29,920,571)
Paydowns on investment securities 461,737
Equity in undistributed earnings of LLC (46,778,424)
Increase in interest receivable (2,674,992)
Increase in accounts receivable (33,333)
Increase in accounts payable 10,971
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Cash flows from operating activities (35,431,676)
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Cash Flows From Financing Activities:
Capital contribution 36,000,000
Redemption of shares (1,000)
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Cash flows from financing activities 35,999,000
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Net change in cash 567,324
Cash at beginning of period 1,000
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Cash at end of period $ 568,324
=============
</TABLE>
See Accompanying Notes to Financial Statements
6
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IMPERIAL SPECIAL INVESTMENTS, INC.
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FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
For the period from
May 1, 2000
through
June 30, 2000
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<S> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 100.00
Net investment income 1.69
Net realized and unrealized loss on investments (0.24)
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Increase in net asset value from investment operations 1.45
Net asset value, end of period $ 101.45
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Total Return
Total investments return at net asset value 1.45%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 3,046,214
Ratio to average net assets (1)
Expenses 0.03%
Net investment income 10.10%
Portfolio turnover rate 0.10%
Shares outstanding at end of period 30,025,919
</TABLE>
(1) Annualized.
See Accompanying Notes to Financial Statements
7
<PAGE>
IMPERIAL SPECIAL INVESTMENTS, INC.
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NOTES TO FINANCIAL STATEMENTS as of June 30, 2000
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Imperial Special Investments, Inc. (the "Fund") was incorporated under the laws
of the State of California on April 24, 2000, and is a non-diversified, closed-
end, management investment company registered under the Investment Company Act
of 1940, as amended. The Fund's investment objective is to seek current income
consistent with preservation of capital. The Fund intends to meet its objective
by investing in a portfolio of medium to high quality debt securities which the
Manager believes does not involve undue risk to income or principal. Under
normal market conditions, the Fund will invest substantially all its assets in
(i) construction and development loans, (ii) mortgage-backed securities, (iii)
collateralized mortgage obligations ("CMOs"), (iv) asset-backed securities, (v)
corporate debt securities, (vi) U.S. government agency securities, (vii) U.S.
Treasury securities, (viii) commercial loans to middle market companies, (ix)
fixed and floating rate commercial real estate mortgages, (x) syndicated loans,
(xi) entertainment loans, and (xii) limited liability companies that invest in
such obligations.
Imperial Bank (the "Bank"), a state-chartered bank headquartered in Inglewood,
California, owns 100% of the voting shares of the Fund. Imperial Bank is a
subsidiary of Imperial Bancorp, a financial holding company incorporated in
California.
A. Loan and Security Valuation. The Fund will use market quotes to value its
investments when the Fund believes that multiple and reliable market quotes
are available and reflect current value. Securities, loans and investments
in limited liability companies that cannot be valued based on market quotes
are to be valued using the Fund's valuation procedures, which ascertain the
current value of a security or loan based on fundamental analysis.
Fair value estimates are based on judgments regarding credit risk, investor
expectations of future economic conditions, normal cost of administration
of these instruments and other risk characteristics, including interest
rate and prepayment risk. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
B. Income Taxes. It is the Fund's policy to comply with the requirements of
the Internal Revenue Code and necessary state taxing authorities applicable
to regulated investment companies and to distribute substantially all of
its taxable income to its shareholders. Therefore, no income tax provision
is required.
C. Security Transactions and Revenue Recognition. Securities transactions are
accounted for on trade date (date the order to buy or sell is executed).
Realized gains or losses are reported on the basis of identified cost of
securities delivered. Dividend income is recorded on the ex-dividend date.
Interest income is recorded on an accrual basis at the then current loan
rate. The accrual of interest on loans is discontinued when, in the opinion
of management, there is an indication that the borrower may be unable to
meet payments as they become due. Upon such discontinuance, all unpaid
accrued interest is reversed.
D. Distributions to Shareholder. The Fund intends to make an annual
distribution to its shareholder from net investment income. Net investment
income of the Fund consists of all interest and other income accrued on
portfolio assets less all expenses of the Fund allocable thereto.
8
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IMPERIAL SPECIAL INVESTMENTS, INC.
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NOTES TO FINANCIAL STATEMENTS as of June 30, 2000
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E. Use of Estimates. Management of the Fund has made certain estimates and
assumptions relating to the reporting of the assets, liabilities, revenues,
expenses and contingencies to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from these estimates.
NOTE 2 - INVESTMENTS
For the two months ended June 30, 2000, the cost of purchase and proceeds from
principal repayment and sales of investments, excluding short-term notes,
totaled $29,920,571 and $557,497 respectively.
NOTE 3 - MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENTS
The Fund entered into a Fund Accounting Agreement with the Bank for accounting
services. The Fund pays the Bank an annual fixed fee of $800,000 in 12 equal
monthly installments.
The Fund entered into a Custodian Contract with the Bank for asset custodial
services. The Fund agreed to pay the Bank an annual fee calculated at 0.02% of
the average daily securities balance. The fee is paid monthly.
NOTE 4 - LOANS
At June 30, 2000, Imperial Special Holdings, LLC's ("LLC") assets consisted of
$2.6 billion in loans and $80 million in a money market deposit investment. The
loan portfolio is comprised primarily of variable rate medium-term commercial
loans. The loans are not concentrated in any specific industry. At June 30,
2000, the Fund was the sole member of the LLC. The following table provides
additional information about the LLC's loan portfolio:
<TABLE>
<CAPTION>
Weighted Average
Percent Average Maturity
of Portfolio Yield (Months)
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<S> <C> <C> <C>
Commercial loans 78.05% 9.73% 13.95
Construction loans 19.08 11.18 6.05
Commercial real estate loans 2.87 9.37 22.47
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100.00% 10.00% 12.66
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</TABLE>
At June 30, 2000, four commercial loans with a market value of $436,000 were on
nonaccrual status.
NOTE 5 - CAPITALIZATION OF THE FUND
On April 28, 2000, an employee of the Bank contributed $1,000 to the Fund in
exchange for 10 shares of the Funds which were subsequently redeemed. On May 1,
2000, the Bank contributed $3 billion in assets to the Fund.
9
