<PAGE>
[LOGO Investing [PHOTO OF
APPEARS for the CALCULATOR &
HERE] 21st FINANCIAL NEWSPAPER
Century APPEARS HERE]
Annual Report December 31, 1997
EV
MARATHON
SPECIAL
EQUITIES FUND
[PHOTO OF NYSE FLAG
APPEARS HERE]
Eaton Vance
Global Management-Global Distribution
M a r a t h o n
[PHOTO OF FLOOR OF NYSE
APPEARS HERE]
<PAGE>
EV Marathon Special Equities Fund as of December 31, 1997
LETTER TO SHAREHOLDERS
[PHOTO APPEARS HERE]
During the year ended December 31, 1997, EV Marathon Special Equities Fund had a
total return of 11.6%./1/ This return resulted from a decrease in net asset
value to $13.32 per share on December 31, 1997 from $13.76 per share on December
31, 1996 and the reinvestment of $1.812 per share in capital gains
distributions. By comparison, the average total return for mutual funds in the
Lipper Growth Funds Category* was 25.3% during the period.
The U.S. economy continued to grow at a healthy rate in 1997. Gross domestic
product, the primary indicator of economic performance, increased 3.8%,
exceeding most predictions made at the beginning of the year. Unemployment
declined 0.6% to 4.7%, and 3.2 million new jobs were created. The inflation
rate, which historically has risen after periods of sustained growth and low
unemployment, declined from the previous year. The consumer price index
increased only 1.7% in 1997, compared to 3.3% in 1996, and wholesale prices
decreased 1.2% -- the largest drop since 1986. Many economists, including
Federal Reserve Chairman Alan Greenspan, attribute this continued low inflation
to the effects of increasing global competition, a strong dollar, and higher
productivity brought on by advances in technology.
The stock market's performance in 1997 exceeded 20% for a record third
consecutive year. The S&P 500 Index* rose 31% during the year, with a
relatively small group of large capitalization stocks providing the leadership.
There was considerable volatility during the year, marked by significant market
declines -- the first in the spring, and a second, steeper decline in October,
caused by economic turmoil in several important Asian countries. In both cases,
stock prices recovered.
The stock market's increased volatility illustrates the importance of
maintaining a long-term investment outlook. By staying with an investment
through the inevitable market cycles, investors can reduce the impact of any one
downturn. Moreover, a diversified investment such as a professionally managed
mutual fund further reduces risk. In the pages that follow, Portfolio Manager
Edward "Jack" Smiley discusses the economy, the stock market, and the
performance of EV Marathon Special Equities Fund in 1997.
Sincerely,
/s/ James B. Hawkes
James B. Hawkes,
President
February 9, 1998
- --------------------------------------------------------------------------------
Performance/2/
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One Year 11.6%
Life of Fund (8/22/94) 14.4
SEC Average Annual Total Returns (including applicable CDSC)
- --------------------------------------------------------------------------------
One Year 6.8%
Life of Fund (8/22/94) 13.8
Ten Largest Equity Holdings/3/
- --------------------------------------------------------------------------------
Outdoor Systems 2.1%
Sofamor Danek Group 2.0
Mutual Risk Management 1.8
National Surgery Centers 1.8
Paychex, Inc. 1.8
Bed Bath & Beyond 1.7
Conair Holdings 1.7
Health Management Associates 1.7
Vantive Corp. 1.6
Sungard Data Systems 1.6
/1/ This return does not include the applicable contingent deferred sales
charge (CDSC).
/2/ Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. SEC returns reflect the Fund's
applicable CDSC based on the following schedule: 5% - 1st year; 5% - 2nd
year; 4% - 3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year.
/3/ Ten largest holdings are as of 12/31/97 only and may not be representative
of the Portfolio's current or future investments. Holdings accounted for
17.8% of the Portfolio's investments, determined by dividing the total
market value of the holdings by the total net assets of the Portfolio.
* It is not possible to invest directly in a Lipper Category or an Index.
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.
- --------------------------------------------------------------------------------
Mutual fund shares are not insured by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
- --------------------------------------------------------------------------------
2
<PAGE>
EV Marathon Special Equities Fund as of December 31, 1997
MANAGEMENT DISCUSSION
An interview with Jack Smiley, Vice President and Portfolio Manager of the
Special Investment Portfolio
[PHOTOGRAPH OF JACK SMILEY APPEARS HERE]
Jack Smiley,
Portfolio Manager
Q: Jack, what kind of year was 1997 for small capitalization stocks?
A: In 1997, most small company mutual funds underperformed the S&P 500 Index.
Within small company mutual funds, value funds significantly outperformed
those with a growth orientation in 1997. Why did this happen? There are
three plausible reasons. First, small cap growth funds had outstanding
performance from 1993 to 1996 and were subject to some profit-taking last
year. Second, with relatively high valuations, growth stocks sold off
sharply last spring when interest rates spiked. Finally, after three good
years, many of these stocks were simply "over-owned" by many mutual funds,
and little new money was invested in these companies in 1997. Despite the
spring sell-off of growth stocks, however, many small-cap growth funds,
including this one, finished the year with positive performance.
Q: What are the main differences between growth and value management?
A: A growth-oriented manager is attracted to the earnings growth of a company
and will generally pay a premium for strong, consistent earnings that
appear to be sustainable for several years. A value-oriented manager is not
as interested in earnings growth relative to valuation. This manager is
looking for the out of favor, unloved, inexpensive companies with low
price-to-book and price-to-revenue ratios. The risk with investing in small
companies using only the value approach is that many of these companies may
have stopped growing, either because their product lines are obsolete or
inferior, or because they have been beaten by larger, more efficient
companies with superior products. We believe that the reason to invest in
small companies is that they should grow at a faster rate than larger
companies, and the best way to accomplish this is through superior earnings
growth.
Q: What types of companies do you favor in the health care sector -- the top
weighting in the Fund?
A: One of our favorite companies is Concentra Managed Care, which specializes
in helping companies with their worker's compensation costs. Concentra
retrains an individual disabled from a work-related injury to perform a
different job wherein the disability is not a factor. This helps a worker
learn new skills -- a life-long benefit -- while reducing the insurance
costs for the company. Another area in health care that we like is contract
research, which is growing rapidly as large pharmaceutical firms continue
to outsource their research during the clinical trial phase of new drug
development. Parexcel, a holding in this Fund, performed well in 1997 and
is a good example of a successful contract research firm. In the drug
delivery area, the Fund owns Elan, Genzyme, and Genzyme Tissue Repair,
which are solid companies that we believe have high-growth potential. Other
companies in the Fund include Health Management Associates and National
Surgery Centers, operators of specialty surgical facilities, and
Five Largest Equity Sectors+
- --------------------------------------------------------------------------------
As a percentage of total net assets
Information Services 21.1%
Health Services 11.6%
Financial 10.4%
Oil and Gas 6.0%
Drugs 4.6%
+ Sector allocation is subject to change due to active management.
3
<PAGE>
EV Marathon Special Equities Fund as of December 31, 1997
MANAGEMENT DISCUSSION CONT'D
Renal Care Group, providers of kidney dialysis services. All of these
specialized services companies are very attractive and should continue to
have strong growth rates going forward, as their services are used more
widely by increasingly cost-conscious health care providers.
Q: What is your outlook for this sector in 1998?
A: The roughest part of the health care industry, from an investor's
standpoint, is in managed care, or HMO's. We do not have any investments in
HMO stocks, nor do we plan to have any until they emerge from their well-
publicized difficulties. However, other areas of the health care sector,
mentioned previously, look promising for the coming year.
Q: What do you foresee for the information services and software sectors also
large weightings in the Fund -- for 1998?
A: These two sectors probably represent the best prospects for growth in the
Fund in 1998. Demand for these products remains strong, productivity in the
sector is high, and return on investment has been outstanding. Companies in
"enterprise software," which enable networking among different computer
operating systems, should perform very well. These firms include
Peoplesoft, Baan, and JD Edwards. Another company, Cambridge Technology
Partners, assists companies with the transition from mainframe software to
client-server software, which has been the trend for the past several years
and should continue to be for some time.
Q: How do you think the slowing of Asian economies will affect companies in
this Fund over the next year?
A: Hopefully not to a great extent, but the earnings reports for the first
quarter of 1998, due out in April and May, will be more revealing than the
information we have now. In the Fund, we have eliminated several major
semi-conductor equipment stocks. They are becoming cheaper, but there is a
great deal of turbulence in Asia that will affect PC- and semiconductor-
related stocks. We will continue to monitor the situation closely, but our
plan is to wait for the dust to settle before we reinvest.
Q: What is your outlook for the U.S. economy?
A: We should continue to see growth in the U.S. economy, though it will
probably not match the growth we have seen in the past few years. In
addition, we should begin to see a shift among equity investors from large
companies to smaller ones. The annual growth rates of earnings per share in
S&P 500 stocks will probably moderate in 1998, while small company growth
stocks should see above-average earnings growth and, subsequently, higher
price valuations. It is important to remember that many large companies
have multinational exposure; if the problems we have seen in Asia or South
America persist, these firms will likely experience a decline in earnings
growth. In fact, we are already seeing some reduced earnings outside of the
technology sector. For example, International Flavors and Fragrances, a
medium-sized company, recently reported quarterly earnings that were below
expectations for this very reason -- sluggish foreign sales.
Q: To sum up, Jack, what are the main reasons for investing in a small-cap
growth fund in 1998?
A: The valuation levels of small company growth stocks are very attractive
right now, especially compared to those of large company growth stocks. If
investors are patient, these are the types of companies that have
traditionally delivered above-average returns. People with three- to four-
year investment time horizons should hope to see good results from
companies of this size.
4
<PAGE>
EV Marathon Special Equities Fund as of December 31, 1997
FUND PERFORMANCE
Comparison of Change in Value of a $10,000
Investment in EV Marathon Special Equities Fund
vs. the Standard & Poor's 500*
August 31, 1994 through December 31, 1997
[LINE GRAPH APPEARS HERE]
EV Marathon
Special Equities
Date Fund Fund w/ CDSC** S&P 500*
---- ---- ------------ -------
8/31/94 $10,000 $15,082 $10,000
9/30/94 $9,726 $15,082 $9,754
10/31/94 $9,883 $15,082 $9,981
11/30/94 $9,472 $15,082 $9,610
12/31/94 $9,599 $15,082 $9,752
1/31/95 $9,491 $15,082 $10,011
2/28/95 $9,863 $15,082 $10,394
3/31/95 $10,078 $15,082 $10,701
4/30/95 $10,068 $15,082 $11,026
5/31/95 $10,147 $15,082 $11,452
6/30/95 $10,352 $15,082 $11,721
7/31/95 $10,920 $15,082 $12,119
8/31/95 $11,184 $15,082 $12,140
9/30/95 $11,145 $15,082 $12,652
10/31/95 $10,724 $15,082 $12,615
11/30/95 $11,135 $15,082 $13,158
12/31/95 $11,484 $15,082 $13,413
1/31/96 $11,435 $15,082 $13,876
2/28/96 $11,829 $15,082 $13,997
3/31/96 $11,859 $15,082 $14,133
4/30/96 $12,352 $15,082 $14,350
5/31/96 $12,835 $15,082 $14,706
6/30/96 $12,687 $15,082 $14,767
7/31/96 $11,730 $15,082 $14,120
8/31/96 $12,253 $15,082 $14,414
9/30/96 $13,151 $15,082 $15,224
10/31/96 $13,319 $15,082 $15,649
11/30/96 $13,861 $15,082 $16,825
12/31/96 $13,784 $15,082 $16,492
1/31/97 $14,135 $15,082 $17,530
2/28/97 $12,993 $15,082 $17,660
3/31/97 $12,059 $15,082 $16,935
4/30/97 $12,070 $15,082 $17,953
5/31/97 $13,847 $15,082 $19,033
6/30/97 $14,415 $15,082 $19,889
7/31/97 $14,961 $15,082 $21,473
8/31/97 $14,833 $15,082 $20,270
9/30/97 $15,497 $15,082 $21,378
10/31/97 $15,058 $15,082 $20,671
11/30/97 $14,897 $15,082 $21,622
12/31/97 $15,382 $15,082 $21,992
Performance+
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One Year 11.6%
Life of Fund (8/22/94) 14.4
SEC Average Annual Total Returns (including applicable CDSC)
- --------------------------------------------------------------------------------
One Year 6.8%
Life of Fund (8/22/94) 13.8
* Source: Towers Data Systems, Bethesda, MD. Investment operations commenced
8/22/94. Index information is available only at month-end; therefore, the
line comparison begins at the next month-end following the commencement of
the Fund's investment operations.
The chart compares the Fund's total return with that of the S&P 500 Index, a
broad-based unmanaged index of 500 common stocks. Returns are calculated by
determining the percentage change in net asset value with all distributions
reinvested. The lines on the chart represent the total returns of $10,000
hypothetical investments in the Fund and the S&P 500 Index. The Index's
total return does not reflect any commissions or expenses that would have
been incurred if an investor individually purchased or sold the securities
represented in the Index. It is not possible to invest directly in an Index.
** This figure represents the Fund's performance including the applicable
contingent deferred sales charge (CDSC) based on the following schedule:
5%-1st year; 5%-2nd year; 4%-3rd year; 3%-4th year; 2%-5th year;
1%-6th year.
+ Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. SEC returns reflect the Fund's
applicable CDSC.
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.
5
<PAGE>
EV Marathon Special Equities Fund as of December 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of December 31, 1997
Assets
- ----------------------------------------------------------------------------------------
<S> <C>
Investment in Special Investment Portfolio (Portfolio), at value
(Note 1A) (identified cost, $2,841,478) $ 3,446,851
Receivable for Fund shares sold 43,588
Receivable from the Administrator (Note 4) 13,500
Deferred organization expenses (Note 1D) 16,560
- ----------------------------------------------------------------------------------------
Total assets $ 3,520,499
- ----------------------------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 10,654
Accrued expenses 10,976
- ----------------------------------------------------------------------------------------
Total liabilities $ 21,630
- ----------------------------------------------------------------------------------------
Net Assets for 262,666 shares of
beneficial interest outstanding $ 3,498,869
- ----------------------------------------------------------------------------------------
Sources of Net Assets
- ----------------------------------------------------------------------------------------
Paid-in capital $ 2,971,796
Accumulated undistributed net realized loss on investments
(computed on the basis of identified cost) (78,300)
Net unrealized appreciation of investments (computed on the basis
of identified cost) 605,373
- ----------------------------------------------------------------------------------------
Total $ 3,498,869
- ----------------------------------------------------------------------------------------
Net Asset Value, Offering and Redemption
Price Per Share (Note 6)
- ----------------------------------------------------------------------------------------
($3,498,869 / 262,666 shares of
beneficial interest outstanding) $ 13.32
- ----------------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
December 31, 1997
Investment Income
- ----------------------------------------------------------------------------------------
Dividend income allocated from Portfolio
(net of foreign taxes $13) $ 5,569
Interest income allocated from Portfolio 14,779
Expenses allocated from Portfolio (23,804)
- ----------------------------------------------------------------------------------------
Net investment loss from Portfolio $ (3,456)
- ----------------------------------------------------------------------------------------
Expenses
- ----------------------------------------------------------------------------------------
Distribution and service fees (Note 5) $ 29,576
Legal and accounting services 15,893
Registration fees 14,570
Printing and postage 14,195
Amortization of organization expenses (Note 1D) 10,465
Custodian fee 5,296
Transfer and dividend disbursing agent fees 4,025
Miscellaneous 609
- ----------------------------------------------------------------------------------------
Total expenses $ 94,629
- ----------------------------------------------------------------------------------------
Deduct --
Allocation of expenses to the Administrator (Note 4) $ 13,500
- ----------------------------------------------------------------------------------------
Total expense reductions $ 13,500
- ----------------------------------------------------------------------------------------
Net expenses $ 81,129
- ----------------------------------------------------------------------------------------
Net investment loss $ (84,585)
- ----------------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) from Portfolio
- ----------------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 163,844
- ----------------------------------------------------------------------------------------
Net realized gain on investment transactions $ 163,844
- ----------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments $ 269,512
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ 269,512
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 433,356
- ----------------------------------------------------------------------------------------
Net increase in net assets from operations $ 348,771
- ----------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
6
<PAGE>
EV Marathon Special Equities Fund as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment loss $ (84,585) $ (51,838)
Net realized gain on
investment transactions 163,844 245,636
Net change in unrealized appreciation
(depreciation) of investments 269,512 157,020
- -----------------------------------------------------------------------------------------
Net increase in net assets from operations $ 348,771 $ 350,818
- -----------------------------------------------------------------------------------------
Distributions to shareholders (Note 2) --
From net realized gain on $ (337,544) $ (44,253)
investments
In excess of net realized gain (82,236) --
- -----------------------------------------------------------------------------------------
Total distributions to shareholders $ (419,780) $ (44,253)
- -----------------------------------------------------------------------------------------
Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sale of shares $ 2,165,781 $ 2,882,662
Net asset value of shares issued
to shareholders in payment of
distributions declared 371,190 41,241
Cost of shares redeemed (1,776,942) (1,806,992)
- -----------------------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions $ 760,029 $ 1,116,911
- -----------------------------------------------------------------------------------------
Net increase in net assets $ 689,020 $ 1,423,476
- -----------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------
At beginning of year $ 2,809,849 $ 1,386,373
- -----------------------------------------------------------------------------------------
At end of year $ 3,498,869 $ 2,809,849
- -----------------------------------------------------------------------------------------
Accumulated undistributed
net investment income
included in net assets
- -----------------------------------------------------------------------------------------
At end of year $ -- $ --
- -----------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
7
<PAGE>
EV Marathon Special Equities Fund as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1997 1996 1995 1994*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value -- Beginning of year $13.760 $ 11.660 $ 9.810 $ 10.000
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.322) $ (0.254) $(0.165) $ (0.021)
Net realized and unrealized gain (loss) on investments 1.694 2.579 2.090 (0.169)
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 1.372 $ 2.325 $ 1.925 $ (0.190)
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- -----------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments $(1.457) $ (0.225) $ -- $ --
In excess of net realized gain on investments (0.355) -- (0.075) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions $(1.812) $ (0.225) $(0.075) $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value -- End of year $13.320 $ 13.760 $11.660 $ 9.810
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 11.59% 20.02% 19.64% (1.90)%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data++
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $ 3,499 $ 2,810 $ 1,386 $ 623
Ratio of net expenses to average daily net assets/(2)/ 3.30% 3.41% 3.21% 3.05%+
Ratio of net investment loss to average daily net assets (2.66)% (2.49)% (2.31)% (2.00)%+
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
++ The operating expenses of the Fund and the Portfolio may reflect a reduction of the Investment Adviser fee, an allocation of
expenses to the Administrator, or both. Had such actions not been taken, the ratios and net investment loss per share would have
been as follows:
<S> <C> <C> <C> <C>
Ratios (As a percentage of average daily net assets):
Expenses/(2)/ 3.73% 4.94% 9.54% 9.55%+
Net investment loss (3.09)% (0.96)% (8.65)% (8.50)%+
Net investment loss per share $(0.374) $ (0.410) $(0.617) $ (0.092)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, August 22, 1994, to December
31, 1994.
/(1)/ Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the ex-dividend date. Total return is
not computed on an annualized basis.
/(2)/ Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
See notes to financial statements
8
<PAGE>
EV Marathon Special Equities Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
----------------------------------------------------------------------------
EV Marathon Special Equities Fund (the Fund), a Massachusetts business trust,
is registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company. The Fund is a series in
the Eaton Vance Special Investment Trust. The Fund invests all of its
investable assets in interests in the Special Investment Portfolio (the
Portfolio), a New York Trust, having the same investment objective as the
Fund. The value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio (4.4% at December
31, 1997). The performance of the Fund is directly affected by the
performance of the Portfolio. The financial statements of the Portfolio,
including the portfolio of investments, are included elsewhere in this report
and should be read in conjunction with the Fund's financial statements. The
following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
On June 23, 1997, the Board of Trustees approved a Plan of Reorganization
(the "Plan") for the Trust. Under the terms of the Plan, the EV Traditional
Special Equities Fund (the Successor Fund), a separate series of the Trust,
would acquire substantially all of the assets and liabilities of the Fund
(the Acquired Fund). The transaction will be structured for tax purposes to
qualify as a tax-free reorganization under the Internal Revenue Code. The
Trust will issue and deliver to the Acquired Fund a number of full and
fractional shares of beneficial interest of a separate class of the Successor
Fund (Class B shares), which will be equal in value to the net asset value
per share of the Acquired Fund multiplied by the number of full and
fractional shares of the Acquired Fund then outstanding. Such transaction
will occur after the close of business, December 31, 1997.
Effective January 1, 1998 the EV Traditional Special Equities Fund changed
its name to Eaton Vance Special Equities Fund.
A Investment Valuations -- Valuations of securities by the portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report.
B Income -- The Fund's net investment income consists of the Fund's pro
rata share of the net investment income of the Portfolio, less all actual
and accrued expenses of the Fund determined in accordance with generally
accepted accounting principles.
C Federal Taxes -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable income, including any
net realized gain on investments, option and financial futures transactions.
Accordingly, no provision for federal income or excise tax is necessary.
Pursuant to section 852 of the Internal Revenue Code, the Fund designated
$222,009 at 28% and $28,225 at 20% as a long-term capital gain distribution
for its taxable year ended December 31, 1997.
D Deferred Organization Expenses -- Costs incurred by the Fund in connection
with its organization are being amortized on the straight-line basis over
five years.
E Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian to the Fund and the Portfolio. Pursuant to the respective custodian
agreements, IBT receives a fee reduced by credits which are determined based
on the average daily cash balances the Fund or Portfolio maintains with IBT.
All significant credit balances used to reduce the Fund's or the Portfolio's
custodian fees are reflected as a reduction of operating expenses on the
Statement of Operations.
F Other -- Investment transactions are accounted for on a trade date basis.
G Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results
could differ from those estimates.
2 Distributions to Shareholders
----------------------------------------------------------------------------
The Fund's present policy is to make a distribution at least annually of all
or substantially all of the net investment income allocated to the Fund by
the Portfolio (less the Fund's direct and allocated expenses) and to
distribute at least annually any net realized capital gains (reduced by any
9
<PAGE>
EV Marathon Special Equities Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
available capital loss carryforwards from prior years) so allocated.
Shareholders may reinvest all distributions in shares of the Fund at the per
share net asset value as of the close of business on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis. Generally accepted accounting principles require that only
distributions in excess of tax basis earnings and profits be reported in the
financial statements as a return of capital. Differences in the recognition
or classification of income between the financial statements and tax earnings
and profits which result in over-distributions for financial statement
purposes are classified as distributions in excess of net investment income
or accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital.
3 Shares of Beneficial Interest
----------------------------------------------------------------------------
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
December 31,
------------------------
1997 1996
----------------------------------------------------------------------------
Sales 161,079 227,080
Issued to shareholders electing to
receive payments of
distributions in Fund shares 30,151 3,138
Redemptions (132,782) (144,920)
----------------------------------------------------------------------------
Net increase 58,448 85,298
----------------------------------------------------------------------------
4 Transactions with Affiliates
----------------------------------------------------------------------------
Eaton Vance Management (EVM) serves only as the administrator of the Fund,
but receives no compensation. The Portfolio has engaged Boston Management
and Research (BMR), a subsidiary of EVM, to render investment advisory
services. See Note 2 of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report. To reduce the net operating loss of
the Fund, $13,500 of expenses related to the operation of the Fund were
allocated to EVM as administrator. Except as to Trustees of the Fund and
the Portfolio who are not members of EVM's or BMR's organizations, officers
and Trustees receive remuneration for their services to the Fund out of
such investment adviser fee. Certain of the officers and Trustees of the
Fund and Portfolio are officers and directors/trustees of the above
organizations.
5 Distribution Plan
----------------------------------------------------------------------------
The Fund has adopted a distribution plan (the Plan) pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Plan requires the Fund to pay
the principal underwriter, Eaton Vance Distributors, Inc. (EVD) amounts equal
to 1/365 of 0.75% (0.75% annualized) of the Fund's daily net assets, for
providing ongoing distribution services and facilities to the Fund. The Fund
will automatically discontinue payments to EVD during any period in which
there are no outstanding Uncovered Distribution Charges, which are equivalent
to the sum of (i) 5% of the aggregate amount received by the Fund for the
shares sold plus, (ii) distribution fees calculated by applying the rate of
1% over the prevailing prime rate to the outstanding balance of Uncovered
Distribution Charges of EVD, reduced by the aggregate amount of contingent
deferred sales charges (see Note 6) and amounts theretofore paid to EVD.
The amount payable to EVD with respect to each day is accrued on such day as
a liability of the Fund and, accordingly, reduces the Fund's net assets. Such
payments would cease upon termination of the distribution agreement (unless
made in accordance with another distribution agreement). As a result, the
Fund does not accrue amounts which may become payable to EVD in the future
because the conditions for recording any contingent liability under generally
accepted accounting principles have not been satisfied. EVD earned $23,756
for the year ended December 31, 1997, representing 0.75% of average daily net
assets. At December 31, 1997, the amount of Uncovered Distribution Charges to
EVD calculated under the Plan was approximately $71,000.
In addition, the Plan authorizes the Fund to make payments of service fees to
the Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding 0.25% of the Fund's average daily net assets for any fiscal year.
The Trustees have implemented the Plan by authorizing the Fund to make
quarterly payments of service fees to the Principal Underwriter and
Authorized Firms in amounts not expected to exceed 0.25%, of the Fund's
average daily net assets for each fiscal year based on the value of Fund
shares sold by such persons and remaining outstanding for at least twelve
months. Service fees are separate and distinct from the sales commissions and
distribution fees payable by the Fund to EVD, and, as
10
<PAGE>
EV Marathon Special Equities Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
such, are not subject to automatic discontinuance where there are no
outstanding Uncovered Distribution Charge of EVD. During the year ended
December 31, 1997, the Fund provided for $5,820 under the Plan to the
Principal Underwriter and Authorized Firms.
Certain of the officers of the Fund and Directors of the Corporation are
officers or directors of EVD.
6 Contingent Deferred Sales Charges
----------------------------------------------------------------------------
A contingent deferred sales charge (CDSC) is imposed on any redemption of
Fund shares made within six years of purchase. Generally, the CDSC is based
upon the lower of the net asset value at date of redemption or date of
purchase. No charge is levied on shares acquired by reinvestment of dividends
or capital gain distributions. The CDSC is imposed at declining rates that
begin at 5% in the first and second year of redemption after purchase,
declining one percentage point each year thereafter. No CDSC is levied on
shares which have been sold to EVD or its affiliates or to their respective
employees or clients. CDSC charges are paid to EVD to reduce the amount of
Uncovered Distribution Charges calculated under the Fund's Distribution Plan.
CDSC charges received when no Uncovered Distribution Charges exist will be
retained by the Fund. EVD received approximately $14,000 of CDSC paid by
shareholders for the year ended December 31, 1997.
7 Investment Transactions
----------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio aggregated
$2,225,668 and $1,968,049, respectively.
11
<PAGE>
EV Marathon Special Equities Fund as of December 31, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
EV Marathon Special Equities Fund:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of EV
Marathon Special Equities Fund, a series of Eaton Vance Special Investment
Trust, as of December 31, 1997, the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the three years
in the period then ended and for the period from August 22, 1994 (start of
business) to December 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of EV
Marathon Special Equities Fund, a series of Eaton Vance Special Investment Trust
as of December 31, 1997, the results of its operations for the year then ended,
the changes in it's net assets for each of the two years in the period then
ended and the financial highlights for the three years in the period then ended
and for the period from August 22, 1994 (start of business) to December 31, 1994
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1998
12
<PAGE>
Special Investment Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS
Common Stocks -- 96.0%
Security Shares Value
- --------------------------------------------------------------------------------
Advertising -- 2.9%
- --------------------------------------------------------------------------------
Catalina Marketing Corp.* 14,000 $ 647,500
Specialized market research.
Outdoor Systems, Inc.* 42,410 1,627,483
Dominant operator of outdoor advertising.
- --------------------------------------------------------------------------------
$ 2,274,983
- --------------------------------------------------------------------------------
Banks - Regional -- 0.9%
- --------------------------------------------------------------------------------
Colonial Bancgroup, Inc. 21,000 $ 723,188
Emerging banking company in the
Southeastern U.S.
- --------------------------------------------------------------------------------
$ 723,188
- --------------------------------------------------------------------------------
Banks and Money Services -- 0.7%
- --------------------------------------------------------------------------------
Bank United Corp., Class A 12,000 $ 587,250
Operates 70 branch bank system in Texas.
- --------------------------------------------------------------------------------
$ 587,250
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 3.2%
- --------------------------------------------------------------------------------
Emmis Broadcasting Corp., Class A* 23,000 $ 1,049,375
Diversified media company.
Jacor Communications, Inc.* 16,500 876,563
Rapidly growing operator of radio stations and
syndicated programming.
Sinclair Broadcast Group, Class A* 13,000 606,125
Well managed operator of diversified
broadcast properties.
- --------------------------------------------------------------------------------
$ 2,532,063
- --------------------------------------------------------------------------------
Building Materials -- 1.0%
- --------------------------------------------------------------------------------
Texas Industries, Inc. 18,000 $ 810,000
Regional producer of building products in
the Southwest.
- --------------------------------------------------------------------------------
$ 810,000
- --------------------------------------------------------------------------------
Business Products and Services -- 8.7%
- --------------------------------------------------------------------------------
Abacus Direct Corp.* 10,000 $ 410,000
Provider of specialized marketing programs.
CN Maximus, Inc.* 20,950 506,728
Management consulting group.
Franklin Covey Co. 13,000 286,000
Time management seminars and products.
Gartner Group, Inc. Class A* 30,000 1,117,500
Leading consultant of high tech
equipment purchases.
Gulf South Medical Supply, Inc.* 8,000 298,000
Leading distributor of health care products.
Learning Tree International* 15,000 433,125
Leading operator of computer software
training programs.
Netscape Communications Corp.* 9,000 219,375
Leading provider of internet browser software.
Personnel Group of America, Inc.* 7,000 231,000
Temporary employment company.
Sanmina Corp.* 6,000 406,500
Operates contract manufacturing facilities for
high tech companies.
Saville Systems PLC ADR* 11,000 456,500
Provides billing software for the
telecommunications industry.
Structural Dynamics Research Corp.* 301 6,773
Niche developer and provider of
engineering software.
Sylvan Learning Systems, Inc.* 15,000 585,000
Operates specialized educational
tutoring and testing centers.
United Rentals, Inc.* 30,000 579,375
Unique operator of outlets renting
specialized construction equipment.
Vantive Corp. 50,000 1,262,500
Leading provider of customer care and sales
force automation software.
- --------------------------------------------------------------------------------
$ 6,798,376
- --------------------------------------------------------------------------------
Communications Equipment -- 0.7%
- --------------------------------------------------------------------------------
ECI Telecommunications 20,000 $ 510,000
A company that produces advanced
telecommunications equipment.
- --------------------------------------------------------------------------------
$ 510,000
- --------------------------------------------------------------------------------
See notes to financial statements
13
<PAGE>
Special Investment Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Communications Services -- 0.8%
- --------------------------------------------------------------------------------
Nextel Communications, Inc., Class A* 7,500 $ 195,000
Operates a vast network of digital
communications systems.
Transition Systems, Inc.* 20,000 442,500
Healthcare information systems.
- --------------------------------------------------------------------------------
$ 637,500
- --------------------------------------------------------------------------------
Computer Software -- 5.5%
- --------------------------------------------------------------------------------
Baan Co. NV* 10,000 $ 330,000
Leading vendors of enterprise resource software
- - integrates a company's software programs.
CBT Group PLC, ADR* 5,000 410,625
Specialized provider of computer based
training systems.
Documentum, Inc.* 9,000 379,125
Provides niche software enabling large
corporations to integrate their documents into
a central system.
HNC Software, Inc.* 5,000 215,000
Develops specialty software products that
enable credit suppliers to define risk/reward
scores for loans.
J.D. Edwards, Inc.* 18,000 531,000
Leading vendor of enterprise resource software -
specialized in mid range corporations.
Manugistics Group, Inc.* 10,000 446,250
Develops software that ties together suppliers
to the manufacturers they serve.
Pegasystems, Inc.* 20,000 403,750
Marketing information specialist.
PeopleSoft, Inc.* 28,000 1,092,000
Specialty software for human resources
and manufacturing.
Symantec* 22,000 482,625
Designs and distributes the Norton Antivirus
software programs.
- --------------------------------------------------------------------------------
$ 4,290,375
- --------------------------------------------------------------------------------
Consumer Services -- 1.4%
- --------------------------------------------------------------------------------
Strayer Education, Inc. 32,865 $ 1,084,545
Specialized supplemental education services.
- --------------------------------------------------------------------------------
$ 1,084,545
- --------------------------------------------------------------------------------
Drugs -- 3.3%
- --------------------------------------------------------------------------------
Curative Health Services, Inc.* 25,000 $ 759,375
Operator of specialty burn unit clinics.
Genzyme Corp.* 10,000 68,750
Leading researcher in gene therapy.
Genzyme Corp. Class A* 43,000 1,193,250
Diversified biotechnology pharmaceuticals.
Parexel International Corp.* 15,000 555,000
Contract research services for large
drug companies.
- --------------------------------------------------------------------------------
$ 2,576,375
- --------------------------------------------------------------------------------
Electrical Equipment -- 1.9%
- --------------------------------------------------------------------------------
Level One Communications, Inc.* 24,000 $ 678,000
Designs and sells integrated circuits.
Linear Technology Corp. 14,000 806,750
Manufacturer of high performance linear
integrated circuits.
- --------------------------------------------------------------------------------
$ 1,484,750
- --------------------------------------------------------------------------------
Electronics - Semiconductors -- 1.6%
- --------------------------------------------------------------------------------
Microchip Technology, Inc.* 11,000 $ 330,000
Designs and manufactures specialty
semiconductor chips.
Qlogic Corp.* 9,950 293,525
Designs and distributes specialty chips and
systems for communications products.
Teradyne, Inc.* 20,000 640,000
High quality semiconductor manufacturing
equipment supplier.
- --------------------------------------------------------------------------------
$ 1,263,525
- --------------------------------------------------------------------------------
Entertainment -- 1.4%
- --------------------------------------------------------------------------------
MGM Grand, Inc.* 30,000 $ 1,081,875
Operator of MGM Grand Hotel in Las Vegas.
- --------------------------------------------------------------------------------
$ 1,081,875
- --------------------------------------------------------------------------------
Financial - Miscellaneous -- 1.5%
- --------------------------------------------------------------------------------
Capital One Financial Corp.* 12,000 $ 650,250
Leading credit card services specialists.
- --------------------------------------------------------------------------------
See notes to financial statements
14
<PAGE>
Special Investment Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Financial - Miscellaneous (continued)
- --------------------------------------------------------------------------------
E*Trade Group, Inc.* 23,000 $ 529,000
Innovative, high quality electronic internet
stock brokerage firm.
- --------------------------------------------------------------------------------
$ 1,179,250
- --------------------------------------------------------------------------------
Health Services -- 14.3%
- --------------------------------------------------------------------------------
American Retirement Corp.* 40,000 $ 800,000
Assisted living services.
Bioreliance Corp.* 850 19,550
Provides contract research services for
biotechnology and medical
research departments.
Concentra Managed Care, Inc.* 26,790 904,163
Specialized health care operator of workman's
compensation programs.
Elan Corp., PLC, ADR* 14,000 716,625
Specialty pharmaceutical.
Express Scripts, Inc., Class A* 17,000 1,020,000
Rapidly growing pharmacy specialist.
Guidant Corp. 9,000 560,250
Well regarded designer and manufacturer of
leading edge stents and health care products.
Health Management Associates, Inc. Class A* 51,000 1,287,750
Hospital chain.
Medicis Pharmaceutical, Inc., Class A* 10,000 511,250
Developer and marketer of unique
dermatological products.
MiniMed, Inc.* 23,000 894,125
Developer and manufacturer of medical devices
focusing on diabetics.
Monarch Dental Corp. 800 10,600
Provides specialty dental care.
National Surgery Centers, Inc.* 54,000 1,417,499
Operator of independent surgery units.
Omnicare, Inc. 27,000 837,000
Provides pharmacy services to
retirement centers.
Pediatrix Medical Group, Inc.* 11,000 470,250
Operates pediatric care units.
PhyCor, Inc.* 13,000 351,000
Physicians practice management.
Renal Care Group, Inc.* 14,000 448,000
One of the largest providers of renal
treatment centers.
Sunrise Assisted Living, Inc.* 13,000 560,625
One of the leading operators of assisted care
facilities for senior citizens.
Vertex Pharmaceuticals, Inc.* 10,000 330,000
Developing biotechnology company.
- --------------------------------------------------------------------------------
$11,138,687
- --------------------------------------------------------------------------------
Household Products -- 0.7%
- --------------------------------------------------------------------------------
Sola International* 17,000 $ 552,500
Specialty eye care products.
- --------------------------------------------------------------------------------
$ 552,500
- --------------------------------------------------------------------------------
Information Services -- 15.7%
- --------------------------------------------------------------------------------
Acxiom Corp.* 23,000 $ 442,750
Database information services.
Affiliated Computer Services, Inc. Class A* 45,000 1,184,063
Nationwide provider of information
processing services.
Aspen Technologies, Inc.* 25,000 856,250
Specialty software for upgrading
manufacturing plants.
BISYS Group, Inc.* 28,000 931,000
Services financial institutions with computer,
administrative and marketing support data
processing services.
Cambridge Technology Partners, Inc.* 25,000 1,040,625
Software consulting company.
CCC Information Services Group* 60,000 1,185,000
Automotive repair information specialist.
Cognos, Inc.* 15,000 345,000
Computer tool developer and supporter.
FIserv, Inc.* 17,300 849,863
Provider of data processing services to banks
and savings institutions, benefiting from
outsourcing trend.
Harbinger, Corp.* 14,000 393,750
Electronic Data Interchange products
and services.
IDX Systems Corp.* 9,000 333,000
Healthcare information systems.
Nova Corp. Georgia* 36,000 900,000
Nation's largest bankcard processor
Paychex, Inc.* 27,000 1,366,874
Payroll and corporate information services.
See notes to financial statements
15
<PAGE>
Special Investment Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Information Services (continued)
- --------------------------------------------------------------------------------
SunGard Data Systems, Inc.* 40,000 $ 1,240,000
Data storage and emergency back up products.
Veritas Software Co.* 22,500 1,147,500
Provides communications companies with
software measuring systems.
- --------------------------------------------------------------------------------
$12,215,675
- --------------------------------------------------------------------------------
Insurance -- 2.9%
- --------------------------------------------------------------------------------
HCC Insurance Holdings, Inc. 25,000 $ 531,250
Emerging specialty insurance provider.
Mercury General Corp. 5,000 276,250
Large provider of specialized auto
insurance policies.
Mutual Risk Management Ltd. 48,006 1,437,179
Specialty insurer focusing on
workmen's compensation.
- --------------------------------------------------------------------------------
$ 2,244,679
- --------------------------------------------------------------------------------
Investment Services -- 4.3%
- --------------------------------------------------------------------------------
Centura Banks, Inc. 17,500 $ 1,207,500
Growing Southeastern bankers.
PMI Group, Inc. 15,000 1,084,688
Specialty financial products.
Sovereign Bancorp, Inc. 50,000 1,037,500
A thrift holding company.
- --------------------------------------------------------------------------------
$ 3,329,688
- --------------------------------------------------------------------------------
Machinery -- 1.0%
- --------------------------------------------------------------------------------
Camco International, Inc. 12,000 $ 764,250
Oilfield services.
- --------------------------------------------------------------------------------
$ 764,250
- --------------------------------------------------------------------------------
Medical Products -- 3.1%
- --------------------------------------------------------------------------------
Heartstream, Inc.* 39,000 $ 416,813
Portable defibrillator products.
Invacare Corp. 19,000 413,250
Provider of diverse medical products.
Sofamor Danek Group, Inc.* 24,000 1,561,499
Leading developer/manufacturer of
spinal implant devices. Company markets
products internationally.
- --------------------------------------------------------------------------------
$ 2,391,562
- --------------------------------------------------------------------------------
Oil and Gas - Exploration
and Production -- 6.0%
- --------------------------------------------------------------------------------
Anadarko Petroleum Corp. 7,000 $ 424,813
A leading independent company in oil and gas
exploration, development and production.
Apache Corp. 22,000 771,375
Diversified exploration company focusing
primarily on domestic drilling prospects.
Cross Timbers Oil Co. 36,000 897,750
Emerging growth energy company with good
exploration track record.
Encal Energy, Ltd.* 110,000 357,500
Specialized energy exploration company.
Louis Dreyfus Natural Gas* 26,640 497,835
Niche developer and driller of gas properties.
Newfield Exploration Co.* 32,000 746,000
Acquires and develops energy properties in
domestic U.S..
Noble Affiliates, Inc. 27,000 951,750
An independent energy company that
specializes in oil and gas exploration
and production.
- --------------------------------------------------------------------------------
$ 4,647,023
- --------------------------------------------------------------------------------
Publishing -- 1.6%
- --------------------------------------------------------------------------------
A.H. Belo Corp. 21,927 $ 1,230,664
Publishes Dallas Morning News and
Providence Journal; also operates T.V. and
radio properties.
- --------------------------------------------------------------------------------
$ 1,230,664
- --------------------------------------------------------------------------------
REITS -- 1.1%
- --------------------------------------------------------------------------------
Crescent Real Estate Equitable Co. 17,000 $ 669,375
Unique REIT operating primarily in Texas
real estate.
Equity Office Properties 5,000 157,813
REIT focusing on office buildings throughout the
U.S..
- --------------------------------------------------------------------------------
$ 827,188
- --------------------------------------------------------------------------------
See notes to financial statements
16
<PAGE>
Special Investment Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Retail - Food and Drug -- 2.5%
- --------------------------------------------------------------------------------
Papa John's International, Inc.* 29,000 $ 1,011,375
Rapidly growing restaurant chain.
Starbucks Corp.* 25,000 959,375
High quality specialty retailer.
- --------------------------------------------------------------------------------
$ 1,970,750
- --------------------------------------------------------------------------------
Retail - Specialty and Apparel -- 4.5%
- --------------------------------------------------------------------------------
Bed Bath and Beyond, Inc.* 35,000 $ 1,347,499
Specialty retailer.
Polo Ralph Lauren Corp., Class A* 34,000 826,625
A designer of men's and women's clothing.
The Mens Wearhouse, Inc.* 30,000 1,042,500
Specialty apparel chain.
Tommy Hilfiger Corp. 9,000 316,125
Rapidly growing specialty
apparel manufacturer.
- --------------------------------------------------------------------------------
$ 3,532,749
- --------------------------------------------------------------------------------
Telephone Utilities -- 1.1%
- --------------------------------------------------------------------------------
ACC Corp.* 6,000 $ 303,000
Specialized telecommunications company -
recently acquired by Teleport.
Pacific Gateway Exchange, Inc.* 11,000 591,938
Leading provider of foreign long
distance services.
- --------------------------------------------------------------------------------
$ 894,938
- --------------------------------------------------------------------------------
Transportation -- 1.7%
- --------------------------------------------------------------------------------
Comair Holdings, Inc. 54,000 $ 1,302,749
Regional airline holding company.
- --------------------------------------------------------------------------------
$ 1,302,749
- --------------------------------------------------------------------------------
Total Common Stocks
(identified cost $58,217,577) $74,877,157
- --------------------------------------------------------------------------------
Commercial Paper -- 4.3%
Principal
Amount
Security (000 Omitted) Value
- --------------------------------------------------------------------------------
Associates Corp., N.A., 6.70%, 1/2/98 $3,323 $ 3,322,382
- --------------------------------------------------------------------------------
Total Commercial Paper
(amortized cost $3,322,382) $ 3,322,382
- --------------------------------------------------------------------------------
Total Investments -- 100.3%
(identified cost $61,539,959) $78,199,539
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities -- (0.3)% $ (230,450)
- --------------------------------------------------------------------------------
Net Assets -- 100% $77,969,089
- --------------------------------------------------------------------------------
ADR -- American Depositary Receipt
* Non-income producing security.
See notes to financial statements
17
<PAGE>
Special Investment Portfolio as of December 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1997
Assets
- --------------------------------------------------------------------------------
Investments, at value (Note 1A)
(identified cost, $61,539,959) $78,199,539
Cash 2,021
Interest and dividends receivable 6,788
Deferred organization expenses (Note 1F) 5,021
- --------------------------------------------------------------------------------
Total assets $78,213,369
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased $ 223,688
Payable to affiliate for Trustees' fees (Note 2) 1,600
Accrued expenses 18,992
- --------------------------------------------------------------------------------
Total liabilities $ 244,280
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $77,969,089
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $61,309,509
Net unrealized appreciation of investments (computed on
the basis of identified cost) 16,659,580
- --------------------------------------------------------------------------------
Total $77,969,089
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
December 31, 1997
Investment Income (Note 1B & 1E)
- --------------------------------------------------------------------------------
Dividends (net of foreign taxes, $291) $ 136,228
Interest income 372,912
Miscellaneous income 5,155
- --------------------------------------------------------------------------------
Total income $ 514,295
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 488,529
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 5,798
Custodian fee (Note 1D) 65,571
Legal and accounting services 24,722
Amortization of organization expenses (Note 1F) 3,132
Miscellaneous 2,661
- --------------------------------------------------------------------------------
Total expenses $ 590,413
- --------------------------------------------------------------------------------
Net investment loss $ (76,118)
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $13,086,809
- --------------------------------------------------------------------------------
Net realized gain on investment transactions $13,086,809
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $(2,245,462)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $(2,245,462)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments $10,841,347
- --------------------------------------------------------------------------------
Net increase in net assets from operations $10,765,229
- --------------------------------------------------------------------------------
See notes to financial statements
18
<PAGE>
Special Investment Portfolio as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
From operations --
Net investment income (loss) $ (76,118) $ 135,724
Net realized gain on
investment transactions 13,086,809 18,226,741
Net change in unrealized
appreciation (depreciation) (2,245,462) (1,762,538)
of investments
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 10,765,229 $ 16,599,927
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 39,249,662 $ 10,738,468
Withdrawals (54,993,076) (18,331,396)
- --------------------------------------------------------------------------------
Net decrease in net assets
from capital transactions $(15,743,414) $ (7,592,928)
- --------------------------------------------------------------------------------
Net increase (decrease) in net
assets $ (4,978,185) $ 9,006,999
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 82,947,274 $ 73,940,275
- --------------------------------------------------------------------------------
At end of year $ 77,969,089 $ 82,947,274
- --------------------------------------------------------------------------------
See notes to financial statements
19
<PAGE>
Special Investment Portfolio as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1997 1996 1995 1994*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ratios to average daily net assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses 0.75% 0.76% 0.77% 0.74%+
Net investment income (loss) (0.10)% 0.18% 0.19% 0.20%+
Portfolio Turnover 156% 91% 81% 19%
- -----------------------------------------------------------------------------------------------------------------------------------
Average commission rate (per share)/(1)/ $ 0.0584 $ 0.0579 $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $ 77,969 $ 82,947 $ 73,940 $ 64,442
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, August 1, 1994, to December 31,
1994.
/(1)/ Average commission rate paid is computed by dividing the total dollar
amount of commissions paid during the fiscal year by the total number of
shares purchased and sold during the fiscal year for which commissions
were charged. For fiscal years beginning on or after September 1, 1995, a
Portfolio is required to disclose its average commission rate per share
for security trades on which commissions were charged.
See notes to financial statements
20
<PAGE>
Special Investment Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
------------------------------------------------------------------------------
Special Investment Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 as a diversified open-end investment company
which was organized as a trust under the laws of the State of New York on May
1, 1992. The Declaration of Trust permits the Trustees to issue interests in
the Portfolio. The following is a summary of significant accounting policies
of the Portfolio. The policies are in conformity with generally accepted
accounting principles.
A Investment Valuations -- Securities listed on foreign or U.S. securities
exchanges or in the NASDAQ National Market System generally are valued at
closing sales prices or, if there were no sales, at the mean between the
closing bid and asked prices on the exchange where such securities are
principally traded or on such National Market System. Unlisted or listed
securities for which closing sales prices are not available are valued at the
mean between the latest available bid and asked prices on the principal market
where the security was traded. An option is valued at the last sale price as
quoted on the principal exchange or board of trade on which such option or
contract is traded or, in the absence of a sale, at the mean between the last
bid and asked prices. Futures positions on securities or currencies are
generally valued at closing settlement prices. Short-term debt securities with
a remaining maturity of 60 days or less are valued at amortized cost. If
securities were acquired with a remaining maturity of more than 60 days, their
amortized cost value will be based on their value on the sixty-first day prior
to maturity. Other fixed income and debt securities, including listed
securities and securities for which price quotations are available, will
normally be valued on the basis of valuations furnished by a pricing service.
Securities for which market quotations are unavailable, including any security
the disposition of which is restricted under the Securities Act of 1933, and
other assets will be appraised at their fair market value as determined in
good faith by or at the direction of the Trustees of the Portfolio.
B Income -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes. Dividend income is recorded on the ex-dividend date for
dividends received in cash and/or securities. However, if the ex-dividend date
has passed, certain dividends from foreign securities are recorded as the
Portfolio is informed of the ex-dividend date.
C Income Taxes -- The Portfolio has elected to be treated as a partnership for
United States Federal tax purposes. No provision is made by the Portfolio for
federal or state taxes on any taxable income of the Portfolio because each
investor in the Portfolio is ultimately responsible for the payment of any
taxes. Since some of the Portfolio's investors are regulated investment
companies that invest all or substantially all of their assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements (under the Internal Revenue Code) in order
for its investors to satisfy them. The Portfolio will allocate at least
annually among its investors each investor's distributive share of the
Portfolio's net investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. Withholding taxes on foreign
dividends and capital gains have been provided for in accordance with the
Portfolio's understanding of the applicable countries' tax rules and rates.
D Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT receives
a fee reduced by credits which are determined based on the average daily cash
balances the Portfolio maintains with IBT. All significant credit balances
used to reduce the Portfolio's custodian fees are reflected as a reduction of
expenses on the Statement of Operations.
E Other -- Investment transactions are accounted for on a trade date basis.
F Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
G Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual results could
differ from those estimates.
21
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Special Investment Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
2 Investment Adviser Fee and Other Transactions with Affiliates
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The investment adviser fee is earned by Boston Management and Research (BMR),
a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to the Portfolio. The fee
is at the annual rate of 5/8 of 1% of average daily net assets. For the year
ended December 31, 1997, the fee was equivalent to 0.625% of the Portfolio's
average net assets for such period and amounted to $488,529. Except as to
Trustees of the Portfolio who are not members of EVM's or BMR's organization,
officers and Trustees receive remuneration for their services to the Portfolio
out of such investment adviser fee. Certain of the officers and Trustees of
the Portfolio are officers and directors/trustees of the above organizations.
Trustees of the Portfolio that are not affiliated with the Investment Adviser
may elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of the Trustees Deferred Compensation Plan. For the
year ended December 31, 1997, no significant amounts have been deferred.
3 Investment Transactions
- --------------------------------------------------------------------------------
Purchases and sales of investments, other than short-term obligations,
aggregated $110,954,191 and $115,346,330, respectively.
4 Federal Income Tax Basis of Investments
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The cost and unrealized appreciation/depreciation in value of the investments
owned at December 31, 1997, as computed on a federal income tax basis, were as
follows:
Aggregate cost $61,828,650
--------------------------------------------------
Gross unrealized appreciation $17,999,603
Gross unrealized depreciation (1,628,720)
--------------------------------------------------
Net unrealized appreciation $16,370,883
5 Line of Credit
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The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a committed $100 million unsecured line of credit
agreement with a group of banks. The Portfolio may temporarily borrow from the
line of credit to satisfy redemption requests or settle investment
transactions. Interest is charged to each portfolio or fund based on its
borrowings at an amount above the Eurodollar rate or federal funds rate. In
addition, a fee computed at an annual rate of 0.10% on the daily unused
portion of the line of credit is allocated among the participating Portfolios
and funds at the end of each quarter. The Portfolio did not have any
significant borrowings or allocated fees during the year ended December 31,
1997.
6 Risk Associated with Foreign Investments
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Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less publicly
available information about foreign companies, particularly those not subject
to the disclosure and reporting requirements of the U.S. securities laws.
Foreign issuers are generally not bound by uniform accounting, auditing, and
financial reporting requirements and standards of practice comparable to those
applicable to domestic issuers. Investments in foreign securities also involve
the risk of possible adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation, limitation on the removal
of funds or other assets of the Portfolio, political or financial instability
or diplomatic and other developments which could affect such investments.
Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the United States, and securities of
some foreign issuers (particularly those located in developing countries) may
be less liquid and more volatile than securities of comparable U.S. companies.
In general, there is less overall governmental supervision and regulation of
foreign securities markets, broker-dealers and issuers than in the United
States.
22
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Special Investment Portfolio as of December 31, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors
of Special Investment Portfolio:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of Special
Investment Portfolio, including the portfolio of investments, as of December 31,
1997, the related statement of operations for the year then ended, changes in
net assets for each of the two years in the period then ended and supplementary
data for each of the three years in the period then ended and for the period
from August 1, 1994 (start of business) to December 31, 1994. These financial
statements and supplementary data are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these financial
statements and supplementary data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities held as of
December 31, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of the
Special Investment Portfolio as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the supplementary data for each of
the three years in the period then ended, and for the period from August 1, 1994
(start of business) to December 31, 1994, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1998
<PAGE>
EV Marathon Special Equities Fund as of December 31, 1997
INVESTMENT MANAGEMENT
EV Marathon Special Equities Fund
Officers
James B. Hawkes
President and Trustee
Edward E. Smiley, Jr.
Vice President
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Trustees
M. Dozier Gardner
Vice Chairman, Eaton Vance Management
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School of
Business Administration
Norton H. Reamer
President and Director, United Asset
Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Special Investment Portfolio
Officers
James B. Hawkes
President and Trustee
Edward E. Smiley, Jr.
Vice President and Portfolio
Manager
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Trustees
M. Dozier Gardner
Vice Chairman, Eaton Vance
Management
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School of
Business Administration
Norton H. Reamer
President and Director, United Asset
Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
24
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Investment Adviser of
Special Investment Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of
EV Marathon Special Equities Fund
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617)482-8260
Custodian
Investors Bank & Trust Company
200 Claredon Street, 16th Floor
Boston, MA 02116
Transfer and Dividend Disbursing Agent
First Data Investors Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Accountants
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
EV Marathon Special Equities Fund
24 Federal Street
Boston, MA 02110
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This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
- --------------------------------------------------------------------------------
M SESRC-2/98
