<PAGE>
Special Investment Portfolio as of June 30, 1998
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Business Services - Miscellaneous -- 2.4%
- --------------------------------------------------------------------------------
Boron, LePore & Associates, Inc.* 5,000 $ 190,000
Provides outsourced promotional, marketing,
educational, and field sales force logistics
services to the pharmaceutical industry.
Cognex Corp.* 23,000 425,500
Provides machine vision systems which are
used to automate the manufacturing process.
ISS Group, Inc.* 1,150 43,269
Provides network security
monitoring, detection, and
response software.
On Assignment, Inc.* 18,000 628,875
Provides temporary scientific and
environmental professionals to
laboratories.
United Road Services, Inc.* 35,000 669,375
Offers a range of towing and transport services.
- --------------------------------------------------------------------------------
$1,957,019
- --------------------------------------------------------------------------------
Communications Equipment -- 4.6%
- --------------------------------------------------------------------------------
Advanced Fibre Communication, Inc.* 10,000 $ 400,625
Develops the "Universal Modular
Carrier 1000" which enables
subscribers to access voice and
data communication over copper wire.
ANTEC Corp.* 9,950 230,716
Develops and supplies optical transmission,
construction, and maintenance equipment for
the cable television industry.
Aspect Telecommunication Corp.* 30,000 821,250
Provides voice and data integrated software.
Comverse Technology, Inc.* 15,000 778,125
Specialized communications products.
Davox Corp.* 20,000 437,500
Designs and manufactures specialized
telecom products.
ECI Telecommunications 20,000 757,500
A company that produces advanced
telecommunications equipment.
Glenayre Technologies, Inc.* 32,000 344,000
Leading supplier of wireless
communications equipment.
- --------------------------------------------------------------------------------
$3,769,716
- --------------------------------------------------------------------------------
Communications Services -- 0.2%
- --------------------------------------------------------------------------------
McLeodUSA, Inc.* 5,000 $ 194,375
Provides integrated telecommunications
services to business and residential customers.
- --------------------------------------------------------------------------------
$ 194,375
- --------------------------------------------------------------------------------
Computer Software -- 5.0%
- --------------------------------------------------------------------------------
Brio Technology, Inc.* 34,900 $ 466,788
Develops software that enables organizations
to implement business intelligent
solutions.
CBT Group PLC ADR* 10,000 535,000
Specialized provider of computer
based training systems.
Documentum, Inc.* 9,000 432,000
Provides niche software enabling
large corporations to integrate
their documents into
a central system.
HNC Software, Inc.* 15,000 612,188
Develops specialty software
products that enable credit
suppliers define risk/reward
scores for loans.
International Integration, Inc.* 4,500 77,625
Provides application migration and
custom software development
services.
J.D. Edwards, Inc.* 28,000 1,202,249
Leading vendor of enterprise
resource software - specialized in
mid range corporations.
PeopleSoft, Inc.* 16,800 789,600
Specialty software for human resources
and manufacturing.
- --------------------------------------------------------------------------------
$4,115,450
- --------------------------------------------------------------------------------
Consumer Products -- 0.5%
- --------------------------------------------------------------------------------
Twinlab Corp.* 10,000 $436,875
Manufactures nutritional products.
- --------------------------------------------------------------------------------
$436,875
- --------------------------------------------------------------------------------
Consumer Services -- 1.1%
- --------------------------------------------------------------------------------
Strayer Education, Inc. 25,865 $937,606
Specialized supplemental education services.
- --------------------------------------------------------------------------------
$937,606
- --------------------------------------------------------------------------------
See notes to financial statements
10
<PAGE>
Special Investment Portfolio as of June 30, 1998
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Drugs -- 2.3%
- --------------------------------------------------------------------------------
Genzyme Corp., Class A* 43,000 $1,099,187
Diversified biotechnology
pharmaceuticals.
Parexel International Corp.* 21,000 763,875
Contract research services for large
drug companies.
- --------------------------------------------------------------------------------
$1,863,062
- --------------------------------------------------------------------------------
Electrical Equipment -- 1.2%
- --------------------------------------------------------------------------------
Level One Communications, Inc.* 25,500 $ 599,250
Designs and sells integrated circuits.
Micrel, Inc.* 11,000 357,500
Designs and sells analog
integrated circuits used in the
communications, computer, and
industrial markets.
- --------------------------------------------------------------------------------
$ 956,750
- --------------------------------------------------------------------------------
Electronics - Equipment -- 0.4%
- --------------------------------------------------------------------------------
Etec Systems, Inc.* 10,000 $ 351,875
Manufactures high precision masks
used to print circuit patterns onto
semiconductor wafers.
- --------------------------------------------------------------------------------
$ 351,875
- --------------------------------------------------------------------------------
Electronics - Instruments -- 1.0%
- --------------------------------------------------------------------------------
Flextronics International Ltd.* 9,000 $ 391,500
Provides contract manufacturing services
to equipment manufacturers.
Photronics, Inc.* 9,100 200,769
Manufactures photomasks used to
transfer circuit patterns onto
semiconductor wafers.
Sanmina Corp.* 6,000 260,250
Operates contract manufacturing
facilities for high tech companies.
- --------------------------------------------------------------------------------
$ 852,519
- --------------------------------------------------------------------------------
Electronics - Semiconductors -- 2.6%
- --------------------------------------------------------------------------------
Dallas Semiconductor Corp. 20,000 $ 620,000
Designs, manufactures, and markets
electronic chips and chip-based
subsystems.
PMC-Sierra, Inc.* 15,000 703,125
Provides high speed internetworking
component solutions.
Qlogic Corp.* 5,950 212,341
Designs and distributes specialty chips
and systems for communications products.
Vitesse Semiconductor Corp.* 20,000 617,500
Provides digital circuits used
primarily for telecommunications,
data communications and automated
test equipment systems.
- --------------------------------------------------------------------------------
$2,152,966
- --------------------------------------------------------------------------------
Entertainment -- 0.5%
- --------------------------------------------------------------------------------
Speedway Motorsports, Inc.* 15,000 $ 383,438
Owns and operates "Atlanta Motor
Speedway", "Bristol Motor
Speedway", "Charlotte Motor
Speedway", "Texas Motor Speedway",
and "600 Racing".
- --------------------------------------------------------------------------------
$ 383,438
- --------------------------------------------------------------------------------
Financial - Miscellaneous -- 1.1%
- --------------------------------------------------------------------------------
Capital One Financial Corp. 3,000 $ 372,563
Leading credit card services specialists.
E*Trade Group, Inc.* 23,000 527,563
Innovative, high quality
electronic internet stock
brokerage firm.
- --------------------------------------------------------------------------------
$ 900,126
- --------------------------------------------------------------------------------
Health Care Services -- 0.7%
- --------------------------------------------------------------------------------
NCS Healthcare, Inc., Class A* 20,000 $ 570,000
An independent provider of pharmacy services.
- --------------------------------------------------------------------------------
$ 570,000
- --------------------------------------------------------------------------------
Health Services -- 10.7%
- --------------------------------------------------------------------------------
ABR Information Services, Inc.* 16,000 $ 380,000
Provides comprehensive benefits
administration, compliance and
information services.
American Retirement Corp.* 32,000 568,000
Assisted living services.
Biomatrix, Inc.* 10,000 410,000
Develops and manufactures products used for
orthopedics, ophthalmology, and other
medical applications.
See notes to financial statements
11
<PAGE>
Special Investment Portfolio as of June 30, 1998
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Health Services (continued)
- --------------------------------------------------------------------------------
Compdent Corp.* 52,000 $ 812,500
Offers a full line of dental care plan services.
Elan Corp., PLC ADR* 9,000 578,813
Specialty pharmaceutical.
Envoy Corp.* 10,000 473,750
Provides electronic data
interchange services to
participants in the health care market.
Express Scripts, Inc., Class A* 10,000 806,250
Rapidly growing pharmacy specialist.
Health Management Associates, 10,000 334,375
Inc., Class A*
Hospital chain.
MedQuist, Inc.* 5,000 144,375
Provides electronic transcription and
data management services to the healthcare industry.
MiniMed, Inc.* 15,000 785,625
Developer and manufacturer of
medical devices focusing on diabetics.
National Surgery Centers, Inc.* 18,000 523,125
Operator of independent surgery units.
Omnicare, Inc. 27,000 1,029,375
Provides pharmacy services to retirement
centers.
Pediatrix Medical Group, Inc.* 11,000 409,063
Operates pediatric care units.
Renal Care Group, Inc.* 14,000 616,875
One of the largest providers of renal
treatment centers.
Rexall Sundown, Inc.* 7,000 246,750
Develops, markets, and sells
vitamins, nutritional supplements
and consumer
health products
Sunrise Assisted Living, Inc.* 20,000 687,500
One of the leading operators of
assisted care facilities for senior citizens.
- --------------------------------------------------------------------------------
$8,806,376
- --------------------------------------------------------------------------------
Household Products -- 0.7%
- --------------------------------------------------------------------------------
Sola International, Inc.* 17,000 $ 555,688
Specialty eye care products.
- --------------------------------------------------------------------------------
$ 555,688
- --------------------------------------------------------------------------------
Information Services -- 20.2%
- --------------------------------------------------------------------------------
Acxiom Corp.* 43,000 $1,072,313
Database information services.
Affiliated Computer Services, 24,000 924,000
Inc., Class A*
Nationwide provider of information
processing services.
Aspect Development, Inc.* 7,000 529,375
Information processing services specialist.
Aspen Technologies, Inc.* 15,000 757,500
Specialty software for upgrading
manufacturing plants.
BISYS Group, Inc. (The)* 28,000 1,147,999
Services financial institutions
with computer, administrative and
marketing support data
processing services.
Cambridge Technology Partners, Inc.* 17,000 928,625
Software consulting company.
CCC Information Services Group* 30,000 495,000
Automotive repair information specialist.
Citrix Systems, Inc.* 8,600 588,025
Supplies client/server application products
that are compatible with "Windows"
operating systems.
Fiserv, Inc.* 20,950 889,719
Provider of data processing
services to banks and savings institutions.
Harbinger Corp.* 30,000 725,625
Electronic Data Interchange products
and services.
IDX Systems Corp.* 25,000 1,151,562
Healthcare information systems.
Legato Systems, Inc. 13,000 507,000
Develops, markets, and supports
network storage management software products.
Lycos, Inc.* 6,000 452,250
Develops and provides guides to Web
search and directory services.
Medical Manager Corp.* 27,000 745,875
Provides the Medical Manager
physician practice management system.
Mobius Management Systems, Inc.* 30,000 450,000
Provides software products designed
to optimize the storage and retrieval
of information.
Nova Corp.* 36,000 1,286,999
Nation's largest bankcard processor.
Paychex, Inc. 12,000 488,250
Payroll and corporate information services.
See notes to financial statements
12
<PAGE>
Special Investment Portfolio as of June 30, 1998
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Information Services (continued)
- --------------------------------------------------------------------------------
Sapient Corp.* 10,000 $ 527,500
Provides custom based software.
Siebel Systems, Inc.* 15,000 483,750
Supplies sales, marketing, and
customer service information
systems.
SunGard Data Systems, Inc.* 35,000 1,343,124
Data storage and emergency back up
products.
Veritas Software Co.* 23,250 961,969
Provides communications companies
with software.
measuring systems.
Yahoo!, Inc.* 1,200 189,000
Offers a network of branded
Web programming.
- --------------------------------------------------------------------------------
$16,645,460
- --------------------------------------------------------------------------------
Insurance -- 2.7%
- --------------------------------------------------------------------------------
Mercury General Corp. 5,000 $ 322,188
Large provider of specialized auto
insurance policies.
Mutual Risk Management Ltd. 33,006 1,202,655
Specialty insurer focusing on workmen's
compensation.
Reinsurance Group of America, Inc.* 13,000 667,063
Provides life reinsurance in
North America.
- --------------------------------------------------------------------------------
$ 2,191,906
- --------------------------------------------------------------------------------
Investment Services -- 3.0%
- --------------------------------------------------------------------------------
Centura Banks, Inc. 12,000 $ 750,000
Growing Southeastern bankers.
PMI Group, Inc. 10,000 733,750
Specialty financial products.
Sovereign Bancorp, Inc. 60,000 980,622
A thrift holding company.
- --------------------------------------------------------------------------------
$ 2,464,372
- --------------------------------------------------------------------------------
Lodging and Gaming -- 1.2%
- --------------------------------------------------------------------------------
ResortQuest International, Inc.* 35,000 $ 570,938
Provides vacation condominium and home
rentals in the United States.
Rio Hotel and Casino, Inc.* 20,000 377,500
Owns and operates the Rio Suite
Hotel & Casino in Las Vegas,
Nevada, consisting of
over 2500 suites.
- --------------------------------------------------------------------------------
$ 948,438
- --------------------------------------------------------------------------------
Machinery -- 2.1%
- --------------------------------------------------------------------------------
Camco International, Inc. 11,000 $ 856,625
Oilfield services.
Varco International, Inc.* 44,000 871,750
Designs and manufactures equipment
used for oil and gas drilling
worldwide.
- --------------------------------------------------------------------------------
$ 1,728,375
- --------------------------------------------------------------------------------
Medical Products -- 2.0%
- --------------------------------------------------------------------------------
Haemonetics Corp.* 28,000 $ 448,000
Designs and manufactures equipment
for the collection, processing and
surgical salvage of blood.
Ocular Sciences, Inc.* 10,000 325,000
Manufactures and markets a broad line of
disposable contact lenses.
Sofamor Danek Group, Inc.* 10,000 865,625
Leading developer/manufacturer of spinal
implant devices. Company markets
products internationally.
- --------------------------------------------------------------------------------
$ 1,638,625
- --------------------------------------------------------------------------------
Oil and Gas - Exploration
and Production -- 7.4%
- --------------------------------------------------------------------------------
Cross Timbers Oil Co. 67,000 $ 1,277,187
Emerging growth energy company with
good exploration track record.
EEX Corp.* 85,000 796,875
Explores for and produces oil and
natural gas.
Encal Energy, Ltd.* 110,000 419,375
Specialized energy exploration
company.
Louis Dreyfus Natural Gas* 46,640 883,245
Niche developer and driller of gas
properties.
Meridian Resource Corp.* 80,000 565,000
An independent oil and natural gas
company that explores and develops
properties.
Newfield Exploration Co.* 50,000 1,243,749
Acquires and develops energy
properties in domestic U.S.
Triton Energy Ltd.* 25,000 892,188
International oil and gas
exploration and development.
- --------------------------------------------------------------------------------
$ 6,077,619
- --------------------------------------------------------------------------------
See notes to financial statements
13
<PAGE>
Special Investment Portfolio as of June 30, 1998
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Publishing -- 1.2%
- --------------------------------------------------------------------------------
Belo (A.H.) Corp. $ 10
Publishes Dallas Morning News and
Providence Journal; also operates
T.V. and radio properties.
Central Newspapers, Inc., Class A 10,000 697,500
Publishes the Arizona Republic,
the Arizona Business Gazette, the
Indianapolis Star, the
Indianapolis News, and community
newspapers in Indiana and
Louisiana.
Master Graphics, Inc.* 30,000 277,500
Provides general commercial printing services
to customers throughout the United States.
- --------------------------------------------------------------------------------
$ 975,010
- --------------------------------------------------------------------------------
REITS -- 0.5%
- --------------------------------------------------------------------------------
Public Storage, Inc. 15,000 $ 420,000
Real Estate Investment Trust (REIT)
which invests in mini-warehouses and self-
service facilities.
- --------------------------------------------------------------------------------
$ 420,000
- --------------------------------------------------------------------------------
Retail - Food and Drug -- 1.4%
- --------------------------------------------------------------------------------
Papa John's International, Inc.* 29,000 $1,143,687
Rapidly growing restaurant chain.
- --------------------------------------------------------------------------------
$1,143,687
- --------------------------------------------------------------------------------
Retail - Specialty and Apparel -- 1.7%
- --------------------------------------------------------------------------------
Bed Bath and Beyond, Inc.* 8,000 $ 414,500
Specialty retailer.
The Mens Wearhouse, Inc.* 31,000 1,023,000
Specialty apparel chain.
- --------------------------------------------------------------------------------
$1,437,500
- --------------------------------------------------------------------------------
Semiconductor Equipment -- 0.5%
- --------------------------------------------------------------------------------
PRI Automation, Inc.* 25,000 $ 426,563
Material handling equipment for high cost
semiconductor wafers.
- --------------------------------------------------------------------------------
$ 426,563
- --------------------------------------------------------------------------------
Software Services -- 0.6%
- --------------------------------------------------------------------------------
JDA Software Group, Inc.* 12,000 $ 525,000
Provides software products that
address business information
requirements of the
retail supply chain.
- --------------------------------------------------------------------------------
$ 525,000
- --------------------------------------------------------------------------------
Telephone Utilities -- 1.0%
- --------------------------------------------------------------------------------
Pacific Gateway Exchange, Inc.* 8,000 $ 320,500
Leading provider of foreign long
distance services.
Smartalk Teleservices, Inc.* 33,000 480,563
Provides prepaid
telecommunications products
and services.
- --------------------------------------------------------------------------------
$ 801,063
- --------------------------------------------------------------------------------
Transportation -- 0.5%
- --------------------------------------------------------------------------------
Comair Holdings, Inc. 13,000 $ 401,375
Regional airline holding company.
- --------------------------------------------------------------------------------
$ 401,375
- --------------------------------------------------------------------------------
Total Common Stocks
(identified cost $61,709,662) $80,280,772
- --------------------------------------------------------------------------------
Commercial Paper -- 4.5%
Principal
Amount
Security (000's Omitted) Value
- --------------------------------------------------------------------------------
General Electric Capital Corp., 6.10%, 7/1/98 $3,721 $ 3,721,000
- --------------------------------------------------------------------------------
Total Commercial Paper
(identified cost $3,721,000) $ 3,721,000
- --------------------------------------------------------------------------------
Total Investments -- 102.1%
(identified cost $65,430,662) $ 84,001,772
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities -- (2.1)% $ (1,722,879)
- --------------------------------------------------------------------------------
Net Assets -- 100% $ 82,278,893
- --------------------------------------------------------------------------------
ADR -- American Depositary Receipt
* Non-income producing security.
See notes to financial statements
14
<PAGE>
Special Investment Portfolio as of June 30, 1998
FINANCIAL STATEMENTS (Unaudited)
Statement of Assets and Liabilities
As of June 30, 1998
Assets
- --------------------------------------------------------------------------------
Investments, at value
(identified cost, $65,430,662) $ 84,001,772
Cash 90
Receivable for investments sold 1,588,962
Interest and dividends receivable 9,455
Deferred organization expenses 3,447
- --------------------------------------------------------------------------------
Total assets $ 85,603,726
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased $ 3,305,660
Payable to affiliate for Trustees' fees 3,874
Other accrued expenses 15,299
- --------------------------------------------------------------------------------
Total liabilities $ 3,324,833
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $ 82,278,893
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $ 63,707,783
Net unrealized appreciation (computed on
the basis of identified cost) 18,571,110
- --------------------------------------------------------------------------------
Total $ 82,278,893
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended
June 30, 1998
Investment Income
- --------------------------------------------------------------------------------
Dividends (net of foreign taxes, $435) $ 82,123
Interest 95,638
- --------------------------------------------------------------------------------
Total investment income $ 177,761
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee $ 251,939
Trustees fees and expenses 5,902
Custodian fee 30,405
Legal and accounting services 10,777
Amortization of organization expenses 1,574
Miscellaneous 5,965
- --------------------------------------------------------------------------------
Total expenses $ 306,562
- --------------------------------------------------------------------------------
Net investment loss $ (128,801)
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 7,836,498
- --------------------------------------------------------------------------------
Net realized gain $ 7,836,498
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 1,911,530
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) $ 1,911,530
- --------------------------------------------------------------------------------
Net realized and unrealized gain $ 9,748,028
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 9,619,227
- --------------------------------------------------------------------------------
See notes to financial statements
15
<PAGE>
Special Investment Portfolio as of June 30, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Six Months Ended
Increase (Decrease) June 30, 1998 Year Ended
in Net Assets (Unaudited) December 31, 1997
- --------------------------------------------------------------------------------
From operations --
Net investment loss $ (128,801) $ (76,118)
Net realized gain 7,836,498 13,086,809
Net change in unrealized
appreciation (depreciation) 1,911,530 (2,245,462)
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 9,619,227 $ 10,765,229
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 2,744,300 $ 39,249,662
Withdrawals (8,053,723) (54,993,076)
- --------------------------------------------------------------------------------
Net decrease in net assets from
capital transactions $ (5,309,423) $(15,743,414)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets $ 4,309,804 $ (4,978,185)
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of period $ 77,969,089 $ 82,947,274
- --------------------------------------------------------------------------------
At end of period $ 82,278,893 $ 77,969,089
- --------------------------------------------------------------------------------
See notes to financial statements
16
<PAGE>
Special Investment Portfolio as of June 30, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1998 ------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 *
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expenses 0.76%+ 0.75% 0.76% 0.77% 0.74%+
Net investment income (loss) (0.32)%+ (0.10)% 0.18% 0.19% 0.20%+
Portfolio Turnover 52% 156% 91% 81% 19%
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $82,279 $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.
See notes to financial statements
17
<PAGE>
Special Investment Portfolio as of June 30, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1 Significant Accounting Policies
----------------------------------------------------------------------------
Special Investment Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 as a diversified open-end management
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 bid and asked prices. 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.
H Interim Financial Information -- The interim financial statements relating
to June 30, 1998 and for the six-month period then ended have not been
audited by independent certified public accountants, but in the opinion of
the Portfolio's management, reflect all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the
financial statements.
18
<PAGE>
Special Investment Portfolio as of June 30, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
2 Investment Adviser Fee and Other Transactions with Affiliates
----------------------------------------------------------------------------
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 six months ended June 30, 1998, the fee was equivalent to
0.625% (annualized) of the Portfolio's average net assets for such period
and amounted to $251,939. 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 six months
ended June 30, 1998, no significant amounts have been deferred.
3 Investment Transactions
----------------------------------------------------------------------------
Purchases and sales of investments, other than short-term obligations,
aggregated $40,710,608 and $45,055,021, respectively.
4 Federal Income Tax Basis of Investments
----------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the
investments owned at June 30, 1998, is computed on a federal income tax
basis, were as follows:
Aggregate cost $ 65,639,132
----------------------------------------------------------------------
Gross unrealized appreciation $ 19,748,410
Gross unrealized depreciation (1,385,770)
----------------------------------------------------------------------
Net unrealized appreciation $ 18,362,640
5 Line of Credit
----------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR
and EVM and its affiliates in a $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 period.
6 Risk Associated with Foreign Investments
----------------------------------------------------------------------------
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.
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<PAGE>
Special Investment Portfolio as of June 30, 1998
INVESTMENT MANAGEMENT
Special Investment Portfolio
Officers Trustees
James B. Hawkes M. Dozier Gardner
President and Trustee Vice Chairman, Eaton Vance
Management
Edward E. Smiley, Jr.
Vice President and Donald R. Dwight
Portfolio Manager President, Dwight Partners, Inc.
James L. O'Connor Samuel L. Hayes, III
Treasurer Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School of
Alan R. Dynner Business Administration
Secretary
Norton H. Reamer
Chairman and Chief Executive Officer, United Asset
Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
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