CONGRESS STREET ASSOCIATES, L.P.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS
PERIOD FROM DECEMBER 1, 1998
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS
PERIOD FROM DECEMBER 1, 1998
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
CONTENTS
Report of Independent Auditors............................................. 1
Statement of Assets, Liabilities and Partners' Capital..................... 2
Statement of Operations.................................................... 3
Statement of Changes in Partners' Capital - Net Assets..................... 4
Schedule of Portfolio Investments and Securities Sold, Not Yet Purchased... 5
Notes to Financial Statements.............................................. 11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Congress Street Associates, L.P.
We have audited the accompanying statement of assets, liabilities and partners'
capital of Congress Street Associates, L.P., including the schedule of portfolio
investments and securities sold, not yet purchased, as of December 31, 1998, and
the related statements of operations and changes in partners' capital - net
assets for the period from December 1, 1998 (commencement of operations) to
December 31, 1998. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 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 owned as of December 31, 1998, by correspondence with
the custodian and a broker. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Congress Street Associates,
L.P. at December 31, 1998, the results of its operations, and the changes in its
partners' capital - net assets for the period from December 1, 1998 to December
31, 1998, in conformity with generally accepted accounting principles.
[GRAPHIC OMITTED]
/S/ ERNST & YOUNG LLP
New York, New York
February 19, 1999
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
DECEMBER 31, 1998
ASSETS
Cash and cash equivalents $ 2,135,265
Due from broker 310,836
Investments in securities,
at market (identified cost - $10,175,665) 10,455,703
Dividends receivable 25,359
Interest receivable 18,926
-----------
TOTAL ASSETS 12,946,089
-----------
LIABILITIES
Securities sold,
not yet purchased,
at market (proceeds of sales - $304,972) 306,669
Professional fees payable 15,000
Management fee payable 2,580
Accrued expenses 3,679
-----------
TOTAL LIABILITIES 327,928
-----------
NET ASSETS $12,618,161
===========
PARTNERS' CAPITAL - NET ASSETS
Represented by:
Capital contributions $12,316,395
Accumulated net investment income 23,490
Accumulated net realized loss on investments (65)
Accumulated net unrealized appreciation on investments 278,341
-----------
PARTNERS' CAPITAL - NET ASSETS $12,618,161
===========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
STATEMENT OF OPERATIONS
PERIOD FROM DECEMBER 1,
1998 (COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31, 1998
INVESTMENT INCOME
Dividends $ 25,823
Interest 18,926
---------
TOTAL INVESTMENT INCOME 44,749
---------
OPERATING EXPENSES
Professional fees 15,000
Management fee 2,580
Custodian fees 2,339
Administration fees 1,340
---------
TOTAL OPERATING EXPENSES 21,259
---------
NET INVESTMENT INCOME 23,490
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
NET REALIZED LOSS ON INVESTMENTS (65)
NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS 278,341
---------
NET REALIZED AND UNREALIZED GAIN 278,276
---------
INCREASE IN PARTNERS' CAPITAL
DERIVED FROM INVESTMENT ACTIVITIES $ 301,766
=========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL - NET ASSETS
PERIOD FROM DECEMBER 1,
1998 (COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31, 1998
FROM INVESTMENT ACTIVITIES
Net investment income $ 23,490
Net realized loss on investments (65)
Net change in unrealized appreciation on investments 278,341
-----------
INCREASE IN PARTNERS' CAPITAL
DERIVED FROM INVESTMENT ACTIVITIES 301,766
PARTNERS' CAPITAL TRANSACTIONS
General Partner capital contributions 10,291,395
Limited Partner capital contributions 2,025,000
-----------
INCREASE IN PARTNERS' CAPITAL DERIVED
FROM CAPITAL TRANSACTIONS 12,316,395
PARTNERS' CAPITAL AT BEGINNING OF PERIOD -
-----------
PARTNERS' CAPITAL AT END OF PERIOD $12,618,161
===========
4
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS AND SECURITIES SOLD, NOT YET PURCHASED
DECEMBER 31, 1998
SHARES MARKET VALUE
COMMON STOCKS - 81.52%
BUILDING - COMMERCIAL / RESIDENTIAL - 0.50%
2,300 Del Webb Corp. $ 63,394
---------
BUILDING - HEAVY CONSTRUCTION - 1.55%
10,700 Turner Corp. 195,944
---------
CASINO HOTELS - 3.30%
28,500 Grand Casinos, Inc. * 229,781
12,500 Mirage Resorts, Inc. * 186,719
---------
416,500
---------
CHEMICALS - SPECIALTY - 0.58%
2,000 OM Group, Inc. 73,000
---------
COMMERCIAL BANKS - EASTERN U.S. - 0.44%
4,400 Atlantic Bank & Trust Co. * 55,550
---------
COMPUTER SOFTWARE -7.78%
17,100 Computer Associates Int'l., Inc. (a) 728,887
13,200 Platinum Technology, Inc. * 252,450
---------
981,337
---------
DATA PROCESSING/MANAGEMENT - 4.16%
22,900 Reynolds and Reynolds Co. 525,269
---------
ELECTRONIC COMPONENTS - SEMICONDUCTORS - 7.71%
8,200 Intel Corp. 972,213
---------
FINANCE - LEASING COMPANY - 2.23%
15,500 DVI, Inc. * 280,937
---------
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS AND SECURITIES SOLD, NOT YET PURCHASED
(CONTINUED)
DECEMBER 31, 1998
SHARES MARKET VALUE
COMMON STOCKS - (CONTINUED)
FINANCE - MORTGAGE LOAN/BANKER - 6.06%
8,500 Fannie Mae $ 629,000
8,200 Resource Bancshares Mortgage Group, Inc. 135,813
---------
764,813
---------
FINANCIAL GUARANTEE INSURANCE - 2.00%
5,500 CMAC Investment Corp. 252,656
---------
HOTELS & MOTELS - 0.88%
5,800 Hilton Hotels Corp. 110,925
---------
INSTRUMENTS - CONTROLS - 0.51%
2,300 Mettler - Toledo Intl., Inc * 64,544
---------
LEISURE & RECREATION PRODUCTS - 0.55%
2,800 Brunswick Corp. 69,300
---------
MEDICAL - DRUGS - 0.45%
1,400 Teva Pharmaceutical Industries
Ltd. - Sponsored ADR 56,963
---------
MEDICAL INSTRUMENTS - 0.47%
4,400 Cyberonics, Inc. * 59,400
---------
MEDICAL - HOSPITALS - 0.47%
2,400 Columbia/HCA Healthcare Corp. 59,400
---------
METAL PROCESSORS & FABRICATION - 0.50%
6,100 Wyman-Gordan Co. 62,525
---------
MONEY CENTER BANKS - 11.16%
35,000 Bank of New York Company, Inc. 1,408,750
---------
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS AND SECURITIES SOLD, NOT YET PURCHASED
(CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
COMMON STOCKS - (CONTINUED)
MULTI-LINE INSURANCE - 1.88%
5,900 CNA Financial Corp. * $ 237,475
---------
OIL - FIELD SERVICES - 0.62%
5,000 Petroleum Geo-Services - Sponsored ADR * 78,750
---------
PROPERTY/CASUALTY INSURANCE - 4.77%
5,000 Frontier Insurance Group, Inc. 64,375
13,500 Orion Capital Corp. 537,469
---------
601,844
---------
PUBLISHING - PERIODICALS - 1.85%
10,600 Big Flower Holdings, Inc. * 233,862
---------
REITS - APARTMENTS - 0.49%
3,000 Walden Residential Properties, Inc. 61,313
---------
REITS - DIVERSIFIED - 1.06%
9,000 Capital Automotive REIT 133,875
---------
REITS - HOTEL/RESTAURANT - 1.74%
6,100 Equity Inns, Inc. 58,712
13,100 RFS Hotel Investors, Inc. 160,475
---------
219,187
---------
REITS - MORTGAGE - 6.58%
15,200 Annaly Mortgage Management, Inc. 125,400
16,100 Anthracite Capital, Inc. 125,781
24,200 Imperial Credit Commercial Mortgage Invest. Corp. 226,875
48,400 Ocwen Asset Investment Corp. 232,925
8,500 Redwood Trust, Inc. 119,000
---------
829,981
---------
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS AND SECURITIES SOLD, NOT YET PURCHASED
(CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
COMMON STOCKS - (CONTINUED)
REITS - OUTLET CENTERS - 0.45%
5,800 Prime Retail, Inc. $ 56,913
----------
RETAIL - FLOOR COVERINGS - 1.20%
6,300 Maxim Group, Inc. * 151,200
----------
RETAIL - OFFICE SUPPLIES - 1.18%
12,200 Officemax, Inc. * 149,450
----------
S & L /THRIFTS - WESTERN U.S. - 0.43%
3,600 ITLA Capital Corp. * 54,450
----------
SATELLITE TELECOMMUNICATIONS - 2.06%
12,900 Globalstar Telecommunications, Ltd. * 259,612
----------
TELECOMMUNICATIONS SERVICES - 0.98%
2,200 NTL, Inc. * 124,163
----------
THEATERS - 0.57%
3,400 AMC Entertainment, Inc. 71,612
----------
TOBACCO - 3.77%
8,900 Philip Morris Companies, Inc. 476,150
----------
TRANSPORT - RAIL - 0.59%
1,500 Kansas City Southern Industries, Inc. 73,781
----------
TOTAL COMMON STOCKS (COST $9,965,170) 10,287,038
----------
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS AND SECURITIES SOLD, NOT YET PURCHASED
(CONCLUDED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
PREFERRED STOCKS - 1.15%
TELEPHONES - INTEGRATED
2,000 Telecomunicacoes Brasilerias,
Sponsored ADR, Preferred * $ 145,375
-----------
TOTAL PREFERRED STOCKS (COST $183,095) 145,375
-----------
PREFERRED STOCKS - PRIVATE PLACEMENT - 0.19%
AUDIO/VIDEO PRODUCTS
2,740 American Technology Corp.,
- Series B Preferred w/ Warrants * 23,290
-----------
TOTAL PREFERRED STOCKS
- PRIVATE PLACEMENT (COST $27,400) 23,290
-----------
TOTAL PORTFOLIO INVESTMENTS (COST $10,175,665) 10,455,703
-----------
SECURITIES SOLD, NOT YET PURCHASED - (2.43%)
COMPUTERS - MICRO - (0.45%)
1,100 Gateway 2000, Inc. $ (56,306)
-----------
DIVERSIFIED OPERATIONS - (0.51%)
1,700 Seagram Company Ltd. (64,600)
-----------
ELECTRONIC COMPONENTS - SEMICONDUCTORS - (0.98%)
2,200 Advanced Micro Devices, Inc. (63,663)
1,200 Micron Technology, Inc. (60,675)
-----------
(124,338)
-----------
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS AND SECURITIES SOLD, NOT YET PURCHASED
(CONCLUDED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
SECURITIES SOLD, NOT YET PURCHASED - (CONTINUED)
FOOD - MISC/DIVERSIFIED - (0.49%)
1,800 Kellog Co. $ (61,425)
----------
TOTAL SECURITIES SOLD,
NOT YET PURCHASED (PROCEEDS $304,972) (306,669)
----------
OTHER ASSETS, LESS LIABILITIES, EXCLUDING
SECURITIES SOLD, NOT YET PURCHASED - (19.57%) 2,469,127
----------
NET ASSETS - 100.00% $12,618,161
==========
(a) Partially or wholly held in a pledged account by the Custodian as
collateral for securities sold, not yet purchased.
* Non-income producing security.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION
Congress Street Associates, L.P. (the "Partnership") was organized
under the Delaware Revised Uniform Limited Partnership Act on June 5th,
1998 and commenced operations on December 1, 1998. The Partnership is
registered under the Investment Company Act of 1940 (the "Act") as a
closed-end, non-diversified management investment company. The
Partnership's investment objective is long-term capital appreciation.
The Partnership pursues its investment objective by investing
principally in equity securities of U.S. issuers and other securities
having equity characteristics that Congress Street Management, L.L.C.
(the "Manager") believes are substantially undervalued relative to
their potential for earnings growth. The Partnership also may invest in
equity and fixed-income securities of U.S. and foreign issuers when the
yield and potential for capital appreciation of such securities are
considered sufficiently attractive. The Manager is also the
Partnership's General Partner.
The Partnership's General Partner has irrevocably delegated to a group
of individuals ("the Directors") its rights and powers to manage and
control the business affairs of the Partnership, including the
exclusive authority to oversee and to establish policies regarding the
management, conduct and operation of the Partnership's business.
The Directors have engaged the Manager to provide investment advice to,
and day-to-day management of, the Partnership. The Manager is a joint
venture between PW Fund Advisor, L.L.C. ("PWFA") and Granum Advisors,
L.L.C. ("Granum"). PWFA is an indirect wholly-owned subsidiary of Paine
Webber Group Inc. Investment professionals employed by Granum will
manage the Partnership's investment portfolio on behalf of the Manager
under the supervision of PWFA's personnel.
The acceptance of initial and additional subscriptions for interests by
eligible investors is subject to approval by the Manager. The
Partnership reserves the right to reject any subscription for interests
in the Partnership. The Partnership may from time to time offer to
repurchase interests pursuant to written tenders to partners. Such
repurchases will be made at such times and on such terms as may be
determined by the Directors, in their complete and exclusive
discretion. The Manager expects that generally it will recommend to the
Directors that the Partnership repurchase interests from Partners twice
each year, in June and December.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Manager to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. The Manager believes that
11
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - DECEMBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the estimates utilized in preparing the Partnership's financial
statements are reasonable and prudent; however, actual results could
differ from these estimates.
Securities transactions, including related revenue and expenses, are
recorded on a trade-date basis and dividends are recorded on an
ex-dividend date basis. Interest income is recorded on the accrual
basis.
Cash and cash equivalents consist of monies invested in money market
funds.
A. PORTFOLIO VALUATION
Net asset value of the Partnership will be determined by or at the
direction of the Manager as of the close of business at the end of
any fiscal period in accordance with the valuation principles set
forth below or as may be determined from time to time pursuant to
policies established by the Directors.
Domestic exchange traded or NASDAQ listed equity securities will
be valued at their last composite sale prices as reported on the
exchanges where such securities are traded. If no sales of such
securities are reported on a particular day, the securities will
be valued based upon their composite bid prices for securities
held long, or their composite ask prices for securities sold
short, as reported by such exchanges. Securities traded on a
foreign securities exchange will be valued at their last sale
prices on the exchange where such securities are primarily traded,
or in the absence of a reported sale on a particular day, at their
bid prices (in the case of securities held long) or ask prices (in
the case of securities sold short) as reported by such exchange.
Listed options will be valued using last sales prices as reported
by the exchange with the highest reported daily volume for such
options or, in the absence of any sales on a particular day, at
their bid prices as reported by the exchange with the highest
volume on the last day a trade was reported. Other securities for
which market quotations are readily available will be valued at
their bid prices (or ask prices in the case of securities sold
short) as obtained from one or more dealers making markets for
such securities. If market quotations are not readily available,
securities and other assets will be valued at fair value as
determined in good faith by, or under the supervision of, the
Directors.
Debt securities will be valued in accordance with the procedures
described above, which with respect to such securities may include
the use of valuations furnished by a pricing service which employs
a matrix to determine valuation for normal institutional
12
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - DECEMBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. PORTFOLIO VALUATION (CONTINUED)
size trading units. The Directors will periodically monitor the
reasonableness of valuations provided by any such pricing service.
Debt securities with remaining maturities of 60 days or less will,
absent unusual circumstances, be valued at amortized cost, so long
as such valuation is determined by the Directors to represent fair
value.
All assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars using foreign
exchange rates provided by a pricing service compiled as of 4:00
p.m. London time. Trading in foreign securities generally is
completed, and the values of such securities are determined, prior
to the close of securities markets in the U.S. Foreign exchange
rates are also determined prior to such close.
On occasion, the values of such securities and exchange rates may
be affected by events occurring between the time such values or
exchange rates are determined and the time that the net asset
value of the Partnership is determined. When such events
materially affect the values of securities held by the Partnership
or its liabilities, such securities and liabilities will be valued
at fair value as determined in good faith by, or under the
supervision of, the Directors.
B. PARTNERSHIP EXPENSES
The Partnership will bear all expenses incurred in the business of
the Partnership, including, but not limited to, the following: all
costs and expenses related to portfolio transactions and positions
for the Partnership's account; legal fees; accounting fees; costs
of insurance; registration expenses; certain offering costs; and
expenses of meetings of Directors and Limited Partners. PWFA has
paid the organizational costs on behalf of the Partnership.
C. INCOME TAXES
No Federal, State or Local income taxes will be provided on the
profits of the Partnership since the partners are individually
liable for their share of the Partnership's income.
13
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - DECEMBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
3. MANAGEMENT FEE, RELATED PARTY TRANSACTIONS AND OTHER
PWFA provides certain management and administrative services to the
Partnership, including, among other things, providing office space and
other support services to the Partnership. In consideration for such
services, the Partnership will pay PWFA a monthly management fee of
.125% (1.50% on an annualized basis) of the Partnership's net assets
for the month, excluding assets attributable to the General Partner's
capital account (the "Fee"). The Fee, which amounted to $2,580 for the
period ended December 31, 1998, will be paid to PWFA out of the
Partnership's assets, and debited against the Limited Partners' capital
accounts. A portion of the fee will be paid by PWFA to an affiliate of
Granum.
During the period ended December 31, 1998, PaineWebber Inc. earned
$1,002 in brokerage commissions from portfolio transactions executed on
behalf of the Partnership.
At the end of the twelve month period following the admission of a
limited partner to the Partnership, and generally at the end of each
fiscal year thereafter, the Manager is entitled to an incentive
allocation (the "Incentive Allocation") of 20% of the net profits, if
any, that would have been credited to the capital account of such
limited partner for such period. The Incentive Allocation will be made
only with respect to net profits that exceed any net losses previously
charged to the account of such limited partner which have not been
offset by any net profits subsequently credited to the account of the
limited partner. There was no Incentive Allocation recorded in the
financial statements for the period ended December 31, 1998, because a
twelve month period had not lapsed for any individual limited partner.
Had there been an incentive allocation, based on the net profit for the
period ended December 31, 1998, such amount would have been $9,492 and
reflected as a reduction in limited partner capital. The General
Partner's capital account at December 31, 1998 was $10,545,702.
Each Director, who is not an "interested person" of the Partnership, as
defined by the Act, receives an annual retainer of $5,000 plus a fee
for each meeting attended. Any Director who is an "interested person"
does not receive any annual or other fee from the Partnership. All
Directors are reimbursed by the Partnership for all reasonable
out-of-pocket expenses incurred by them in performing their duties. In
1998, these expenses were assumed by PWFA on behalf of the Partnership.
PNC Bank, N.A. serves as Custodian of the Partnership's securities.
Effective January 1, 1999, PNC Bank assigned the custody agreement to
PFPC Trust Company, a newly formed subsidiary of PFPC Worldwide. PFPC
Trust Company, in turn, entered into a service agreement whereby PNC
Bank will continue to provide securities clearance functions.
14
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - DECEMBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
3. MANAGEMENT FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED)
PFPC Inc. serves as Administrator and Accounting Agent to the
Partnership, and in that capacity provides certain accounting,
record-keeping, tax and investor related services.
4. SECURITIES TRANSACTIONS
Aggregate purchases and sales of investment securities for the period
ended December 31, 1998, amounted to $10,845,924 and $670,194,
respectively.
Due from broker primarily represents cash at the broker from securities
sold, not yet purchased.
At December 31, 1998, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes. At December 31, 1998, accumulated net unrealized appreciation
on investments was $278,341, consisting of $504,399 gross unrealized
appreciation and $226,058 gross unrealized depreciation.
5. SHORT-TERM BORROWINGS
The Partnership has the ability to trade on margin and, in that
connection, borrow funds from brokers and banks for investment
purposes. Trading in equity securities on margin involves an initial
cash requirement representing at least 50% of the underlying security's
value with respect to transactions in U.S. markets and varying
percentages with respect to transactions in foreign markets. The Act
requires the Partnership to satisfy an asset coverage requirement of
300% of its indebtedness, including amounts borrowed, measured at the
time the Partnership incurs the indebtedness. The Partnership pledges
securities as collateral for the margin borrowings, which are
maintained in a segregated account held by the Custodian. As of, and
for the period ended December 31, 1998, the Partnership did not have
any margin borrowings outstanding.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK OR
CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Partnership may trade various
financial instruments and enter into various investment activities with
off-balance sheet risk. These financial instruments include forward
contracts, options and sales of securities not yet purchased. Generally
these financial instruments represent future commitments to purchase or
sell other financial instruments at specific terms at specified future
dates.
15
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - DECEMBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK OR
CONCENTRATIONS OF CREDIT RISK (CONTINUED)
Each of these financial instruments contains varying degrees of
off-balance sheet risk whereby changes in the market value of the
securities underlying the financial instruments may be in excess of the
amounts recognized in the statement of assets, liabilities and
partners' capital.
During the period ended December 31, 1998, the Partnership did not
trade any forward contracts or options.
7. SELECTED FINANCIAL RATIOS AND OTHER SUPPLEMENTAL INFORMATION
The following represents the ratios to average net assets and other
supplemental information for the period indicated:
FOR THE PERIOD FROM
DECEMBER 1, 1998
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
------------------------
Ratio of net investment income to average net assets 2.22% *
Ratio of operating expenses to average net assets 2.01% *
Ratio of interest expense to average net assets N/A
Portfolio turnover rate 8.38%
Total return 2.34% **
Average debt ratio N/A
* Annualized.
** Total return assumes a purchase of a Limited Partnership interest
in the Partnership on the first day and a sale of the Partnership
interest on the last day of the period noted, before incentive
allocation to the Manager, if any. Total returns for a period of
less than a full year are not annualized.
8. SUBSEQUENT EVENTS
Effective January 1, 1999, the Partnership received additional
limited partner capital contributions of approximately $675,000.
Effective February 1, 1999, the Partnership received additional
limited partner capital contributions of approximately $1,200,000.
16
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - DECEMBER 31, 1998 (CONCLUDED)
- --------------------------------------------------------------------------------
9. YEAR 2000 (UNAUDITED)
Like other investment companies, financial and business organizations
around the world, the Partnership could be adversely affected if the
computer systems it uses and those used by the Partnership's brokers
and other major service providers do not properly process and
calculate date-related information and data from and after January 1,
2000. This is commonly known as the "Year 2000 Issue."
The Partnership has assessed its computer systems and the systems
compliance issues of its brokers and other major service providers.
The Partnership has taken steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to the computer
systems it uses and has obtained satisfactory assurances that
comparable steps are being taken by its brokers and other major
service providers. At this time, however, there can be no assurance
that these steps will be sufficient to address all Year 2000 Issues.
The inability of the Partnership or its third party providers to
timely complete all necessary procedures to address the Year 2000
Issue could have a material adverse effect on the Partnership's
operations. Management will continue to monitor the status of and its
exposure to this issue. For the year ended December 31, 1998, the
Partnership incurred no Year 2000 related expenses, and it does not
expect to incur significant Year 2000 expenses in the future.
The Partnership is in the process of establishing a contingency plan
to address recovery from unavoided or unavoidable Year 2000 problems,
if any.
17
