CONGRESS STREET ASSOCIATES, L.P.
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1999
(UNAUDITED)
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1999
(UNAUDITED)
CONTENTS
Statement of Assets, Liabilities and Partners' Capital....................... 1
Statement of Operations...................................................... 2
Statement of Changes in Partners' Capital - Net Assets....................... 3
Schedule of Portfolio Investments and Securities Sold, Not Yet Purchased..... 4
Notes to Financial Statements................................................ 13
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
- --------------------------------------------------------------------------------
JUNE 30, 1999
ASSETS (UNAUDITED)
Cash and cash equivalents $168,114
Due from broker 940,017
Investments in securities, at market
identified cost - $14,826,224) 15,511,690
Dividends receivable 29,055
Interest receivable 15,735
-----------
TOTAL ASSETS 16,664,611
-----------
LIABILITIES
Securities sold, not yet purchased,
at market (proceeds of sales - $1,151,951) 1,233,638
Management fee payable 30,634
Professional fees payable 22,439
Custody fees payable 10,485
Administration fee payable 10,355
Dividends payable 4,511
-----------
TOTAL LIABILITIES 1,312,063
-----------
NET ASSETS $15,352,549
===========
PARTNERS' CAPITAL - NET ASSETS
Represented by:
Capital contributions $14,559,482
Accumulated net investment income 131,383
Accumulated net realized gain on investments 57,905
Accumulated net unrealized appreciation on investments 603,779
-----------
PARTNERS' CAPITAL - NET ASSETS $15,352,549
===========
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1999
(UNAUDITED)
INVESTMENT INCOME
Dividends $115,343
Interest 57,667
--------
TOTAL INVESTMENT INCOME 173,010
--------
OPERATING EXPENSES
Management fee 28,054
Custodian fees 10,397
Administration fees 9,016
Professional fees 7,439
Miscellaneous 2,814
--------
TOTAL OPERATING EXPENSES 57,720
--------
Dividends on securities sold, not yet purchased 7,397
--------
TOTAL EXPENSES 65,117
--------
NET INVESTMENT INCOME 107,893
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
NET REALIZED GAIN ON INVESTMENTS 57,970
NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS 325,438
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 383,408
--------
INCREASE IN PARTNERS' CAPITAL
DERIVED FROM INVESTMENT ACTIVITIES $491,301
========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL - NET ASSETS
- --------------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED DECEMBER 1, 1998
JUNE 30, 1999 (COMMENCEMENT OF OPERATIONS)
(UNAUDITED) TO DECEMBER 31, 1998
FROM INVESTMENT ACTIVITIES
Net investment income $107,893 $23,490
Net realized gain (loss)
on investments 57,970 (65)
Net change in unrealized
appreciation on
investments 325,438 278,341
----------- -----------
INCREASE IN PARTNERS'
CAPITAL DERIVED FROM
INVESTMENT ACTIVITIES 491,301 301,766
PARTNERS' CAPITAL TRANSACTIONS
Partner capital contributions 2,275,000 12,316,395
General partner capital
distributions (31,913) -
----------- -----------
INCREASE IN PARTNERS'
CAPITAL DERIVED FROM
CAPITAL TRANSACTIONS 2,243,087 12,316,395
PARTNERS' CAPITAL AT
BEGINNING OF PERIOD 12,618,161 -
----------- -----------
PARTNERS' CAPITAL AT
END OF PERIOD $15,352,549 $12,618,161
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS AND SECURITIES SOLD, NOT YET PURCHASED
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
COMMON STOCKS - 94.85%
BUILDING - HEAVY CONSTRUCTION - 3.36%
29,300 Turner Corp. * $ 516,413
-----------
BUILDING - RESIDENTIAL/COMMERCIAL - 1.52%
9,800 Del Webb Corp. 233,975
-----------
CASINO HOTELS - 5.04%
12,500 Mirage Resorts, Inc. * 209,375
58,300 Park Place Entertainment Corp. * 564,781
-----------
774,156
-----------
CHEMICALS - SPECIALTY - 0.45%
2,000 OM Group, Inc. 69,000
-----------
COMMERCIAL BANKS - EASTERN U.S. - 0.51%
4,400 Atlantic Bank & Trust Co. * 78,100
-----------
COMMERCIAL SERVICES - 1.67%
13,300 Convergys Corp. * 256,025
-----------
COMPUTER SOFTWARE - 7.40%
20,200 Computer Associates Int'l, Inc. (a) 1,111,000
1,300 Hummingbird Comunications Ltd. * 24,375
-----------
1,135,375
-----------
COMPUTERS - MEMORY DEVICES - 1.32%
7,900 Seagate Technology, Inc. * 202,438
-----------
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS AND SECURITIES SOLD, NOT YET PURCHASED
(CONTINUED)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
COMMON STOCKS - (CONTINUED)
CONSULTING SERVICES - 0.48%
2,900 Comdisco, Inc. $ 74,313
-----------
DATA PROCESSING/MANAGEMENT - 5.75%
20,600 Casino Data Systems * 104,288
33,400 Reynolds and Reynolds Co. 778,638
-----------
882,926
-----------
ELECTRONIC COMPONENTS - SEMICONDUCTORS - 8.18%
21,100 Intel Corp. 1,255,450
-----------
FINANCE - LEASING COMPANY - 3.35%
30,000 DVI, Inc. * 513,750
-----------
FINANCE - MORTGAGE LOAN/BANKER - 6.03%
12,300 Federal National Mortgage Association 841,013
8,200 Resource Bancshares Mortgage Group, Inc. 84,050
-----------
925,063
-----------
FINANCIAL GUARANTEE INSURANCE - 2.23%
7,000 Radian Group, Inc. 341,688
-----------
GAMBLING - NON-HOTEL - 0.66%
9,275 Lakes Gaming, Inc. * 101,445
-----------
HOTELS & MOTELS - 0.53%
5,800 Hilton Hotels Corp. 82,288
-----------
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)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
COMMON STOCKS - (CONTINUED)
INSTRUMENTS - CONTROLS - 1.02%
6,300 Mettler-Toledo Int'l, Inc. * $ 156,319
-----------
INTERNET CONTENT - 0.88%
8,600 Big Entertainment, Inc. * 134,375
-----------
LEISURE & RECREATION PRODUCTS - 0.51%
2,800 Brunswick Corp. 78,050
-----------
MEDICAL - DRUGS - 0.89%
7,450 International Isotopes, Inc. * 68,913
1,400 Teva Pharmaceutical Industries, Ltd. - ADR 68,600
-----------
137,513
-----------
MEDICAL - HOSPITALS - 0.36%
2,400 Columbia/HCA Healthcare Corp. 54,750
-----------
MEDICAL PRODUCTS - 0.36%
4,400 Cyberonics, Inc. * 55,000
-----------
METAL PROCESSORS & FABRICATION - 0.77%
6,100 Wyman-Gordan Co. * 117,806
-----------
MONEY CENTER BANKS - 8.96%
37,500 Bank of New York Company, Inc. 1,375,781
-----------
MULTI - LINE INSURANCE - 2.10%
8,000 CNA Financial Corp. * 322,500
-----------
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)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
COMMON STOCKS - (CONTINUED)
OIL - FIELD SERVICES - 0.97%
10,000 Petroleum Geo-Services - ADR * $ 148,750
-----------
PROPERTY/CASUALTY INSURANCE - 5.03%
1,500 Everest Re-Insurance Holdings, Inc. 48,938
5,000 Frontier Insurance Group, Inc. 76,875
18,000 Orion Capital Corp. 645,750
-----------
771,563
-----------
PUBLISHING - PERIODICALS - 2.20%
10,600 Big Flower Holdings, Inc. * 337,875
-----------
REAL ESTATE DEVELOPMENT - 1.46%
8,000 Forest City Enterprises, Inc. - Class A 224,000
-----------
REITS - APARTMENTS - 0.42%
3,000 Walden Residential Properties, Inc. 64,500
-----------
REITS - DIVERSIFIED - 0.99%
9,000 Capital Automotive Real Estate Investment Trust 119,250
3,400 Prison Realty Corp. 33,363
-----------
152,613
-----------
REITS - HOTEL/RESTAURANT - 1.87%
6,100 Equity Inns, Inc. 56,425
18,400 RFS Hotel Investors, Inc. 231,150
-----------
287,575
-----------
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)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
COMMON STOCKS - (CONTINUED)
REITS - MORTGAGE - 5.84%
15,200 Annaly Mortgage Management, Inc. $ 171,000
16,100 Anthracite Capital, Inc. 105,656
24,200 Imperial Credit Commercial Mortgage Investment Corp. 261,663
48,400 Ocwen Asset Investment Corp. 217,800
8,500 Redwood Trust, Inc. 140,781
-----------
896,900
-----------
REITS - OUTLET CENTERS - 0.33%
5,800 Prime Retail, Inc. 50,388
-----------
RETAIL - FLOOR COVERINGS - 1.22%
21,550 Maxim Group, Inc. * 187,216
-----------
RETAIL - MISCELLANEOUS DIVERSIFIED - 0.51%
4,500 AG Services of America, Inc. * 77,625
-----------
RETAIL - MUSIC STORE - 0.11%
1,500 Trans World Entertainment Corp. * 16,875
-----------
RETAIL - OFFICE SUPPLIES - 0.95%
12,200 Officemax, Inc. * 146,400
-----------
S & L /THRIFTS - WESTERN U.S. - 0.37%
3,600 ITLA Capital Corp. * 56,700
-----------
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
(CONTINUED)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
COMMON STOCKS - (CONTINUED)
SATELLITE TELECOMMUNICATIONS - 2.46%
16,300 Globalstar Telecommunications Ltd. * $ 377,955
-----------
SECURITY SERVICES - 0.12%
6,900 American Bank Note Holographics, Inc. * 18,974
-----------
TELECOMMUNICATIONS SERVICES - 1.24%
2,200 NTL, Inc. * 189,612
-----------
THEATERS - 0.42%
3,400 AMC Entertainment, Inc. 65,024
-----------
TOBACCO - 3.19%
12,200 Philip Morris Companies, Inc. 490,287
-----------
TRANSPORT - RAIL - 0.62%
1,500 Kansas City Southern Industries, Inc. 95,718
-----------
WORKERS COMPENSATION/INJURY SERVICES - 0.20%
5,400 Preferred Employers Holdings, Inc. * 31,049
-----------
TOTAL COMMON STOCKS (COST $13,850,828) $14,562,098
-----------
PREFERRED STOCKS - 1.76%
TELEPHONE - INTEGRATED - 1.76%
3,000 Telecomunicacoes Brasilerias, Sponsored ADR, Preferred *
270,563
-----------
TOTAL PREFERRED STOCKS (COST $241,405) $ 270,563
-----------
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
(CONTINUED)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
PREFERRED STOCKS - PRIVATE PLACEMENT - 0.36%
AUDIO/VIDEO PRODUCTS - 0.20%
2,740 American Technology Corp.,
- Series B Preferred w/ Warrants * $ 31,510
-----------
INTERNET CONTENT - 0.16%
1,550 Big Entertainment, Inc.
- w/ Warrants * 24,219
-----------
TOTAL PREFERRED STOCKS
- PRIVATE PLACEMENT (COST $60,337) $ 55,729
-----------
FACE
AMOUNT
U.S. TREASURY BOND - 4.06%
$629,000 U.S. Treasury Bond, 6.125%, 11/15/2027 (a) 623,300
-----------
TOTAL U.S. TREASURY BOND (COST $673,654) $623,300
-----------
TOTAL INVESTMENTS IN SECURITIES (COST $14,826,224) $15,511,690
-----------
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS AND SECURITIES SOLD, NOT YET PURCHASED
(CONTINUED)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
SECURITIES SOLD, NOT YET PURCHASED - (8.04%)
APPAREL MANUFACTURERS - (0.34%)
700 Tommy Hilfiger Corp. $ (51,450)
-----------
850 Micron Technology, Inc. (34,266)
-----------
ELECTRONIC COMPONENTS - SEMICONDUCTORS - (0.39%)
2,200 Advanced Micro Devices, Inc. (39,738)
700 Emcore Corp. (14,088)
200 Taiwan Semiconductor - ADR (6,800)
-----------
(60,626)
-----------
FOOD - MISC/DIVERSIFIED - (0.39%)
1,800 Kellog Co. (59,400)
-----------
INTERNET CONTENT - (0.05%)
650 Ashton Technology Group, Inc. (8,125)
-----------
MEDICAL - HMO - (0.17%)
1,700 Oxford Health Plans, Inc. (26,456)
-----------
MULTIMEDIA - (0.06%)
300 The Walt Disney Co. (9,244)
-----------
RETAIL - BUILDING PRODUCTS - (0.43%)
1,250 Fastenal Co. (65,547)
-----------
RETAIL - COMPUTER EQUIPMENT - (0.11%)
700 Insight Enterprises, Inc. (17,325)
-----------
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS AND SECURITIES SOLD, NOT YET PURCHASED
(CONTINUED)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
SECURITIES SOLD, NOT YET PURCHASED - (CONCLUDED)
RETIREMENT/AGED CARE - (0.30%)
1,300 Sunrise Assisted Living, Inc. $ (45,337)
-----------
SPDR TRUST - INDEX - (4.91%)
5,500 Standard & Poor's Depositary Receipts (753,500)
-----------
TELECOMMUNICATION SERVICES - (0.67%)
3,800 Hong Kong Telecommunications Ltd. - Sponsored ADR (102,362)
-----------
TOTAL SECURITIES SOLD,
NOT YET PURCHASED (PROCEEDS $1,151,951) $(1,233,638)
-----------
OTHER ASSETS, LESS LIABILITIES, EXCLUDING
SECURITIES SOLD, NOT YET PURCHASED - (7.00%) 1,074,497
-----------
NET ASSETS - 100.00% $15,352,549
===========
(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.
12
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - JUNE 30, 1999 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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 ("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. Limited partners can only transfer or
assign their partnership interests with the approval of the Manager.
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 the
estimates utilized in preparing the Partnership's financial statements
are reasonable and prudent; however, actual results could differ from
these estimates.
13
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - JUNE 30, 1999 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 that employs a matrix
to determine valuation for normal institutional 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.
14
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - JUNE 30, 1999 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and auditing 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 provision for the payment of federal, state or local income taxes on
the profits of the Partnership will be made. The Partners are
individually liable for the income taxes on their share of the
Partnership's income.
3. MANAGEMENT FEE, PROFIT ALLOCATION, 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 $28,054 for the
period ended June 30, 1999, 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 June 30, 1999, PaineWebber Inc. earned $393 in
brokerage commissions from portfolio transactions executed on behalf of
the Partnership.
The increase (or decrease) in partners capital derived from investment
activities (net profit) is initially allocated to the capital accounts
of all partners on a pro-rata basis. 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
June 30, 1999, because a twelve month period had not lapsed for any
individual limited partner.
The General Partner's capital account balance at June 30, 1999 and
December 31, 1998 was $10,855,317 and $10,545,702 respectively. General
Partner contribution consisted of $10,291,395 in 1998.
15
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - JUNE 30, 1999 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
3. MANAGEMENT FEE, PROFIT ALLOCATION, RELATED PARTY TRANSACTIONS AND OTHER
(CONTINUED)
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
1999, these expenses were assumed by PWFA on behalf of the Partnership.
PFPC Trust Company serves as custodian of the Partnership's assets.
From December 1, 1998, to December 31, 1998, PNC Bank, N.A. served as
Custodian of the Partnership's securities. Effective January 1, 1999,
PNC Bank, N.A. assigned the custody agreement to the PFPC Trust
Company, a newly formed subsidiary of PFPC Worldwide. PFPC Trust
Company, in turn, entered into a service agreement whereby PNC Bank,
N.A. will continue to provide securities clearance functions.
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, excluding
securities sold, not yet purchased, for the six months ended June 30,
1999, amounted to $4,962,825 and $466,389, respectively.
Due from broker primarily represents cash at the broker from securities
sold, not yet purchased, for which use is restricted until the
securities are purchased.
At June 30, 1999, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes. At June 30, 1999, accumulated net unrealized appreciation on
investments was $603,779, consisting of $1,191,957 gross unrealized
appreciation and $588,178 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 June 30, 1999, the Partnership did not have any
margin borrowings outstanding six months.
16
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CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - JUNE 30, 1999 (UNAUDITED) (CONTINUED)
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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.
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 six months ended June 30, 1999, 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
FOR THE SIX DECEMBER 1, 1998
MONTHS ENDED (COMMENCEMENT OF
JUNE 30, 1999 OPERATIONS)
TO DECEMBER 31, 1998
Ratio of net investment
income to average net assets 1.56% * 2.22% *
Ratio of operating expenses
to average net assets 0.83% * 2.01% *
Ratio of interest expense
to average net assets N/A N/A
Portfolio turnover rate 3.63% 8.38%
Rate of return 1.99% ** 1.87% **
Average debt ratio N/A N/A
* Annualized.
** Rate of return assumes a purchase of a limited partnership interest
in the Partnership on the first day and a sale of the limited
partnership interest on the last day of the period noted, after
incentive allocation to the Manager, if any. Rate of return numbers
for a period of less than a full year are not annualized.
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CONGRESS STREET ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENT - JUNE 30, 1999 (UNAUDITED) (CONTINUED)
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8. YEAR 2000
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 six months ended June 30, 1999, 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.
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