CONGRESS STREET ASSOCIATES, L.P.
IN LIQUIDATION
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS
FOR THE YEAR ENDED
DECEMBER 31, 1999
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
IN LIQUIDATION
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS
FOR THE YEAR ENDED
DECEMBER 31, 1999
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 .................................. 5
Notes to Financial Statements ...................................... 6
<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, as of December 31, 1999, the related statement of operations for
the year then ended, and the statement of changes in partners' capital - net
assets for the period from December 1, 1998 (commencement of operations) to
December 31, 1998 and for the year ended December 31, 1999. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Congress Street Associates,
L.P. at December 31, 1999, and the results of its operations for the year then
ended and changes in its partners' capital - net assets for the period from
December 1, 1998 (commencement of operations) to December 31, 1998 and for the
year ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/S/ERNST & YOUNG LLP
New York, New York
February 25, 2000
1
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CONGRESS STREET ASSOCIATES, L.P.
IN LIQUIDATION
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
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December 31, 1999
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ASSETS
Investments in securities, at value (Cost $27,400) $ 48,885
Cash and cash equivalents 9,601,142
Receivable for securities sold 6,627,268
Dividends and interest receivable 15,633
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TOTAL ASSETS 16,292,928
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LIABILITIES
Professional fees 30,409
Management fee 5,916
Custodian fee 2,297
Administration fees 1,591
Miscellaneous 4,914
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TOTAL LIABILITIES 45,127
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NET ASSETS $16,247,801
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PARTNERS' CAPITAL - NET ASSETS
Represented by:
Capital contributions $14,491,458
Accumulated net investment income 164,317
Accumulated net realized gain on investments 1,570,541
Accumulated net unrealized appreciation on investments 21,485
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PARTNERS' CAPITAL - NET ASSETS $16,247,801
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2
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
IN LIQUIDATION
STATEMENT OF OPERATIONS
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FOR THE YEAR ENDED
DECEMBER 31, 1999
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INVESTMENT INCOME
Dividend $ 262,186
Interest 102,476
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TOTAL INVESTMENT INCOME 364,662
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EXPENSES
Management fee 62,877
Professional fees 81,495
Administration fee 27,121
Custodian fee 21,892
Miscellaneous 6,492
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TOTAL OPERATING EXPENSES 199,877
Interest expense 13,923
Dividends on securities sold, not yet purchased 10,035
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TOTAL EXPENSES 223,835
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NET INVESTMENT INCOME 140,827
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REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain from investments 1,913,952
Net realized loss from securities sold, not yet purchased (343,346)
Change in net unrealized appreciation from investments (256,856)
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NET REALIZED AND UNREALIZED GAIN FROM INVESTMENTS 1,313,750
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INCREASE IN PARTNERS' CAPITAL DERIVED FROM OPERATIONS $1,454,577
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The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
IN LIQUIDATION
STATEMENT OF CHANGES IN PARTNERS' CAPITAL - NET ASSETS
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<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR ENDED DECEMBER 1, 1998
DECEMBER 31, 1999 (COMMENCEMENT OF
OPERATIONS) TO
ECEMBER 31, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income $ 140,827 $ 23,490
Net realized gain (loss) from investments 1,570,606 (65)
Change in net unrealized appreciation from investments (256,856) 278,341
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NET INCREASE IN PARTNERS' CAPITAL
DERIVED FROM OPERATIONS 1,454,577 301,766
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PARTNERS' CAPITAL TRANSACTIONS
Proceeds from Limited Partner subscriptions 2,275,000 2,025,000
Proceeds from General Partner subscriptions -- 10,291,395
Payment for General Partner redemptions (99,937) --
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INCREASE IN PARTNERS' CAPITAL DERIVED
FROM CAPITAL TRANSACTIONS 2,175,063 12,316,395
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PARTNERS' CAPITAL AT BEGINNING OF PERIOD 12,618,161 --
- --------------------------------------------------------------------------------------------
PARTNERS' CAPITAL AT END OF PERIOD $16,247,801 $12,618,161
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</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
IN LIQUIDATION
SCHEDULE OF PORTFOLIO INVESTMENTS
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DECEMBER 31, 1999
SHARES MARKET VALUE
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PREFERRED STOCKS - 0.30%
AUDIO/VIDEO PRODUCTS - 0.30%
2,740 American Technology Corp.,
- Series B Preferred with warrants* $ 48,885
-----------
TOTAL PREFERRED STOCKS
- (Cost $27,400) 48,885
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TOTAL INVESTMENTS IN SECURITIES (COST $27,400) 48,885
OTHER ASSETS, LESS LIABILITIES - 99.70% 16,198,916
-----------
NET ASSETS - 100.00% $16,247,801
===========
* Non-income producing security.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
IN LIQUIDATION
NOTES TO FINANCIAL STATEMENTS
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DECEMBER 31, 1999
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1. ORGANIZATION
Congress Street Associates, L.P. (the "Partnership") was organized under
the Delaware Revised Uniform Limited Partnership Act on June 5, 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 General Partner determined to liquidate the business and administrative
affairs of the Partnership effective December 31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
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
and are accounted for at cost plus accrued interest as reported by the
money market funds.
6
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
IN LIQUIDATION
NOTES TO FINANCIAL STATEMENTS
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DECEMBER 31, 1999
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a. PORTFOLIO VALUATION
Net asset value of the Partnership was determined 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 were valued at
their last composite sale prices as reported on the exchanges where such
securities were traded. If no sales of such securities are reported on a
particular day, the securities were 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 were valued at their last sale prices on the
exchange where such securities were 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 were 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
were readily available were 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 were not readily
available, securities and other assets were valued at fair value as
determined in good faith by, or under the supervision of, the Directors.
Debt securities had been 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 periodically monitored the reasonableness of valuations provided
by any such pricing service. Debt securities with remaining maturities of
60 days or less, absent unusual circumstances, were 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 were
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 was
determined. When such events materially affected
7
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
IN LIQUIDATION
NOTES TO FINANCIAL STATEMENTS
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DECEMBER 31, 1999
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a. PORTFOLIO VALUATION (CONTINUED)
the values of securities held by the Partnership or its liabilities, such
securities and liabilities were 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 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 has been 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 is debited against the Limited Partners'
capital accounts. A portion of the fee will be paid by PWFA to its
affiliate and to an affiliate of Granum. PaineWebber Inc. acts as a
placement agent for the Fund, without special compensation from the Fund,
and will bear its own costs associated with its activities as placement
agent.
During the year ended December 31, 1999, PaineWebber Inc. earned $760 in
brokerage commissions from portfolio transactions executed on behalf of the
Partnership.
The increase (or decrease) in partners' capital derived from operations
(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
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<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
IN LIQUIDATION
NOTES TO FINANCIAL STATEMENTS
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DECEMBER 31, 1999
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3. MANAGEMENT FEE, PROFIT ALLOCATION, RELATED PARTY TRANSACTIONS AND OTHER
(CONTINUED)
account of such Limited Partner which have not been offset by any net
profits subsequently credited to the account of the Limited Partner. During
the year ended December 31, 1999, the Incentive Allocation to the Manager
was $90,847 and was recorded as an increase to the General Partner's
capital account and a reduction in the Limited Partners' capital accounts.
The General Partner's capital account balance at December 31, 1999 and 1998
was $11,584,410 and $10,545,702 respectively.
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 (an affiliate of PNC Bank, N.A.) serves as custodian of
the Partnership's assets. PFPC Trust Company entered into a service
agreement whereby PNC Bank, N.A. provides securities clearance functions.
PFPC Inc. (also an affiliate of PNC Bank, N.A.) serves as Administrator and
Accounting Agent to the Partnership, and in that capacity provides certain
accounting, record keeping, tax and investor related services. PFPC Inc.
receives a monthly fee primarily based upon aggregate net assets of the
Fund.
4. SECURITIES TRANSACTIONS
Aggregate purchases and sales of investment securities for the year ended
December 31, 1999, amounted to $9,472,156 and $20,885,961, respectively. At
December 31, 1999, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes.
5. SHORT-TERM BORROWINGS
The Partnership has the ability to trade on margin and, in that connection,
borrows 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. For the year
9
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
IN LIQUIDATION
NOTES TO FINANCIAL STATEMENTS
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DECEMBER 31, 1999
- --------------------------------------------------------------------------------
5. SHORT-TERM BORROWINGS (CONTINUED)
ended December 31, 1999, the Fund's average interest rate paid on
borrowings was 6.6% and the average borrowings outstanding were $213,554.
The Fund had no borrowings outstanding at December 31, 1999.
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 and
futures contracts, options and sales of securities sold, 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.
Securities sold, not yet purchased represents obligations of the
Partnership to deliver specified securities and thereby creates a liability
to purchase such securities in the market at prevailing prices.
Accordingly, these transactions result in off-balance sheet risk as the
Partnership's ultimate obligation to satisfy the sale of securities sold,
not yet purchased may exceed the amount indicated in the statement of
assets, liabilities and partners' capital.
During the year ended December 31, 1999, the Partnership did not trade any
forward or futures contracts or options.
10
<PAGE>
CONGRESS STREET ASSOCIATES, L.P.
IN LIQUIDATION
NOTES TO FINANCIAL STATEMENTS
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DECEMBER 31, 1999
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7. FINANCIAL HIGHLIGHTS
The following represents the ratios to average net assets and other
supplemental information for the period indicated:
FOR THE PERIOD FROM
FOR THE YEAR DECEMBER 1, 1998
ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
1999 DECEMBER 31, 1998
---- ------------------
Ratio of net investment
income to average net assets .95% 2.22%
Ratio of operating expenses
to average net assets 1.51% 2.01%
Ratio of interest expense
to average net assets .09% N/A
Portfolio turnover rate 55.93% 8.38%
Total return 7.66%** 2.34%**
Average debt ratio 2.93% 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 limited partnership
interest on the last day of the period noted, after Incentive
Allocation to the Manager and does not reflect the deduction of
placement fees, if any, incurred when subscribing to the Fund. Total
returns for a period of less than a full year are not annualized.
8. YEAR 2000 (UNAUDITED)
PFPC Inc. experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes
those systems successfully responded to the Year 2000 date change. PFPC
Inc. is not aware of any material problems resulting from Year 2000 issues,
either with its products, its internal systems, or the products and
services of third parties. PFPC Inc. will continue to monitor its mission
critical computer applications and those of its suppliers and vendors
throughout the Year 2000 to ensure that any latent Year 2000 matters that
may arise are addressed promptly.
11
