PENFIELD PARTNERS, L.P.
Index to Financial Statements
December 31, 1997
PAGE(S)
Independent Auditors' Report 1
Statement of Assets and Liabilities 2
Statement of Operations 3
Statements of Changes in Partners' Capital 4
Schedule of Investments 6
Notes to Financial Statements 10
Page 1
Independent Auditors' Report
The Partners of
Penfield Partners, L.P.
We have audited the accompanying Statement of Assets and
Liabilities, including the Schedule of Investments, of Penfield
Partners, L.P. as of December 31, 1997 and the related Statement
of Operations for the year ended and the Statements of Changes in
Partners' Capital for each of the two years in the period ended.
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 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 at December 31, 1997 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Penfield Partners, L.P. as of December 31, 1997, the results
of its operations for the year then ended and the changes in its
partners' capital for each of the two years in the period then
ended, in conformity with generally accepted accounting
principles.
Anchin, Block & Anchin LLP
New York, N.Y.
February 11, 1998
Page 2
PENFIELD PARTNERS, L.P.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
ASSETS
Investments in securities, at fair value $25,363,533
Cash equivalents 3,087,545
Receivable from broker 67,873
Accrued income 5,152
Organization costs 51,484
___________
TOTAL ASSETS $28,575,587
___________
LIABILITIES
Securities sold short, at fair value $ 3,111,724
Payable to broker 2,032,536
Accrued expenses 65,380
Payables for capital withdrawals 704,731
___________
TOTAL LIABILITIES $ 5,914,371
___________
PARTNERS' CAPITAL
General partners 1,577,200
Limited partners 21,084,016
___________
TOTAL PARTNERS' CAPITAL $22,661,216
___________
TOTAL LIABILITIES AND PARTNERS' CAPITAL $28,575,587
___________
Net asset value per Limited Partner's Unit $ 25,000
___________
See Notes to Financial Statements
Page 3
PENFIELD PARTNERS, L.P.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
INVESTMENT GAINS
Realized gains on investments, net $ 1,629,151
Unrealized gain on investments, net 2,966,830
___________
Total Realized and Unrealized Investment Gain $4,595,981
LOSS FROM OPERATIONS
Income
Interest 96,925
Dividends 124,481
___________
221,406
Expenses
Administrator's fee 171,671
Independent general partners' fees 20,000
Interest 111,424
Professional fees 85,048
Amortization of organization costs 34,322
Other 17,159
___________
439,624
Loss from Operations (218,218)
__________
NET INCOME $4,377,763
__________
See Notes to Financial Statements
Page 4
PENFIELD PARTNERS, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the Year Ended December 31, 1997
<TABLE>
Corporate Individual
General General Limited
Total Partner Partners Partners
___________ __________ ________ ___________
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL
Beginning $18,036,683 $1,268,319 $11,555 $16,756,809
___________ __________ ________ ___________
CHANGES IN CAPITAL FROM
Investments and Operations
Realized & unrealized
investment gains 4,595,981 548,737 2,488 4,044,756
Loss from operations (218,218) (40,381) (113) (177,724)
___________ __________ ________ ___________
Net Increase 4,377,763 508,356 2,375 3,867,032
___________ __________ ________ ____________
Partners' Transactions
Capital contributions 2,700,000 - - 2,700,000
Capital transfers - (138,405) - 138,405
Capital withdrawals (2,453,230) (75,000) - (2,378,230)
___________ __________ ________ ___________
Net (Decrease)
Increase 246,770 (213,405) - 460,175
___________ __________ ________ ___________
Total Increase in
Partners Capital 4,624,533 294,951 2,375 4,327,207
___________ __________ ________ ___________
PARTNERS' CAPITAL-
Ending $22,661,216 $1,563,270 $13,930 $21,084,016
___________ __________ ________ ___________
Units Outstanding-
Beginning 721.47 50.73 .46 670.28
___________ __________ ________ ___________
CHANGES IN UNITS
OUTSTANDING FROM
Units Sold 108.00 - - 108.00
Units Transferred - (5.53) - 5.53
Units Issued for
Net Income 175.11 20.33 .10 154.68
Units Repurchased (98.13) (3.00) - (95.13)
___________ __________ ________ __________
Net Increase 184.98 11.80 .10 173.08
___________ __________ ________ ___________
Units Outstanding-
Ending 906.45 62.53 .56 843.36
___________ __________ ________ ___________
</TABLE>
See Notes to Financial Statements
Page 5
PENFIELD PARTNERS, L.P.
<TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the Year Ended December 31, 1996
CORPORATE INDIVIDUAL
GENERAL GENERAL LIMITED
TOTAL PARTNER PARTNERS PARTNERS
___________ ___________ ________ ____________
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL-
Beginning $16,472,679 $ 780,023 $ 8,176 $15,684,480
___________ ___________ ________ ____________
CHANGES IN CAPITAL FROM
Investments & Operations
Realized and unrealized
investment gains 2,262,781 1,081,791 902 1,180,088
Loss from operations (94,748) (18,342) (51) (76,355)
___________ ___________ ________ ____________
Net Increase 2,168,033 1,063,449 851 1,103,733
___________ ___________ ________ ____________
Partners' Transactions
Capital contributions 1,543,633 75,000 - 1,468,633
Capital transfers - (2,528) 2,528 -
Capital withdrawals (2,147,662) (647,625) - (1,500,037)
____________ ___________ ________ ____________
Net Decrease (604,029) (575,153) 2,528 (31,404)
____________ ___________ ________ ____________
Total Increase in
Partners' Capital 1,564,004 488,296 3,379 1,072,329
____________ ___________ ________ ____________
PARTNERS' CAPITAL-
Ending $18,036,683 $1,268,319 $11,555 $16,756,809
____________ ___________ ________ ____________
Units Outstanding-
Beginning 658.91 31.20 .33 627.38
____________ ___________ ________ ____________
CHANGES IN UNITS
OUTSTANDING FROM
Units Sold 61.75 3.00 - 58.75
Units Transferred - (.10) .10 -
Units Issued for
Net Income 86.72 42.54 .03 44.15
Units Repurchased (85.91) (25.91) - (60.00)
________ _______ ______ ________
Net Decrease 62.56 19.53 .13 42.90
________ _______ ______ ________
Units Outstanding-
Ending 721.47 50.73 .46 670.28
________ _______ ______ ________
</TABLE>
See Notes to Financial Statements
Page 6
PENFIELD PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
December 31, 1997
NUMBER FAIR
OF SHARES DESCRIPTION VALUE
COMMON STOCKS 110.13%
AEROSPACE 1.38%
50,000 Titan Corp. $ 312,500
AUTOMOTIVE PARTS .01%
41,240 Steel City Products, Inc. restricted 1,287
DRUGS AND HEALTHCARE 9.92%
15,000 Advanced Magnetics, Inc. 131,250
9,500 Biomatrix, Inc. 285,000
133,571 Cardiac Control Systems, Inc. including
17,332 warrants (a) 75,134
8,953 Cardiac Control Systems, Inc.,
restricted (a) 5,036
25,000 Sofamor / Danek Group Inc. 1,631,250
110,000 Viragen Inc. 120,312
__________
2,247,982
ENERGY 6.77%
15,000 Chesapeake Energy Corp. 113,437
40,000 Chieftain International, Inc. 850,000
30,000 Giant Industries, Inc. 570,000
__________
1,533,437
FINANCIAL SERVICES 6.54%
32,500 New Century Financial Corp. 333,125
25,000 PacificAmerica Money Center, Inc. 456,250
36,000 R & G Financial Corp. 693,000
__________
1,482,375
HEALTHCARE SERVICES 4.10%
100,000 Accuhealth, Inc.(a) 162,500
39,528 Accuhealth, Inc. restricted (a) 55,416
27,500 Datascope Corp. 711,562
__________
929,478
See Notes to Financial Statements
Page 7
PENFIELD PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 1997
NUMBER FAIR
OF SHARES DESCRIPTION VALUE
COMMONS STOCKS (CONTINUED)
INDUSTRIAL AND MACHINERY 1.79%
31,760 Transnational Industries, Inc.,
restricted (a) 117,600
50,000 Transnational Industries, Inc. (a) 287,500
__________
405,100
MANUFACTURING 20.60%
64,500 Blount International, Inc. 1,721,344
65,000 Mercer International, Inc. 572,812
5,000 Mueller Industries, Inc. 295,000
42,500 Sealright Company, Inc. 525,937
55,000 Sun Hydraulics Corp. 660,000
20,000 Trinity Industries, Inc. 892,500
__________
4,667,593
MINING 4.04%
20,000 Cleveland Cliffs, Inc. 916,250
MISCELLANEOUS 2.69%
10,000 Alcide Corp. 610,000
RESTAURANT, LODGING AND ENTERTAINMENT 12.04%
205,000 BFX Hospitality Group, Inc. 589,375
175,000 Casino Data Systems 503,125
120,000 Grand Casinos, Inc. 1,635,000
__________
2,727,500
RETAILING 5.12%
21,875 99 Cents Only Stores 645,312
25,000 American Stores Co. 514,062
__________
1,159,374
SERVICE 4.47%
60,000 Emcon 307,500
30,000 Insurance Auto Auctions, Inc. 345,000
10,000 Iron Mountain Inc. 360,000
__________
300,594
See Notes to Financial Statements
Page 8
PENFIELD PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 1997
NUMBER FAIR
OF SHARES DESCRIPTION VALUE
TECHNOLOGY 22.92%
10,000 ASM Lithography Holding 675,000
95,000 Adage Inc. 718,435
105,000 Ampex Corp. 249,375
93,500 Aseco Corp. 797,672
20,000 Asyst Technologies, Inc. 435,000
10,000 Centennial Technologies, Inc. 10,000
30,000 Cerprobe Corp. 513,750
44,500 Cognitronics Corp. 853,844
20,000 Helix Technology Corp. 390,000
110,000 Media 100, Inc. 550,000
__________
5,193,076
TELECOMMUNICATIONS 4.11%
20,000 Telephone & Data Systems, Inc. 931,250
UTILITIES 3.65%
70,000 Northeast Utilities 826,875
__________
TOTAL COMMON STOCKS (COST $21,318,454) $24,956,577
__________
PREFERRED STOCKS 1.65%
HEALTHCARE SERVICES 1.65%
187,500 Accuhealth, Inc., restricted (a) $ 375,000
(Cost $375,000) __________
CALLS .14%
50 Grand Casinos Feb 12 1/2 9,062
333 Grand Casinos Feb 15 22,894
__________
TOTAL CALLS (COST $34,873) 31,956
TOTAL INVESTMENTS (COST $21,728,327) $25,363,533
___________
(a) Affiliated issuer under the Investment Company Act of 1940,
in as much as the Fund owns more than 5% of the voting
securities of the issuer.
All percentages are relative to Partners' Capital
Page 9
PENFIELD PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 1997
SECURITIES SOLD SHORT
NUMBER FAIR
OF SHARES DESCRIPTION VALUE
COMMON STOCKS 13.73%
BIOTECH .65%
30,000 Biospherics, Inc. $ 148,125
DRUGS AND HEALTHCARE 2.59%
15,000 Biovail Corporation International 585,937
ENERGY 2.75%
15,000 Chesapeake Energy Corp. 113,440
5,500 SLH Corporation 308,000
20,000 Superior Energy Services, Inc. 202,500
__________
623,940
SHOES AND APPAREL 2.59%
15,000 Nike Inc. 585,937
TECHNOLOGY 3.10%
10,000 Centennial Technologies, Inc. 10,000
11,250 Molex Inc. 361,409
17,000 Schick Technologies, Inc. 330,439
__________
701,848
TRANSPORTATION 2.06%
7,500 Airborne Freight Corp. 465,937
TOTAL SECURITIES SOLD SHORT
(PROCEEDS $3,966,772) $3,111,724
__________
__________
All percentages are relative to Partners' Capital
See Notes to Financial Statements
Page 10
PENFIELD PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
ORGANIZATION Penfield Partners, L.P. ("the Fund") was organized
in November 1988 in the State of Delaware as a
limited partnership for the purpose of trading in
securities. The Fund will continue until December
31, 2028 unless sooner terminated as provided for
in the Partnership Agreement. The Fund's
investment objective is to seek long-term capital
appreciation by investing and trading primarily in
equity securities and securities with equity
features of publicly listed companies.
Effective July 1, 1994, the Fund registered under
the Investment Company Act of 1940 ("1940 Act") to
operate as a nondiversified management company
and a closed-end interval fund.
REPURCHASE The Fund, as a closed-end interval fund, has
POLICIES adopted certain policies for its repurchase of
units from partners as fundamental policies which,
under Rule 23c-3 promulgated under the 1940 Act,
may not be changed without the vote of the holders
of a majority of the outstanding units (as
determined under the 1940 Act). These repurchase
policies are as follows:
(a) The Fund will offer to repurchase units at
intervals of six months in accordance with the
Fund's Amended and Restated Agreement of Limited
Partnership ("Partnership Agreement").
(b) The Fund will allow its partners to submit
requests for repurchases of units by June 16th and
December 17th of each year.
(c) The Fund will establish a maximum of
fourteen days between each deadline for
repurchase requests and the applicable repurchase
date such that repurchases of units shall occur on
June 30th and December 31st of each year.
The Individual General Partners are authorized
under the Partnership Agreement to establish
other policies relating to repurchases of units
that are consistent with the 1940 Act. The
repurchase of units by the Fund allows partners to
Page 11
PENFIELD PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
redeem units semi-annually, subject to the terms
and limitations set forth in the Partnership
Agreement.
On November 9, 1997, the Fund offered to
repurchase up to 25% of the outstanding units of
the Fund. Partners holding 3% of the units
outstanding on December 31, 1997 equal to
$704,731 elected to tender their units to the
Fund for repurchase.
FINANCIAL The preparation of financial statements in
STATEMENT conformity with generally accepted accounting
ESTIMATES principles may require management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date
of the financial statements and the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ
from those estimates.
VALUATION OF Purchases and sales of securities are recorded on
SECURITIES a trade date basis.
Investments in securities and securities sold
short which are traded on a national securities
exchange or listed on NASDAQ are valued at the
last reported sales price on the last business day
of the year. Investments in securities and
securities sold short which are traded in the
over-the-counter market are valued at the average
of the bid and asked prices on the last trade
date.
Securities for which market quotations are not
readily available are valued at their fair value
as determined in good faith by the Individual
General Partners.
ORGANIZATION Organization costs are being amortized on a
COSTS straight-line basis over a period of 60 months.
Accumulated amortization at December 31, 1997 is
$120,128.
INCOME TAXES The Fund is not subject to income taxes. The
partners report their distributive share of
realized income or loss on their own tax returns.
Page 12
PENFIELD PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
CASH Cash equivalents include:
EQUIVALENTS
AND CUSTODY Balance at broker $3,022,333
CONCENTRATIONS Money market funds at brokers 65,212
__________
$3,087,545
Balance at broker consists of a brokerage account
with Furman Selz LLC. The Securities Investors
Protection Corporation (SIPC) insures the
brokerage account to the extent of $500,000
(including up to $100,000 for cash). Securities
in excess if these limits are covered by the
broker in the amount of $99.5 million. Amounts in
excess of insurance coverages are secured by the
good faith and credit of the broker.
SECURITIES The fund is subject to certain inherent risks
SOLD SHORT arising from its activities of selling securities
short. The ultimate cost to the Fund to acquire
these securities may exceed the liability
reflected in the financial statements. In
addition, the Fund is required to maintain
collateral with the broker to secure these short
positions.
DERIVATIVE Derivative financial instruments traded by the
FINANCIAL Partnership (the value of which is based upon an
INSTRUMENTS underlying assets, index or reference rate)
consist of stock options.
Derivatives are used for trading purposes and for
managing risks associated with the portfolio of
investments. They are subject to various risks
similar to those related to the underlying
financial instruments, including market risks.
The notional amount of derivatives is not recorded
on the balance sheet. Such amount does not
measure the exposure of the Partnership, nor the
amounts exchanged by the parties. The amounts
exchanged are calculated on the basis of notional
amounts and the other terms of the derivatives,
which relate to security prices, or financial or
other indices. The notional values of options
purchased amounted to approximately $562,000 as of
December 31, 1997.
Page 13
PENFIELD PARTNERS, L.P.
Notes to Financial Statements
December 31, 1997
Market risk is the potential for changes in the
value of derivative financial instruments due to
market changes and fluctuations in security
prices.
The partnership had trading gains of approximately
$101,000 on options purchased. The average value
of these option contracts for the year was
approximately $46,000.
ALLOCATIONS The net income of the Partnership is allocated
OF INCOME semiannually on June 30th and December 31st, 20%
(LOSS) to the Corporate General Partner and 80% to all
partners in proportion of the number of units held
by each. A net loss is allocated among the
partners in proportion to the number of units
owned by each. If there is a loss for an
accounting period, the 20% allocation to the
Corporate General Partner will not apply to future
periods until the loss has been recovered. For the
semiannual period ended December 31, 1997, the
Fund had a net loss of $1,750,410. For purposes
of the 20% allocation, the net income was reduced
by a loss carryover from June 30, 1997 of
$464,136, and the allocation was $257,255.
All net income allocated to partners is
reinvested. In order to maintain a $25,000 price
per unit, the number of units held by each partner
at the close of each semiannual period will be
adjusted to equal the partner's capital account
divided by $25,000.
RELATED PARTY The Administration Agreement provides for fees
TRANSACTIONS payable to the Fund's administrator, the general
partner of the Corporate General Partner. The
administrator's fee is calculated at a rate of
.0625% of the net asset value of the Fund at the
beginning of each month. (.75% per annum).
A fee is payable to each of the Independent
Individual General Partners at $10,000 per annum,
plus out-of-pocket expenses incurred by them in
performing their duties under the Partnership
Agreement.
Page 14
PENFIELD PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
The accompanying Statement of Assets and
Liabilities includes unpaid fees to the
administrator of $45,130.
At December 31, 1997 the Fund has an investment
in Transnational Industries, a private placement
security in which an Individual General Partner is
a director and an investor through another entity.
The investment is valued at $405,100.
PURCHASES AND Purchases and sales of securities aggregated
SALES OF $51,887,938 and $50,229,729, respectively.
SECURITIES
SUBSEQUENT Effective January 1, 1998 partners' capital
CAPITAL of approximately $1,425,000 was contributed
TRANSACTIONS to the Partnership.
<TABLE>
SELECTED Years Ended
FINANCIAL December 31,
INFORMATION _________________________________
<S> <C> <C> <C> <C>
1997 1996 1995 1994
Ratio of Total
Expenses to
Average Net Assets 1.94% 1.53% 2.18% 1.23%
Ratio of Loss from
Operations to
Average Net Assets (.96)% (.48)% (1.12)% (0.48)%
Ratio of Net Income to
Average Net Assets 19.28% 10.89% 9.59% 0.65%
Portfolio Turnover
Rate 2.10 1.82 1.19 1.87
Total Return 21.89 13.41% 10.14% 0.53%
Average Commission
Rate Paid $.0515 $.0448 (a) (a)
</TABLE>
(a) This disclosure is not required prior to 1996.
