PENFIELD PARTNERS, L.P.
Index to Financial Statements
December 31, 1998
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, 1998 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, 1998 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, 1998, 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.
January 29, 1999
Page 2
PENFIELD PARTNERS, L.P.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS
Investments in securities, at fair value $29,233,074
Cash equivalents 31,701
Receivable from broker 999,385
Accrued income 5,695
Organization costs 17,162
___________
TOTAL ASSETS $30,287,017
___________
LIABILITIES
Securities sold short, at fair value $ 4,386,066
Payable to broker 2,684,800
Accrued expenses 99,861
Payable for capital withdrawals 1,600,322
___________
TOTAL LIABILITIES $ 8,771,049
___________
PARTNERS' CAPITAL
General partners 1,592,780
Limited partners 19,923,188
___________
TOTAL PARTNERS' CAPITAL $21,515,968
___________
TOTAL LIABILITIES AND PARTNERS' CAPITAL $30,287,017
___________
Net asset value per Limited Partner's Unit $ 25,000
___________
See Notes to Financial Statements
Page 3
PENFIELD PARTNERS, L.P.
STATEMENT OF OPERATIONS
December 31, 1998
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gains on investments, net $ 149,931
Unrealized gain on investments, net 262,828
___________
Total Realized and Unrealized Investment Gain $ 412,759
INVESTMENT LOSS
Income
Interest 102,881
Dividends 155,594
___________
258,475
Expenses
Administrator's fee 179,557
Independent general partners' fees 20,000
Interest 124,316
Professional fees 68,498
Amortization of organization costs 34,322
Other 17,315
___________
444,008
Investment Loss (185,533)
__________
NET INCOME $ 227,226
__________
See Notes to Financial Statements
Page 4
PENFIELD PARTNERS, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Corporate Individual
General General Limited
Total Partner Partners Partners
___________ __________ ________ ___________
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL
Beginning $22,661,216 $1,563,270 $13,930 $21,084,016
___________ __________ ________ ___________
CHANGES IN CAPITAL FROM
Net Income (loss) 227,226 281,093 (66) (53,801)
___________ __________ ________ ____________
Partners' Transactions
Capital contributions 1,825,000 - - 1,825,000
Capital transfers - (265,447) - 265,447
Capital withdrawals (3,197,474) - - (3,197,474)
___________ __________ ________ ___________
Net Decrease (1,372,474) (265,447) - (1,107,027)
___________ __________ ________ ___________
Total Decrease in
Partners Capital (1,145,248) 15,646 (66) (1,160,828)
___________ __________ ________ ___________
PARTNERS' CAPITAL-
Ending $21,515,968 $1,578,916 $13,864 $19,923,188
___________ __________ ________ ___________
Units Outstanding-
Beginning 906.45 62.53 .56 843.36
___________ __________ ________ ___________
CHANGES IN UNITS
OUTSTANDING FROM
Units Sold 73.00 - - 73.00
Units Transferred - (10.62) - 10.62
Units Adjusted for
Net Income (Loss) 9.09 11.24 - (2.15)
Units Repurchased (127.90) - - (127.90)
___________ __________ ________ __________
Net Increase (45.81) .62 - (46.43)
___________ __________ ________ ___________
Units Outstanding-
Ending 860.64 63.15 .56 796.93
___________ __________ ________ ___________
</TABLE>
See Notes to Financial Statements
Page 5
PENFIELD PARTNERS, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
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
Net Income 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 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 Decrease 184.98 11.80 .10 173.08
________ _______ ______ ________
Units Outstanding-
Ending 906.45 62.53 .56 843.36
________ _______ ______ ________
</TABLE>
See Notes to Financial Statements
Page 6
PENFIELD PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
December 31, 1998
NUMBER FAIR
OF SHARES DESCRIPTION VALUE
COMMON STOCKS 135.87%
DRUGS AND HEALTHCARE 13.75%
100,000 Cardiac Control Systems, Inc. including
17,332 warrants (a) $ 30,000
8,953 Cardiac Control Systems, Inc.,
restricted (a) 2,686
35,000 Jones Medical Industries, Inc. 1,277,500
12,800 Sofamor/Danek Group, Inc. 1,558,400
110,000 Viragen, Inc. 89,375
__________
2,957,961
ELECTRONICS 3.61%
90,000 Barringer Technologies, Inc. 776,250
ENERGY 1.37%
15,000 Chesapeake Energy Corp. 14,062
30,000 Giant Industries, Inc. 281,250
__________
295,312
FINANCIAL SERVICES 16.28%
100,000 Imperial Credit Industries, Inc. 837,500
130,000 MFC Bancorp Ltd. 1,186,250
23,000 Megabank Financial Corp. 218,500
60,000 R & G Financial Corp. 1,260,000
__________
3,502,250
HEALTHCARE SERVICES 5.27%
120,000 Accuhealth, Inc.(a) 120,000
265,689 Accuhealth, Inc. restricted (a) 265,689
40,000 Rehabcare Group, Inc. 747,500
__________
1,133,189
INDUSTRIAL AND MACHINERY .71%
31,760 Transnational Industries, Inc.
restricted (a) 59,550
50,000 Transnational Industries, Inc. 93,750
__________
153,300
See Notes to Financial Statements
Page 7
PENFIELD PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 1998
NUMBER FAIR
OF SHARES DESCRIPTION VALUE
COMMONS STOCKS (CONTINUED)
MANUFACTURING 9.41%
64,500 Blount International, Inc. $1,608,469
50,000 Sun Hydraulics Corp. 415,625
__________
2,024,094
RESTAURANT, LODGING AND ENTERTAINMENT 1.44%
66,000 TCI Music, Inc. 309,375
RETAILING 6.77%
21,093 99 Cents Only Stores 1,036,193
28,100 Deb Shops, Inc. 421,500
__________
1,457,693
SERVICE 17.05%
110,000 Corrections Corp. of America 1,938,750
35,000 Iron Mountain, Inc. 1,262,187
85,000 Nobel Learning Communities, Inc. 467,500
__________
3,668,437
TECHNOLOGY 34.81%
10,000 Centennial Technologies, Inc. 6,000
40,000 Cognex Corp. 800,000
100,000 Cognitronics Corp. 912,500
75,000 Data Transmission Network Corp. 2,165,625
50,000 Genrad, Inc. 787,500
50,000 Helix Technology Corp. 650,000
40,000 Interlinq Software Corp. 350,000
110,000 Mecon Inc. 1,155,000
25,000 Media 100, Inc. 146,875
70,000 Premiere Technologies, Inc. 516,250
__________
7,489,750
TELECOMMUNICATIONS .93%
130,000 Relm Wireless Corp. 199,062
See Notes to Financial Statements
Page 8
PENFIELD PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
NUMBER FAIR
OF SHARES DESCRIPTION VALUE
COMMON STOCKS (CONTINUED)
TRANSPORTATION 21.50%
45,000 Airborne Freight Corp. $ 1,622,807
30,000 Ryanair Holding PLC 1,132,500
62,500 Sea Containers Ltd. 1,871,094
____________
4,626,401
UTILITIES 2.97%
40,000 Northeast Utilities 640,000
____________
TOTAL INVESTMENTS IN SECURITIES
(COST $24,983,221) $29,233,074
____________
(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
December 31, 1998
SECURITIES SOLD SHORT
NUMBER FAIR
OF SHARES DESCRIPTION VALUE
COMMON STOCKS 20.39%
BIOTECH .89%
10,000 Zonagen Inc. $ 191,250
DRUGS AND HEALTHCARE 4.74%
35,000 Chromatics Color Sciences 276,719
10,000 Medtronic Inc. 742,812
__________
1,019,531
ENERGY .77%
8,700 Carbo Ceramics, Inc. 152,250
15,000 Chesapeake Energy Corp. 14,062
__________
166,312
FOOD 1.60%
30,000 Gardenburger, Inc. 345,000
HEALTHCARE SERVICES 2.36%
12,500 Lincare Holdings, Inc. 507,031
MISCELLANEOUS .99%
5,000 Flour Corp. 212,817
RETAILING 2.68%
15,000 Duane Reade, Inc. 577,500
SERVICE 2.07%
20,000 Stewart Enterprises, Inc. 445,000
SHOES AND APPAREL 1.89%
10,000 Nike Inc. 405,625
TECHNOLOGY 2.40%
10,000 Centennial Technologies, Inc. 6,000
15,000 Smart Modular Technologies, Inc. 416,250
15,000 Tera Computer Co. 93,750
__________
516,000
TOTAL SECURITIES SOLD SHORT
(PROCEEDS $4,889,295) $4,386,066
All percentages are relative to Partners' Capital
See Notes to Financial Statements
Page 10
PENFIELD PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 Fund's Agreement of Limited Partnership
("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 has adopted certain policies for its
POLICIES repurchases 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
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.
Page 11
PENFIELD PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
REPURCHASE The Individual General Partners are authorized
POLICIES 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
redeem units semi-annually, subject to the terms
and limitations set forth in the Partnership
Agreement.
On November 16, 1998, the Fund offered to
repurchase up to 25% of the outstanding units of
the Fund. Partners holding 7% of the units
outstanding on December 31, 1998 equal to
$1,600,322 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, 1998 is
$154,450.
Page 12
PENFIELD PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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.
CUSTODY The Partnership maintains a brokerage account with
CONCENTRATIONS ING Baring Furman Selz LLC. The Securities
Investor Protection Corporation (SIPC) insures the
brokerage account to the extent of $500,000
(including up to $100,000 for cash). Amounts in
excess of these limits are covered by additonal
insurance maintained by 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. There were no options held as of
December 31, 1998.
Page 13
PENFIELD PARTNERS, L.P.
Notes to Financial Statements
December 31, 1998
DERIVATIVE Market risk is the potential for changes in the
FINANCIAL value of derivative financial instruments due to
INSTRUMENTS market changes and fluctuations in security
(CONTINUED) prices.
The partnership had trading gains of approximately
$9,900 on options purchased. The average value
of these option contracts for the year was
approximately $10,600.
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. Income
for the six months ended June 30, 1998 was
allocated in accordance with the 20%-80% formula.
For the semi-annual period ended December 31, 1998
the Fund had a net loss of $1,247,044.
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, 1998
RELATED PARTY The accompanying statement of assets and
TRANSACTIONS liabilities includes unpaid fees to the
(CONTINUED) administrator of $42,254.
At December 31, 1998 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 $153,300.
PURCHASES AND Purchases and sales of securities aggregated
SALES OF $65,811,903 and $63,651,985, respectively.
SECURITIES
SUBSEQUENT Effective January 1, 1999 partners' capital
CAPITAL of approximately $1,150,000 was contributed
TRANSACTIONS to the Partnership.
<TABLE>
SELECTED
FINANCIAL
INFORMATION
<CAPTION>
Years Ended
December 31,
_____________________________________
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
Ratio of Total
Expenses to
Average Net Assets 1.85% 1.94% 1.53% 2.18% 1.23%
Ratio of Loss from
Operations to
Average Net Assets (.78)% (.96)% (.48)% (1.12)% (0.48)%
Ratio of Net Income to
Average Net Assets .95 19.28% 10.89% 9.59% 0.65%
Portfolio Turnover
Rate 2.39 2.10 1.82 1.19 1.87
Total Return .68 21.89 13.41% 10.14% .53%
</TABLE>
