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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999 or
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file numbers 0-23205 and 814-00155
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Walnut Funds, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 54-1842863
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
c/o Walnut Financial Services, Inc.
8000 Towers Crescent Drive, Suite 1070
Vienna, Virginia 22182
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(Address of Principal Executive Offices) (Zip Code)
(703) 448-3771
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of August 13, 1999, the Registrant had 1,000 shares of common stock,
$.01 par value per share, issued and outstanding.
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WALNUT FUNDS, INC.
INDEX TO FORM 10-Q
JUNE 30, 1999
<TABLE>
<CAPTION>
Page Number
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<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Statements of Assets and Liabilities as of June 30, 1999 and December 31, 1998 3
Investments in Securities as of June 30, 1999 4
Statements of Operations for the Six Months and Three Months ended June 30, 1999 and 1998 5
Statements of Changes in Net Assets for the Six Months ended June 30, 1999 and 1998 6
Statements of Cash Flows for the Six Months ended June 30, 1999 and 1998 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Item 1. Legal Proceedings 10
Item 6. Exhibits Required by Item 601 and Reports on Form 8-K 10
Signatures 11
Exhibit 12
Exhibit 27.1
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS
WALNUT FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
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<S> <C> <C>
Assets:
Investments at Market or Fair Value:
Total portfolio securities 0 0
Cash and cash equivalents 10 10
Other assets 0 0
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Total assets 10 10
Liabilities:
Accounts payable, accrued expenses and other current liabilities 0 0
Deferred Tax Liability 0 0
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Net assets $10 $10
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Common stock, $.01 par value, 1,000 shares authorized, 1,000 and
1,000 issued and outstanding $10 $10
Additional paid in capital 0 0
Accumulated deficit:
Net unrealized depreciation of investments 0 0
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Net assets applicable to outstanding common shares (equivalent to $0.01
and $0.01 per share based on 1,000 and 1,000 outstanding common shares at
June 30, 1999 and December 31, 1998, respectively) $10 $10
======= ========
</TABLE>
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WALNUT FUNDS, INC.
INVESTMENTS IN SECURITIES
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
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<S> <C>
Partnership interest - 100%
WGP Management, Inc. (wholly-owned subsidiary) 0
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Total partnership interests (cost $0) 0
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Total - 100% (cost $0) $ 0
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</TABLE>
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WALNUT FUNDS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, JUNE 30,
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Investment Income:
Interest Income 0 0 0 0
Dividend Income 0 0 0 0
------ ------ ------ ------
Total income 0 0 0 0
Expenses:
Interest expense 0 0 0 0
General and administrative 0 0 0 0
------ ------ ------ ------
Net investment (loss) before taxes 0 0 0 0
Income tax benefit 0 0 0 0
------ ------ ------ ------
Net investment (loss) 0 0 0 0
------ ------ ------ ------
Realized and unrealized gains on investments:
Realized gain on sale of investments
before income tax 0 0 0 0
Income tax provision 0 0 0 0
------ ------ ------ ------
Net realized gain on sale of investments 0 0 0 0
------ ------ ------ ------
Unrealized (depreciation) on
investments before income tax 0 0 0 0
Income tax benefit 0 0 0 0
------ ------ ------ ------
Net unrealized (depreciation) on
investments 0 0 0 0
------ ------ ------ ------
Net realized and unrealized gains
(losses) on investments 0 0 0 0
Net increase (decrease) in net assets
resulting from operations $ 0 $ 0 $ 0 $ 0
====== ====== ====== ======
Loss per share - basic and diluted $ 0.00 $ 0.00 $ 0.00 $ 0.00
====== ====== ====== ======
Weighted average shares outstanding 1,000 1,000 1,000 1,000
====== ====== ====== ======
</TABLE>
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WALNUT FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
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<S> <C> <C>
Decrease in net assets resulting from operations:
Net investment loss $ 0 $ 0
Net realized gains on investments 0 0
Net unrealized depreciation on investments 0 0
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Total increase (decrease) in net assets 0 0
------ -----
Net assets at beginning of period 0 0
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Net assets at end of period $ 0 $ 0
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</TABLE>
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WALNUT FUNDS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net decrease in net assets resulting from operations $0 $0
Adjustments to reconcile net increase (decrease) in net assets
resulting from operations to net cash provided by operating
activities:
Net unrealized depreciation of investments 0 0
Net realized gain on investments 0
Change in net deferred tax liability 0 0
Changes in assets and liabilities:
Other assets 0 0
Other liabilities 0 0
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Net cash used in operating activities 0 0
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Cash flows from investing activities:
Net cash provided by investing activities 0 0
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Cash flows from financing activities:
Net cash (used in) provided by financing activities 0 0
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Net increase (decrease) in cash and cash equivalents 0 0
Cash and cash equivalents, beginning 0 0
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Cash and cash equivalents, end $0 $0
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Supplemental Information:
Cash paid for interest $0 $0
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</TABLE>
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WALNUT FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS\
1. BASIS OF PREPARATION.
The accompanying financial statements as of June 30, 1999 are
unaudited; however, in the opinion of the management of Walnut Funds, Inc., a
Delaware corporation (the "Company"), such statements include all adjustments
(consisting of normal recurring accruals) necessary to present a fair statement
of the information presented therein.
Pursuant to accounting requirements of the Securities and Exchange
Commission ("SEC") applicable to quarterly reports on Form 10-Q, the
accompanying financial statements and these notes do not include all disclosures
required by generally accepted accounting principles for audited financial
statements. Accordingly, these statements should be read in conjunction with the
most recent audited consolidated financial statements included in the Form 10-K,
filed by Walnut Financial Services Inc., a Utah corporation (the "Parent
Company"), for the fiscal year ended December 31, 1998, in which the financial
statements of the Company are considered.
Results of operations for interim periods are not necessarily
indicative of those to be achieved for fiscal years.
The Company has determined it is required to present its financial
statements in accordance with generally accepted accounting principles and SEC
regulations in the format applicable to investment companies, which generally
means that investments are reported at fair market value rather than cost.
2. ORGANIZATION.
The Company is a wholly-owned subsidiary of the Parent Company. The
Parent Company is a closed-end management investment company, which elected on
October 15, 1997 to be regulated as a Business Development Company ("BDC") under
the Investment Company Act of 1940, as amended (the "Investment Company Act").
As a result of the technical nature of the Investment Company Act, the Company
and the Parent Company's other then wholly-owned subsidiaries (collectively, the
"Other Subsidiaries"), Walnut Capital Corp., a Delaware corporation, and
Universal Bridge Fund, Inc., a Delaware corporation, also elected to be
regulated as BDCs and registered as reporting companies under the Securities
Exchange Act of 1934, as amended (the "Securities Exchange Act").
Notwithstanding their registration under the Securities Exchange Act, the
Company and the Other Subsidiaries did not begin filing the periodic reports and
other information required by the Securities Exchange Act in reliance upon a
no-action letter (the "No-Action Letter") received from the staff of the SEC. In
the No-Action Letter, the SEC staff indicated that it would take no action
against the Company and the Other Subsidiaries for failing to file information
required by the Securities Exchange Act in order to permit the Company, the
Parent Company and the Other Subsidiaries to avoid the significant expense and
administrative burden of such filings while applying to the SEC to permit the
Company and the Other Subsidiaries not to file such reports. The SEC staff's
position taken in the No-Action Letter has expired by its terms and the
application of the Company, the Other Subsidiaries and the Parent Company has
not been approved by the SEC. The Company and the Other Subsidiaries have not
asked the SEC staff to renew its position in the No-Action Letter. Therefore,
this Quarterly Report on Form 10-Q is the first periodic report that the Company
has filed under the Exchange Act.
The Company owns a 100% interest in the sole general partner of Walnut
Growth Partners Limited Partnership, an Illinois limited partnership ("Walnut
Growth"), and in an entity, WGP Management ("WGPM"), that provides investment
management and other services to the general partner of Walnut
<PAGE> 9
Growth in consideration for management fees. Prior to June 1998, Walnut Funds
owned a 40% interest in the 1% sole general partner of Walnut Growth and a 40%
interest in WGPM.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
NET INCOME (LOSS) PER SHARE. Net income (loss) per share is computed
based on the weighted-average number of shares outstanding for each period.
Common stock equivalents have been considered where they are not anti-dilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained in this Quarterly Report on Form 10-Q
which are not historical facts are forward-looking statements that are subject
to risks and uncertainties that could cause actual results to differ materially
from those set forth in or implied by such forward-looking statements.
RESULTS OF OPERATIONS
The Company's sole business is owning interests in the general partner
of Walnut Growth and WGPM, an entity providing investment management and other
services to Walnut Growth. Walnut Growth is a $30 million investment fund which
has made investments in the past. However, Walnut Growth did not make any
investments in 1998, has not made any investments in 1999, and the Company does
not expect Walnut Growth to make any future investments. During the period that
Walnut Growth has not made any investments, the Company has not collected any
management or other fees through WGPM. The Company's business has not generated
any cash flow during this period nor has it required the Company to utilize any
funds.
INVESTMENT PORTFOLIO CHANGES.
The Company had no equity investments activity during the six months ended June
30, 1999.
YEAR 2000 COMPLIANCE.
The year 2000 creates the potential for date related data to cause
computer processing errors or system shut-downs because computer-controlled
systems have historically used two digits rather than four to define years.
Computer programs that contain time data sensitive software may recognize a date
using two digits of "00" as the year 1900 rather than the year 2000. The
miscalculations and systems failures that may be caused by such date
misrecognition could disrupt the operations of the Company or its portfolio
companies. Since this risk relates to computer-controlled systems, the year 2000
issue affects computer software, computer hardware, and any other equipment with
imbedded technology that involves date sensitive functions. Because The Company
keeps its records with software and hardware owned by the Parent Company, the
Company will be affected by the Year 2000 issue only if the parent Company is
not Year 2000 compliant.
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently involved as plaintiff or defendant in any
material legal actions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 - Financial Data Schedule
(b) No Current Reports on Form 8-K have been filed during the quarter for
which this Quarterly Report on Form 10-Q is being filed.
<PAGE> 11
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WALNUT FUNDS
(Registrant)
Date: August 13, 1999 /s/ Joel S. Kanter
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Joel S. Kanter
President (Principal Executive Officer)
Date: August 13, 1999 /s/ Robert F. Mauer
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Robert F. Mauer
Treasurer (Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
3.1 Articles of Incorporation of Walnut Funds, Inc., as amended [3.1](1)
3.2 Bylaws of Walnut Funds, Inc. [3.2](1)
27.1 Financial Data Schedule
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[ ] Exhibits so marked have been previously filed with the SEC as exhibits to
the filings shown below under the exhibit numbers indicated following the
respective document description and are incorporated herein by reference.
(1) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form 8-A dated October 8, 1997 as filed with the SEC on October 14,
1997.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 10
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,000
<SHARES-COMMON-PRIOR> 1,000
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<EXPENSE-RATIO> 0
</TABLE>
