SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to ______
Commission File Number 0-24856
------------------------------------
UST PRIVATE EQUITY INVESTORS FUND, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 13-3786385
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
114 West 47th Street
New York, NY 10036-1532
(Address of principal executive offices, including zip code)
(212) 852-1000
(Telephone number, including area code)
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 |_|
As of July 31, 1998, there were 40,463 shares of the Registrant's Common
Stock, $.001 par value, outstanding.
748372.2
<PAGE>
UST PRIVATE EQUITY INVESTORS FUND, INC.
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. They involve known and unknown risks
and uncertainties that may cause the Company's actual results to differ from
future performance suggested herein. In the context of forward-looking
information provided in this Form 10-Q and in other reports, please refer to the
discussion of risk factors detailed in, as well as the other information
contained in, the Company's filings with the Securities and Exchange Commission
during the past 12 months.
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INDEX PAGE NO.
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited).
Portfolio of Investments as of July 31, 1998 (Unaudited) and
October 31, 1997.
Statement of Assets and Liabilities as of July 31, 1998
(Unaudited) and October 31, 1997.
Statement of Operations for the three month period ended July 31,
1998 (Unaudited), the fiscal year to date at July 31, 1998
(Unaudited), the three month period ended July 31, 1997
(Unaudited) and the prior fiscal year to date at July 31, 1997
(Unaudited).
Statement of Changes in Net Assets for the three month period
ended July 31, 1998 (Unaudited), the fiscal year to date at July
31, 1998 (Unaudited), the three month period ended July 31, 1997
(Unaudited) and the prior fiscal year to date at July 31, 1997
(Unaudited).
Notes to Financial Statements (Unaudited).
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Securityholders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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SIGNATURES
748372.2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
UST Private Equity Investors Fund, Inc. Fiscal Year End: October 31, 1998
Portfolio of Investments Quarter Ended: July 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
July 31, 1998 October 31, 1997
(Unaudited)
--------------------------------- --------------------------------
<S> <C> <C> <C> <C>
PORTFOLIO STRUCTURE
PORTFOLIO COMPANIES $ 23,989,527 58.76% $ 30,123,439 63.85%
PRIVATE FUNDS 8,968,861 21.97% 5,312,037 11.26%
SHORT-TERM INVESTMENTS:
Commercial Paper 4,806,467 11.77% 4,497,794 9.54%
Corporate Bonds 609,873 1.49% 1,986,001 4.20%
U.S. Government & Agency 10,503,217 25.72% 4,049,484 8.58%
Obligations
Investment Companies 255,176 0.63% 1,047,435 2.22%
Demand Notes -- --
---------------- ------------- ------------------ ----------
TOTAL INVESTMENTS 49,133,121 120.34% 47,016,190 99.65%
OTHER ASSETS & LIABILITIES (NET) (8,305,019) (-20.34%) 163,281 0.35%
---------------- ------------- ------------------ ----------
NET ASSETS $ 40,828,102 100.00% $ 47,179,471 100.00%
================ ============= ================== ==========
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748372.2
<PAGE>
<TABLE>
UST Private Equity Investors Fund, Inc. Fiscal Year End: October 31, 1998
Statement of Assets and Liabilities Quarter Ended: July 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
ASSETS July 31, 1998 October 31, 1997
- --------------------------------------------------------------------
(Unaudited)
Investment Securities, at Cost $ 50,703,524 $ 41,829,598
================== ======================
Investment Securities, at Value 49,133,121 47,016,190
Cash 1,901,327 --
Receivables:
Interest 53,164 207,725
For Investments Sold -- 348,462
Prepaid Assets 28,196 37,024
Unamortized Organization Costs -- 16,490
------------------ ----------------------
TOTAL ASSETS 51,115,808 47,625,891
----------------- ----------------------
LIABILITIES
- --------------------------------------------------------------------
Loan Payable 10,000,000 --
Payable For Investments Purchased 100,000 --
Managing Investment Advisory Fees Payable 106,029 258,424
Administration & Shareholder Servicing Fees Payable 15,672 15,330
Directors Fees Payable 22,438 30,000
Accrued Expenses and Other Payables 43,567 142,666
------------------ ----------------------
TOTAL LIABILITIES 10,287,706 446,420
------------------ ----------------------
NET ASSETS $ 40,828,102 $ 47,179,471
================== ======================
NET ASSETS CONSIST OF
- --------------------------------------------------------------------
Accumulated Undistributed Net Investment Income $ 121,429 $ 229,824
Accumulated Net Realized Gain on Investments 2,158,967 1,767,041
Net Unrealized Appreciation/(Depreciation) of Investments (1,570,403) 5,186,592
Allowance for Management Incentive -- (122,095)
Par Value 405 405
Paid In Capital in Excess of Par Value 40,117,704 40,117,704
------------------ ----------------------
TOTAL NET ASSETS $ 40,828,102 $ 47,179,471
================== ======================
Shares of Common Stock Outstanding 40,463 40,463
------------------ ----------------------
NET ASSET VALUE PER SHARE $ 1,009.02 $ 1,165.99
================= ======================
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748372.2
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<TABLE>
UST Private Equity Investors Fund, Inc. Fiscal Year End: October 31, 1998
Statement of Operations (Unaudited) Quarter Ended: July 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Fiscal Prior Fiscal
Quarter Ended Year To Date Quarter Ended Year To Date
July 31, 1998 July 31, 1998 July 31, 1997 July 31, 1997
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Interest Income $ 102,933 $ 467,991 $ 191,471 $ 797,416
----------------- ------------------ ----------------- -----------------
Dividend Income -- -- 120,606 120,606
----------------- ------------------ ----------------- -----------------
TOTAL INCOME 102,933 467,991 312,077 918,022
----------------- ------------------ ----------------- -----------------
EXPENSES
Management Investment Advisory Fees 127,070 433,055 158,862 421,670
Administrative Fees & Shareholder Servicing Fees 15,179 45,041 15,169 45,011
Custodial Fees 2,061 6,348 2,274 6,483
Legal Fees 17,602 42,397 22,388 81,223
Audit and Other Professional Service Fees 6,553 19,446 7,033 20,767
Directors' Fees and Expenses 7,562 22,438 7,562 22,438
Shareholder Reports 1,260 3,740 -- 5,951
Organization Expenses 0 16,490 1,511 4,483
Insurance Expense 3,370 10,315 18,954 56,246
Interest Expense* 415 28,104 -- --
----------------- ------------------ ----------------- -----------------
TOTAL EXPENSES 181,072 627,374 233,753 664,272
Fees Waived and Reimbursed by Advisor (21,857) (50,988) (32,047) (133,577)
----------------- ------------------ ----------------- -----------------
NET EXPENSES 159,215 576,386 201,706 530,695
----------------- ------------------ ----------------- -----------------
NET INVESTMENT INCOME (LOSS) $ (56,282) $ (108,395) $ 110,371 $ 387,327
----------------- ------------------ ----------------- -----------------
REALIZED AND UNREALIZED GAIN/( LOSS)
ON INVESTMENTS
Net Realized Gain (Loss) on Security Transactions $ 1,283,340 $ 2,275,612 $ 1,127,119 $ 1,115,071
Net Change in Unrealized Appreciation /
(Depreciation) on Investments
(4,727,150) (6,756,995) 794,231 2,438,897
------------------------ ----------------- ------------------ ------------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
(3,443,810) (4,481,383) 1,921,350 3,553,968
Change in Management Incentive Fee 144,779 122,095 (113,688) (112,484)
----------------- ------------------ ----------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS
$ (3,355,313) $ (4,467,683) $ 1,918,033 $ 3,828,811
======================== ================= ================== ==============
</TABLE>
748372.2
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<TABLE>
UST Private Equity Investors Fund, Inc. Fiscal Year End: October 31, 1998
Statement of Changes in Net Assets (Unaudited) Quarter Ended: July 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Fiscal Prior Fiscal
Quarter Ended Year To Date Quarter Ended Year To Date
July 31, 1998 July 31, 1998 July 31, 1997 July 31, 1997
OPERATIONS:
Net Investment Income (Loss) $ (56,282) $ (108,395) $ 110,371 $ 387,327
Net Realized Gain (Loss) on Investments 1,283,340 2,275,612 1,127,119 1,115,071
Net Change in Unrealized Appreciation /
(Depreciation) on Investments (4,727,150) (6,756,995) 794,231 2,438,897
Change in Allowance for Management Incentive Fee 144,779 122,095 (113,688) (112,484)
--------------- ----------------- -------------- -------------------
Net Increase (Decrease) in Net Assets
Resulting From Operations (3,355,313) (4,467,683) 1,918,033 3,828,811
DISTRIBUTIONS TO SHAREHOLDERS:
From Net Investment Income -- -- -- (1,429,792)
From Net Realized Gain on Investments -- (1,883,686) -- (43,640)
--------------- ----------------- -------------- -------------------
NET INCREASE (DECREASE) IN NET ASSETS (3,355,313) (6,351,369) 1,918,033 2,355,379
NET ASSETS:
Beginning of Period 44,183,415 47,179,471 43,156,966 42,719,620
--------------- ----------------- -------------- -------------------
End of Period $ 40,828,102 $ 40,828,102 $ 45,074,999 $ 45,074,999
=============== ================= ============== ===================
</TABLE>
748372.2
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UST Private Equity Investors Fund, Inc. Fiscal Year End: October 31, 1998
Notes to Financial Statements Quarter Ended: July 31, 1998
- -------------------------------------------------------------------------------
1. Significant Accounting Policies
UST Private Equity Investors Fund, Inc. (the "Company") was
incorporated under the laws of the State of Maryland on September 16, 1994 and
is registered under the Securities Act of 1933, as amended, as a
non-diversified, closed-end management investment company which has elected to
be treated as a business development company under the Investment Company Act of
1940, as amended. The Company commenced operations on August 1, 1995.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Reference is made to the Company's
annual report included in Form 10-K as filed with the Securities and Exchange
Commission for the Notes to the Financial Statements that remain unchanged.
The following is a summary of the Company's significant accounting
policies.
(a) Portfolio valuation:
The Company values portfolio securities quarterly and at other such
times as, in the Board of Directors' view, circumstances warrant. Investments in
unrestricted securities that are traded on a recognized stock exchange or on the
national securities market are valued at the last sale price for such securities
on the valuation date. Short-term debt instruments with remaining maturities of
60 days or less are valued at amortized cost, which approximates market value.
Securities and other assets for which market quotations are not readily
available or that are restricted are valued, pursuant to guidelines adopted by
the Investment Advisor, under the supervision of the Board of Directors.
(b) Federal income taxes:
It is the policy of the Company to continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code and
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income or excise tax provision is required.
2. Purchases and Sales of Securities
Purchase and sales of securities for the three month period ended July
31, 1998, excluding short-term investments, for the Company aggregated
$1,728,414 and $1,369,854, respectively. At July 31, 1998, the Company had
outstanding investment commitments totaling $4,378,324.
748372.2
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Results of Operations
THREE-MONTH PERIOD ENDED JULY 31, 1998 AS COMPARED TO THE SIMILAR PERIOD IN 1997
The Company's net asset value per common share was $1,009.02 at July 31, 1998,
down $82.93 per share from the net asset value per common share of $1,091.95 at
April 30, 1998. This decrease is principally the result of a significant decline
in the price of Corsair Communications. The Company's net asset value per common
share was $1,113.98 at July 31, 1997, up $47.40 per share from the net asset
value per common share of $1,066.58 at April 30, 1997.
Realized and Unrealized Gains and Losses from Portfolio Investments
For the three months ended July 31, 1998 and 1997, the Company had a net
realized gain/(loss) from investments of $1,283,340 and $1,127,119,
respectively. For the three months ended July 31, 1998 and 1997, the Company had
a net change in unrealized appreciation/(depreciation) on investments of
$(4,727,150) and $794,231, respectively. The realized gains were primarily the
result of the sale of Cisco Systems Inc. The unrealized loss resulted primarily
from the decline in the price of Corsair Communications
Investment Income and Expenses
For the three months ended July 31, 1998, the Company had total income of
$102,933 and net operating expenses of $159,215 resulting in net investment
income/(loss) of $(56,282) as compared to total income of $312,077, and net
operating expenses of $201,706, resulting in net investment income of $110,371
for the quarter ended July 31, 1997. The primary reason for the decline in total
income was the decline of assets invested in short-term instruments and increase
in assets invested in private companies and private funds.
United States Trust Company of New York (the "Managing Investment Adviser")
provides investment management and administrative services required for the
operation of the Company. In consideration of the services rendered by the
Managing Investment Adviser, the Company pays a management fee based upon a
percentage of the net assets of the Company invested or committed to be invested
in certain types of investments and an incentive fee based in part on a
percentage of realized capital gains of the Company. Such fee is determined and
payable quarterly. For the quarters ended July 31, 1998 and 1997, the Managing
Investment Adviser earned $127,070 and $158,862 in management fees,
respectively. In addition, for the quarters ended July 31, 1998 and 1997, the
change in allowance for the Management Incentive Fee was $144,779 and
$(113,688), respectively. For the same periods, the Managing Investment Adviser
reimbursed other operating expenses of the Company in the amount of $(21,857)
and $(32,047), respectively, as a result of expenses incurred in excess of those
permitted pursuant to the Company's Prospectus.
Net Assets
At July 31, 1998, the Company's net assets were $40,828,102, a decrease of
$3,355,313 from net assets of $44,183,415 at April 30, 1998. The Company's net
assets at July 31, 1997 were $45,074,999, up $1,918,033 from net assets of
$43,156,966 at April 30, 1997.
Liquidity and Capital Resources
The Company focuses its investments in the private equity securities of
later-stage venture capital companies and middle-market companies which the
Company believes offer significant long-term capital appreciation. The Company
may offer managerial assistance to certain of these companies. The Company
invests its available cash in short-term investments of marketable securities to
provide the liquidity necessary to make portfolio investments as investment
opportunities arise. At July 31, 1998, the Company held $1,901,327 in cash and
$49,133,121 in investments. At July 31, 1998, investments included $23,989,527
in portfolio companies, $8,968,861 in private funds, $4,806,467 in commercial
paper, $609,873
748372.2
<PAGE>
in corporate bonds, $10,503,217 in U.S. Government and agency obligations, and
$255,176 in investment companies. At October 31, 1997, the Company held $0 in
cash and $47,016,190 in investments. At October 31, 1997, investments included
$30,123,439 in portfolio companies, $5,312,037 in private funds, $4,497,794 in
commercial paper, $1,986,001 in corporate bonds, $4,049,484 in U.S. Government
and agency obligations and $1,047,435 in investment companies. These changes
were primarily the result of the investment activity discussed above.
In connection with the Company's commitments to private funds in the amount of
$12,000,000 since inception, a total of $7,734,155, representing capital calls,
has been paid by the Company through July 31, 1998.
On December 23, 1997, the Company distributed $1,883,686 in capital gains to
shareholders of record as of December 18, 1997.
Other
In 1996, the Managing Investment Adviser established a Year 2000 Committee with
responsibility for developing an effective plan for identifying, renovating,
testing and implementing solutions for Year 2000 processing. The Managing
Investment Adviser is working with Chase Global Fund Services (as administrator
to the Company and as provider of certain of the Managing Investment Adviser's
most significant data processing systems), as well as other vendors, to ensure
compliance with required systems changes. The Managing Investment Adviser
presently believes that with modifications to existing software and compliance,
by vendors who provide significant processing systems to the Managing Investment
Adviser, the Managing Investment Adviser's systems will continue without
disruption. However, if such modifications are not made, or are not completed
timely, the Year 2000 issue could have a material impact on the operations of
the Managing Investment Adviser, and consequently, the Company. Specific factors
that might cause such a material impact include, but are not limited to the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties. The Managing
Investment Adviser's Year 2000 plan anticipates that software code remediation
and testing of all critical systems will be substantively completed by the end
of 1998. The Managing Investment Advisers's total Year 2000 project costs and
its estimated time frame to complete are based on presently available
information. However, there can be no guarantee that the systems of other
companies, on which the Managing Investment Adviser's systems rely, will be
converted timely, or that a failure to convert by another company would not have
a material adverse effect on the Managing Investment Adviser or the Company.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
Part II. Other Information
Item 1. Legal Proceedings.
There are no legal proceedings pending or, to the Company's best
knowledge, threatened against the Company.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
748372.2
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No.
(27) Financial Date Schedule (for EDGAR filing
purposes only).
(a) The following reports on Form 8-K were filed
during the quarter ended July 31, 1998:
None.
748372.2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UST PRIVATE EQUITY INVESTORS FUND, INC.
Date: September 9, 1998 __________________________________________
By: David I. Fann
President and Principal Executive Officer
Date: September 9, 1998 _________________________________________
By: Brian Schmidt
Chief Financial Officer
748372.2
<PAGE>
CONFORMED SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UST PRIVATE EQUITY INVESTORS FUND, INC.
Date: September 9, 1998 /s/ David I. Fann
------------------------------------------
By: David I. Fann
President and Principal Executive Officer
Date: September 9, 1998 /s/ Brian Schmidt
-------------------------------------------
By: Brian Schmidt
Chief Financial Officer
748372.2
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION FROM UST PRIVATE EQUITY INVESTORS
FUND, INC.'S FORM 10-Q FOR THE PERIOD ENDED JULY
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<CIK> 0000930454
<NAME> UST PRIVATE EQUITY INVESTORS FUND, INC.
<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL YEAR-END> OCT-31-1998
<PERIOD-START> NOV-1-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 50,704
<INVESTMENTS-AT-VALUE> 49,133
<RECEIVABLES> 53
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,930
<TOTAL-ASSETS> 51,116
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 10,288
<TOTAL LIABILITIES> 10,288
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,118
<SHARES-COMMON-STOCK> 40
<SHARES-COMMON-PRIOR> 40
<ACCUMULATED-NII-CURRENT> 121
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<ACCUM-APPREC-OR-DEPREC> (1,570)
<NET ASSETS> 40,828
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<REALIZED-GAINS-CURRENT> 2,398
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</TABLE>
