SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 January 31, 1999
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
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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 January 31, 1999, there were 40,463 shares of the Registrant's Common
Stock, $.001 par value, outstanding.
805571.3
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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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<CAPTION>
INDEX PAGE NO.
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PART I. FINANCIAL INFORMATION
Item
Financial Statements (Unaudited).
Portfolio of Investments as of January 31, 1999 (Unaudited) and
October 31, 1998.
Statement of Assets and Liabilities as of January 31, 1999
(Unaudited) and October 31, 1998.
Statement of Operations for the three month period ended January 31,
1999 (Unaudited) and the three month period ended January 31, 1998
(Unaudited).
Statement of Changes in Net Assets for the three month period ended
January 31, 1999 (Unaudited) and the three month period ended
January 31, 1998 (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.
SIGNATURES
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ii
805571.3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
UST Private Equity Investors Fund, Inc. Fiscal Year End: October 31, 1999
Portfolio of Investments Quarter Ended: January 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
January 31, 1999 October 31, 1998
----------------------------------- ------------------------------
PORTFOLIO STRUCTURE
- -------------------
<S> <C> <C> <C> <C>
PORTFOLIO COMPANIES $ 20,207,559 53.92% $ 20,245,817 53.41%
PRIVATE FUNDS 10,342,252 27.60% 10,290,156 27.14%
SHORT-TERM INVESTMENTS:
Commercial Paper 4,994,133 13.33% 1,000,000 2.64%
Corporate Bonds 386,534 1.03% 386,917 1.02%
U.S. Government & Agency Obligations 6,001,904 16.02% 11,954,587 31.54%
Investment Companies 1,435,866 3.83% 581,913 4.17%
---------------- ------------ ---------------- ----------
TOTAL INVESTMENTS 43,368,248 115.73% 45,459,390 119.92%
OTHER ASSETS & LIABILITIES (NET) (5,893,870) -15.73% (7,552,198) -19.92%
---------------- ------------ ---------------- ----------
NET ASSETS $ 37,474,378 100.00% $ 37,907,192 100.00%
================ ============ ================ ==========
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805571.3
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<TABLE>
UST Private Equity Investors Fund, Inc. Fiscal Year End: October 31, 1999
Statement of Assets and Liabilities Quarter Ended: January 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ASSETS January 31, 1999 October 31, 1998
- --------------------------------------
<S> <C> <C>
Investment Securities, at Cost $ 43,378,282 $ 47,979,593
================= ================
Investment Securities, at Value 43,368,248 45,459,390
Cash 270,420 603,540
Receivables:
Interest 30,632 29,488
Prepaid Assets 16,058 19,248
----------------- ----------------
TOTAL ASSETS 43,685,358 46,111,846
----------------- ----------------
LIABILITIES
- --------------------------------------
Loan Payable 6,000,000 8,000,000
Payable For Investments Purchased 85,616 --
Managing Investment Advisory Fees Payable 68,548 91,688
Administration & Shareholder Servicing Fees Payable 15,602 15,531
Directors Fees Payable 10,965 30,000
Accrued Expenses and Other Payables 30,249 67,435
----------------- ----------------
TOTAL LIABILITIES 6,210,980 8,204,654
----------------- ----------------
NET ASSETS $ 37,474,378 $ 37,907,192
================= ================
NET ASSETS CONSIST OF
- --------------------------------------
Accumulated Undistributed Net Investment Income $ 351,631 $ 417,716
Accumulated Net Realized Gain(Loss) on Investments (2,636,981) 239,917
Net Unrealized Depreciation of Investments (10,034) (2,520,203)
Allowance for Management Incentive -- --
Par Value 405 405
Paid In Capital in Excess of Par Value 39,769,357 39,769,357
----------------- ----------------
TOTAL NET ASSETS $ 37,474,378 $ 37,907,192
================= ================
Shares of Common Stock Outstanding 40,463 40,463
----------------- ----------------
NET ASSET VALUE PER SHARE $926.14 936.84
================= $ ================
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805571.3
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<TABLE>
UST Private Equity Investors Fund, Inc. Fiscal Year End: October 31, 1999
Statement of Operations Quarter Ended: January 31, 1999
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<CAPTION>
Quarter Ended Quarter Ended
INVESTMENT INCOME January 31, 1999 January 31, 1998
<S> <C> <C>
Interest Income $ 99,699 $ 156,694
------------------ ---------------------
TOTAL INCOME 99,699 156,694
------------------ ---------------------
EXPENSES
Management Investment Advisory Fees 128,877 155,454
Administrative Fees & Shareholder Servicing Fees 15,322 15,178
Custodial Fees 1,893 2,144
Legal Fees 56,094 12,603
Audit and Other Professional Service Fees 6,553 6,553
Directors' Fees and Expenses 10,965 7,562
Shareholder Reports 1,512 1,260
Organization Expenses -- 1,511
Insurance Expense 3,370 3,685
Miscellaneous Expense 150 --
Interest Expense 2,651 13,772
------------------ ---------------------
TOTAL EXPENSES 227,387 219,722
Fees Waived and Reimbursed by Advisor (61,603) (7,716)
------------------ ---------------------
NET EXPENSES 165,784 212,006
------------------ ---------------------
NET INVESTMENT LOSS (66,085) (55,312)
------------------ ---------------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS
Net Realized Gain(Loss) on Security Transactions (2,509,688) 224,690
Change in Unrealized Appreciation/(Depreciation)
on Investments 2,510,169 (3,047,383)
------------------ ---------------------
NET REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS 481 (2,822,693)
Change in Management Incentive Fee 0 (22,469)
------------------ ---------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (65,604) $ (2,900,474)
================== =====================
</TABLE>
805571.3
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<TABLE>
UST Private Equity Investors Fund, Inc. Fiscal Year End: October 31, 1999
Statement of Changes in Net Assets Quarter Ended: January 31, 1999
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<CAPTION>
Quarter Ended Quarter Ended
January 31, 1999 January 31, 1998
OPERATIONS:
<S> <C> <C>
Net Investment Income(Loss) $ (66,085) $ (55,312)
Net Realized Gain(Loss) on Investments (2,509,688) 224,690
Change in Unrealized Appreciation/(Depreciation) on Investments 2,510,169 (3,047,383)
Change in Allowance for Management Incentive Fee 0 (22,469)
--------------------- -----------------
Net Increase/(Decrease) in Net Assets
Resulting From Operations (65,604) (2,900,474)
DISTRIBUTIONS TO SHAREHOLDERS:
From Net Realized Gain on Investments (367,210) (1,883,686)
--------------------- -----------------
NET DECREASE IN NET ASSETS (432,814) (4,784,160)
NET ASSETS:
Beginning of Period 37,907,192 47,179,471
--------------------- -----------------
End of Period $ 37,474,378 $ 42,395,311
===================== =================
</TABLE>
805571.3
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UST Private Equity Investors Funds, Inc. Fiscal Year Ended: October 31, 1999
Notes to Financial Statements Quarter Ended: January 31, 1999
- -------------------------------------------------------------------------------
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 January
31, 1999, excluding short-term investments, for the Company aggregated $767,269
and $316,228, respectively. At January 31, 1999, the Company had outstanding
investment commitments totaling $2,502,553.
805571.3
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Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Results of Operations
- ---------------------
THREE-MONTH PERIOD ENDED JANUARY 31, 1999 AS COMPARED TO THE SIMILAR PERIOD IN
1998
The Company's net asset value per common share was $926.14 at January 31, 1999,
down $10.70 per share from the net asset value per common share of $936.84 at
October 31, 1998. The decrease resulted from the capital gains distribution to
shareholders on December 23, 1998. The Company's net asset value per common
share was $1,047.76 at January 31, 1998, down $118.23 per share from the net
asset value per common share of $1,165.99 at October 31, 1997.
Realized and Unrealized Gains and Losses from Portfolio Investments
- -------------------------------------------------------------------
For the three months ended January 31, 1999 and 1998, the Company had a net
realized gain/(loss) on security transactions of ($2,509,688) and $224,690,
respectively. For the three months ended January 31, 1999 and 1998, the Company
had a net change in unrealized appreciation/(depreciation) on investments of
$2,510,169 and ($3,047,383), respectively. The realized loss and unrealized gain
were primarily the result of the write-off of the Company's investment in P2
Holdings Corp. in the quarter.
Investment Income and Expenses
- ------------------------------
For the three months ended January 31, 1999, the Company had interest income of
$99,699 and net operating expenses of $165,784 resulting in net investment loss
of $66,085 as compared to interest income of $156,694 and net operating expenses
of $212,006, resulting in net investment loss of $55,312 for the quarter ended
January 31, 1998. The primary reason for the decline in interest income was the
decline of assets invested in short-term instruments and an 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 January 31, 1999 and 1998, the
Managing Investment Adviser earned $128,877 and $155,454 in management fees,
respectively. In addition, for the quarters ended January 31, 1999 and 1998, the
change in allowance for the Management Incentive Fee was $0 and ($22,469),
respectively. For the same periods, the Managing Investment Adviser reimbursed
other operating expenses of the Company in the amount of $61,603 and $7,716,
respectively, as a result of expenses incurred in excess of those permitted
pursuant to the Company's Prospectus.
Net Assets
- ----------
At January 31, 1999, the Company's net assets were $37,474,378, a decrease of
$432,814 from net assets of $37,907,192 at October 31, 1998. The Company's net
assets at January 31, 1998 were $42,395,311, down $4,784,160 from net assets of
$47,179,471 at October 31, 1997.
805571.3
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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.
During the quarter ended January 31, 1999, the Company made a follow-on
investment in Best Friends Pet Care Inc.
At January 31, 1999, the Company held $270,420 in cash and $43,368,248 in
investments as compared to $603,540 in cash and $45,459,390 in investments at
October 31, 1998. These changes from October 31, 1998 were primarily the result
of the Company's investment activities for the quarter ended January 31, 1999.
In connection with the Company's commitments to private funds in the amount of
$12,000,000 since inception, a total of $9,609,926 representing capital calls,
has been paid by the Company through January 31, 1999.
On December 23, 1998, the Company distributed $367,210 in capital gains to
shareholders of record as of December 18, 1998.
Other
- -----
Year 2000:
- ---------
Like other investment companies, financial and business organizations and
individuals around the world, the Company could be affected adversely if the
computer systems used by the Investment Adviser and the Company's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." Based on the Company's current assessment, the costs of addressing
potential problems are not currently expected to have a material adverse impact
on the Company's financial position, results of operations or cash flows in
future periods. The Investment Adviser and the Company's other service providers
have informed the Company that they are taking steps to address the Year 2000
Problem with respect to the computer systems that they use. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Company as a result of the Year 2000 Problem.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Equity Price Risk:
- -----------------
The majority of the Company's investment portfolio consists of equity
securities in private companies and private investment funds which are not
publicly traded. These investments are recorded at fair value as determined by
the Investment Adviser in accordance with valuation guidelines adopted by the
Board of Directors. This method of valuation does not result in increases or
decreases in the fair value of these equity securities in response to changes in
market prices. Thus, these equity securities are not subject to equity price
risk. Nevertheless, the Company is exposed to equity price risk through its
investment in the equity securities of one public company. At October 31, 1998,
these publicly traded equity securities were valued at $1,715,401. Thus, there
is exposure to equity price risk, which is estimated as the potential loss in
fair value due to a hypothetical 10% decrease in quoted market prices,
805571.3
<PAGE>
and would result in a decrease of approximately $171,540 in the value of these
securities. Actual results may differ.
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.
Item 4. Submission of Matters to a Vote of Securityholders.
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 January 31, 1999:
None.
805571.3
<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: March 5, 1999 /s/ David I. Fann
-------------------------------------------
By: David I. Fann
President and Principal Executive Officer
Date: March 5, 1999 /s/ Brian Schmidt
-------------------------------------------
By: Brian Schmidt
Treasurer and Principal Financial and
Accounting Officer
805571.3
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<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM EXCELSIOR
PRIVATE EQUITY FUND II, INC.'S FORM 10-Q FOR THE PERIOD ENDED JANUARY
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000930454
<NAME> UST PRIVATE EQUITY INVESTORS FUND, INC.
<MULTIPLIER> 1000
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