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 January 31, 2000
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 January 31, 2000, there were 40,463 shares of the Registrant's
Common Stock, $.001 par value, outstanding.
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.
INDEX PAGE NO.
----- --------
PART I. FINANCIAL INFORMATION 1
Item 1. Financial Statements (Unaudited). 1
Portfolio of Investments as of January 31, 2000
(Unaudited) and October 31, 1999. 1
Statement of Assets and Liabilities as of
January 31, 2000 (Unaudited) and October 31, 1999. 2
Statement of Operations for the three month period ended
January 31, 2000 (Unaudited), the fiscal year to date
January 31, 2000 (Unaudited), the three month period ended
January 31, 1999 (Unaudited) and the fiscal year to date
January 31, 1999 (Unaudited). 3
Statement of Changes in Net Assets for the three month
period ended January 31, 2000 (Unaudited), the fiscal year
to date January 31, 2000 (Unaudited), the three month
period ended January 31, 1999 (Unaudited), and the fiscal
year to date January 31, 1999 (Unaudited). 4
Notes to Financial Statements (Unaudited). 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 7
PART II. OTHER INFORMATION 8
Item 1. Legal Proceedings. 8
Item 2. Changes in Securities. 8
Item 3. Defaults upon Senior Securities. 8
Item 4. Submission of Matters to a Vote of Securityholders. 8
Item 5. Other Information. 8
Item 6. Exhibits and Reports on Form 8-K. 8
SIGNATURES
-i-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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<CAPTION>
UST PRIVATE EQUITY INVESTORS FUND, INC. FISCAL YEAR END: OCTOBER 31, 2000
PORTFOLIO OF INVESTMENTS QUARTER ENDED: JANUARY 31, 2000
- --------------------------------------------------------------------------------------------------------------------
JANUARY 31, 2000 OCTOBER 31, 1999
---------------------------------- --------------------------------
PORTFOLIO STRUCTURE
- -------------------
<S> <C> <C> <C> <C>
PORTFOLIO COMPANIES $ 14,730,275 30.93% $ 18,734,542 46.49%
PRIVATE FUNDS 23,410,413 49.15% 13,865,235 34.41%
SHORT-TERM INVESTMENTS:
COMMERCIAL PAPER 6,999,832 14.70% 4,971,281 12.34%
U.S. GOVERNMENT & AGENCY OBLIGATIONS 10,970,033 23.03% 7,997,462 19.85%
INVESTMENT COMPANIES 3,171,754 6.66% 1,636,176 4.06%
------------------ ------------- ----------------- -----------
TOTAL INVESTMENTS 59,282,307 124.47% 47,204,696 117.15%
OTHER ASSETS & LIABILITIES (NET) (11,656,184) -24.47% (6,909,427) -17.15%
------------------ ------------- ----------------- -----------
NET ASSETS $ 47,626,123 100.00% $ 40,295,269 100.00%
================== ============= ================= ===========
</TABLE>
-1-
<TABLE>
<CAPTION>
UST PRIVATE EQUITY INVESTORS FUND, INC. FISCAL YEAR END: OCTOBER 31, 2000
STATEMENT OF ASSETS AND LIABILITIES QUARTER ENDED: JANUARY 31, 2000
- ----------------------------------------------------------------------------------------------------------------------------
JANUARY 31, 2000 OCTOBER 31, 1999
--------------------- ---------------------
ASSETS
- ------
<S> <C> <C>
Investment Securities, at Cost $ 48,880,060 $ 44,055,089
==================== =====================
Investment Securities, at Value 59,282,307 47,204,696
Cash 267,450 4,993
Receivables:
Interest 147,775 110,457
For Investments Sold 150,000 436,770
Prepaid Assets 5,982 8,522
-------------------- ---------------------
TOTAL ASSETS 59,853,514 47,765,438
-------------------- ---------------------
LIABILITIES
- -------------------------------------------
Loan Payable 11,000,000 7,000,000
Investment Advisory Fees Payable 129,050 128,136
Deferred Incentive Fee Payable 1,040,225 227,752
Administration & Shareholder Servicing Fees
Payable 16,662 15,703
Directors' Fees Payable 11,312 43,501
Accrued Expenses and Other Payables 30,142 55,077
-------------------- ---------------------
TOTAL LIABILITIES 12,227,391 7,470,169
-------------------- ---------------------
NET ASSETS $ 47,626,123 $ 40,295,269
==================== =====================
NET ASSETS CONSIST OF
- -------------------------------------------
Accumulated Undistributed Net Investment Income $ 524,884 $ 565,764
Accumulated Net Realized Loss on Investments (1,639,079) (2,577,254)
Net Unrealized Appreciation/(Depreciation) of Investments 10,402,247 3,149,607
Par Value 405 405
Paid In Capital in Excess of Par Value 39,384,499 39,384,499
Allowance for Management Incentive (1,046,833) (227,752)
-------------------- ---------------------
TOTAL NET ASSETS $ 47,626,123 $ 40,295,269
==================== =====================
Shares of Common Stock Outstanding 40,463 40,463
-------------------- ---------------------
NET ASSET VALUE PER SHARE $ 1,177.03 $ 995.85
==================== =====================
</TABLE>
-2-
<TABLE>
<CAPTION>
UST PRIVATE EQUITY INVESTORS FUND, INC. FISCAL YEAR END: OCTOBER 31, 2000
STATEMENT OF OPERATIONS QUARTER ENDED: JANUARY 31, 2000
- ----------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR TO FISCAL YEAR TO
QUARTER ENDED DATE QUARTER ENDED DATE
JANUARY 31, 2000 JANUARY 31, 2000 JANUARY 31, 1999 JANUARY 31, 1999
------------------ ----------------- ---------------- -----------------
INVESTMENT INCOME
- -------------------------------
<S> <C> <C> <C> <C>
Interest Income $ 137,767 $ 137,767 $ 99,699 $ 99,699
------------------ ----------------- ---------------- ----------------
TOTAL INCOME 137,767 137,767 99,699 99,699
------------------ ----------------- ---------------- ----------------
EXPENSES
Investment Advisory Fees 142,195 142,195 128,877 128,877
Administrative Fees & Shareholder
Servicing Fees 15,459 15,459 15,322 15,322
Custodial Fees 3,104 3,104 1,893 1,893
Legal Fees 14,529 14,529 56,094 56,094
Audit and Other Professional Service Fees 6,536 6,553 6,553 6,536
Directors' Fees and Expenses 11,311 11,311 10,965 10,965
Shareholder Reports 1,508 1,508 1,512 1,512
Insurance Expense 2,896 2,896 3,370 3,370
Miscellaneous Expense 201 201 150 150
Interest Expense 1,935 1,935 2,651 2,651
------------------ ----------------- ---------------- ----------------
TOTAL EXPENSES 199,674 199,674 227,387 227,387
Fees Waived and Reimbursed by Advisor (21,027) (61,603) (61,603) (21,027)
------------------ ----------------- ---------------- ----------------
NET EXPENSES 178,647 178,647 165,784 165,784
------------------ ----------------- ---------------- ----------------
NET INVESTMENT LOSS (40,880) (66,085) (66,085) (40,880)
------------------ ----------------- ---------------- ----------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS
Net Realized Gain/(Loss) on Security Transactions 938,150 (2,509,688) (2,509,688) 938,150
Change in Unrealized Appreciation/(Depreciation)
on Investments 7,252,665 7,252,665 2,510,169 2,510,169
------------------ ----------------- ---------------- ----------------
NET REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS 8,190,815 8,190,815 481 481
Change in Management Incentive Fee (819,081) (819,081) 0 0
------------------ ----------------- ---------------- ----------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 7,330,854 $ 7,330,854 $ (65,604) $ (65,604)
================== =============== ============= ================
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-3-
<TABLE>
<CAPTION>
UST PRIVATE EQUITY INVESTORS FUND, INC. FISCAL YEAR END: OCTOBER 31, 2000
STATEMENT OF CHANGES IN NET ASSETS QUARTER ENDED: JANUARY 31, 2000
- ----------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR TO
QUARTER ENDED DATE JANUARY 31, QUARTER ENDED FISCAL YEAR TO DATE
JANUARY 31, 2000 2000 JANUARY 31, 1999 JANUARY 31, 1999
----------------- ------------------ ---------------- ---------------------
OPERATIONS:
- -----------
<S> <C> <C> <C> <C>
Net Investment Income/(Loss) $ (40,880) $ (40,880) $ (66,085) $ (66,085)
Net Realized Gain/(Loss) on Investments 938,150 938,150 (2,509,688) (2,509,688)
Change in Unrealized Appreciation/
(Depreciation) on Investments 7,252,665 7,252,665 2,510,169 2,510,169
----------------- ----------------- ---------------- -----------------
Change in Allowance for Management
Incentive Fee (819,081) (819,081) 0 0
----------------- ----------------- ---------------- -----------------
Net Increase/(Decrease) in Net Assets
Resulting From Operations 7,330,854 7,330,854 (65,604) (65,604)
DISTRIBUTIONS TO SHAREHOLDERS:
From Net Investment Income -- -- -- --
From Net Realized Gain on Investments -- -- (367,210) (367,210)
----------------- ----------------- ---------------- -----------------
NET INCREASE/(DECREASE) IN NET ASSETS 7,330,854 7,330,854 (432,814) (432,814)
NET ASSETS:
Beginning of Period 40,295,269 40,295,269 37,907,192 37,907,192
----------------- ----------------- ---------------- -----------------
End of Period $ 47,626,123 $ 47,626,123 $ 37,474,378 $ 37,474,378
================= ================= ================ =================
</TABLE>
-4-
UST PRIVATE EQUITY INVESTORS FUNDS, INC. FISCAL YEAR END: OCTOBER 31, 2000
NOTES TO FINANCIAL STATEMENTS QUARTER ENDED: JANUARY 31, 2000
- -------------------------------------------------------------------------------
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 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 such
other 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
Purchases and sales of securities for the three month period ended
January 31, 2000, excluding short-term investments, for the Company
aggregated $299,999 and $3,216,146, respectively. At January 31, 2000, the
Company had outstanding investment commitments totaling $1,094,476.
-5-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
- ---------------------
THREE-MONTH PERIOD ENDED JANUARY 31, 2000 AS COMPARED TO THE SIMILAR
PERIOD IN 1999
The Company's net asset value per common share was $1,177.03 at January 31,
2000, up $181.18 per share from the net asset value per common share of
$995.85 at October 31, 1999. The increase resulted from the initial public
offering of Quicklogic Corporation, the acquisition of NeoVista Software,
Inc. by Accrue Software, Inc. and the increase in share price of Corsair
Communications Inc. In addition, several of the private fund investments,
including Allegra Capital Partners III, L.P., Sevin Rosen Fund V, L.P. and
Vanguard Venture Partners V, L.P. have appreciated significantly. 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.
REALIZED AND UNREALIZED GAINS AND LOSSES FROM PORTFOLIO INVESTMENTS
- -------------------------------------------------------------------
For the three months ended January 31, 2000 and 1999, the Company had a net
realized gain/(loss) on security transactions of $938,150 and ($2,509,688),
respectively. For the three months ended January 31, 2000 and 1999, the
Company had a net change in unrealized appreciation/(depreciation) on
investments of $7,252,665 and $2,510,169, respectively. The realized and
unrealized gains were primarily the result of the reasons stated above.
INVESTMENT INCOME AND EXPENSES
- ------------------------------
For the three months ended January 31, 2000, the Company had interest
income of $137,767 and net operating expenses of $178,647 resulting in net
investment loss of $40,880 as compared to interest income of $99,699 and
net operating expenses of $165,784, resulting in net investment loss of
$66,085 for the three months ended January 31, 1999. 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 "Investment Adviser") provides
investment management and administrative services required for the
operation of the Company. In consideration of the services rendered by the
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, 2000
and 1999, the Investment Adviser earned $142,195 and $128,877 in management
fees, respectively. In addition, for the quarters ended January 31, 2000
and 1999, the increase/(decrease) in allowance for the Management Incentive
Fee was $(819,081) and $0, respectively. For the same periods, the
Investment Adviser reimbursed other operating expenses of the Company in
the amount of $21,027 and $61,603, respectively, as a result of expenses
incurred in excess of those permitted pursuant to the Company's Prospectus.
NET ASSETS
- ----------
At January 31, 2000, the Company's net assets were $47,626,123, an increase
of $7,330,854 from net assets of $40,295,269 at October 31, 1999. The
Company's net assets at January 31, 1999 were $37,474,378, down $432,814
from net assets of $37,907,192 at October 31, 1998.
-6-
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, 2000, the Company made a follow-on
investment in LogicVision, Inc.
At January 31, 2000, the Company held $267,450 in cash and $59,282,307 in
investments as compared to $4,993 in cash and $47,204,696 in investments at
October 31, 1999. These changes from October 31, 1999 were primarily the
result of the appreciation in value of the Company's direct investments and
private fund investments.
In connection with the Company's commitments to private funds in the amount
of $12,000,000 since inception, a total of $10,905,524 representing capital
calls, has been paid by the Company through January 31, 2000.
There was no dividend declared in 1999.
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 have not had
and are not expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows. The Investment
Adviser and the Company's other service providers have informed the Company
that they have taken steps to address the Year 2000 Problem with respect to
the computer systems that they use, and the Company has not been informed
of any material difficulties related to the Year 2000 Problem. 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 investments in the equity
securities of four public companies. At January 31, 2000, these publicly
traded equity securities were valued at $9,404,935. Thus, there is exposure
to equity price risk, estimated as the potential loss in fair value due to
a hypothetical 10% decrease in quoted market prices, which and would result
in a decrease of approximately $940,494 in the value of these securities.
Actual results may differ.
-7-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On August 16, 1999, the Company, together with several
co-investors, filed a lawsuit seeking compensatory and punitive damages
against Salomon Smith Barney and Dominick & Dominick in the Supreme Court
of the State of New York alleging fraud and deceit and negligent
misrepresentation, in their actions related to the private placement of
Abtox Series F Convertible Preferred Stock to the Company and the other
investors. In October 1999, the defendants filed a motion to dismiss, and
the matter is still pending.
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 Data Schedule (for EDGAR filing
purposes only).
(b) The following reports on Form 8-K were filed during the
quarter ended January 31, 2000:
None.
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 16, 2000 /s/ David I. Fann
---------------------------------
By: David I. Fann
President and Principal Executive
Officer
Date: March 16, 2000
By: /s/ Brian Schmidt
-----------------------------------
Brian Schmidt
Treasurer and Principal Financial
and Accounting Officer
<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 JANUARY 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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<PERIOD-START> NOV-1-1999
<PERIOD-END> JAN-31-2000
<INVESTMENTS-AT-COST> 48,880
<INVESTMENTS-AT-VALUE> 59,282
<RECEIVABLES> 298
<ASSETS-OTHER> 267
<OTHER-ITEMS-ASSETS> 6
<TOTAL-ASSETS> 59,853
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,227
<TOTAL-LIABILITIES> 12,227
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<PAID-IN-CAPITAL-COMMON> 39,385
<SHARES-COMMON-STOCK> 40
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</TABLE>
