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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended July 31, 2002
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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 000-24856
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UST PRIVATE EQUITY INVESTORS FUND, INC.
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(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 13-3786385
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
114 West 47th Street, New York, NY 10036-1532
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 852-1000
----------------------------
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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
As of September 1, 2002, there were 40,463 shares of the Registrant's
Common Stock, $.01 par value per share, 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 UST Private Equity Investors Fund, Inc.'s (the
"Company's") actual results to differ from future performance suggested herein.
INDEX PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements. 1
Portfolio of Investments as of July 31, 2002. 1
Statement of Assets and Liabilities at July 31, 2002 and October 31, 2001. 3
Statement of Operations for the nine-month periods ended July 31, 2002 and July
31, 2001. 4
Statement of Changes in Net Assets for the nine-month periods ended July 31, 2002
and July 31, 2001. 5
Statement of Cash Flows for the nine-month periods ended July 31, 2002 and July
31, 2001. 6
Financial Highlights at July 31, 2002 and October 31, 2001. 7
Notes to Financial Statements. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 11
Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 12
Item 2. Changes in Securities and Use of Proceeds. 12
Item 3. Defaults Upon Senior Securities. 12
Item 4. Submission of Matters to a Vote of Security Holders. 12
Item 5. Other Information. 12
Item 6. Exhibits and Reports on Form 8-K. 13
SIGNATURES 14
CERTIFICATIONS 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
UST Private Equity Investors Fund, Inc.
Portfolio of Investments (Unaudited)
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July 31, 2002
----------------------------------------
PORTFOLIO STRUCTURE
- -------------------
PRIVATE INVESTMENT FUNDS $ 4,719,519 66.34%
PUBLICLY TRADED COMPANIES 779,956 10.97%
SHORT-TERM INVESTMENTS:
U.S. GOVERNMENT OBLIGATIONS 1,099,277 15.45%
INVESTMENT COMPANIES 210,763 2.96%
------------------ ------------------
TOTAL INVESTMENTS 6,809,515 95.72%
OTHER ASSETS & LIABILITIES (NET) 304,215 4.28%
------------------ ------------------
NET ASSETS $ 7,113,730 100.00%
================== ==================
See Notes to Financial Statements.
1
UST Private Equity Investors Fund, Inc.
Portfolio of Investments (Unaudited)
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July 31, 2002
Principal Acquisition Value
Amount/Shares Date ## (Note 1)
- ------------- ------- --------
U.S. GOVERNMENT OBLIGATIONS-15.45%
$ 1,100,000 US Treasury Bills 1.69%, 8/15/02 $ 1,099,277
---------------
Total-US Government Obligations (Cost $1,099,277) 1,099,277
---------------
PRIVATE INVESTMENT FUNDS #, @ - 66.34%
Allegra Capital Partners III, LP 03/96 to 04/00 307,056
Brentwood Associates Buyout Fund II, LP 01/96 to 04/00 328,753
Bruckmann, Rosser, Sherrill & Co., LP 12/95 to 04/00 1,652,542
Morgenthaler Venture Partners IV, LP 12/95 to 04/00 947,570
Sevin Rosen Fund V, LP 04/96 to 04/00 743,072
Vanguard V, LP 05/96 to 02/99 740,526
---------------
Total-Private Investment Funds (Cost $7,402,350) 4,719,519
---------------
PRIVATE COMPANIES #, @ - 0.00%
Common Preferred Stocks-0.00%
Medical Devices-0.00%
515,464 **Cardiopulmonary Corp., Series D 11/96 --
35,294 **Cardiopulmonary Corp., Series F 07/98 --
---------------
Total-Private Companies (Cost $2,150,000) --
---------------
PUBLIC COMPANIES #-10.97%
Common Stocks and Warrants-10.97%
Semiconductors-10.97%
202,418 LogicVision, Inc. 05/97 to 04/02 637,617
55,170 QuickLogic Corporation 10/99 142,339
---------------
Total-Private Companies (Cost $1,933,482) 779,956
---------------
INVESTMENT COMPANIES-2.96%
210,763 Dreyfus Government Cash Management Fund 210,763
---------------
(Cost $210,763)
TOTAL INVESTMENTS (Cost $12,795,872*)-95.72% 6,809,515
OTHER ASSETS & LIABILITIES (NET)-4.28% 304,215
---------------
NET ASSETS - 100.00% $ 7,113,730
===============
* Aggregate cost for federal tax and book purposes.
** At July 31, 2002, the Company owned 5% or more of the company's outstanding
shares thereby making the company an affiliate as defined by the Investment
Company Act of 1940. Total market value of affiliated securities owned at July
31, 2002 was $0.
# Non-income producing securities.
## Required disclosure for restricted securities only.
@ Restricted as to public resale. Acquired between December 1, 1995 and April
30, 2000. Total cost of restricted securities at July 31, 2002 aggregated
$9,552,350. Total market value of restricted securities owned at July 31,
2002 was $4,719,519 or 66.34% of net assets.
See Notes to Financial Statements.
2
UST Private Equity Investors Fund, Inc.
Statement of Assets and Liabilities
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July 31, 2002 October 31, 2001
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(Unaudited)
ASSETS:
Investment Securities, at Cost $ 12,795,872 $ 17,629,956
================ ==================
Investment Securities, at Value $ 6,809,515 $ 13,553,675
Cash -- 16,232
Receivables:
Interest 325 2,363
From Investment Adviser 481,467 783,093
Prepaid Assets 128 4,854
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Total Assets 7,291,435 14,360,217
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LIABILITIES:
Administration and Shareholder Servicing Fees Payable 21,140 29,067
Directors' Fees Payable 45,876 67,000
Accrued Expenses and Other Payables 110,689 128,675
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Total Liabilities 177,705 224,742
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NET ASSETS $ 7,113,730 $ 14,135,475
================ ==================
NET ASSETS consist of:
Undistributed Net Investment Income $ 609,809 $ 694,997
Accumulated Net Realized Loss on Investments (5,512,858) (2,966,218)
Net Unrealized Depreciation on Investments (5,986,357) (4,076,281)
Par Value 405 405
Paid in Capital 18,002,731 20,908,360
Allowance for Management Incentive Fee -- (425,788)
---------------- ------------------
Total Net Assets $ 7,113,730 $ 14,135,475
================ ==================
Shares of Common Stock Outstanding 40,463 40,463
---------------- ------------------
NET ASSET VALUE PER SHARE $ 175.81 $ 349.34
================ ==================
See Notes to Financial Statements.
3
UST Private Equity Investors Fund, Inc.
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended
July 31,
2002 2001
---------------- ------------------
INVESTMENT INCOME:
Interest Income $ 30,858 $ 516,428
---------------- ------------------
Total Income 30,858 516,428
---------------- ------------------
EXPENSES:
Management Investment Advisory Fees 91,537 185,644
Administrative Fees and Shareholder Servicing Fees 17,559 51,872
Custodial Fees 12,192 5,148
Legal Fees 74,794 60,296
Audit and Other Professional Service Fees 22,888 11,889
Directors' Fees and Expenses 44,876 60,612
Shareholder Reports 15,409 14,463
Insurance Expense 5,086 5,317
Miscellaneous Expense 1,122 898
---------------- ------------------
Total Expenses 285,463 396,139
Fees Waived and Expenses Reimbursed by Adviser (169,417) (161,885)
---------------- ------------------
Net Expenses 116,046 234,254
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NET INVESTMENT INCOME /(LOSS) (85,188) 282,174
---------------- ------------------
REALIZED AND UNREALIZED GAIN/
(LOSS) ON INVESTMENTS:
Net Realized Loss on Security Transactions (2,546,640) (2,409,308)
Change in Unrealized/Depreciation
on Investments (1,910,076) (7,279,752)
---------------- ------------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (4,456,716) (9,689,060)
Change in Management Incentive Fee 425,788 968,996
---------------- ------------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (4,116,116) $ (8,437,890)
================ ==================
See Notes to Financial Statements.
4
UST Private Equity Investors Fund, Inc.
Statement of Changes in Net Assets (Unaudited)
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Nine Months Ended
July 31,
2002 2001
-------------------- --------------------
OPERATIONS:
Net Investment Income/(Loss) $ (85,188) $ 282,174
Net Realized Loss on Investments (2,546,640) (2,409,308)
Change in Unrealized Depreciation on Investments (1,910,076) (7,279,752)
Change in Allowance for Management
Incentive Fee 425,788 968,996
-------------------- --------------------
Net Decrease in Net Assets
Resulting From Operations (4,116,116) (8,437,890)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Realized Gain on Investments -- (6,993,802)
Return of Capital (2,905,629) --
-------------------- --------------------
NET DECREASE IN NET ASSETS (7,021,745) (15,431,692)
NET ASSETS:
Beginning of Period 14,135,475 31,468,832
-------------------- --------------------
End of Period $ 7,113,730 $ 16,037,140
==================== ====================
See Notes to Financial Statements.
5
UST Private Equity Investors Fund, Inc.
Statement of Cash Flows (Unaudited)
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Nine Months Ended
July 31,
2002 2001
--------------------- --------------------
CASH FLOWS FROM INVESTING
AND OPERATING ACTIVITIES:
Proceeds from Sales of Investments $ 3,361 $ 2,694,867
Return of Capital from Private Investment Funds 579,773 --
Net Decrease in Short Term Investments 1,704,311 5,519,246
Investment Income Received 458,684 436,769
Decrease in Receivable from Investment Adviser 301,626 --
Operating Expenses Paid (158,358) (1,641,471)
--------------------- --------------------
Net Cash Provided from Investing and
Operating Activities 2,889,397 7,009,411
--------------------- --------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Distributions from:
Return of Capital (2,905,629) --
Realized Loss on Investment -- (6,992,915)
--------------------- --------------------
Net Cash Used for Financing Activities (2,905,629) (6,992,915)
--------------------- --------------------
Net Increase/(Decrease) in Cash (16,232) 16,496
CASH AT BEGINNING OF PERIOD 16,232 --
--------------------- --------------------
CASH AT END OF PERIOD $ -- $ 16,496
===================== ====================
See Notes to Financial Statements.
6
UST Private Equity Investors Fund, Inc.
Financial Highlights (Unaudited)
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Per Share Operating Performance: (1)
July 31, 2002 October 31, 2001
---------------------- ----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 349.34 $ 777.72
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Loss (2.10) (2.79)
Net Realized and Unrealized Loss on Investments (110.14) (280.83)
Change in Allowance for Management Incentive Fee 10.52 28.08
--------------------- ---------------------
Total from Investment Operations (101.72) (255.54)
--------------------- ---------------------
DISTRIBUTIONS:
In Excess of Net Realized Gain -- (172.84)
Return of Capital (71.81) --
--------------------- ---------------------
Total Distributions (71.81) (172.84)
--------------------- ---------------------
NET ASSET VALUE, END OF PERIOD $ 175.81 $ 349.34
===================== =====================
TOTAL NET ASSET VALUE RETURN (3) (29.12)% (42.98)%
===================== =====================
Ratios and supplemental data:
Net Assets, End of Period (000's) $ 7,114 $ 14,135
Ratios to Average Net Assets (2)
Gross Expenses 3.70% 2.72%
Net Expenses 1.50% 1.28%
Net Investment (Loss) (1.10)% (0.55)%
Interest Expense Ratio N/A N/A
Portfolio Turnover (3) 0.00% 0.00%
(1) For a share outstanding throughout the period
(2) Annualized
(3) Non-annualized
See Notes to Financial Statements.
7
UST Private Equity Investors Fund, Inc.
Notes to Financial Statements (Unaudited)
Note 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 that has elected to be
treated as a business development company under the Investment Company Act of
1940, as amended.
The following is a summary of the Company's significant accounting
policies. Such policies are in conformity with generally accepted accounting
principles for investment companies and are consistently followed in the
preparation of the financial statements. Generally accepted accounting
principles in the United States require management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
(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 securities for which market quotations are readily available
generally will be valued at the last sale price on the date of valuation
or, if no sale occurred, at the mean of the latest bid and ask prices;
provided that, as to such securities that may have legal, contractual or
practical restrictions on transfer, a discount of 10% to 40% from the
public market price will be applied. Securities for which no public market
exists and other assets will be valued at fair value as determined in good
faith by the Managing Investment Adviser (as defined below) or a committee
of the Board of Directors under the supervision of the Board of Directors
pursuant to certain valuation procedures summarized below. Securities
having remaining maturities of 60 days or less are valued at amortized
cost.
The value for securities for which no public market exists is
difficult to determine. Generally, such investments will be valued on a
"going concern" basis without giving effect to any disposition costs. There
is a range of values that is reasonable for such investments at any
particular time. Initially, direct investments are valued based upon their
original cost, until developments provide a sufficient basis for use of a
valuation other than cost. Upon the occurrence of developments providing a
sufficient basis for a change in valuation, direct investments will be
valued by the "private market" or "appraisal" method of valuation. The
private market method shall only be used with respect to reliable third
party transactions by sophisticated, independent investors. The appraisal
method shall be based upon such factors affecting the company such as
earnings, net worth, reliable private sale prices of the company's
securities, the market prices for similar securities of comparable
companies, an assessment of the company's future prospects or, if
appropriate, liquidation value. The values for the investments referred to
in this paragraph will be estimated regularly by the Managing Investment
Adviser or a committee of the Board of Directors and, in any event, not
less frequently than quarterly. However, there can be no assurance that
such values will represent the return that might ultimately be realized by
the Company from the investments.
At July 31, 2002, market quotations were not readily available for
securities valued at $4,719,519. Such securities were valued by the
Managing Investment Adviser, under the supervision of the Board of
Directors. Because of the inherent uncertainty of valuation, the estimated
values may differ significantly from the values that would have been used
had a ready market for the securities existed, and the differences could be
material.
(b) Security transactions and investment income:
Security transactions are recorded on a trade date basis. Realized
gains and losses on investments sold are recorded on the basis of
identified cost. Interest income, adjusted for amortization of premiums and
discounts on investments, is earned from settlement date and is recorded on
the accrual basis. Dividend income is recorded on the ex-dividend date.
8
(c) Repurchase agreements:
The Company enters into agreements to purchase securities and to
resell them at a future date. It is the Company's policy to take custody of
securities purchased and to ensure that the market value of the collateral
including accrued interest is sufficient to protect the Company from losses
incurred in the event the counterparty does not repurchase the securities.
If the seller defaults and the value of the collateral declines or if
bankruptcy proceedings are commenced with respect to the seller of the
security, realization of the collateral by the Company may be delayed or
limited.
(d) 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.
Dividends from net investment income are declared and paid at least
annually. Any net realized capital gains, unless offset by any available
capital loss carryforwards, are distributed to shareholders at least
annually. Dividends and distributions are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent. To the extent these differences are permanent, such
amounts are reclassified within the capital accounts based on their federal
tax basis treatment; temporary differences do not require reclassification.
The Company has an unused capital loss carryforward of $2,261,586
available for income tax purposes, to be applied against future net
security profits, if any, realized after October 31, 2001. If not applied,
the carryover expires in fiscal year 2009.
At July 31, 2002, the tax basis of the Company's investments for
federal income tax purposes amounted to $12,795,872. The net unrealized
depreciation amounted to $5,986,357, which is comprised of gross unrealized
appreciation of $801,335 and aggregate gross unrealized depreciation of
$6,787,692.
(e) Cash Equivalents
The Company treats all highly-liquid financial instruments that mature
within three months as cash equivalents.
Note 2 -- Investment Advisory Fee, Administration Fee and Related Party
Transactions
Pursuant to an Investment Management Agreement ("Agreement"), United States
Trust Company of New York ("U.S. Trust NY") and U.S. Trust Company ("U.S.
Trust") serve as the Managing Investment Adviser to the Company. Under the
Agreement, for the services provided, the Managing Investment Adviser is
entitled to receive a management fee at the annual rate of 1.50% of the net
assets of the Company, determined as of the end of each fiscal quarter, that are
invested or committed to be invested in portfolio companies or private funds and
equal to an annual rate of 0.50% of the net assets of the Company, determined as
of the end of each fiscal quarter, that are invested in short-term investments
and are not committed to portfolio companies or private funds.
In addition to the management fee, the Company has agreed to pay the
Managing Investment Adviser an incentive fee in an amount equal to 10% of the
cumulative realized capital gains (net of realized capital losses and unrealized
net capital depreciation), less the aggregate amount of incentive fee payments
in prior years. If the amount of the incentive fee in any year is a negative
number, or cumulative net realized gains less net unrealized capital
depreciation at the end of any year is less than such amount calculated at the
end of the previous year, the Managing Investment Adviser will be required to
repay the Company all or a portion of the incentive fee previously paid.
9
On December 20, 2001, the Board (including a majority of the directors that
are not interested persons of the Company) approved an Investment Sub-Advisory
Agreement (the "Sub-Advisory Agreement") among the Company, U.S. Trust NY, U.S.
Trust and U.S. Trust Company, N.A. Pursuant to the Sub-Advisory Agreement, U.S.
Trust Company, N.A. serves as the investment sub-adviser to the Company and
receives an investment management fee from the Managing Investment Adviser.
U.S. Trust NY is a New York state-chartered bank and trust company and a
member bank of the Federal Reserve System. U.S. Trust is a Connecticut state
bank and trust company. U.S. Trust Company, N.A. is a nationally chartered bank.
Each is a wholly-owned subsidiary of U.S. Trust Corporation, a registered bank
holding company. U.S. Trust Corporation is a wholly-owned subsidiary of The
Charles Schwab Corporation.
Beginning January 1, 2002, PFPC, Inc. ("PFPC") began providing
administrative and accounting services to the Company pursuant to an
Administration and Accounting Services Agreement. Also beginning January 1,
2002, PFPC Trust Company began providing custodian services to the Company
pursuant to a Custodian Services Agreement. Beginning February 1, 2002, PFPC
began providing transfer agency services to the Company pursuant to a Transfer
Agency Agreement. For the services provided to the Company by PFPC and its
affiliates, PFPC is entitled to an annual fee of 0.02% of average net assets
plus reimbursement of reasonable expenses, subject to a base fee, payable
monthly.
The Managing Investment Adviser has voluntarily agreed to waive or
reimburse other operating expenses of the Company, exclusive of management fees,
to the extent they exceed 0.42% of the Company's net assets, and will waive or
reimburse, exclusive of management fees, all such expenses with respect to that
portion of the Company's net assets, determined as of the end of each fiscal
quarter, that is invested in short-term investments. This reimbursement amounted
to $169,417 for the nine-months ended July 31, 2002.
Each director of the Company receives an annual fee of $9,000, plus a
meeting fee of $1,500 for each meeting attended, and is reimbursed for expenses
incurred for attending meetings. No person who is an officer, director or
employee of the Managing Investment Adviser, or U.S. Trust Corporation or its
subsidiaries, who serves as an officer, director or employee of the Company
receives any compensation from the Company.
Note 3 -- Purchases and Sales of Securities
Excluding short-term investments, the Company's purchases and sales of
securities for the nine-month period ended July 31, 2002 were $0 and $0
respectively. Excluding short-term investments, the Company's purchases and
sales of securities for the nine-month period ended July 31, 2001 were $0 and
$1,575,414 respectively.
The Company received distributions from private investment funds in the
amount of $579,773 for the nine-month period ended July 31, 2002.
Note 4 -- Transactions with Affiliated Companies
An affiliated company is a company in which the Company has ownership of
at least 5% of the voting securities. The Company did not receive dividend or
interest income from affiliated companies during the nine-month period ended
July 31, 2002. There were no transactions with companies which are or were
affiliates during the period.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Nine-month Period Ended July 31, 2002 as Compared to the Similar Period in 2001
The Company's net asset value per common share was $175.81 at July 31,
2002, down $173.53 per share from the net asset value per common share of
$349.34 at October 31, 2001. This decrease is principally the result of: (1) a
return of capital distribution of $2,905,629 ($71.81 per share) paid to
shareholders on January 7, 2002, and (2) declines in the valuations of private
investment funds and public company investments held by the Company. The
Company's net asset value per common share was $396.34 at July 31, 2001, down
$381.38 per share from the net asset value per common share of $777.72 at
October 31, 2000.
Realized and Unrealized Gains and Losses from Portfolio Investments
For the nine-month periods ended July 31, 2002 and 2001, the Company had a
net realized loss on security transactions of ($2,546,640) and ($2,409,308),
respectively. For the nine-month periods ended July 31, 2002 and 2001, the
Company had a net change in unrealized depreciation on investments of
($1,910,076) and ($7,279,752), respectively. The realized loss for the period
ended July 31, 2002 was principally the result of the write-off of $2,550,000 on
AbTox, Inc., previously held at an unrealized loss, after the conclusion of the
company's bankruptcy proceeding. The net change in unrealized depreciation for
the period was due to declines in the valuations of private investment funds and
public company investments held by the Company of $4,460,043.
Investment Income and Expenses
For the nine-month period ended July 31, 2002, the Company had interest
income of $30,858 and net operating expenses, net of expenses reimbursed by the
Managing Investment Adviser (as defined below), of $116,046, resulting in net
investment loss of $85,188 as compared to interest income of $516,428 and net
operating expenses, net of expenses reimbursed by the Managing Investment
Adviser, of $234,254 resulting in net investment income of $282,174 for the
nine-month period ended July 31, 2001. A portion of interest income for the July
31, 2001 period was subsequently reclassified in the quarter ended October 31,
2001. The primary reason for the decrease in interest income was a decrease in
assets invested in short-term instruments as well as a decline in short-term
interest rates. Net expenses declined as a result of the reduction in management
advisory fees period over period.
United States Trust Company of New York and U.S. Trust Company (together,
the "Managing Investment Adviser") provide 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 management fee is determined and payable quarterly. For the
nine-month periods ended July 31, 2002 and 2001, the Managing Investment Adviser
earned $91,537 and $185,644 in management advisory fees, respectively. In
addition, for the nine-month periods ended July 31, 2002 and 2001, the change in
allowance for the management incentive fee was $425,788 and $968,996,
respectively (both decreases in accumulated management incentive fees), which
resulted in a payable by the Adviser to the Company of $425,788 at July 31,
2002. For the same periods, the Managing Investment Adviser reimbursed other
operating expenses of the Company in the amounts of $169,417 and $161,885,
respectively, as a result of expenses incurred in excess of those permitted
pursuant to the Company's prospectus.
Net Assets
At July 31, 2002, the Company's net assets were $7,113,730, a decrease of
$7,021,745 from net assets of $14,135,475 at October 31, 2001, resulting
primarily from a return of capital distribution of $2,905,629 paid to
shareholders on January 7, 2002 and an increase in unrealized depreciation
during the nine-month period. The Company's net assets at July 31, 2001 were
$16,037,140.
11
Liquidity and Capital Resources
The Company has focused its investments in the private equity securities
of expansion and later stage venture capital companies and middle-market
companies that 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 pending distribution to shareholders.
The Company made no follow-on investments in the nine-month period ended
July 31, 2002.
At July 31, 2002, the Company held $0 in cash and $6,809,515 in
investments as compared to $16,232 in cash and $13,553,675 in investments at
October 31, 2001. These changes from October 31, 2001 were primarily the result
of a return of capital distribution of $2,905,629, or $71.81 per share, made to
shareholders on January 7, 2002 as well as an increase in unrealized
depreciation. As of January 31, 2002, the Company has contributed all of its
aggregate capital commitments to private funds, a total of $12 million.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Equity Price Risk
A majority of the Company's investment portfolio consists of equity
securities in private companies and private investment funds, representing
66.34% of the investment portfolio, which are not publicly traded. These
investments are recorded at fair value as determined by the Managing 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
normally associated with public equity markets. Nevertheless, the Company is
exposed to equity price risk through its investments in the equity securities of
two public companies. At July 31, 2002, these publicly traded equity securities
were valued at $779,956, representing 10.97% of the investment portfolio. 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, representing a
decrease in the value of these securities of $77,996. At October 31, 2001,
publicly traded equity securities were valued at $1,733,075 and there was
exposure due to equity price risk of $185,083 due to a hypothetical 10% decrease
in the market prices of these securities. The decrease in market value during
the period ended July 31, 2002 was principally the result of depreciation in the
price of shares of LogicVision, Inc. (NASDAQ: LGVN) and QuickLogic Corp.
(NASDAQ: QUIK), each a publicly traded equity security.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
12
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
(b) Reports on Form 8-K.
None.
13
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 13, 2002 By: /s/ David I. Fann
-------------------------------------
David I. Fann
Co-Chief Executive Officer
Date: September 13, 2002 By: /s/ Douglas A. Lindgren
-------------------------------------
Douglas A. Lindgren
Co-Chief Executive Officer
Date: September 13, 2002 By: /s/ Brian F. Schmidt
-------------------------------------
Brian F. Schmidt
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATIONS
I, David I. Fann, certify that:
1. I have reviewed this quarterly report on Form 10-Q of UST Private Equity
Investors Fund, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 13, 2002
/s/ David I. Fann
-----------------------------------
Name: David I. Fann
Title: Co-Chief Executive Officer
14
I, Douglas A. Lindgren, certify that:
1. I have reviewed this quarterly report on Form 10-Q of UST Private Equity
Investors Fund, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 13, 2002
/s/ Douglas A. Lindgren
-----------------------------------
Name: Douglas A. Lindgren
Title: Co-Chief Executive Officer
I, Brian F. Schmidt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of UST Private Equity
Investors Fund, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 13, 2002
/s/ Brian F. Schmidt
-----------------------------------
Name: Brian F. Schmidt
Title: Chief Financial Officer
(Principal Financial Officer)
15