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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 2002
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
UST PRIVATE EQUITY INVESTORS FUND, INC.
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 13-3786385
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
114 West 47th Street
New York, New York 10036-1532
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (212) 852-1000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $0.01 PAR VALUE PER SHARE
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The registrant's common stock is not listed on any exchange nor does it trade on
any established securities market or other market.
As of December 31, 2002 there were 40,463 shares outstanding of the registrant's
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on March 21, 2003 are incorporated by reference into
Part III (Items 10, 11 and 12) to this Form 10-K.
TABLE OF CONTENTS
Form 10-K
Item No. Report Page
-------- -----------
PART I
1. Business 1
2. Properties 4
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Security Holders 4
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 4
6. Selected Financial Data 4
7. Management's Discussion and Analysis of Financial Condition and Results of Operations 5
7A. Quantitative and Qualitative Disclosures About Market Risk 7
8. Financial Statements and Supplementary Data 7
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18
PART III
10. Directors and Executive Officers of the Registrant 18
11. Executive Compensation 18
12. Security Ownership of Certain Beneficial Owners and Management 18
13. Certain Relationships and Related Transactions 18
14. Controls and Procedures 18
PART IV
15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 19
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FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's prospects are subject to certain uncertainties and risks.
This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of the federal securities laws that also involve substantial
uncertainties and risks. The Company's future results may differ materially from
its historical results and actual results could differ materially from those
projected in the forward-looking statements as a result of certain risk factors.
Readers should pay particular attention to the considerations described in the
section of this report entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Readers should also carefully
review the risk factors described in the other documents the Company files, or
has filed, from time to time with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS.
Overview
UST Private Equity Investors Fund, Inc. (the "Company" or the "Fund")
is a Maryland corporation organized on September 16, 1994. The Company is a
non-diversified, closed-end management investment company operating as a
business development company under the Investment Company Act of 1940, as
amended, and, in connection with its initial offering of shares, registered said
offering of shares under the Securities Act of 1933, as amended. The Company's
investment objective is to achieve long-term capital appreciation by investing
in private later-stage venture capital and private middle-market companies and
in certain venture capital, buyout and private equity funds that the Managing
Investment Adviser (defined herein) believes offer significant long-term capital
appreciation.
United States Trust Company of New York, acting through its registered
investment advisory division, U.S. Trust-New York Fund Advisers Division, U.S.
Trust Company, acting through its registered investment advisory division, U.S.
Trust-Connecticut Fund Advisers Division, and U.S. Trust Company, N.A., acting
through its registered investment advisory division, U.S. Trust-California Fund
Advisers Division (each an "Investment Adviser" and together, the "Managing
Investment Adviser" or "U.S. Trust") provide investment management services to
the Company pursuant to a management agreement dated July 18, 2000 and an
investment sub-advisory agreement dated December 21, 2001 (the "Management
Agreement"). Each Investment Adviser is a subsidiary of U.S. Trust Corporation.
On May 31, 2000, U.S. Trust Corporation became an indirect wholly owned
subsidiary of The Charles Schwab Corporation. All officers of the Company are
employees and/or officers of the Managing Investment Adviser. The Managing
Investment Adviser is responsible for performing the management and
administrative services necessary for the operation of the Company.
Pursuant to a Registration Statement on Form N-2 (File No. 33-84290)
which was declared effective on December 16, 1994, the Company publicly offered
up to 50,000 shares of common stock at $1,000 per share. The Company held its
initial and final closings on each of July 31, 1995 and October 31, 1995
representing over $28.0 million and $12.4 million, respectively. The Company
sold a total of 40,463 shares in the public offering for gross proceeds totaling
$40,463,000 (including one share purchased for $1,000 as of September 19, 1994
by David I. Fann, the Company's President and Co-Chief Executive Officer).
Shares of the Company were made available through U.S. Trust Company of
California, N.A. (the "Selling Agent") to clients of U.S. Trust and its
affiliates who met the Company's investor suitability standards.
In connection with the public offering of the Company's shares, the
Managing Investment Adviser paid to the Selling Agent a commission totaling
$10,000. The Company incurred offering costs associated with the public offering
totaling $345,891. Net proceeds to the Company from the public offering, after
offering costs, totaled $40,117,109.
The Company's Articles of Incorporation provide that the duration of
the Company will be ten years from the final closing of the sale of the shares,
subject to the rights of the Managing Investment Adviser and the investors to
extend the term of the Company.
Portfolio Investments
The Company's portfolio now consists of only the six private fund
investments, which are also in their harvest stage. During fiscal 2002, the
Company distributed a total of $110.64 per share to investors, bringing the
total amount distributed to investors to date up to 90% of their original
investment. The Company will continue to make distributions to its shareholders
as liquidity events are generated from the remaining private fund investments.
1
The following is a summary of the Company's investment portfolio over its
life.
Investments Held- Third-Party Investment Funds
o Allegra Capital Partners III, L.P. ("Allegra") is a later-stage fund
based in New York City. Allegra invests primarily in companies in the
telecommunications, software and service industries with
Internet-driven strategies. Allegra has drawn all of the Fund's $2
million commitment. At October 31, 2002, the total value (fair market
value plus distributions) of this investment was $3.5 million.
o Brentwood Associates Buyout Fund II, L.P. ("Brentwood") is a buyout
and consolidation fund based in Westwood, CA. Brentwood's strategy is
to identify industries with consolidation characteristics, develop a
strategy for implementation and recruit management to execute that
strategy. Brentwood has drawn all of the Fund's $2 million commitment.
At October 31, 2002, the total value (fair market value plus
distributions) of this investment was $1.6 million.
o Bruckmann, Rosser, Sherrill & Co., L.P. ("BRS") is a leveraged buyout
fund based in New York City. BRS has drawn all of the Fund's $2
million commitment. At October 31, 2002, the total value (fair market
value plus distributions) of this investment was $2.7 million.
o Morgenthaler Venture Partners IV, L.P. ("Morgenthaler") is primarily
an early stage venture capital fund, investing largely in information
technology and healthcare companies, but also investing in buyouts of
basic businesses. Morgenthaler has drawn all of the Fund's $2 million
commitment. At October 31, 2002, the total value (fair market value
plus distributions) of this investment was $4.1 million.
o Sevin Rosen Fund V, L.P. ("Sevin Rosen") invests in early-stage
technology companies, focusing specifically on companies in
communications and eBusiness infrastructure and solutions, as well as
companies with Internet-enabled business models. Sevin Rosen has drawn
all of the Fund's $2 million commitment. At October 31, 2002, the
total value (fair market value plus distributions) of this investment
was $2.3 million.
o Vanguard V, L.P. ("Vanguard") is an early-stage fund investing in
information technology and healthcare. Vanguard has drawn all of the
Fund's $2 million commitment. At October 31, 2002, the total value
(fair market value plus distributions) of this investment was $5.3
million.
Investments Sold
o Accrue Software, Inc. (NASDAQ: ACRU), Cupertino, CA a provider of
customer relationship management software, acquired NeoVista Software
for $140 million of Accrue stock. The Fund had invested $894,132 in
NeoVista. As of October 31, 2001, the Fund has liquidated all of its
shares of Accrue. The Fund realized a return of 1.3x its original
investment in NeoVista.
o Best Friends Pet Care, Inc., Norwalk, CT, is the largest operator of
pet kennels in the United States. The company's facilities offer a
wide range of pet services, including boarding, grooming and training.
In June 2001, Best Friends was sold to Brynwood Partners IV L.P. The
Fund realized net proceeds of $.4 million and realized a loss of $3.1
million.
o CommSite International, Inc., Vienna, VA, is a provider of wireless
towers and construction services. On o May 13, 1999, American Tower
Corporation (NYSE: AMT) acquired CommSite. The Fund realized its
investment cost of $2.7 million from this transaction.
o Corsair Communications, Inc. (NASDAQ: CAIR), Palo Alto, CA, is a
wireless communication infrastructure company providing prepaid
cellular handset and fraud detection equipment and software. Corsair
completed its initial public offering in July 1997. The Fund sold all
of its shares in the company and realized a return of 1.55x on its
$3.3 million investment.
2
o LogicVision, Inc. (NASDAQ: LGVN), San Jose, CA, is a developer of
built-in self-testing technologies used in semiconductor design,
testing and manufacture. As semiconductors become more complex, the
need to adopt new testing technology becomes critical. LogicVision
completed its initial public offering in October 2001. The Fund
received proceeds of $.5 million in the sale of LogicVision common
stock in 2002 and realized a loss of $1.0 million.
o QuickLogic Corporation (NASDAQ: QUIK), Sunnyvale, CA, designs,
manufactures and markets high-capacity programmable logic
semiconductors, known as field programmable gate arrays, along with
comprehensive design software. The company's products shorten the
design cycle for electronic systems, accelerating time-to-market.
QuickLogic completed its initial public offering in October 1999. As
of October 31, 2002, the Fund has sold all of its shares of QuickLogic
for $8.2 million at 2.7x the cost to the Fund.
o Rental Services Corporation (NYSE: RSV), Scottsdale, AZ, is a
consolidator of heavy equipment rental businesses. The Fund invested
$1 million in January 1996. In September 1996, Rental Services Corp.
completed its initial public offering. The Fund sold all of its shares
in the company for over $3 million and realized a return of 3.1x on
its investment.
o Signius Corporation (formerly known as ProCommunications, Corp.),
Somerset, NJ, provides telemessaging o services for small and medium
sized businesses. In March 2000, Signius was sold for a nominal amount
and the Fund realized a $3.4 million loss.
Investments Written Off
o AbTox, Inc., Mundelein, IL, manufactured gas plasma sterilizers. The
company filed for bankruptcy due to operating problems arising from
regulatory issues related to one of its products. The Fund received
$250,000 as part of the settlement of claims with the bankruptcy
trustee in 2001. Earlier this year, the Fund received a nominal
distribution pursuant to AbTox's liquidating plan and realized a $2.5
million loss.
o Cardiopulmonary Corporation, Milford, CT, is a manufacturer of a smart
ventilator, used in the acute and o sub-acute hospital market, that
adapts to patient's changing breathing patterns. The Fund's $2.2
million investment has been written off as a result of the
recapitalization of the company.
o P2 Holdings Corporation (formerly known as Plynetic Express), San
Leandro, CA, was a provider of rapid o prototyping and rapid tooling
services. The company filed for bankruptcy in 1998 and the Fund
received no recovery of its $2.8 million investment.
o Party Stores Holdings, Inc., Melville, NY, operated the Party
Experience, Paperama, and Paper Cutter retail stores and filed for
bankruptcy in 1998 and the Fund received no recovery of its $2.1
million investment.
For additional information concerning the Company's investments, see
the financial statements beginning on page 9 of this report.
Competition
The Company encounters competition from other entities and individuals
having similar investment objectives. Primary competition for desirable
investments comes from investment partnerships, venture capital affiliates of
large industrial and financial companies, investment companies and wealthy
individuals. Some of the competing entities and individuals have investment
managers or advisers with greater experience, resources and managerial
capabilities than the Company and may therefore be in a stronger position than
the Company to obtain access to attractive investments. To the extent that the
Company can compete for such investments, it may not be able to do so on terms
as favorable as those obtained by larger, more established investors.
3
Employees
At October 31, 2002, the Company had no full-time employees. All
personnel of the Company are employed by and compensated by the Managing
Investment Adviser pursuant to the Management Agreement.
ITEM 2. PROPERTIES.
The Company does not own or lease any physical properties.
ITEM 3. LEGAL PROCEEDINGS.
AbTox, Inc. filed for bankruptcy due to operating problems arising from
regulatory issues related to one of its products. The Company, alongside several
other institutional investors, filed a complaint in New York State Supreme Court
against the investment banks involved in the private placement, in or around
March 1999, alleging fraud and deceit, fraudulent inducement and negligent
misrepresentation. On August 10, 1999, the court dismissed the complaint. On
August 31, 2000, the Company, along with other institutional investors, filed a
notice to appeal the court's order. On August 6, 2001, the Company and several
other investors were named in an adversary proceeding brought by the company's
bankruptcy trustee seeking the return of monies paid to the Company pursuant to
certain senior notes in the principal amount of $301,500 issued by Abtox. The
Company received $250,000 as part of the settlement of claims on September 10,
2001 with the bankruptcy trustee. On November 15, 2001, the Appellate Division
of New York State Supreme Court affirmed the dismissal. The Company received a
final distribution of $3,360 on February 13, 2002 and ultimately incurred a
realized loss of $2,546,640 on its $2,800,000 investment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company has 50,000 authorized shares. As of December 31, 2002,
40,463 shares were issued and outstanding. There is no established public
trading market for the Company's shares.
Dividends
Fiscal Year Ended October 31, 2002. On January 7, 2002, the Company
paid a dividend of $71.81 per share of return of capital. On October 31, 2002,
the Company paid a dividend of $38.83 per share, comprised of $34.06 per share
of return of capital and $4.77 per share of ordinary income.
Fiscal Year Ended October 31, 2001. On December 22, 2000, the Company
paid a dividend of $172.84 per share in excess of net realized capital gain.
For additional information concerning the payment of dividends, see
"Significant Accounting Policies" in the notes to the financial statements of
the Company included in Item 8 hereof.
ITEM 6. SELECTED FINANCIAL DATA.
The information provided under Item 8 is incorporated herein.
4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Liquidity and Capital Resources
At October 31, 2002, the Company held $0 in cash and $3,669,007 in
investments as compared to $16,232 in cash and $13,553,675 in investments at
October 31, 2001. At October 31, 2002, investments included $3,256,533 in
private investment funds and $412,474 in short-term securities, consisting of
U.S. Treasury bills and an investment in the Dreyfus Government Cash Fund. As of
October 31, 2002, the Company had committed $12,000,000 to private investment
funds and has no remaining outstanding commitments. During the fiscal year, the
Company received proceeds of $651,362, net of commissions, from the sale of its
remaining 2 public stock positions, LogicVision, Inc. and QuickLogic
Corporation. The Company also received $622,210 in distributions from its
private fund investments during fiscal 2002. The Company paid a total of
$4,476,807 in dividends or $110.64 per share to its shareholders during fiscal
2002.
Results of Operations
Investment Income and Expenses
For the fiscal year ended October 31, 2002, the Company had investment
income of $37,850 and net operating expenses, net of expenses reimbursed by the
Managing Investment Adviser, of $135,433, resulting in a net investment loss of
($97,583). For the fiscal year ended October 31, 2001, the Company had
investment income of $148,317 and net operating expenses, net of expenses
reimbursed by the Managing Investment Adviser, of $261,411, resulting in a net
investment loss of ($113,094). For the fiscal year ended October 31, 2000, the
Company had investment income of $510,857 and net operating expenses, net of
expenses, reimbursed by the Managing Investment Adviser, of $560,821, resulting
in a net investment loss of ($49,964). The decrease in the Company's net
investment income is attributable to a reduced level of interest-bearing assets,
as well as an overall decrease in short-term interest rates over the period. The
combination of these factors had a negative effect on the amount of interest
income generated by these assets. The decrease in net operating expenses is
primarily attributable to the lower managing investment advisory fees paid as a
result of declining net assets over time. While there has been a trend of lower
expenses paid by the Company, income has also declined and therefore, the
Company is in a net investment loss position.
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 net realized capital gains of
the Company. The management fee is determined and payable quarterly. For the
fiscal years ended October 31, 2002, 2001 and 2000, the Managing Investment
Adviser earned $105,251, $231,165 and $448,241 in management fees, respectively.
For the same periods, the Managing Investment Adviser reimbursed other operating
expenses of the Company in the amount of $224,571, $295,736 and $135,394 as a
result of expenses incurred in excess of those permitted pursuant to the
Company's prospectus. The decrease in the fees earned by the Managing Investment
Adviser over time can be attributed primarily to a reduced level of net assets.
Net Assets
At the fiscal year ended October 31, 2002, the Company's net assets
were $3,980,977, a decline of ($10,154,498) from net assets of $14,135,475 at
October 31, 2001. The Company's net asset value per common share was $98.39 at
October 31, 2002 down ($250.95) per share from the net asset value per common
share of $349.34 at October 31, 2001. This decline stemmed from the Company's
net operating loss as well as distributions paid to shareholders during the
fiscal year.
At the fiscal year ended October 31, 2001, the Company's net assets
were $14,135,475, a decrease of ($17,333,357), or ($428.38) per share from net
assets of $3,468,832 at October 31, 2000. This decrease was the result of a
($10,339,555) net decrease in net assets resulting from operations and
distributions to shareholders during the year totaling ($6,993,802).
5
For the fiscal year ended October 31, 2002, the Company had a net
decrease in net assets resulting from operations of ($5,677,691) or ($140.31)
per share and paid distributions to shareholders during the period totaling
($4,476,807) or ($110.64) per share. The net loss from operations was the result
of several factors including: 1) realized losses in connection with the sale of
LogicVision, Inc. and QuickLogic Corporation, both public stock positions,
totaling ($1,282,157) or ($31.69) per share, 2) a realized loss in the amount of
($2,546,640) or ($62.93) per share related to AbTox, Inc., a private company
investment, due to the conclusion of the company's bankruptcy proceeding, 3) net
unrealized losses, primarily related to the Company's third party private
investment funds, totaling ($2,177,099) or ($53.80) per share, and 4) a net
investment loss of ($97,583) or ($2.41) per share. The Company also had a net
change in allowance for the management incentive fee of $425,788 or $10.52 per
share, a reduction in accumulated management incentive fees payable to the
Managing Investment Adviser, which offset the net realized and unrealized
losses.
Realized and Unrealized Gains and Losses from Portfolio Investments
For the fiscal year ended October 31, 2002, the Company had a
($6,005,896) net realized and unrealized loss from investments, comprised of a
($3,828,797) net realized loss on investments and a ($2,177,099) net change in
unrealized depreciation on investments. For the fiscal year ended October 31,
2001, the Company had a ($11,362,833) net realized and unrealized loss from
investments, comprised of a ($2,728,413) net realized loss on investments and a
($8,634,420) net change in unrealized depreciation on investments. For the
fiscal year ended October 31, 2000, the Company had a $13,344,075 net realized
and unrealized gain from investments, comprised of a $11,935,543 net realized
gain on investments and an $1,408,532 net change in unrealized appreciation on
investments. The losses in fiscal years 2002 and 2001 are reflective of very
challenging market conditions in the private equity industry for the last
several years, which have resulted in lower valuations and limited exit
opportunities for both private and public companies. The net realized loss on
investments for the fiscal year ended October 31, 2002 is primarily the result
of sales LogicVision, Inc. and QuickLogic Corporation, both public stock
positions, totaling ($1,282,157) and a realized loss in the amount of
($2,546,640) related to AbTox, Inc., a private company investment, due to the
conclusion of the company's bankruptcy proceeding. During fiscal 2002, the
Company also recorded net unrealized losses, primarily attributable to lower
valuations of its private investment funds.
Application of Critical Accounting Policies
Under the supervision of the Company's Valuation and Audit Committees,
consisting of the independent directors of the Company, the Investment Advisers
make certain critical accounting estimates with respect to the valuation of
private portfolio investments. These estimates could have a material impact on
the presentation of the Company's financial condition, because in total, they
currently represent 81.8% of the Company's net assets at October 31, 2002.
During the fiscal year, changes to these estimates, i.e. changes in the
valuations of private investments, resulted in a $5.5 million decrease in net
asset value.
The value for securities for which no public market exists is difficult
to determine. Generally speaking, 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.
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.
Initially, direct private company 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 private company investments
will be valued by the "private market" or "appraisal" methods 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
6
Investment Adviser or a committee of the Board and, in any event, not less
frequently than quarterly. However, there can be no assurance that such value
will represent the return that might ultimately be realized by the Company from
the investments.
The valuation of the Company's private funds is based upon the its
pro-rata share of the value of the assets of a private fund as determined by
such private fund, in accordance with its partnership agreement, constitutional
or other documents governing such valuation, on the valuation date. If such
valuation with respect to the Company's investments in private funds is not
available by reason of timing or other event on the valuation date, or are
deemed to be unreliable by the Investment Advisers, the Investment Advisers,
under supervision of the Board, shall determine such value based on its judgment
of fair value on the appropriate date, less applicable charges, if any.
The Investment Advisers also make estimates regarding discounts on
market prices of publicly traded securities where appropriate. For securities
which have legal, contractual or practical restrictions on transfer, a discount
of 10% to 40% from the public market price will be applied.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discussion includes forward-looking statements. Actual
results could differ materially from those projected in the forward-looking
statements.
Equity Price Risk
At October 31, 2002, the Company's investment portfolio consisted of
equity securities private investment funds, representing 81.8% 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. At October 31, 2002, the Company held no investments in the
equity securities of public companies. At October 31, 2001, publicly traded
equity securities were valued at $1,733,075. Thus, there was exposure to equity
price risk, estimated as the potential loss in fair value due to a hypothetical
10% decrease in quoted market prices, of approximately a ($185,083) decrease in
the value of these securities. These securities were subsequently sold during
fiscal 2002.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Independent Auditors' Report
Portfolio of Investments at October 31, 2002
Statement of Assets and Liabilities at October 31, 2002 and October 31, 2001
Statement of Operations for the years ended October 31, 2002, October 31, 2001
and October 31, 2000
Statement of Changes in Net Assets for the years ended October 31, 2002, October
31, 2001 and October 31, 2000
Statement of Cash Flows for the years ended October 31, 2002, October 31, 2001
and October 31, 2000
Financial Highlights -- Selected Per Share Data and Ratios for the years ended
October 31, 2002, October 31, 2001, October 31, 2000, October 31, 1999 and
October 31, 1998
Notes to Financial Statements
Note - All other schedules are omitted because of the absence of conditions
under which they are required or because the required information is included in
the financial statements or the notes thereto.
7
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
UST Private Equity Investors Fund, Inc.
We have audited the accompanying statements of assets and liabilities
of UST Private Equity Investors Fund, Inc. (the "Fund") as of October 31, 2002
and 2001, including the portfolio of investments at October 31, 2002, the
related statements of operations, changes in net assets and cash flows for each
of the three years then ended, and the financial highlights for each of five
years then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002 and 2001 by
correspondence with the custodian and brokers, or other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of UST Private Equity Investors Fund, Inc. at October 31, 2002 and
2001, the results of its operations, its changes in net assets and its cash
flows for the three years ended October 31, 2002, and the financial highlights
for each of the five years ended October 31, 2002 in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
December 17, 2002
8
UST Private Equity Investors Fund, Inc.
Portfolio of Investments at October 31, 2002
Principal Acquisition Coupon Value
Amount/Shares Date## Rate/Yield (Note 1)
------------- -------------- ------------ ----------
U.S. TREASURY OBLIGATIONS-- 7.53%
$300,000 U.S. Treasury Bills, 11/29/02 (Cost $299,652) ............ 1.49% $ 299,652
---------
PRIVATE INVESTMENT FUNDS #, @ -- 81.80%
Allegra Capital Partners III, LP ......................... 03/96 to 04/00 401,249
Brentwood Associates Buyout Fund II, LP .................. 01/96 to 04/00 279,993
Bruckmann, Rosser, Sherrill & Co., LP .................... 12/95 to 04/00 1,650,860
Morgenthaler Venture Partners IV, LP ..................... 12/95 to 04/00 455,052
Sevin Rosen Fund V, LP ................................... 04/96 to 04/00 208,331
Vanguard V, LP ........................................... 05/96 to 02/99 261,048
-----------
TOTAL PRIVATE INVESTMENT FUNDS (Cost $7,359,913) ......... 3,256,533
-----------
PRIVATE COMPANIES #, @, +-- 0.00%
Common and 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) ..... --
INVESTMENT COMPANIES -- 2.83%
112,822 Dreyfus Government Cash Management Fund
(Cost $112,822) .......................................... 112,822
-----------
TOTAL INVESTMENTS (Cost $9,922,387**) ............................... 92.16% 3,669,007
OTHER ASSETS & LIABILITIES (NET) .................................... 7.84% 311,970
------- -----------
NET ASSETS .......................................................... 100.00% $3,980,977
======= ==========
** Aggregate cost for federal tax and book purposes.
+ At October 31, 2002, the Fund owned 5% or more of 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
October 31, 2002 was $0.
# Restricted as to public resale. Acquired between December 1, 1995 and April
30, 2000. Total cost of restricted securities owned at October 31, 2002
aggregated $9,509,913. Total market value of restricted securities owned at
October 31, 2002 was $3,256,533 or 81.80% of net assets.
## Required disclosure for restricted securities only.
@ Non-income producing security.
See Notes to Financial Statements.
9
UST Private Equity Investors Fund, Inc.
Statement of Assets and Liabilities
October 31,
2002 2001
----------- -----------
ASSETS:
Investments, at value (Cost $9,922,387 and 17,629,956
respectively) (Note 1) ............................... $ 3,669,007 $13,553,675
Cash ...................................................... -- 16,232
Receivable from investment adviser (Note 2) ............... 479,962 783,093
Interest receivable ....................................... 274 2,363
Prepaid expenses .......................................... 3,148 4,854
=========== ===========
Total Assets ............................................ 4,152,391 14,360,217
LIABILITIES:
Professional fees payable ................................. 83,254 114,656
Directors' fees payable (Note 2) .......................... 60,000 67,000
Management fees payable (Note 2) .......................... 13,714 --
Administration fees payable (Note 2) ...................... 1,865 29,067
Accrued expenses and other payables ....................... 12,581 14,019
----------- -----------
Total Liabilities ....................................... 171,414 224,742
----------- -----------
NET ASSETS .................................................. $ 3,980,977 $14,135,475
=========== ===========
NET ASSETS consist of:
Undistributed net investment income ....................... $ -- $ 694,997
Accumulated net realized (loss) on investments ............ (6,143,142) (2,966,218)
Net unrealized (depreciation) on investments .............. (6,253,380) (4,076,281)
Allowance for management incentive fee .................... -- (425,788)
Par value ................................................. 405 405
Paid-in capital in excess of par value .................... 16,377,094 20,908,360
----------- -----------
Total Net Assets ............................................ $ 3,980,977 $14,135,475
=========== ===========
Shares of Common Stock Outstanding ($0.01 par value,
100,000 Authorized)..................................... 40,463 40,463
=========== ===========
NET ASSET VALUE PER SHARE ................................... $ 98.39 $ 349.34
=========== ===========
See Notes to Financial Statements.
10
UST Private Equity Investors Fund, Inc.
Statement of Operations
Year Ended October 31,
2002 2001 2000
------------ -------------- -----------
INVESTMENT INCOME:
Interest income ......................................... $ 24,522 $ 148,317 $ 510,857
Dividend income ......................................... 13,328 -- --
----------- ------------ -----------
Total Income ........................................... 37,850 148,317 510,857
EXPENSES:
Managing investment adviser fees (Note 2) ............... 105,251 231,165 448,241
Directors' fees and expenses (Note 2) ................... 59,000 88,810 66,689
Administration fees (Note 2) ............................ 22,705 58,000 58,000
Legal fees .............................................. 111,555 100,000 57,800
Audit fees .............................................. 30,600 30,600 33,199
Printing fees ........................................... 20,600 20,600 6,000
Miscellaneous expenses .................................. 10,293 27,972 26,286
----------- ------------ -----------
Total Expenses ........................................ 360,004 557,147 696,215
Expenses reimbursed by managing investment adviser
(Note 2) .......................................... (224,571) (295,736) (135,394)
----------- ------------ -----------
Net Expenses ........................................... 135,433 261,411 560,821
----------- ------------ -----------
NET INVESTMENT (LOSS) ..................................... (97,583) (113,094) (49,964)
NET REALIZED AND UNREALIZED GAIN (LOSS):
ON INVESTMENTS (Note 1)
Net realized gain (loss) on investments ................. (3,828,797) (2,728,413) 11,935,543
Net change in unrealized appreciation (depreciation) on
investments ........................................... (2,177,099) (8,634,420) 1,408,532
----------- ------------ -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ...................
ON INVESTMENTS (6,005,896) (11,362,833) 13,344,075
----------- ------------ -----------
Net change in allowance for management incentive fee ...... 425,788 1,136,372 (1,334,408)
----------- ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................. $(5,677,691) $(10,339,555) $11,959,703
=========== ============ ===========
See Notes to Financial Statements.
11
UST Private Equity Investors Fund, Inc.
Statement of Changes in Net Assets
Year Ended October 31,
2002 2001 2000
----------- ------------ -----------
OPERATIONS:
Net investment (loss) ....................................... $ (97,583) $ (113,094) $ (49,964)
Net realized gain (loss) on investments ..................... (3,828,797) (2,728,413) 11,935,543
Net change in unrealized appreciation (depreciation) on
investments ............................................. (2,177,099) (8,634,420) 1,408,532
Net change in allowance for management incentive fee ........ 425,788 1,136,372 (1,334,408)
----------- ------------ -----------
Net increase (decrease) in net assets resulting from
operations .............................................. (5,677,691) (10,339,555) 11,959,703
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain ........................................... -- -- (11,207,656)
In excess of net realized gain .............................. -- (6,993,802) (704,632)
From net investment income .................................. (192,934) -- --
Paid-in capital ............................................. (4,283,873) (8,873,852)
----------- ------------ -----------
Total Distributions .................................... (4,476,807) (6,993,802) (20,786,140)
----------- ------------ -----------
Net (decrease) in net assets ..................................... (10,154,498) (17,333,357) (8,826,437)
NET ASSETS:
Beginning of year ........................................... (14,135,475) 31,468,832 40,295,269
----------- ------------ -----------
End of year (including undistributed net investment income of
$0, $694,997, and $565,764 respectively) .............. $ 3,980,977 $ 14,135,475 $31,468,832
=========== ============ ===========
See Notes to Financial Statements.
12
UST Private Equity Investors Fund, Inc.
Statement of Cash Flows
Year Ended October 31,
2002 2001 2000
------------ ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Increase (Decrease) in Net Assets Resulting from
Operations ............................................. $(5,677,691) $(10,339,555) $11,959,703
Adjustments to reconcile net increase (decrease) in net
assets resulting from operations to net cash provided
by operating activities:
Change in unrealized depreciation (appreciation) on
investments ............................................ 2,177,099 8,634,420 (1,408,532)
Proceeds from sales of investments ......................... 1,276,895 2,901,819 22,839,279
Net realized loss (gain) on investments .................... 3,828,797 2,728,413 (11,935,543)
Purchases of investments ................................... -- -- (1,699,403)
Change in short-term investments ........................... 2,601,877 5,210,170 6,380,398
Decrease in receivable for investments sold ................ -- 225,071 211,699
Decrease (increase) in receivable from investment adviser .. 303,131 (783,093) --
Decrease in interest receivable ............................ 2,089 2,880 105,214
Decrease (increase) prepaid expenses ....................... 1,706 (138) 3,806
Decrease in expenses payable ............................... (53,328) (1,569,953) (5,675,474)
----------- ----------- ----------
Net cash provided by operating activities .................. 4,460,575 7,010,034 20,781,147
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders .............................. (4,476,807) (6,993,802) (20,786,140)
----------- ----------- ----------
Net Cash Used by Financing Activities ...................... (4,476,807) (6,993,802) (20,786,140)
----------- ----------- ----------
Net Increase (Decrease) in Cash ............................ (16,232) 16,232 (4,993)
Cash at Beginning of Year .................................... 16,232 -- 4,993
----------- ----------- ----------
Cash at End of Year .......................................... $ -- $ 16,232 $ --
=========== =========== ==========
See Notes to Financial Statements.
13
UST Private Equity Investors Fund, Inc.
Financial Highlights--Selected Per Share Data and Ratios
For a Fund share outstanding throughout each year
Year Ended October 31,
2002 2001 2000 1999 1998
--------- -------- -------- -------- ---------
NET ASSET VALUE, BEGINNING OF YEAR ........... $ 349.34 $ 777.72 $ 995.85 $ 936.84 $1,165.99
--------- -------- -------- -------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income (Loss) ............... (2.41) (2.79) (1.23) (5.85) (3.97)
Net Realized and Unrealized Gain (Loss) on
Investments .......................... (148.42) (280.83) 329.79 79.57 (181.64)
Net Change in Allowance for Management
Incentive fee ........................ 10.52 28.08 (32.98) (5.63) 3.01
--------- -------- -------- -------- ---------
Total from Investment Operations ......... (140.31) (255.54) 295.58 68.09 (182.60)
--------- -------- -------- -------- ---------
DISTRIBUTIONS:
Net Investment Income ...................... (4.77) -- -- -- --
Net Realized Gain .......................... -- -- (276.99) (9.08) (46.55)
In Excess of Net Realized Gain ............. -- (172.84) (17.41) -- --
Paid-in Capital ............................ (105.87) -- (219.31) -- --
--------- -------- -------- -------- ---------
Total Distributions ...................... (110.64) (172.84) (513.71) (9.08) (46.55)
--------- -------- -------- -------- ---------
NET ASSET VALUE, END OF YEAR ................. $ 98.39 $ 349.34 $ 777.72 $ 995.85 $ 936.84
========= ======== ======== ======== =========
TOTAL NET ASSET VALUE RETURN+ ................ (40.17)% (42.98)% 35.41 % 7.33 % (16.22)%
========= ======== ======== ======== =========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (Thousands) ........ $ 3,981 $ 14,135 $ 31,469 $ 40,295 $ 37,907
Ratio of Net Operating Expenses to Average Net
Assets ................................ 1.50 % 1.28 % 1.54 % 1.62 % 1.77 %
Ratio of Gross Operating Expenses to Average
Net Assets++ .......................... 3.99 % 2.72 % 1.92 % 2.01 % 1.95 %
Ratio of Net Investment Income (Loss) to
Average Net Assets .................... (1.08)% (0.55)% (0.14)% (0.64)% (0.39)%
Interest Expense Ratio ..................... N/A N/A 0.01 % 0.04 % 0.09 %
Portfolio Turnover Rate .................... 0 % 0 % 5 % 10 % 11 %
+ Total investment return based on per share net asset value reflects the
effects of changes in net asset value based on the performance of the Fund
during the period and assumes dividends and distributions, if any, were
reinvested. The Fund's shares were issued in a private placement and are not
traded. Therefore market value total investment return is not calculated.
++ Expense ratio before waiver of fees and reimbursement of expenses by Managing
Investment Adviser.
See Notes to Financial Statements.
14
UST PRIVATE EQUITY INVESTORS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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. Certain amounts in
prior years have been reclassified to conform to current year presentation.
(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, which approximates market value.
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" methods 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 October 31, 2002 and October 31, 2001, market quotations were not
readily available for securities valued at $3,256,533 and $8,806,249,
respectively. 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.
15
(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 that 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 approximately
$6,143,142 available for income tax purposes, to be applied against future
net security profits, if any, realized after October 31, 2002. If not
applied, $2,261,586 of the carryover will expire in 2009 and $3,881,556
will expire in 2010.
The tax character of distributions paid may differ from the
character of distributions shown on the statement of changes in net assets
due to tax treatment of certain distributions. The tax character of
distributions paid during the fiscal years ended October 31, 2002 and 2001
were as follows:
2002 2001
-------------- -------------
Net Investment Income $ 192,934 $ --
Net Capital Gain -- 6,993,802
Return of Capital 4,283,873 --
-------------- -------------
Total $ 4,476,807 $ 6,993,802
-------------- -------------
At October 31, 2002, the tax basis of the Company's investments for
federal income tax purposes amounted to $9,922,387. The net unrealized
depreciation amounted to $6,253,380, which is comprised of gross
unrealized appreciation of $560,644 and aggregate gross unrealized
depreciation of $6,814,024.
(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
16
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. As of
October 31, 2002, $425,788 has been paid and is subject to potential repayment
by the Managing Investment Adviser.
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. Prior to these dates administration, accounting, custody and
transfer agent services were provided by J.P. Morgan Investor Services, Co. and
JPMorgan Chase Bank. 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 $224,571 for the year ended October 31, 2002.
Each director of the Company receives an annual fee of $9,000, plus a
meeting fee of $1,500 for each meeting attended, and is reimbursed for expenses
incurred for attending meetings. No person who is an officer, director or
employee of the Managing Investment Adviser, or U.S. Trust Corporation or its
subsidiaries, who serves as an officer, director or employee of the Company
receives any compensation from the Company.
Note 3-- Purchases and Sales of Securities
Excluding short-term investments, the Fund's purchases and sales of
securities for the years ended October 31, 2002, October 31, 2001 and October
31, 2000 were as follows:
Year Ended
October 31, Purchases ($) Sales ($)
----------- ------------- ---------
2002 -- 1,276,895
2001 -- 1,755,513
2000 1,699,403 21,312,360
Sales of securities includes distributions received from private investment
funds.
17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the headings "Election of Directors"
and "Additional Information -- Officers" appearing in the Company's definitive
Proxy Statement for the 2003 Annual Meeting of Stockholders to be held on March
21, 2003, which will be filed with the Securities and Exchange Commission not
later than 120 days after October 31, 2002, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the captions "Election of Directors"
and "Additional Information -- Officers" in the Company's definitive Proxy
Statement for the 2003 Annual Meeting of Stockholders to be held on March 21,
2003, which will be filed with the Securities and Exchange Commission not later
than 120 days after October 31, 2002, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" appearing in the Company's definitive
Proxy Statement for the 2003 Annual Meeting of Stockholders to be held on March
21, 2003, which will be filed with the Securities and Exchange Commission not
later than 120 days after October 31, 2002, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's
principal executive officers and principal financial officer, after evaluating
the effectiveness of the Company's disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) on January 28, 2003, have
concluded that, based on such evaluation, the Company's disclosure controls and
procedures were adequate and effective to ensure that material information
relating to the Company was made known to them by others within those entities,
particularly during the period in which this Annual Report on Form 10-K was
being prepared.
(b) Changes in Internal Controls. There were no significant changes in
the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, nor were there
any significant deficiencies or material weaknesses in the Company's internal
controls. Accordingly, no corrective actions were required or undertaken.
18
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The financial statements listed in Item 8, "Financial Statements
and Supplementary Data," beginning on page 9 are filed as part of
this report.
2. Financial Statement Schedules
The financial statement schedules listed in Item 8, "Financial
Statements and Supplementary Data," beginning on page 9 are filed
as part of this report.
3. Exhibits
Exhibit
Number Description
------- -----------
(3)(i) Articles of Incorporation of the Company 1
(3)(ii) By-Laws of the Company 1
(10.1) Form of Management Agreement 2
(10.2) Form of Transfer Agency and Custody Agreement 3
(10.3) Investment Sub-Advisory Agreement dated as of December 21,
2001, among the Company, United States Trust Company of
New York, U.S. Trust Company and U.S. Trust Company, N.A. 4
(10.4) Administration and Accounting Services Agreement dated
January 1, 2002, between the Company and PFPC Inc. 4
(10.5) Custodian Services Agreement dated January 1, 2002,
between the Company and PFPC Trust Company. 4
(10.6) Transfer Agency Services Agreement dated February 1, 2002,
between the Company and PFPC Inc. 4
(23) Consent of Independent Auditors
(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.
- --------
/1/ Incorporated by reference to the Company's Registration Statement on Form
N-2 (File No. 033-84290), filed with the Securities and Exchange
Commission on September 22, 1994.
/2/ Incorporated by reference to the Company's Definitive Proxy Statement for
the 2000 Annual Meeting of Stockholders, filed with the Securities and
Exchange Commission on May 25, 2000.
/3/ Incorporated by reference to the Company's Registration Statement on Form
N-2/A (File No. 033-84290) filed with the Securities and Exchange
Commission on November 1, 1994.
/4/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
as filed with the Securities and Exchange Commission on March 18, 2002
(File No. 000-24856).
19
(b) Reports on Form 8-K
None.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UST PRIVATE EQUITY INVESTORS FUND, INC
Date: January 29, 2003 By: /s/ DAVID I. FANN
------------------------------------------
David I. Fann, Chief Executive Officer
and President
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ DAVID I. FANN President and Co-Chief Executive Officer January 29, 2003
- -------------------------------- (principal executive officer)
David I. Fann
/s/ DOUGLAS A. LINDGREN Co-Chief Executive Officer and January 29, 2003
- -------------------------------- Chief Investment Officer
Douglas A. Lindgren (principal executive officer)
/s/ BRIAN F. SCHMIDT Chief Financial Officer January 29, 2003
- -------------------------------- (principal financial and accounting officer)
Brian F. Schmidt
/s/ JOHN C. HOVER II Chairman of the Board and Director January 29, 2003
- --------------------------------
John C. Hover II
/s/ GENE M. BERNSTEIN Director January 29, 2003
- --------------------------------
Gene M. Bernstein
/s/ STEPHEN V. MURPHY Director January 29, 2003
- --------------------------------
Stephen V. Murphy
/s/ VICTOR F. IMBIMBO, JR. Director January 29, 2003
- --------------------------------
Victor F. Imbimbo, Jr
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
I, David I. Fann, certify that:
1. I have reviewed this annual report on Form 10-K of UST Private Equity
Investors Fund, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
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3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 29, 2003
/s/ David I. Fann
- --------------------------
David I. Fann, Co-Chief Executive Officer
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
I, Douglas A. Lindgren, certify that:
1. I have reviewed this annual report on Form 10-K of UST Private Equity
Investors Fund, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
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a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 29, 2003
/s/ Douglas A. Lindgren
- --------------------------------
Douglas A. Lindgren, Co-Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Brian F. Schmidt, certify that:
1. I have reviewed this annual report on Form 10-K of UST Private Equity
Investors Fund, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
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c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 29, 2003
/s/ Brian F. Schmidt
- ----------------------------
Brian F. Schmidt, Chief Financial Officer
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