10-Q 1 s215391.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------- 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, 2001 ---------------------------------------------- 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 (I.R.S. Employer of Incorporation or Organization) Identification No.) 114 West 47th Street, New York, NY 10036-1532 ----------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (212) 852-1000 ------------------------- ----------------------------------------------------------------------------- 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, 2001, 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 the Company's actual results to differ from future performance suggested herein.

PART I. FINANCIAL INFORMATION Item 1. Financial Statements.

UST Private Equity Investors Fund, Inc. Notes to Financial Statements (Unaudited) (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 its common stock is registered under the Securities Exchange Act of 1934, as amended. The Company is a non-diversified, closed-end management investment company which has elected to be treated as a business development company under the Investment Company Act of 1940, as amended. The Company commenced operations on August 1, 1995. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted. The following is a summary of the Company's significant accounting policies. (a) Portfolio valuation: In valuing the Company's assets, 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 Manager or a committee of the Board under the supervision of the Board 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 investment 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 Manager 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. (b) Federal income taxes: It is the policy of the Company to continue to qualify as a "regulated investment company" solely for purposes of Subchapter M of the Internal Revenue Code and distribute substantially all of its taxable income to its shareholders. Therefore, no federal income or excise tax provision is required. (2) Purchases and Sales of Securities Purchases and sales of securities for the nine-month period ended July 31, 2001, excluding short-term investments, for the Company aggregated $0 and $1,575,414, respectively. At July 31, 2001, the Company had no outstanding investment commitments. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Nine-Month Period Ended July 31, 2001 as Compared to the Similar Period in 2000 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. This decrease is principally the result of a distribution of $172.84 paid to shareholders on December 22, 2000 and the broad depreciation in value of the private funds held by the Company. The Company's net asset value per common share was $829.89 at July 31, 2000, down $165.96 per share from the net asset value per common share of $995.85 at October 31, 1999. Realized and Unrealized Gains and Losses from Portfolio Investments For the nine-month periods ended July 31, 2001 and 2000, the Company had a net realized gain (loss) on security transactions of $(2,409,308) and $8,221,045, respectively. For the nine-month periods ended July 31, 2001 and 2000, the Company had a net change in unrealized appreciation (depreciation) on investments of $(7,279,752) and $2,405,531, respectively. The net realized loss was the result of the Company's liquidation of its holding in Best Friends Pet Care, Inc. The change in unrealized depreciation was principally the result of an overall decline in the value of the private funds during the nine-month period. Investment Income and Expenses For the nine-months periods ended July 31, 2001, the Company had interest income of $516,428 and net operating expenses of $234,254, resulting in net investment income of $282,174 as compared to interest income of $339,835 and net operating expenses of $436,926 resulting in net investment loss of $(97,091) for the nine-month period ended July 31, 2000. The primary reason for the increase in interest income was an increase in assets invested in short-term instruments. 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 fee is determined and payable quarterly. For the nine-month periods ended July 31, 2001 and 2000, the Managing Investment Adviser earned $185,644 and $349,275 in management fees, respectively. In addition, for the nine- month periods ended July 31, 2001 and 2000, the change in allowance for the Management Incentive Fee was $968,996 (a reduction in accumulated management incentive fees) and $(1,059,880) (an increase in accumulated management incentive fees), respectively. For the same periods, the Managing Investment Adviser reimbursed other operating expenses of the Company in the amount of $161,885 and $100,490, respectively, as a result of expenses incurred in excess of those permitted pursuant to the Company's Prospectus. Net Assets At July 31, 2001, the Company's net assets were $16,037,140, a decrease of $15,431,692 from net assets of $31,468,832 at October 31, 2000. The Company's net assets at July 31, 2000 were $33,579,674, down $6,715,595 from net assets of $40,295,269 at October 31, 1999. 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 three-month period ended July 31, 2001. At July 31, 2001, the Company held $16,496 in cash and $15,336,048 in investments as compared to $0 in cash and $33,028,497 in investments at October 31, 2000. These changes from October 31, 2000 were partially the result of a distribution of $6,993,802, or $172.84 per share, made to shareholders on December 22, 2000. In addition, the value of the private funds has declined since October 31, 2000. The Company has contributed all of its aggregate capital commitments to private funds, a total of $12 million. PART II. OTHER INFORMATION Item 1. Legal Proceedings. Not Applicable Item 2. Changes in Securities. None. Item 3. Defaults upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable Item 5. Other Information. Not Applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. None. (b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UST PRIVATE EQUITY INVESTORS FUND, INC. Date: September 14, 2001 By: /s/ David I. Fann ------------------------------- David I. Fann (Principal Executive Officer) Date: September 14, 2001 By: /s/ Brian F. Schmidt ------------------------------- Brian F. Schmidt (Principal Financial and Accounting Officer)

UST PRIVATE EQUITY INVESTORS FUND INC 10-Q