SUPPLEMENT DATED AUGUST 28, 1995 TO PROSPECTUS
DATED DECEMBER 16, 1994
This Prospectus Supplement (the "Supplement") supplements the
information contained in the Prospectus of UST Private Equity
Investors Fund, Inc. (the "Company") dated December 16, 1994 (the
"Prospectus"). Unless otherwise indicated, all capitalized terms
used herein shall have the same meanings set forth in the
Prospectus.
I. Termination Date for Final Closing for the Company's Shares.
The information below should be read in conjunction with the
information provided in the Prospectus on the cover page,
the section entitled "Prospectus Summary - Terms of the
Offering and Purchase of Shares" (page 5) and "Terms of the
Offering and Purchase of Shares" (page 21).
UST Private Equity Investors Fund, Inc. (the "Company") held
its first closing of the Company's shares (the "Shares") on
July 31, 1995. A total of 28,128 Shares representing
$28,120,000 (3,128 Shares or $3,128,000 in excess of the
minimum required for the Company to have a first closing)
were accepted.
The Company's Prospectus contemplates that the final closing
with respect to the Shares must be held not later than
August 31, 1995. At a meeting held on July 6, 1995, the
Company's Board of Directors (the "Board") approved the
extension of the offering period within which a final
closing may be held from August 31, 1995 to October 31, 1995
(the "Termination Date"). Although management and the Board
believe that the Company will be able to make an adequate
number of investments at the current capitalization level,
management and the Board believe that the anticipated higher
capitalization level following a second closing in October
will permit a greater number and diversity for the Company's
investments.
The transfer agent will maintain records of Share ownership
and will send confirmations and statements of account to
shareholders. At the shareholder's option, the shareholder
may receive Shares in certificated form.
II. Management - Directors, Officers and Investment
Professionals.
The information set forth below should be read in
conjunction with the information provided in the Prospectus
in the section entitled "Management - Directors, Officers and
Investment Professionals" (page 27).
Directors and Officers of the Company
Douglas A. Lindgren, Executive Vice President. Prior to
joining U.S. Trust in April 1995, Mr. Lindgren served in
various capacities for Inco Venture Capital Management, Inc.
("IVCM") from January 1988 through March 1995, including the
positions of President and Managing Principal from January 1993
through March 1995. While at IVCM, Mr. Lindgren invested in
venture capital and buyout transactions and served on the Board
of Directors of several of its portfolio companies. Before
joining IVCM, Mr. Lindgren was employed by Salomon Brothers
Inc and Smith Barney, Harris Upham & Co., Inc. He is an
Adjunct Professor of Finance at Columbia University's
Graduate School of Business, where he teaches courses on
venture capital. Mr. Lindgren holds MBA and BA degrees from
Columbia University.
U.S. Trust Investment Research Division
Ronald A. Fisher, Vice President of U.S. Trust, covers the
productivity enhancers, environmentally-related products and
services, global competitors, and communications and
entertainment investment themes with special focus on
capital goods, water treatment, and entertainment software.
Prior to joining U.S. Trust in 1994, Mr. Fisher worked
variously for Nippon Credit Bank, Citicorp, and Chemical
Bank and was involved primarily in commercial credit.
Assignments have included commercial lending, asset sales
and syndications, short-term finance and product
development, and management of asset-backed/structured
finance business. Mr. Fisher received his BA degree from
Tufts University, and his MBA degree from The Wharton
School at the University of Pennsylvania.
Robert C. Hodgson, Vice President of U.S. Trust, focuses on
the aging of America and global competitors investment
themes with particular emphasis on health care. Prior to
joining U.S. Trust in 1995, Mr. Hodgson worked as a
pharmaceutical analyst for Cowen & Co., Oppenheimer & Co.
and Shearson Lehman, and as an analyst working in finance and
strategic planning for American Optical Corp. and Pfizer.
From 1991 through 1994, he was a runner-up in the
Institutional Investor Survey of pharmaceutical analysts
and ranked in the top four in the Greenwich Survey.
Mr. Hodgson received his BS and MBA degrees from the
University of North Carolina.
Lynn M. Thompson, Vice President of U.S. Trust, covers the
productivity enhancers investment theme with an emphasis on
technology. Prior to joining U.S. Trust in 1995, Ms.
Thompson worked as a securities analyst for Wachovia Bank
and Trust, as a commercial loan officer for Citicorp, as a
senior management consultant for KPMG Peat Marwick, as an
engineer for Harris Corporation, and as an accountant. Ms.
Thompson received her BS degree from Rollins College, and
her MS in Computer Science from Florida Institute of
Technology.
III. Management - Potential Conflicts of Interest.
Subsequent to the preparation of the Prospectus, the Managing
Investment Adviser has agreed to use its best efforts to
provide the Company with a right of first refusal to invest
in any private equity transactions that are brought to the
attention of the Managing Investment Adviser, as described
below. Reflecting the Managing Investment Adviser's desire
to provide the Company with the greatest possible number of
investment opportunities, the following supersedes and should
be read in conjunction with certain of the information
provided in the Prospectus in the section entitled
"Management - Potential Conflicts of Interest" under the
subheading "Conflicts as to Investment Opportunities"
(page 34).
Conflicts as to Investment Opportunities. Such
procedures provide that although the Managing Investment
Adviser cannot guarantee that the Company will have access
to all suitable investment opportunities that may be
considered by its employees for other clients, the
Investment Manager will use its best efforts to provide the
Company with a right of first refusal to invest in any
private equity transactions that are brought to the
attention of the Managing Investment Adviser's investment
management professionals and members of the Managing
Investment Adviser's Management Committee (the
"Management Committee"), except client-directed
investments and any investments reviewed and/or
recommended by Capital Trust Company, a subsidiary of
the Managing Investment Adviser. All investment
management professionals and the Management Committee will
be instructed that the Managing Investment Adviser will use
its best efforts to provide the Company with a right of
first refusal to invest in any private equity transactions
that are brought to the attention of the Managing Investment
Adviser's investment management professionals and the
Management Committee and that investment management
professionals and the Management Committee must therefore
advise the Company of all private equity investment
opportunities of which they become aware.
In situations where the size of the investment
opportunity exceeds the amount of capital the Company seeks
to invest at such time, co-investment with other entities
managed by the Managing Investment Adviser is permitted,
subject to applicable restrictions of the Investment Company
Act.
The Managing Investment Adviser will deliver to the
disinterested Directors of the Company a quarterly report of
the private equity investment opportunities considered by
the Managing Investment Adviser's investment management
professionals.
If the Company rejects an investment opportunity for
any reason, the Managing Investment Adviser or its
affiliates will be permitted to accept it for its own
account or on behalf of other clients. Following each
fiscal quarter of the Company, the Managing Investment
Adviser will furnish the Board of Directors with information
on a confidential basis as to any investments made by the
Managing Investment Adviser or its affiliates for their own
accounts or the accounts of other entities during the prior
year of the types eligible for investment by the Company.
The Managing Investment Adviser and its affiliates will
endeavor to resolve conflicts with respect to investment
opportunities in a manner deemed equitable to all, to the
extent possible under the prevailing facts and
circumstances.
PROSPECTUS
UST PRIVATE EQUITY INVESTORS FUND, INC.
50,000 Shares of Common Stock 50,000,000
$1,000 Per Share
Minimum Investment-15 Shares
UST Private Equity Investors Fund, Inc., a Maryland
corporation (the "Company") is a newly organized, non-
diversified, closed-end management investment company which has
elected status as a business development company ("BDC") under
the Investment Company Act of 1940, as amended (the "Investment
Company Act") and which has registered its shares (the "Shares")
under the Securities Act of 1933, as amended (the "Securities
Act"). 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, subject
to the limitations of the Investment Company Act, in certain
venture capital, buyout and private equity funds which the
Managing Investment Adviser (defined below) believes offer
significant long-term capital appreciation. There is no
assurance that the Company's investment objective will be
attained. Current income will not be a factor in the selection
of investments. By statute, the Company must invest at least 70%
of its assets in specified investments including "eligible
portfolio companies" (as defined in the Investment Company Act).
See "The Company" and "Regulation."
United States Trust Company of New York is the Managing
Investment Adviser of the Company ("U.S. Trust" or the "Managing
Investment Adviser") and is responsible for the Company's private
equity investments. The Managing Investment Adviser is organized
under the laws of New York. The Managing Investment Adviser will
perform the management and administrative services necessary for
the operation of the Company. See "Management."
This Prospectus sets forth concisely the information about
the Company that a prospective investor should know before
investing and should be retained for future reference. The
address of the Company is 114 West 47th Street, New York, New
York 10036-1332, and its telephone number is (212) 852-1000.
There is no public market for the Shares and none is expected to
develop. If the Shares are listed on a securities exchange or
quoted on NASDAQ in the future, there is no assurance that an
active trading market will develop. If, however, an active
trading market does develop, the tendency of shares of closed-end
investment companies to trade frequently at a discount from net
asset value creates a risk of loss for investors purchasing
Shares in this offering.
The minimum number of Shares that may be purchased by an
investor is 15 Shares and the minimum investment amount is
$15,000.
Investors may obtain other information or make inquiries
about the Company by writing or calling the Company at
(212) 852-1000.
Shares of the Company are not deposits or obligations of, or
guaranteed or endorsed by, U.S. Trust, and the Shares are not
insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency.
______________________
THESE ARE SPECULATIVE SECURITIES. THE COMPANY IS A NEWLY
ORGANIZED ENTITY AND THE COMPANY'S SECURITIES HAVE NO
HISTORY OF PUBLIC TRADING. AN INVESTMENT IN
THE SECURITIES OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
______________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
___________________________________________________________________
Sales Load
Underwriting
Price Discounts Proceeds
to and to
Public(1) Commissions Company(2)
<F1> <F2>
___________________________________________________________________
Per Share (15
Share minimum).... $1,000 None $1,000
Total Minimum
(25,000 Shares) $25,000,000 None $25,000,000
Total Maximum
(50,000 Shares) $50,000,000 None $50,000,000
___________________________________________________________________
<F1> (1) The Shares are made available through U.S. Trust
Company of California, N.A. (the "Selling Agent")
or certain sub-selling agents to clients of U.S.
Trust and its affiliates who meet the investor
suitability standards set forth herein. See
"Investor Suitability Standards" and "Selling
Arrangements."
<F2> (2) Before deducting organizational and initial offering
expenses estimated at $221,500 payable by the Company.
The Company reserves the right to withdraw, cancel or modify
the offering and to reject any subscription in whole or in part.
The offering will terminate on May 31, 1995 or such other
subsequent date not later than August 31, 1995 as the Managing
Investment Adviser and the Company may determine (the "Termination
Date"). If a minimum of 25,000 Shares or $25,000,000 has not been
subscribed for by the Termination Date, the offering will terminate
and all proceeds from the offering will be refunded to investors
with any interest earned thereon and without any deductions. Funds
paid by investors will be deposited in an interest-bearing bank
escrow account with U.S. Trust pending each closing. It is
expected that a first closing will be held and that certificates
representing the Shares will be delivered on or about the fifth
business day after receipt by U.S. Trust of subscription funds
representing 25,000 Shares or $25,000,000. The Company may
continue to offer for sale the remaining unsold Shares and accept
subscriptions for such Shares from time to time at subsequent
closings until the earlier of the Termination Date or the date all
the Shares are sold.
The date of this Prospectus is December 16, 1994
FEE TABLE
Stockholder Transaction Expenses
Sales Load
Underwriting Discounts and Commissions . . . . . . None
Annual Expenses (as a percentage of net assets attributable to
common shares)
Management Fees . . . . . . . . . . . . . . . . 1.50%*
Other Expenses. . . . . . . . . . . . . . . . . 0.42%**
Total Annual Expenses . . . . . . . . . . . . . 1.92%
* Does not include the Managing Investment Adviser's incentive
fee of 10% of the Company's cumulative realized capital gains
(net of realized capital losses and unrealized net capital
depreciation), less the aggregate incentive fee payments in
prior years. The Management Fee will amount to 1.5% of the
Company's net assets, determined as of the end of each
calendar quarter, that are invested or committed to be
invested in Portfolio Companies and Private Funds (each
defined below) and will amount to 0.5% of the Company's net
assets, determined as of the end of each calendar quarter,
that are invested in Short-Term Investments (defined below)
and are not committed to Portfolio Companies or Private Funds.
See "Investment Objective and Policies," "Management" and
"Regulation."
** "Other Expenses" are based on estimated amounts for the
current fiscal year and may be less than the maximum of 0.42%
of the Company's net assets if actual expenses incurred by the
Company are lower. U.S. Trust has agreed to waive or
reimburse such expenses to the extent they exceed 0.42% of the
Company's net assets and U.S. Trust will waive or reimburse
all such expenses with respect to that portion of the
Company's net assets, determined as of the end of each
calendar quarter, that is invested in Short-Term Investments.
"Other Expenses" include organizational expenses of
approximately $25,000 and offering expenses of approximately
$196,500. See "Management -- Expenses of the Company."
__________________________________________________________________
Example 1 year 3 years 5 years 10 years
__________________________________________________________________
You would pay the
following expenses
on a $1,000
investment, assuming
a 5% annual return:
Example 1(1) <F1>. . . $20 $60 $104 $225
Example 2(2) <F2>. . . $25 $75 $129 $276
_________________________________________________________________
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN
IN THE EXAMPLES.
The purpose of the above table is to assist the investor in
understanding the various costs and expenses that an investor in
the Company will bear directly or indirectly. For a more complete
description of the various costs and expenses, see "Management."
<F1> (1) Assumes Management Fee of 1.50% of the Company's net
assets and does not include the Managing Investment Adviser's
incentive fee of 10% of the Company's 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.
<F2> (2) Assumes Management Fee of 1.50% of the Company's net
assets and includes the Managing Investment Adviser's incentive
fee of 10% of the Company's cumulative realized capital gains (net
of realized capital losses and unrealized net capital
depreciation). These expense estimates are based on the assumption
that the entire 5% annual return is the result of realized
capital gains.
AVAILABLE INFORMATION
As of the effective date of this Prospectus, the Company will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith will file reports, proxy
statements and annual reports and other information with the Securities and
Exchange Commission (the "Commission"). The reports, proxy statements and
annual reports and other information filed by the Company can be inspected
and copied at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
certain of its Regional Offices located at 7 World Trade Center, New York,
New York 10048 and Northwest Atrium Center, 500 Madison Street, Room 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
REPORTS TO STOCKHOLDERS
The Company will furnish to its stockholders annual reports
containing audited financial statements and such other periodic reports as
it may determine to furnish or as may be required by law.
INVESTOR SUITABILITY STANDARDS
THE PURCHASE OF SHARES INVOLVES SIGNIFICANT RISKS AND IS NOT A
SUITABLE INVESTMENT FOR ALL POTENTIAL INVESTORS. See "Risk Factors."
Substantial Means and Net Worth. An investment in the Shares is
suitable only for investors who have no need for liquidity in this
investment and who have adequate means of providing for their annual needs
and contingencies. Accordingly, no Shares will be sold to a prospective
investor unless such investor (i) has a net worth (exclusive of homes, home
furnishings and automobiles) of $250,000 or (ii) has a net worth (exclusive
of homes, home furnishings and automobiles) of $60,000 and expects to have
during each of the current and the next three tax years income from any
source of $60,000 or more. Shares will not be sold to a trust account
unless such trust account has total assets in excess of $1,000,000.
Residents of certain states are required to represent that they meet the
investor suitability standards established by such state. See "Terms of
the Offering and Purchase of Shares -- Investor Suitability Standards."
Ability and Willingness to Accept Risks. The economic benefit from
an investment in the Company depends upon many factors beyond the control
of the Company and the Managing Investment Adviser. The Company's
investments involve a high degree of business and financial risk that can
result in substantial losses. See "Risk Factors." Accordingly, the
suitability for any particular investor of a purchase of the Shares will
depend upon, among other things, such investor's investment objectives and
ability to accept speculative risks. The Shares are not a suitable
investment for investors seeking current income.
Ability to Accept Limitations on Transferability. Investors may not
be able to liquidate their investment in the event of an emergency or for
any other reason because there is not now any public market for the Shares
and none is expected to develop.
Retirement Account Considerations. Most financial and tax planning
experts recommend a balanced investment portfolio for retirement savings
and suggest that the amount of funds to be invested by an employee benefit
plan or a retirement account in high-risk securities, such as the Shares,
be appropriate to an investor's particular retirement savings needs. The
Company recommends that any purchase of Shares be considered accordingly.
Purchases on Behalf of Minors. In the case of a custodian purchasing
Shares on behalf of a minor pursuant to the Uniform Gifts to Minors Act,
(i) if the funds used for the purchase of the Shares are funds gifted from
a donor (who is normally the custodian for and the parent of the minor) to
the minor at the time of purchase of the Shares, then the donor must meet
the financial suitability standards set forth under "Investor Suitability
Standards" and (ii) if the funds used for the purchase of the Shares are
funds belonging to the minor prior to the time of the purchase of the
Shares, then the minor must meet such financial suitability standards.
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein. Each prospective investor is urged
to read this Prospectus in its entirety.
The Company
UST Private Equity Investors Fund, Inc., a Maryland corporation (the
"Company") is a non-diversified, closed-end management investment company
which has elected to be treated as a business development company ("BDC")
under the Investment Company Act. The Company aims to provide investors
with the opportunity to participate with a minimum investment of $15,000 in
direct private equity investments and privately offered investment funds
managed by third parties. These investment opportunities are generally not
available to the public and typically require substantially larger
commitments than the minimum investment in the Company. Other advantages
which generally are not available to investors who engage directly in
private equity investments include professional management, investment and
portfolio diversification, and administrative convenience. See "The
Company."
Investment Objective and Policies
The Company's investment objective is to achieve long-term capital
appreciation, rather than current income, by investing at least 70% of its
assets in private later-stage venture capital companies ("Later-Stage
Venture Capital Companies") and private middle-market companies
("Middle-Market Companies"). Later-Stage Venture Capital Companies and
Middle-Market Companies are companies in which the equity is closely held
by company founders, management and/or a limited number of institutional
investors (Later-Stage Venture Capital Companies and Middle-Market
Companies, collectively, the "Portfolio Companies"). Subject to the
limitations of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), the Company also intends to invest up to 30% of
its assets in privately offered venture capital, buyout and private equity
funds ("Private Funds") managed by third parties which have attractive
investment return prospects and offer compelling strategic benefits to the
Company. Pending investment, for operating purposes and for temporary or
emergency purposes, the Company will make liquid investments in
interest-bearing bank accounts, money market mutual funds, U.S. Treasury
securities and/or certificates of deposit with maturities of less than one
year, commercial paper, and other short-term securities (collectively, the
"Short-Term Investments"). The Company expects to maintain approximately
10% of its assets in Short-Term Investments in order to pay for operating
expenses and to meet contingencies. The Company will seek to invest in
opportunities consistent with the investment philosophy of U.S. Trust
including the portfolio strategies and investment themes approach used by
U.S. Trust in its investment management and advisory business. Following
its initial investments in Portfolio Companies, the Company anticipates
that it may be called upon to provide additional funds to Portfolio
Companies or have the opportunity to increase investments in successful
operations. The Company may from time to time borrow funds for operating
purposes in an amount up to 25% of its total assets to facilitate the
making of follow-on investments, to maintain its pass-through tax status or
to pay contingencies and expenses. The Company will not borrow to pay the
management fee payable to the Managing Investment Adviser. See "Risk
Factors-Borrowing." There can be no assurance that the Company's
investment objective will be attained. See "Investment Objective and
Policies."
Management and Compensation
U.S. Trust is the Managing Investment Adviser and is responsible for
identifying, evaluating, structuring, monitoring and disposing of the
Company's investments and providing, or arranging for suitable third
parties to provide, any and all management and administrative services
reasonably necessary for the operation of the Company and the conduct of
its business. The Managing Investment Adviser will also make available
personnel and services to Portfolio Companies requiring managerial
assistance.
The Company will pay the Managing Investment Adviser a management fee
equal to 1.5% of the Company's net assets that are invested or committed to
be invested in Portfolio Companies or Private Funds and equal to 0.5% of
the Company's net assets that are invested in Short-Term Investments and
are not committed to be invested in Portfolio Companies or Private Funds.
In addition, the Managing Investment Adviser will receive an incentive fee
equal to 10% of the Company's 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, for providing
advisory and administrative services to the Company. See "Management."
Terms of the Offering and Purchase of Shares
The Company is offering up to 50,000 Shares of Common Stock at a
price per Share of $1,000. The minimum investment is $15,000, or 15
Shares. The offering will terminate on May 31, 1995 or such other
subsequent date not later than August 31, 1995 as the Managing Investment
Adviser and the Company may determine (the "Termination Date"). If a
minimum of 25,000 Shares or $25,000,000 has not been subscribed for by the
Termination Date, the offering will terminate and all proceeds from the
offering will be refunded to investors with any interest earned thereon.
See "Risk Factors-Minimum Proceeds; Funding and Portfolio Balance." The
Company may continue to offer for sale the remaining unsold Shares and
accept subscriptions for such Shares from time to time at subsequent
closings until the earlier of the Termination Date or the date all the
Shares are sold. Each Subscriber will be required to complete, execute and
deliver to the Selling Agent an executed copy of the Subscription Agreement
substantially in the form attached hereto as Exhibit A (the "Subscription
Agreement"). Funds paid by subscribers will be deposited in an
interest-bearing bank escrow account with U.S. Trust pending each closing.
Any change in the price of the Shares will be set forth in a supplement to
this Prospectus. See "Terms of the Offering and Purchase of Shares."
Use of Proceeds
The Company intends to apply the net proceeds of this offering to
make investments in furtherance of its investment objective and policies.
The Company intends to invest or commit to invest at least 65% of the
proceeds of sales of the Shares in Portfolio Companies within the earlier
of (i) two years after the Termination Date, or (ii) two and one-half years
after the effective date of this Prospectus. See "Use of Proceeds" and
"Risk Factors-Unspecified Use of Proceeds."
Risk Factors
The Shares offered hereby involve a high degree of risk relating to
both the Company, and to the Company's investments. Such risks include,
but are not limited to, the Company's lack of operating history,
transactions with affiliates and potential conflicts of interest, limited
public market for the Shares of the Company, risks associated with and
illiquidity of private equity investments, the possible need for follow-on
investments in Portfolio Companies, competition for investments, lack of
diversification in the Company's portfolio and risks relating to
regulation. Investors should carefully review the section entitled "Risk
Factors" in this Prospectus prior to investing in the Company.
Description of Shares
The duration of the Company will be ten years from the final closing
of the sale of Shares, however, the Managing Investment Adviser has the
right, in its sole discretion, to extend the term for up to two additional
two-year periods, after which the approval of investors who represent 66
2/3% of the Company's outstanding Shares may determine to extend the term
of the Company. Upon the expiration of the Company's term, the Company
will be dissolved and the Company's portfolio securities will be sold.
Each stockholder will receive a pro rata share of the net proceeds of such
sale. See "Description of Shares."
Selling Arrangements
The Shares are made available through the Selling Agent to clients of
U.S. Trust and its affiliates who meet the investor suitability standards
set forth herein. The Selling Agent may enter into agreements with one or
more sub-selling agents to arrange for the sale of the
Shares in certain states. Residents of certain states are required to
represent that they meet the investor suitability standards established by
such state. See "Investor Suitability Standards" and "Selling
Arrangements."
Federal Income Tax Matters
The Company intends to elect the special income tax treatment
available to "regulated investment companies" under subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). As a result of
such election, the Company will not be subject to federal income tax on
that part of its net investment income and realized capital gains which it
pays to its stockholders. See "Federal Income Tax Matters."
THE COMPANY
The Company is a newly organized, non-diversified, closed-end
management investment company which has elected to be treated as a business
development company or BDC under the Investment Company Act of 1940, as
amended (the "Investment Company Act") and which has registered its
securities under the Securities Act of 1933, as amended (the "Securities
Act"). The Company's investment objective is to achieve long-term capital
appreciation, rather than current income, by investing in private equity
securities of Later-Stage Venture Capital Companies and Middle-Market
Companies and, subject to the limitations of the Investment Company Act, in
Private Funds which the Managing Investment Adviser believes offer
significant long-term capital appreciation. In addition, the Company will
offer managerial assistance to certain Portfolio Companies. The Board of
Directors may change the Company's status as a BDC under the Investment
Company Act only with the vote of a majority of the outstanding Shares.
The Company provides investors with the opportunity to participate in
investments which are generally not available to the public and typically
require substantially larger financial commitments than the minimum
investment in the Company. The Company is managed by the Managing
Investment Adviser under the supervision of its Board of Directors. The
Company was incorporated in Maryland on September 16, 1994. The Company's
principal office is located at 114 West 47th Street, New York, New York
10036-1332, and its telephone number is (212) 852-1000.
As a BDC, the Company will invest at least 70% of its assets
("qualifying assets") in securities of companies that qualify as "eligible
portfolio companies" under the Investment Company Act. An eligible
portfolio company generally is a United States company that is not an
investment company and that (i) does not have a class of securities
registered on an exchange or included in the Federal Reserve Board's
over-the-counter margin list; or (ii) is actively controlled by a BDC
either alone or as part of a group acting together and has an affiliate of
a BDC on its board of directors; or (iii) meets such other criteria as may
be established by the Commission. Control under the Investment Company Act
is presumed to exist where a BDC either alone or as part of a group acting
together owns more than 25% of the outstanding voting securities of the
eligible portfolio company. The Company may maintain up to a maximum of
30% of its assets as non-qualifying assets; however, the Company intends to
retain maximum flexibility in connection with its investments and,
therefore, does not have a policy as to the minimum percentage of its
assets that will be so invested. The Company expects to maintain
approximately 10% of its assets in Short-Term Investments in order to pay
for operating expenses and to meet contingencies. Short-Term Investments
will qualify for determining whether the Company has 70% of its total
assets invested in eligible portfolio securities.
With respect to investment of qualifying assets, the Company intends
to place its emphasis on direct and secondary purchases of:
. Private placements of Later-Stage Venture Capital Companies.
. Private placements of Middle-Market Companies.
The Company intends to invest non-qualifying assets directly or on a
secondary basis primarily in Private Funds.
The Company has no fixed policy concerning the types of businesses or
industry groups in which it will invest or as to the amount of funds that
it will invest in any one issuer; however, the Company currently intends to
limit its investment in any one issuer to 10% of its net assets, at the
time of investment. The foregoing is not a fundamental policy of the
Company and may be changed without stockholder approval. In addition,
because of the Company's election to be treated as a "regulated investment
company" under the Code, the Company will be subject to the diversification
requirements of the Code. See "Federal Income Tax Matters."
The Company will originate its investment opportunities from many
sources including unsolicited proposals from the public, personal contacts
of the Managing Investment Adviser or its affiliates, other venture
capitalists, buyout and private equity investors and referrals from
investment banks, commercial banks, lawyers, accountants and other members
of the financial community, including U.S. Trust personnel. Mr. David I.
Fann, the President and Chief Executive Officer of the Company and the
Division Manager of the Alternative Investments Division of U.S. Trust, has
principal responsibility for evaluating, structuring and selecting the
Company's investments subject to the review and approval of the Investment
Committee of the Managing Investment Adviser.
In general, the Company will make its direct equity investments in a
manner consistent with the general investment philosophy employed by U.S.
Trust in its investment management advisory business. U.S. Trust believes
in following a long-term investment philosophy based on identifying
opportunities with sustainable fundamental values. Such values may be
found in a company's future earnings potential or in its existing resources
and assets. See "Investment Objective and Policies."
RISK FACTORS
The Shares offered hereby involve a high degree of risk, including,
but not limited to, the risk factors described below. Each prospective
investor should carefully consider the following risk factors inherent in
and affecting the business of the Company and this offering before making
an investment decision. Prospective investors should consider the
information set forth under "Management -- Potential Conflicts of
Interest."
A. Risks Related to the Company
Lack of Operating History
While key personnel of the Managing Investment Adviser and its
affiliates have considerable experience in private equity investing, the
Company has recently been formed and has no operating history upon which an
investor may base an evaluation of the likely performance of the Company.
Minimum Proceeds; Funding and Portfolio Balance
The Company will begin operations upon the sale of a minimum of
25,000 Shares or a minimum capitalization of approximately $25,000,000.
The number of investments, portfolio balance and potential profitability of
the Company could be affected by the amount of funds at its disposal, and,
with the minimum capitalization, the Company's investment return might be
adversely affected. The funding level could negatively impact the number
and diversity of investments, increasing the Company's volatility and risk.
Reliance on the Managing Investment Adviser
The investment decisions of the Company will be made exclusively by
the Managing Investment Adviser. Investors will have no right or power to
take part in the management of the Company and will not receive the
detailed financial information made available by issuers to the Managing
Investment Adviser in connection with the review of possible purchases for
the Company's portfolio. Accordingly, investors must be willing to entrust
all management aspects of the Company to the Managing Investment Adviser.
Regulation
The Company has elected to be treated as a BDC under the Investment
Company Act. The applicable provisions of the Investment Company Act
impose numerous restrictions on the activities of the Company, including
restrictions on the nature of its investments, its use of leverage and its
issuance of securities, options, warrants or rights. Among the
restrictions is the requirement that a majority of the directors be
individuals who are not "interested persons" within the meaning of the
Investment Company Act and that the Company must generally invest at least
70% of its assets in securities of companies that meet the requirements for
"eligible portfolio companies" under the Investment Company Act. In
addition, a BDC must make significant managerial assistance available to a
significant number of the companies whose securities it purchases. The
Managing Investment Adviser believes that the constraints applicable to
BDCs are consistent with the objective of the Company. However, such
constraints could prohibit the Company from taking advantage of some
potentially attractive investment opportunities that might otherwise be
available if such an investment would not disqualify the Company from its
status as a BDC.
While the Company is not aware of any judicial rulings under, and is
aware of only a few administrative interpretations of the portions of the
Investment Company Act applicable to the Company, there can be no assurance
that such provisions will be interpreted or administratively implemented in
a manner consistent with the Company's objective and intended manner of
operation. In the event that the Board of Directors determines that it
cannot operate effectively as a BDC, the Board of Directors may at some
future date decide to withdraw the Company's election to be treated as a
BDC and transform it into an operating company not subject to regulation
under the Investment Company Act and the special income tax provisions
available to "regulated investment companies" under the Code, or cause the
Company to be liquidated. Should the Board of Directors seek to withdraw
such election, it must obtain the approval of investors who represent a
majority of the Company's outstanding Shares. See "Regulation."
Transactions with Affiliates; Potential Conflicts of Interest
The Investment Company Act restricts transactions between the Company
and any "affiliated person" (as defined in the Investment Company Act)
including, among others, the Company's officers, Directors, principal
stockholders and employees, and any other affiliates of the Company. In
many cases, the Investment Company Act prohibits transactions between the
Company and such persons unless the Company first applies for and obtains
an exemptive order from the Commission. Delays and costs involved in
obtaining necessary approvals may decrease the profitability of such
transactions or make it impracticable or impossible to consummate such
transactions. Further, provisions of the Federal Reserve Act impose
restrictions on certain types of transactions ("covered transactions")
between a member bank and its affiliates, as defined in those provisions.
For purposes of these provisions, the Company is an "affiliate" of the
Managing Investment Adviser.
Prior to commencement of operations, the Company's Board of Directors
will implement written procedures approved by a majority of the
disinterested Directors that are designed to regulate investment activity
by affiliates in conflict with or in conjunction with the Company's
activities, including adopting a code of ethics containing provisions
designed to prevent employees from engaging in acts prohibited by Rule
17j-1 under the Investment Company Act. However, circumstances could
develop which would require Commission approval in advance of proposed
transactions by the Managing Investment Adviser or its affiliates with
Portfolio Companies or their affiliates. Depending upon the extent of the
Managing Investment Adviser's or any of its affiliates' influence and
control with respect to such Portfolio Companies, the selection of the
Managing Investment Adviser or any of its affiliates to perform various
services for Portfolio Companies may not be a disinterested decision and
the terms and conditions for the performance of such services and the
amount and terms of compensation to be received therefor may not be
determined in arms-length negotiations, although the terms and conditions
of any such selection are expected to be consistent with those which would
be offered in good faith to an unaffiliated third party retained to provide
such services. The selection of the Managing Investment Adviser or any of
its affiliates to perform services for a Portfolio Company must be approved
by a majority of the disinterested Directors of the Company and the
independent and disinterested directors of the Portfolio Company.
In addition, officers or Directors of the Company or its affiliates,
including the Managing Investment Adviser, may serve as directors of or as
consultants to certain Portfolio Companies and, in connection therewith,
may earn consulting fees, finder's fees, and other fees and commissions,
which may be paid in the form of cash, securities or other forms of
consideration. While the Managing Investment Adviser is obligated to use
its best efforts to provide the Company with a continuing and suitable
investment program consistent with its investment objective and policies,
the Managing Investment Adviser is not required to present to the Company
any particular investment opportunity that falls within the investment
objective and policies of the Company except as set forth in the procedures
adopted by the Company's Board of Directors. Such procedures provide that
although the Managing Investment Adviser cannot guarantee that the Company
will have access to all suitable investment opportunities that may be
considered by its employees for other clients, the Managing Investment
Adviser will endeavor to present to the Company's management on an equal
basis investment opportunities that are suitable for both the Company and
other entities for which the Managing Investment Adviser provides
discretionary investment advisory services. The Company's Portfolio
Companies may also enter into certain financial arrangements including
loans and guarantees of the Portfolio Company's obligations with the
Company and/or its affiliates subject to appropriate regulatory guidelines
or approvals as required. The Managing Investment Adviser and its
affiliates will not enter into any such arrangement with a Portfolio
Company unless such arrangement has been approved by a majority of the
disinterested Directors of the Company and by the independent directors of
the Portfolio Company who also have no interest in the arrangement.
Additionally, the Company may from time to time co-invest in Portfolio
Companies with the Managing Investment Adviser or one of its affiliates,
subject to appropriate regulatory guidelines or approvals as required.
Management may file on behalf of the Company an application for an
exemptive order from the Commission with respect to proposed joint
investments by the Company and certain of its affiliates in Portfolio
Companies; however, no assurances can be given that an exemptive order will
be granted to the Company. Because of their potentially varying investment
objectives or other factors, conflicts could arise between the Company and
its affiliates relating to such co-investments, which can only be resolved
through the exercise by the Managing Investment Adviser of such judgment as
is consistent with its fiduciary duties to the Company. Even with the
proper exercise of such judgment, however, there can be no assurance that
potential conflicts will be resolved in a manner favorable to the Company.
The Company will not have independent management or employees and will rely
upon the Managing Investment Adviser and its affiliates for management and
administration of the Company and its assets. Conflicts of interest may
arise in allocating management time, services or functions between the
Company and other entities for which the Managing Investment Adviser and
its affiliates may provide similar services. The Company's Board of
Directors will supervise the activities of the Managing Investment Adviser.
See "Management - Potential Conflicts of Interest."
Unspecified Use of Proceeds
Inasmuch as the Company has not identified the particular uses for
the net proceeds from this offering other than to make investments on the
basis of opportunities as they may arise, prospective investors must rely
on the ability of the Managing Investment Adviser to identify and make
portfolio investments consistent with the Company's investment objective.
Investors will not have the opportunity to evaluate personally the relevant
economic, financial and other information which will be utilized by the
Managing Investment Adviser in deciding whether or not to make a particular
investment or to dispose of any such investment. See "Use of Proceeds."
Federal Income Taxation
The Company intends to elect to be treated as a "regulated investment
company" under subchapter M of the Code. As a result of such election, the
Company will not be subject to federal income tax on that part of its
investment income and realized capital gains which it pays out to its
stockholders. However, to the extent it makes insufficient distributions,
the Company will be subject to a nondeductible 4% excise tax and may lose
pass-through tax treatment under subchapter M. See "Federal Income Tax
Matters."
Limited Public Market for the Shares; Trading Below Net Asset Value
There is no public market for the Shares and none is expected to
develop. The Shares initially will not be listed on a securities exchange
or quoted on NASDAQ. The Company may subsequently consider applying to
have the Shares listed or quoted, however, there is no assurance that the
Shares will ever be listed or quoted or that an active trading market for
the Shares will develop and if a market does develop, it may be small and
inactive. In addition, any purchasers must meet applicable investor
suitability standards. Consequently, investors may not be able to
liquidate their investment in the event of emergency or any other reason.
To the extent that the Shares may be listed on a securities exchange or
quoted on NASDAQ, investors should note that shares of closed-end
investment companies such as the Company often trade at prices different
from their net asset value and frequently trade at a discount from net
asset value. See "Regulation."
B. General Risks of Investments
Risks of Private Equity Investments
While the Company will be a non-diversified company as defined by the
Investment Company Act, it does not expect to invest more than 10% of its
total assets in any one Portfolio Company or Private Fund. The Company's
investment in Private Funds serves to further diversify its holdings.
Since the Company's assets may be concentrated in relatively few
investments, substantial declines in the values of its investments could
have a material adverse effect on the net asset value of the Company.
Although private equity investments offer the opportunity for significant
capital gains, such investments involve a high degree of business and
financial risk that can result in substantial losses. Among these are the
risks associated with investment in companies in an early stage of
development or with little or no operating history, companies operating at
a loss or with substantial variation in operating results from period to
period, companies with the need for substantial additional capital to
support expansion or to maintain a competitive position, or companies with
significant financial leverage. Such companies may also face intense
competition from others including those with greater financial resources,
more extensive development, manufacturing, distribution or other
attributes, over which the Company will have no control. The Company
anticipates that it may also make investments in high-technology companies
that may face risks of product obsolescence.
Illiquidity of Private Equity Investments
Because of the competition for investments that meet the requirements
for "qualifying assets," the Company anticipates that it may take up to
four years before it is fully invested or committed to invest in Portfolio
Companies. Private equity investments may typically take from four to
seven years from the date of initial investment to reach a state of
maturity at which disposition can be considered. In light of the
foregoing, it is unlikely that any significant distribution of the proceeds
from the disposition of private equity investments will be made until the
later years of the Company's term.
The Company's private equity investments will consist primarily of
securities that are subject to restrictions on sale by the Company because
they were acquired from the issuer in "private placement" transactions or
because the Company is deemed to be an affiliate of the issuer. Generally,
the Company cannot sell these securities publicly without the expense and
time required to register the securities under the Securities Act or sell
the securities under Rule 144 or other rules under the Securities Act which
permit only limited sales under specified conditions. When restricted
securities are sold to the public, the Company may be deemed an
"underwriter" or possibly a controlling person under the Securities Act and
be subject to liability as such under the Securities Act.
In addition, contractual or practical limitations may inhibit the
Company's ability to sell, distribute or liquidate its investments in
Portfolio Companies because the issuers are privately held, because the
Company owns a relatively large percentage of the issuer's outstanding
securities, or because joint venture associates, other investors, financial
institutions, or management are relying on the Company's continued
investment. Sales may also be limited by financial market conditions,
which may be unfavorable for sales of securities of particular issuers or
issuers in particular markets. The above limitations on liquidity of the
Company's portfolio investments could prevent a successful sale and result
in the delay of any sale or reduction in the amount of proceeds that might
otherwise be realized. Although the Company will reflect these restrictive
factors in the valuation of its investments, no assurance can be given that
the estimated values will represent the return that might ultimately be
realized by the Company from the investment. See "Valuation of Portfolio
Securities."
Need for Follow-On Investments
Following its initial investments in Portfolio Companies, the Company
anticipates that it may be called upon to provide additional funds to
Portfolio Companies or have the opportunity to increase investments in
successful operations. Although the Company may borrow to make follow-on
investments, there is no assurance that the Company will make follow-on
investments or that the Company will have sufficient funds to make such
investments. Any decision by the Company not to make follow-on investments
or its inability to make them may have a substantial impact on Portfolio
Companies in need of such an investment or may result in a missed
opportunity for the Company to increase its participation in a successful
operation.
Competition for Investments
The Company expects to encounter competition from other entities
having similar investment objectives which may include others that may be
affiliated with the Managing Investment Adviser. Historically, the primary
competition for venture capital, buyout, and other private equity
investments has been from venture capital, buyout and private equity
partnerships and corporations, private equity affiliates of large
industrial and financial companies, small business investment companies,
and wealthy individuals. The Company will frequently be a co-investor with
other professional venture capital, private equity or leveraged buyout
groups including several in which the Company may be an investor. These
relationships with other groups should expand the Company's access to
investment opportunities.
In addition, it is possible that there may be circumstances under
which an additional investment would be considered an affiliated
transaction, requiring prior Commission approval. The receipt of an
exemptive order from the Commission could be time consuming and costly and
there can be no assurance that such approval would be obtained. Moreover,
inasmuch as the Company intends to elect to be taxed as a "regulated
investment company" under subchapter M of the Code, the ability to make
additional investments could be restricted by the diversification
requirements of subchapter M.
Borrowing
In general, the Company does not intend to borrow funds for
investment purposes. However, the Company may borrow funds to facilitate
the making of follow-on investments, to maintain its pass-through tax
status as a regulated investment company under subchapter M of the Code or
to pay contingencies and expenses. The Company is permitted under the
Investment Company Act to borrow funds if, immediately after the borrowing,
it will have an asset coverage (as defined in the Investment Company Act)
of at least 200%. The amount and nature of any
borrowings will depend upon a number of factors over
which neither the Board of Directors nor the Managing Investment Adviser
has control, including general economic conditions, conditions in the
financial markets and the impact of the financing on the tax treatment of
the Company's stockholders. The Company may borrow funds in an amount up
to 25% of the value of its assets for operating purposes. The Company will
not borrow to pay the management fee payable to the Managing Investment
Adviser. See "Investment Objective and Policies-Borrowing."
Although the Company does not intend to borrow funds to increase the
size of its investment portfolio, the use of leverage even on a short-term
basis could have the effect of magnifying increases or decreases in the
Company's net asset value. The Company also expects that, as a condition
to lending, lenders may place restrictions on the Company, which may
include reserve requirements or operating restrictions, and may limit the
ability of the Managing Investment Adviser to control investments or their
refinancing and the ability of the Company to make distributions to
stockholders. There can be no assurance that debt financing will be
available on terms that the Managing Investment Adviser considers to be
acceptable and in the best interests of the Company. If borrowing is
unavailable, the Company may be required to make an untimely disposition of
an investment or lose its pass-through tax status at some point in the
future. Failure by the Company to distribute a sufficient portion of its
net investment income and net realized capital gains could result in a loss
of its pass-through tax status and/or subject the Company to a 4% excise
tax. See "Federal Income Tax Matters."
Lack of Diversification
Based on the limited funds realized from this offering, it is
unlikely that the Company will be able to commit its funds to the
acquisition of securities of a large number of companies or to direct its
investments to diverse areas. Although the Company intends to elect to be
taxed under subchapter M of the Code and will therefore be required to meet
certain diversification requirements thereunder, the Company intends to
operate as a non-diversified investment company within the meaning of the
Investment Company Act and, therefore, the Company's investments may not be
substantially diversified. In any event, the Company will not be able to
achieve the same level of diversification as much larger entities engaged
in similar activities. The Company's assets may be subject to greater risk
of loss than if they were more widely diversified, inasmuch as the failure
of one or more of a limited number of investments could have a greater
adverse effect on the Company than the failure of one of a large number of
investments. See "Investment Objective and Policies."
INVESTMENT OBJECTIVE AND POLICIES
General
The investment objective of the Company is to seek long-term capital
appreciation by making private equity investments in companies and certain
privately offered funds which the Managing Investment Adviser believes
offer significant long-term growth. Current income will not be a
significant factor in the selection of investments. As a BDC, the Company
will invest at least 70% of its assets ("qualifying assets") in certain
specified investments including securities of companies that qualify as
"eligible portfolio companies" under the Investment Company Act. The
Company may maintain up to a maximum of 30% of its assets in non-qualifying
assets; however, the Company intends to retain maximum flexibility in
connection with its investments and, therefore, does not have a policy as
to the minimum percentage of its assets that will be so invested. Pending
investment, for operating purposes, and for temporary or emergency
purposes, the Company will invest in Short-Term Investments. The Company
expects to maintain approximately 10% of its assets in Short-Term
Investments in order to pay for operating expenses and to meet
contingencies. An investment in the Company will provide investors with
the opportunity to invest in Portfolio Companies and Private Funds on the
same terms as experienced institutional investors. See "The Company" and
"Regulation."
Direct Equity Investments
The Company will seek to achieve its investment objective by
investing at least 70% of its assets in Later-Stage Venture Capital
Companies and Middle-Market Companies. Later-Stage Venture Capital
Companies and Middle-Market Companies are companies in which the equity is
closely held by company founders, management and/or a limited number of
institutional investors. Later-Stage Venture Capital Companies are
typically privately held companies with attractive growth prospects and
with annual revenues in excess of $5.0 million. Middle-Market Companies
generally are privately held companies with annual revenues of $25.0
million to $250 million. The Company may also commit to invest funds in a
Portfolio Company beyond its initial investment or guarantee the
obligations of a Portfolio Company. The Company will attempt to reduce the
risks inherent in private equity investing by investing in a diversified
portfolio of companies involved in different industries and different
stages of development, through the utilization of professional management
provided by the Managing Investment Adviser in the selection of private
equity investments and through the active monitoring of such investments.
Investments in Middle-Market Companies will be made in businesses
which the Managing Investment Adviser believes constitute attractive value
or offer growth opportunities. Some of these investments may be made in
buyout transactions in which a change of control may take place and may be
financed on a leveraged basis with debt provided by third parties. The
financing and investment structure of each of these investments will differ
depending upon the growth prospects and the capital needs of the individual
businesses. Because of the degree of debt financing that may be involved
in these transactions, risks apart from those relating to the Company's
operations might be incurred.
The Managing Investment Adviser will evaluate the ability of
prospective investments to produce long-term capital appreciation based
upon criteria that may be modified from time to time. The criteria that
will initially be used by the Managing Investment Adviser in determining
whether to make an investment include:
(i) The presence or availability of competent management;
(ii) The existence of a substantial market for the products of a
company characterized by favorable growth potential, or a substantial
market position in a stable industry;
(iii) The existence of a history of profitable operations or a
reasonable expectation that operations can be conducted at a level of
profitability acceptable in relation to the proposed investment; and
(iv) The willingness of a company to permit the Company and its
co-investors, if any, to take a substantial position in the company
and have representation on its board of directors, so as to enable
the Company to influence the selection of management and basic
policies of the company.
Although the Company is a non-diversified company as defined in the
Investment Company Act, it does not expect to invest more than 10% of its
total assets in any one Portfolio Company. While the Managing Investment
Adviser will retain flexibility to invest in all types of industries, it
currently intends to make investments in companies engaged in products and
services in areas consistent with the general investment philosophy
employed by U.S. Trust in its investment management advisory business.
U.S. Trust follows a long-term investment philosophy based on identifying
opportunities with sustainable fundamental values and uses three specific
portfolio strategies to guide investment decision-making.
U.S. Trust's first strategy is the "problem/opportunity strategy"
which seeks to identify industries and companies with the capabilities to
provide solutions to or benefit from complex problems such as changing
demographics and aging of the U.S. population or the need to enhance
industrial productivity. U.S. Trust's second strategy is a "transaction
value" comparison of a company's real underlying asset value with similar
assets changing ownership in market transactions. Differences between a
company's real asset value and the price of its shares often are corrected
over time by restructuring of the assets or by market recognition of their
value. U.S. Trust's third strategy involves the identification of "early
life cycle" companies whose products are in an earlier stage of development
or that seek to exploit new markets.
The three portfolio strategies discussed above are applied together
with several "longer-term investment themes" to help identify specific
investment opportunities. U.S. Trust believes that the longer-term themes
described below represent strong and inexorable trends and that the
beneficiaries of these trends will be rewarded in the long-term.
. Long-Term Supply of Energy - companies benefiting from the
availability, development and delivery of comparatively
environmentally clean, secure hydrocarbon and other energy
sources.
. Productivity Enhancers - companies benefiting from their roles
as innovators, developers, and/or suppliers of goods and
services which enhance service and manufacturing productivity or
companies that are most effective at obtaining and applying
productivity enhancements.
. Environmentally-Related Products and Services - companies
benefiting from the provision of products, technologies and
services related to conservation, protection and restoration of
the environment.
. Aging of America - companies benefiting from the changes
occurring in the demographic structure of the U.S. population,
particularly its growing proportion of individuals over the age
of 40.
. Communication and Entertainment - companies benefiting from the
technological and international transformation of the
communications and entertainment industries, particularly the
convergence of information, communication and entertainment.
. Business and Industrial Restructuring - companies benefiting
from their restructuring or redeployment of assets and
operations in order to become more competitive or profitable.
. Global Competitors - companies benefiting from their position as
effective and strong competitors on a global basis.
Private Funds
Subject to the limitations of the Investment Company Act, the Company
may invest up to 30% of its total assets in securities of Private Funds
which are generally venture capital, buyout, and private equity funds
managed by third parties. The Company does not expect to invest more than
10% of its total assets in any one Private Fund. These Private Funds,
which will not be affiliated with the Managing Investment Adviser, will
have investment objectives compatible with those of the Company and will
involve risks similar to those involved in an investment in the Company.
The Managing Investment Adviser will have a more limited role in the
management of these funds than in the management of direct equity
investments. Management of private funds typically charges a management
fee and an incentive fee based upon realized gains. These fees are in
addition to the fees payable to the Managing Investment Adviser.
Investment Practices
Borrowing. The Company may from time to time borrow funds in an
amount up to 25% of the value of its assets to facilitate the making of
follow-on investments, to maintain its pass-through tax status or to pay
contingencies and expenses. The Company is permitted under the Investment
Company Act to borrow funds in an amount not to exceed one-half of its
available capital (an asset coverage ratio of 200%). This may be done
either through the issuance of debt securities or by obtaining loans from
commercial banks or other sources. If the Company borrows funds through
the issuance of a "senior security representing indebtedness" (as defined
in the Investment Company Act), distributions to stockholders or the
repurchase of Shares is prohibited unless the Company's asset coverage
ratio is 200% at the time of the distribution or repurchase. In general,
the Company does not intend to borrow for investment purposes other than to
facilitate the making of follow-on investments and will not borrow to pay
the management fee payable to the Managing Investment Adviser. See
"Regulation."
The Company also expects that, as a condition to lending, lenders to
the Company may place restrictions on the Company, which may include
reserve requirements or operating restrictions, and may limit the ability
of the Managing Investment Adviser to control investments or their
refinancing and the ability of the Company to make distributions to
stockholders. There can be no assurance that the Company will borrow when
considered desirable. The Company may not be able to arrange debt
financing on terms acceptable to the Managing Investment Adviser and the
Board of Directors, or the Managing Investment Adviser and the Board of
Directors may believe borrowings are not in the Company's best interest.
If the Company were unable to obtain debt financing, the Company might be
required to sell a portfolio investment at an inopportune time, or to
forego the purchase of an attractive potential or follow-on investment, due
to a short-term liquidity problem. In either case, the value of the
Company's investment portfolio, and of the Shares, could be adversely
affected. See "Risk Factors-Borrowing."
Other Investment Policies. The Company will not sell securities
short or on margin, write puts or calls or purchase or sell commodities or
commodity contracts. The Company will not underwrite the issuance of
securities of other companies. Where necessary, the Company may make
follow-on investments in Portfolio Companies to protect its original
investment and may continue to invest in restricted securities of such
Portfolio Companies.
The Company will not lend its assets to any person or individual,
except through the purchase of bonds or other debt obligations customarily
sold to institutional investors. However, the Company may, subject to
limitations of the Investment Company Act, lend portfolio securities if
collateral values are continuously maintained at no less than 100% by
"marking to market" daily. The collateral received will consist of cash,
U.S. short-term government securities, bank letters of credit or such other
collateral as may be permitted under the Company's investment objective and
policies and by regulatory agencies and approved by the Directors of the
Company. While a loan of portfolio securities is outstanding, the Company
will continue to receive the equivalent of the interest or dividends paid
by the issuer on the securities, as well as interest on the investment of
the collateral or a fee from the borrower. The risks in lending portfolio
securities, as with other extensions of secured credit, consist of possible
delay in receiving additional collateral or in recovery of the securities
or possible loss of rights in the collateral should the borrower fail
financially.
The Company will not invest in oil, gas or other mineral leases. The
Company will not purchase or sell real property (including limited
partnership interests).
The Company's objective and its policies (other than its status as a
BDC) are not deemed to be fundamental policies and may be changed at any
time and from time to time without stockholder approval.
TERMS OF THE OFFERING AND PURCHASE OF SHARES
The Company is offering up to 50,000 Shares of Common Stock at a
price per Share of $1,000. The minimum investment is $15,000, or 15
shares. If a minimum of 25,000 Shares or $25,000,000 has not been
subscribed for by May 31, 1995 or such other subsequent date not later than
August 31, 1995 as the Managing Investment Adviser and the Company may
determine (the "Termination Date"), the offering will terminate and all
proceeds from the offering will be refunded to investors with any interest
earned thereon and without any deductions. See "Risk Factors-Minimum
Proceeds; Funding and Portfolio Balance." Each subscriber will be required
to complete, execute and deliver to the Selling Agent or any applicable
sub-selling agent an executed copy of the Subscription Agreement which must
be accompanied by a check payable to the order of "United States Trust
Company of New York -- Escrow Agent" in the amount of $1,000 for each Share
the subscriber desires to purchase. There are no sales charges or other
commissions payable in connection with the purchase of Shares.
Funds paid by subscribers will be deposited in an interest-bearing
bank escrow account with U.S. Trust pending each closing. In the event the
Company rejects a subscriber's Subscription Agreement or a subscriber
elects to withdraw his subscription prior to a closing date, U.S. Trust
will promptly deliver to such subscriber all funds received; any interest
earned on such funds will be returned within five business days of the next
closing after such rejection or withdrawal.
It is expected that a first closing will be held and that
certificates representing the Shares will be delivered on or about the
fifth business day after receipt by U.S. Trust of
subscription funds representing 25,000 Shares or $25,000,000. The Company
may continue to offer the remaining unsold Shares and accept subscriptions
for such Shares from time to time at subsequent closings until the earlier
of the Termination Date or the date all Shares are sold. Within five
business days after each closing, U.S. Trust will mail to each subscriber
checks in the respective amounts of interest earned. If the minimum of
25,000 Shares is not sold, any charges or expenses will be paid by the
Managing Investment Adviser.
The Investment Company Act limits the ability of the Company to sell
the Shares at a price representing proceeds to the Company that is less
than the then net asset value per Share. Shares in the Company will be
sold at a price of $1,000 per Share. The price will be adjusted if at any
closing during the offering made hereby, the market value of a Share, based
upon the Company's net asset value, does not equal $1,000 per Share due to
a change in the value of the Company's investments. This Prospectus will
be supplemented to reflect any such change in the price.
Investor Suitability Standards
Shares will be sold only to prospective investors who represent to
the Selling Agent that they (i) have a net worth (exclusive of homes, home
furnishings and automobiles) of $250,000 or (ii) have a net worth
(exclusive of homes, home furnishings and automobiles) of $60,000 and
expect to have during each of the current and the next three tax years
income from any source of $60,000 or more. In addition, Shares will not be
sold to a trust account unless such trust account has total assets in
excess of $1,000,000. Residents of certain states are required to
represent that they meet the investor suitability standards established by
such state.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered
hereby will be approximately $50,000,000 if all Shares are sold and before
deducting organizational and initial offering expenses in the amount of
approximately $221,500.
No portion of the net proceeds of the offering has been allocated to
any particular investment. However, the proceeds will be utilized in a
manner consistent with the Investment Company Act. The proceeds will be
used to invest in Portfolio Companies, Private Funds and for working
capital and general corporate purposes. Pending investment, for operating
purposes, and for temporary or emergency purposes, such proceeds will be
invested, in compliance with the Investment Company Act, in Short-Term
Investments. The Company expects to maintain approximately 10% of its
assets in Short-Term Investments in order to pay for operating expenses and
to meet contingencies. Short-Term Investments will qualify for determining
whether the Company has 70% of its total assets invested in eligible
portfolio securities. See "Regulation."
The Company intends to invest or commit to invest at least 65% of the
proceeds of sales of the Shares in Portfolio Companies within the earlier
of (i) two years after the Termination Date, or (ii) two and one-half years
after the effective date of this Prospectus. Such a delay is common for
BDCs because of the competition for investments in entities that meet the
requirements for "qualifying assets". Further, investments in Portfolio
Companies may typically take from four to seven years from the date of
initial investment to reach a state of maturity at which disposition can be
considered. In light of the foregoing, it is unlikely that any significant
distribution of the proceeds from the disposition of Portfolio Companies
will be made until the later years of the existence of the Company.
MANAGEMENT
Managing Investment Adviser; Compensation
United States Trust Company of New York will serve as the Managing
Investment Adviser of the Company pursuant to an investment management
agreement with the Company (the "Management Agreement"). While the
Managing Investment Adviser has not previously managed a registered BDC,
the investment professionals in charge of the day-to-day management of the
Company have extensive experience in venture capital and alternative
investment strategies. See "Directors, Officers and Investment
Professionals" below. Under the supervision of the Company's Board of
Directors, the Managing Investment Adviser is responsible for finding,
evaluating, structuring, and monitoring the Company's investments in
Portfolio Companies, Private Funds and Short-Term Investments and
performing the management and administrative services necessary for the
operation of the Company. The Managing Investment Adviser will also make
available personnel and services to Portfolio Companies requiring
managerial assistance.
U.S. Trust provides trust and banking services to individuals,
corporations and institutions, both nationally and internationally,
including investment management, estate and trust administration, financial
planning, corporate trust and agency, and personal and corporate banking.
U.S. Trust is a member bank of the Federal Reserve System and the Federal
Deposit Insurance Corporation and is one of the twelve members of the New
York Clearing House Association. On September 30, 1994, U.S. Trust's Asset
Management Group had approximately $32 billion in assets under management.
The principal business address of U.S. Trust is 114 West 47th Street, New
York, New York 10036-1332.
In return for its services and the expenses which the Managing
Investment Adviser assumes under the Management Agreement, the Company will
pay the Managing Investment Adviser, on a quarterly basis, a management fee
equal to 1.5% per annum of the net assets of the Company, determined as of
the end of each calendar quarter, that are invested or committed to be
invested in Portfolio Companies or Private Funds and equal to 0.5% of the
net assets of the Company, determined as of the end of each calendar
quarter, that are invested in Short-Term Investments and are not committed
to Portfolio Companies or Private Funds. The management fee is payable in
arrears on the last day of each calendar quarter. See "The Company" and
"Regulation."
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 capital 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 to the Company all or a
portion of the incentive fee previously paid.
The Management Agreement
The Management Agreement provides that the Managing Investment
Adviser shall identify, evaluate, structure, monitor and dispose of the
Company's investments and provide, or arrange for suitable third parties to
provide, any and all management and administrative services reasonably
necessary for the operation of the Company and the conduct of its business.
Such management and administrative services include, without limitation,
providing the Company with office space, equipment, facilities and supplies
and clerical services; keeping and maintaining the books and records of the
Company, administering stockholders' accounts and handling communications
and correspondence with stockholders, preparing accounting, management and
other reports; and providing such other managerial and administrative
services as may be reasonably requested by the Company.
Under the Management Agreement, the Company is obligated to bear all
costs and expenses directly allocable and identifiable to the Company or
its business or investments, including, but not limited to, fees of the
Directors; fees of the Managing Investment Adviser; expenses of registering
the Shares under federal and state securities laws; interest; taxes; fees
and expenses of the Company's legal counsel and independent accountants;
fees and expenses of the transfer agent; expenses of printing and mailing
Share certificates, stockholder reports, notices to stockholders and proxy
statements; reports to regulatory bodies; brokerage and other expenses in
connection with the execution, recording and settlement of portfolio
security transactions; expenses in connection with the acquisition and
disposition of portfolio securities or the registration of privately issued
portfolio securities; costs of third party evaluations of appraisals of the
Company (or its assets) or its actual investments; expenses of membership
in investment company associations; expenses of fidelity bonding and other
insurance premiums; expenses of stockholders' meetings; Commission and
state blue sky registration fees; fees payable to the National Association
of Securities Dealers, Inc. (the "NASD"), if any, in connection with this
offering; and the Company's other business and operating expenses.
The Management Agreement provides for indemnification by the Company
of the Managing Investment Adviser from any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) not resulting from bad faith, negligence, misconduct or any
breach of fiduciary duty owed to the Company by the Managing Investment
Adviser. The Management Agreement provides that indemnification shall be
made only following: (i) a final decision on the merits by a court or
other body before whom the proceeding was brought that the Managing
Investment Adviser was not liable by reason of bad faith, negligence,
misconduct or any breach of fiduciary duty owed to the Company or (ii) in
the absence of such a decision, a reasonable determination, based upon a
review of the facts, that the Managing Investment Adviser was not liable by
reason of bad faith, negligence, misconduct or any breach of fiduciary duty
owed to the Company by (a) the vote of a majority of a quorum of the
disinterested Directors of the Company who are not parties to the
proceeding or (b) independent legal counsel in a written opinion.
Indemnification is limited by Sections 17(h) and (i) of the Investment
Company Act.
The Management Agreement provides that it shall continue in effect
for two years and that after the initial period of effectiveness, it will
continue in effect for successive annual periods, provided that such
continuance is specifically approved at least annually by the vote of a
majority of the Board of Directors of the Company who are not parties to
the Management Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such continuance,
and either: (i) the vote of a majority of the outstanding Shares of the
Company; or (ii) the vote of a majority of the full Board of Directors of
the Company. The Management Agreement also provides that it may be
terminated at any time, without the payment of any penalty, either by: (i)
the Company, by the vote of a majority of the Board of Directors who are
not parties to the Management Agreement or interested persons of any such
party, or by vote of a majority of the outstanding Shares of the Company,
on 60 days' written notice to the Managing Investment Adviser; or (ii) the
Managing Investment Adviser, on 90 days' written notice to the Company.
The Management Agreement will terminate immediately in the event of its
"assignment" (as defined in the Investment Company Act).
Investment Operations
The Managing Investment Adviser will initiate, screen and monitor the
private equity investments of the Company. The Managing Investment Adviser
anticipates that it may take up to four years for the Company to become
fully invested. The Managing Investment Adviser will invest at least 70%
of the Company's assets in Later-Stage Venture Capital and Middle-Market
Companies and up to 30% of such assets in Private Funds.
Private equity investments will typically be structured in
negotiated, private transactions directly with the issuer. The Company's
investments will generally consist of non-publicly traded equity and
equity-like securities subject to certain regulatory and other
restrictions. In connection with most Company investments, the Managing
Investment Adviser will work with the Portfolio Company to develop and
implement the Portfolio Company's long-term strategy and to enhance its
value.
The Investment Committee of the Managing Investment Adviser, which
consists of senior investment professionals of U.S. Trust, will make the
final investment decisions regarding any investment proposal made by the
Managing Investment Adviser. It is anticipated that several members of the
Investment Committee may become actively involved in the management of the
Company's Portfolio Companies.
Deal Origination. Investment proposals may come to the attention of
the Managing Investment Adviser from many sources including unsolicited
proposals from the public, personal contacts of the Managing Investment
Adviser or its affiliates, other venture capitalists and private equity
investors and referrals from investment banks, commercial banks, lawyers,
accountants and other members of the financial community, including U.S.
Trust personnel. The Managing Investment Adviser believes that investment
opportunities may also come from several venture capital and private equity
funds of which it or any of its affiliates may be an investor. Under
certain circumstances, such opportunities may require prior exemptive
relief from the Commission. See "Risk Factors - Transactions with
Affiliates; Potential Conflicts of Interest".
Evaluation of Investment Opportunities. Prior to committing funds to
an investment opportunity, a disciplined investment process which includes
a legal, financial, tax, industry, and company due diligence investigation
by the Managing Investment Adviser to assess the prospects and risks of the
potential investment. The experience and expertise of the officers of the
Managing Investment Adviser will be essential in evaluating products,
markets, industry trends, financial requirements, competition and the
management team associated with a prospective investment. The Managing
Investment Adviser expects to be able to discuss the merits of particular
investment opportunities with the U.S. Trust Investment Research Division
and may seek its assistance in due diligence and the evaluation of
investment opportunities. Each investment opportunity will need to be
approved by the Investment Committee of the Managing Investment Adviser.
Structuring of Investments. The terms and conditions of the
investments acquired will result from direct negotiations with the
Portfolio Company or an affiliate thereof. The Managing Investment Adviser
will be responsible for conducting such negotiations on behalf of the
Company and will seek to structure the terms of the investment to provide
for the capital needs and success of the issuer and at the same time to
maximize the Company's opportunity for long-term capital appreciation. An
important factor in successful private equity investing is proper
structuring of the transaction in terms of such matters as price, type of
security, restrictions on use of funds, commitments or rights to provide
additional financing, control and involvement in the issuer's business and
liquidity.
Management Assistance and Monitoring of Investments. Successful
business development investing requires active monitoring and participation
and influence on major business decisions. Representatives of the Managing
Investment Adviser and/or its affiliates will frequently serve as members
of the board of directors or advisory board of a Portfolio Company or will
have visitation rights to Portfolio Companies. Board representation, as
well as a close working relationship with the operating management, should
enable the Company to exercise influence and provide management assistance
with respect to such matters as capital structure, budgets, profit goals,
diversification strategy, financing requirements, management additions or
replacements and developing a public market for the securities of Portfolio
Companies. The close tracking of internal financial statements and
progress reports, as well as an active working relationship with management
form the basis of effective portfolio monitoring and risk management.
Liquidation of Investments. In order to realize the investment
objective of capital appreciation, private equity investments must be
liquidated. The method and timing of the liquidation of investments are
critical elements to maximizing portfolio return. The Company expects to
liquidate its investments through a variety of transactions, including
mergers, negotiated sales of Portfolio Companies, sales in registered
public offerings, sales in the public markets of registered securities and
recapitalizations. In structuring the investments, the Managing Investment
Adviser will endeavor to reach such understanding with the Portfolio
Company or its affiliates as may be appropriate as to the method and timing
of liquidation of the Company's investments and will usually seek to obtain
registration rights at the expense of the issuer and reporting compliance
for eligible companies under Rule 144 under the Securities Act. Timing of
divestiture or liquidation depends on the performance of the Portfolio
Company, the ability of the Portfolio Company to refinance its outstanding
securities and other financial market opportunities. See "Risk Factors -
Illiquidity of Private Equity Investments." The Company will bear the
costs of liquidating investments to the extent that such expenses are not
paid by the issuer.
Directors, Officers and Investment Professionals
The following are descriptions of the members of the Board of
Directors and the officers of the Company as well as of key employees of
the Managing Investment Adviser, including the members of its Investment
Committee, key investment professionals, and research professionals active
in the management of the Company. Unless otherwise noted, the business
address of each individual listed below is 114 West 47th Street, New York,
New York 10036-1332.
Directors and Officers of the Company
<F4>* Edith A. Cassidy, Chairman of the Board and Director. Ms.Cassidy is
a Senior Vice President and Director of Research of U.S. Trust and
oversees its Investment Research Division. Prior to joining U.S.
Trust in 1989, Ms. Cassidy was employed by Piper, Jaffray and Hopwood
as an Investment Executive, and by the IBM Corporation. Ms. Cassidy
serves on the Board of Westmoreland Davis Foundation. She holds a BA
degree from Goucher College.
<F4>* Indicates "interested person" of the Company within the meaning of the
Investment Company Act.
Gene M. Bernstein, Director. Mr. Bernstein became the President of
BIG Ventures, Inc., a privately held golf equipment marketing firm,
in March of 1994. From 1989 until 1994, Mr. Bernstein was the
President of Northville Industries Corp., a privately held
corporation engaged in petroleum, marketing, distribution and
trading. Mr. Bernstein was Executive Vice President of Northville
Industries Corp. from 1982 until 1989. Mr. Bernstein is a director
of Oxford Resources Corp., a public corporation. He holds a BA
degree in English Literature from Alfred University, an MA degree in
English Literature from the University of Wisconsin and a Ph.D. in
English Literature from the University of Massachusetts.
Stephen V. Murphy, Director. Since 1991, Mr. Murphy has been
President of S.V. Murphy & Co., Inc., an investment banking firm
which specializes in mergers and acquisitions, divestitures and
strategic and capital-related advisory services for financial
institutions. From 1988 until 1991, he was Managing Director of
Merrill Lynch Capital Markets in charge of the Financial Institutions
Mergers and Acquisitions Department. Prior to 1988, Mr. Murphy was
Managing Director of The First Boston Corporation where he headed up
its Investment Banking Department's Commercial Bank Group. He is a
director of Oxford Resources Corp. and The First of Long Island
Corporation, public corporations. Mr. Murphy holds a BSBA degree
from Georgetown University and an MBA degree from Columbia
University.
David I. Fann, President and Chief Executive Officer. As Division
Manager of the Alternative Investments Division of U.S. Trust, Mr.
Fann is responsible for private equity investing, hedge funds, and
real estate investing for U.S. Trust. Mr. Fann will have day-to-day
management responsibility of the Company for the Managing Investment
Adviser. Prior to joining U.S. Trust in April of 1994, Mr. Fann
served in various capacities for Citibank from 1986 through 1994,
including, as a Vice President of Citibank and its small business
investment company subsidiary, Citicorp Venture Capital Ltd. from
1991 until 1994. While at Citicorp Venture Capital Ltd., Mr. Fann
invested in buyout and venture capital transactions and venture
capital funds and served on the Board of Directors of several of its
portfolio companies. Mr. Fann holds a BAS degree in industrial
engineering and economics from Stanford University.
Lisa A. Cummings, Treasurer. Ms. Cummings is Assistant Vice
President of U.S. Trust. Prior to joining U.S. Trust in 1993, Ms.
Cummings began her career as a Research Analyst at Prudential
Securities, Inc. from 1991 until 1993 with a focus on the technology
sector. Ms. Cummings received a BA degree from Wellesley College and
an MBA degree from Cornell University.
Ronald A. Schwartz, Corporate Secretary. Mr. Schwartz is Vice
President and Assistant General Counsel of U.S. Trust. Prior to
joining U.S. Trust in 1991, Mr. Schwartz was associated with the firm
of Walter, Conston, Alexander & Green from 1985 through 1990, with a
focus on securities law as well as mergers and acquisitions. Mr.
Schwartz received a BA and an MA degree from the University of
California at Berkeley, and a JD from Boalt Hall, University of
California.
Investment Committee of the Managing Investment Adviser
Frederick B. Taylor, Chairman of the Investment Committee. As Vice
Chairman and Chief Investment Officer of U.S. Trust, Mr. Taylor
oversees all of the investment management business of U.S. Trust, is
responsible for the developing and implementing U.S. Trust investment
policy and presently serves as Chairman of the U.S. Trust Portfolio
Policy Committee. Mr. Taylor received his BA degree with distinction
from Wesleyan University and his MBA degree from the Wharton School
of the University of Pennsylvania. He is a member of the New York
Society of Security Analysts and the Association for Investment
Management and Research.
Paul K. Napoli, Co-Chairman of the Investment Committee. Mr. Napoli
is Executive Vice President and Division Manager of the Personal
Investment Division of U.S. Trust. He also has responsibility for
the broker-dealer operations and the New York region subsidiaries of
U.S. Trust and is Chairman of U.S. Trust International Corporation.
He is also a member of the board of directors of U.S. Trust of New
Jersey, Campbell Cowperthwait and U.S. Trust of Connecticut. Mr.
Napoli received his BA degree from Boston College and his MBA degree
from Columbia University. He is a Chartered Financial Analyst, a
Certified Trust and Financial Adviser and a member of the New York
Society of Security Analysts and the Association for Investment
Management and Research.
Edith A. Cassidy, see "Directors and Officers of the Company."
P. Ross Taylor III, Senior Vice President of U.S. Trust, is the
Director of Institutional Investments at U.S. Trust, has
responsibility for the institutional investment management business
and also manages the U.S. Trust Pooled Pension Fund. Previously, Mr.
Taylor worked for Management Asset Corporation and Brundage Story and
Rose. Mr. Taylor received his BA degree from the University of Puget
Sound and his MBA from the Wharton School of the University of
Pennsylvania.
John J. Apruzzese, Senior Vice President and Senior Portfolio Manager
of U.S. Trust, manages the UST Master Communication and Entertainment
Fund. Previously, Mr. Apruzzese was a staff member of the Labor and
Human Resources Committee of the United States Senate where he worked
on federal budget matters. Mr. Apruzzese received his BA degree from
Bucknell University and his MBA degree from New York University. Mr.
Apruzzese is a Chartered Financial Analyst and a member of the New
York Society of Security Analysts.
Richard L. Bayles, Senior Vice President and Senior Portfolio Manager
of U.S. Trust, currently manages the UST Income and Growth Fund, the
U.S. Trust Stock Fund for Trusts, and the UST Master Long-Term Supply
of Energy Fund. Mr. Bayles received his BA from Dartmouth College.
Robert H. Hogan, Senior Vice President of U.S. Trust, is the Senior
Investment Officer of the U.S. Trust Company of Connecticut. He is a
member of the U.S. Trust Portfolio Policy Committee in New York. Mr.
Hogan is a member of the Association for Investment Management and
Research and the New York Society of Security Analysts.
Harvey A. Seline is a Senior Vice President and Senior Portfolio
Manager of U.S. Trust. Prior to joining U.S. Trust, Mr. Seline was a
Trust Investment Officer at The National Bank of Tulsa and a Trust
Analyst at First City National Bank in Houston. Mr. Seline received
a BA degree from the University of Colorado, and an MBA degree from
Columbia University. Mr. Seline is a Chartered Financial Analyst, a
member of the New York Society of Security Analysts, and a member of
the Association for Investment Management and Research.
David A. Tillson is a Senior Vice President and Senior Portfolio
Manager of U.S. Trust. Prior to joining U.S. Trust, he was founder
and President of TDA Capital Management Company. Previously, he held
positions of First Vice President at W.P. Carey & Co. Inc. and Second
Vice President at General Reinsurance Corp. Mr. Tillson received an
AB degree from Brown University and an MBA degree from New York
University. Mr. Tillson is a Chartered Financial Analyst, a member
of the New York Society of Security Analysts and a member of the
Association for Investment Management and Research.
David J. Williams, Senior Vice President and Senior Portfolio Manager
of U.S. Trust, manages the UST Master Industrial Restructuring Fund.
Previously, Mr. Williams was Senior Vice President of Horizon Trust
Company. He was also a portfolio manager of T. Rowe Price
Associates. Mr. Williams received a BA degree from Yale University
and his MBA degree from Harvard University. He is a Chartered
Financial Analyst.
U.S. Trust Investment Research Division
William G. Becker, Vice President of U.S. Trust, covers the aging of
America theme with emphasis on the automobile and consumer sectors.
Prior to joining U.S. Trust in 1979, Mr. Becker was a security
analyst for Dean Witter Reynolds, First Manhattan, Dominick &
Dominick and Eastman & Dillon Union Securities. He is a member of
the Financial Analysts Federation and the New York Society of
Security Analysts. He is also a member of the New York Automobile
Analysts, the Retailing and Merchandising Analysts Societies and the
New York Consumer Analysts Group of New York. Mr. Becker received a
BS degree from Rutgers University and received an MS degree from
Boston University.
Joan Ellis, Vice President of U.S. Trust, focuses on the business and
industrial restructuring theme with emphasis on financial services.
Prior to joining U.S. Trust in 1984, she worked for the Peabody
Museum of Salem. Ms. Ellis received her BA degree from Pomona
College and received her MBA degree from New York University. Ms.
Ellis is a Chartered Financial Analyst.
John F. Gordon Jr., Vice President of U.S. Trust, focuses on the
business and industrial restructuring theme with emphasis on
paper/forest products. Prior to joining U.S. Trust in 1967, Mr.
Gordon worked for Morgan Stanley & Co. Mr. Gordon received his BA
degree from Amherst College and was awarded his MBA degree from the
University of Michigan.
Michael E. Hoover, Vice President of U.S. Trust, focuses on
communications and entertainment and long-term supply energy themes.
Prior to joining U.S. Trust in 1989, Mr. Hoover worked for Gruntal &
Company, and Manufacturers Hanover. Mr. Hoover received a BA degree
from Dartmouth College.
Rafael E. Tamargo, Assistant Vice President of U.S. Trust, covers the
aging of America theme with emphasis on consumer goods, retailing,
and automotive sectors. Prior to joining U.S. Trust in 1990, Mr.
Tamargo worked for the New Jersey Division of Taxation. He received
his BBA degree from Temple University.
Additional Resources
Nancy L. Jacob is Chairman and Chief Executive Officer of CTC
Consulting, Inc., a wholly-owned subsidiary of U.S. Trust. Ms. Jacob
joined CTC in 1989. Before that, Ms. Jacob had been Professor of
Finance and Dean of the Graduate School of Business at the University
of Washington. She is a consultant on investment management. Ms.
Jacob holds a Ph.D in economics from the University of California and
a BA from the University of Washington. She will assist the Company
in evaluating Private Funds.
Custodian and Transfer Agent
U.S. Trust will serve as the Company's custodian in accordance with
the provisions of the Investment Company Act and the rules and regulations
thereunder. As such, U.S. Trust is responsible for holding the Company's
cash and portfolio securities. U.S. Trust also serves as the transfer
agent for the Company's Shares. For its custodian and transfer agency
services, U.S. Trust receives customary fees from the Company.
Expenses of the Company
The Company will pay all of its expenses, including fees of the
Directors; fees of the Managing Investment Adviser; expenses of registering
the Shares under federal and state securities laws; interest; taxes; fees
and expenses of the Company's legal counsel and independent accountants;
fees and expenses of the transfer agent and custodian; expenses of printing
and mailing Share certificates, stockholder reports, notices to
stockholders and proxy statements; reports to regulatory bodies; brokerage
and other expenses in connection with the execution, recording and
settlement of portfolio security transactions; expenses in connection with
the acquisition and disposition of portfolio securities or the registration
of privately issued portfolio securities; costs of third party evaluations
or appraisals of the Company (or its assets) or its actual investments;
expenses of membership in investment company associations; expenses of
fidelity bonding and other insurance premiums; expenses of stockholders'
meetings; Commission and state blue sky registration fees; fees payable to
the NASD, if any, in connection with this offering; and the Company's other
business and operating expenses.
On the basis of the anticipated size of the Company immediately
following the offering described in this Prospectus, it is estimated that
the Company's annual operating expenses will be approximately $210,000
(approximately 0.42% of the maximum net proceeds of the offering). While
the foregoing estimates have been made in good faith on the basis of
information as to currently available prices, including estimates furnished
by the Company's agents, there can be no assurance that actual annual
operating expenses will not be substantially greater than such estimates as
a result of increases in the cost of transfer agency and professional and
similar services that cannot be predicted and are beyond the control of the
Company.
Organizational expenses paid by U.S. Trust will be reimbursed by the
Company and will be amortized over five years. Offering expenses,
estimated at $196,500, will be charged against the proceeds of the
offering. Any portion of the offering expenses paid by U.S. Trust will be
reimbursed by the Company.
Control Persons
As of the effective date of this Prospectus, all of the outstanding
Shares are owned by David I. Fann. Mr. Fann's business address is 114 West
47th Street, New York, New York 10036.
Bank Regulatory Matters
Based on the opinion of its counsel, it is the position of U.S. Trust
that the investment advisory, custodian and transfer agency services and
selling agent activities to be performed by U.S. Trust and its affiliates,
and the appointment of employees of the Managing Investment Adviser and its
affiliates as officers and Directors of the Company, are consistent with
the requirements of the Glass-Steagall Act. In addition, counsel has
opined that this combination of individually permissible activities is
consistent with the Glass-Steagall Act and federal legal and regulatory
precedent thereunder. There is presently no controlling precedent
regarding the performance of a combination of investment advisory,
custodian and transfer agency services and selling agent activities by
banks of the sort contemplated to be performed by U.S. Trust and its
affiliates and described herein, but applicable federal regulatory
precedents allow commercial banks to organize, sponsor and manage
closed-end investment companies consistent with the Glass-Steagall Act.
State laws on this issue may differ from the interpretations of relevant
federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities law. Future changes in
either federal statutes or regulations relating to the permissible
activities of banks, as well as future judicial or administrative decisions
and interpretations of present and future statutes and regulations, could
prevent U.S. Trust or its affiliates from continuing to perform all or part
of their investment management, custodian and transfer agency services or
selling agent activities. If U.S. Trust or its affiliates were prohibited
from so acting, stockholders would be permitted to remain stockholders of
the Company and alternative means for continuing such services would be
sought. In such event, changes in the operation of the Company might occur
and a stockholder serviced by U.S. Trust or its affiliates might no longer
be able to avail himself of any services then being provided. The
Directors of the Company do not expect that stockholders of the Company
would suffer any adverse financial consequences as a result of these
occurrences.
Potential Conflicts of Interest
The Managing Investment Adviser and its affiliates may be subject to
various conflicts of interest in connection with their relationships and
transactions with the Company. The contractual and other arrangements
between the Company and the Managing Investment Adviser and its affiliates
have not been established by arms-length negotiations. Such conflicts of
interest may include:
Transactions with Portfolio Companies. The Managing Investment
Adviser and its affiliates may perform various services for the Company's
Portfolio Companies. Such services may include making loans to Portfolio
Companies, maintaining deposits of funds of Portfolio Companies and
providing services in connection with mergers and acquisitions, leasing
real estate and insurance and economic forecasting and may receive in
consideration for such services, various fees, commissions and
reimbursements to the extent permitted by applicable law. Depending upon
the Managing Investment Adviser's or its affiliates' influence and control
with respect to Portfolio Companies, the selection of the Managing
Investment Adviser or any of its affiliates to perform such services for
Portfolio Companies may not be a disinterested decision and the terms and
conditions for the performance of such services, and the amounts and terms
of such compensation, may not be determined in arms-length negotiations.
The selection of the Managing Investment Adviser or any of its affiliates
to perform services for a Portfolio Company must be approved by a majority
of the disinterested Directors of the Company and the independent and
disinterested directors of the Portfolio Company. The interest rate and
financing charges that the Managing Investment Adviser or its affiliates
may charge the Portfolio Companies on funds made available to them will not
exceed those that would be charged by unrelated lending institutions on
comparable loans for the same purpose.
The Investment Company Act and the Federal Reserve Act contain
restrictions as to certain transactions among the Company and the Managing
Investment Adviser or its affiliates. See "Regulation." Generally,
transactions involving the Company and the Managing Investment Adviser or
certain of its affiliates must receive the prior approval of a majority of
the Company's disinterested Directors having no financial interest in the
proposed transaction and/or the Commission and may be subject to certain
percentage limitations, safety-and-soundness and other requirements. There
can be no assurance that prior approval of the Commission can be obtained.
The Managing Investment Adviser expects to provide services to other
investors, including other investment partnerships and other business
development companies organized by it or its affiliates. The Company will
have no contractual or other right to such services prior to any of such
other investors. Management may file on behalf of the Company an
application for an exemptive order from the Commission with respect to
proposed joint investments by the Company and U.S. Trust or certain of its
affiliates in Portfolio Companies. If an exemptive order is not granted,
no joint investments with U.S. Trust or its affiliates may be permitted.
While the Commission has granted exemptive relief in substantially similar
circumstances in the past, no assurance can be given that an exemptive
order will be granted. If the Company and U.S. Trust or its affiliates
co-invest in a Portfolio Company, certain conflicts may arise. See "Joint
Investments in Portfolio Companies and Other Securities."
Conflicts as to Investment Opportunities. The Managing Investment
Adviser and its affiliates intend to make investments for their own account
and may be in competition with the Company for such investments. In
addition, affiliates of the Managing Investment Adviser may serve as
adviser or managing general partner of other private or public limited
partnerships or other investment vehicles which will have investment
objectives identical with or similar to those of the Company. While the
Managing Investment Adviser is obligated to use its best efforts to provide
the Company with continuing and suitable investment opportunities
consistent with the Company's investment objective and policies, the
Managing Investment Adviser and its affiliates are not required to present
to the Company any particular opportunity that falls within the investment
objective and policies of the Company, except as set forth in the
procedures adopted by the Company's Board of Directors, including a
majority of the disinterested Directors. Such procedures provide that
although the Managing Investment Adviser cannot guarantee that the Company
will have access to all suitable investment opportunities that may be
considered by its employees for other clients, the Managing Investment
Adviser will endeavor to present to the Company's management on an equal
basis investment opportunities that are suitable for both the Company and
other entities for which the Managing Investment Adviser provides
discretionary investment advisory services. In addition, if the Company
rejects an investment opportunity for any reason, the Managing Investment
Adviser or its affiliates would be permitted to accept it. Within 60 days
after the end of each fiscal year of the Company or upon request by a
majority of the Company's disinterested Directors, the Managing Investment
Adviser will furnish the Board of Directors of the Company with information
on a confidential basis as to any investments made by the Managing
Investment Adviser or its affiliates for their own accounts or the accounts
of other entities during the prior year of the types eligible for
investment by the Company. The Board of Directors and the Managing
Investment Adviser and its affiliates will resolve conflicts with respect
to investment opportunities in a manner that is equitable to all and
consistent with their fiduciary duties to the Company.
Joint Investments in Portfolio Companies and Other Securities. The
Managing Investment Adviser and its affiliates and employees may
participate with the Company as co-investors in Portfolio Companies and
other securities and may make loans to, or other investments in, Portfolio
Companies. Such participation will be required to be on a basis which, in
the judgment of the Board of Directors, is not more advantageous to such
other persons than the basis upon which the Company participates in such
joint investments, and will require the prior approval of the Board of
Directors, including a majority of the disinterested Directors. Without
prior approval by the Board of Directors and/or the Commission, the Company
will not make joint investments in the securities of any entity if the
Managing Investment Adviser or any of its affiliates have previously
acquired a security issued by such entity, provided that this prohibition
does not apply to follow-on investments. In most such instances, prior
approval of the Commission of such joint investments will be required.
There can be no assurance that such approval will be obtained.
Timing of Disposition of Investments. The Managing Investment
Adviser receives certain amounts measured by the realized capital gains
(net of realized capital losses and unrealized net capital depreciation) of
the Company as set forth under "Management." The interests of the Managing
Investment Adviser may conflict with the interests of the stockholders with
respect to the timing of the disposition of Company investments. The acts
of the Managing Investment Adviser are subject to supervision by the Board
of Directors.
Allocation of Management Time and Services. The Company will not
have independent management or employees and will rely upon the Managing
Investment Adviser and its affiliates for management and administration of
the Company and its assets. The Managing Investment Adviser believes that
it and its affiliates have or can attract sufficient personnel to discharge
all of their responsibilities to the Company. Conflicts of interest may
arise in allocating time, services or functions between the Company and
other entities for which the Managing Investment Adviser and its affiliates
may provide similar services. The officers and directors of the Managing
Investment Adviser and its affiliates will devote such time to the affairs
of the Company as they, in their sole discretion, determine to be necessary
for the conduct of the business of the Company. The Company's Board of
Directors will supervise the activities of the Managing Investment Adviser.
Other Relationships with Portfolio Companies. The Managing
Investment Adviser and its affiliates may have other relationships on an
on-going basis with Portfolio Companies in which the Company has invested.
Such relationships could influence the Managing Investment Adviser or its
affiliates to take actions, or forbear from taking actions, which an
independent investment adviser might not take or forbear from taking. The
Managing Investment Adviser and its affiliates will not enter into any
other relationship with a Portfolio Company unless such relationship has
been approved by a majority of the disinterested Directors of the Company
and by the independent directors of the Portfolio Company who also have no
interest in the relationship.
Lack of Separate Representation. The Board of Directors of the
Company and the Managing Investment Adviser are represented by the same
legal counsel. Separate counsel will be retained by the Board of Directors
for the Company in connection with any conflicts of interest or any other
dispute arising between the Company and the Managing Investment Adviser or
any of its affiliates.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Subject to policies established by the Board of Directors, the
Managing Investment Adviser will arrange for the execution of the Company's
portfolio transactions and the allocation of brokerage. In executing
portfolio transactions, the Managing Investment Adviser will seek to obtain
the most favorable execution of portfolio transactions, that is the best
combination of net price and prompt reliable execution. In the Managing
Investment Adviser's opinion, it is not possible to determine in advance
that any particular broker will actually be able to effect the most
favorable execution because, in the context of a constantly changing
market, order execution involves judgments as to the price, volume, trend
and breadth of the market, possibility of a block transaction, and the
broker's activity in the security as well as its general record for prompt,
competent and reliable service in all aspects of order processing,
execution and settlement as well as anticipated commission rates.
A portion of the securities in which the Company will invest may be
traded in the over-the-counter markets, and the Company intends to deal
directly with the dealers who make markets in the securities involved,
except in those circumstances where better prices and execution are
otherwise available. Under the Investment Company Act, persons affiliated
with the Company are prohibited from dealing with the Company as principal
in the purchase and sale of securities. Transactions in the
over-the-counter markets usually involve transactions with dealers acting
as principal for their own account. The Company will not deal with
affiliated persons as principal; however, affiliated persons of the Company
may serve as its broker in over-the-counter markets and other transactions
conducted on an agency basis in accordance with the Investment Company Act,
except that if an affiliated person is a market maker in the securities of
a company then the affiliated person will not serve as the Company's broker
in the purchase of such securities.
The Managing Investment Adviser has no obligation to deal with any
broker or group of brokers in the execution of transactions. With respect
to certain securities, the Company's portfolio transactions may be effected
through affiliates of the Managing Investment Adviser, provided it is
consistent with the policy of obtaining the most favorable execution. The
Company's Board of Directors has adopted procedures to ensure compliance
with applicable regulations relating to trading of portfolio securities.
In allocating brokerage among other brokers who are believed to be
capable of providing equally favorable execution, the Company may also take
into consideration the fact that a particular broker may, in addition to
execution capability, provide other services to the Company such as
research and statistical information.
Portfolio Turnover
Because the investments of the Company generally require relatively
long periods of time to reach maturity, it is expected that the Company's
portfolio turnover will be low. Any short-term securities in which the
Company invests will have a high rate of turnover.
Portfolio turnover will generally involve some expense to the
Company, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestment in other
securities. The portfolio turnover rate will be computed by dividing the
lesser of the amount of the securities purchased or securities sold during
the year by the average monthly value of securities owned during the year
(excluding securities whose maturities at acquisition were one year or
less).
REGULATION
The Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act") generally prohibits investment advisers from entering into
investment advisory contracts with an investment company that provides for
compensation to the investment adviser on the basis of a share of capital
gains upon or capital appreciation of the funds or any portion of the funds
of the investment company. In 1980, Congress enacted the Small Business
Investment Incentive Act of 1980 which added provisions to the Investment
Advisers Act which permit the payment of compensation based on capital
gains in an investment advisory contract between an investment adviser and
a BDC.
In addition, the Small Business Investment Incentive Act of 1980
modified the provisions of the Investment Company Act that are applicable
to BDCs. The BDC is considered to be a closed-end, non-diversified
investment company as those terms are defined in the Investment Company
Act. The following is a brief description of the Investment Company Act,
as modified by the Small Business Investment Incentive Act of 1980, and is
qualified in its entirety by reference to the full text of the Investment
Company Act and the rules thereunder.
Generally, to be eligible to elect BDC status, a company must engage
in the business of furnishing capital and offering significant managerial
assistance to companies that do not have ready access to capital through
conventional financial channels. A BDC must be operated for the purpose of
making investments in securities of the types required by the Investment
Company Act, which types include certain present and former "eligible
portfolio companies" and certain bankrupt or insolvent companies. A BDC
need not invest in all of the possible types of securities approved for
investment by BDCs. Business development companies must also make
available significant managerial assistance to portfolio companies. The
Board of Directors may change the Company's status as a BDC only with the
vote of a majority of the Company's outstanding Shares. An eligible
portfolio company generally is a United States company that is not an
investment company (except for wholly-owned Small Business Investment
Companies licensed by the Small Business Administration) and that (i) does
not have a class of securities registered on a national securities exchange
or included in the Federal Reserve Board's over-the-counter margin list,
(ii) is actively controlled by the BDC either alone or as part of a group
acting together and an affiliate of the BDC is a member of the portfolio
company's board of directors, or (iii) meets such other criteria as may be
established by the Commission. Control, under the Investment Company Act,
is presumed to exist where the BDC owns 25% of the outstanding voting
securities of the investee.
The Investment Company Act prohibits the Company from investing in
certain types of companies, such as brokerage firms, insurance companies,
investment banking firms, and investment companies. Moreover, the
Investment Company Act limits the type of assets that the Company may
acquire to "qualifying assets" and certain assets necessary for its
operations (such as office furniture, equipment, and facilities) if, at the
time of the acquisition, less than 70% of the value of the Company's assets
consists of qualifying assets. Qualifying assets include: (i) securities
of companies that were eligible portfolio companies at the time the Company
acquired their securities; (ii) securities of bankrupt or insolvent
companies that are not otherwise eligible portfolio companies; (iii)
securities acquired as follow-on investments in companies that were
eligible at the time of the Company's initial acquisition of their
securities but are no longer eligible, provided that the Company has
maintained a substantial portion of its initial investment in those
companies; (iv) securities received in exchange for or distributed on or
with respect to any of the foregoing; and (v) cash items, government
securities, and high-quality, short-term debt. The Investment Company Act
also places restrictions on the nature of the transactions in which, and
the persons from whom, securities can be purchased in order for the
securities to be considered qualifying assets. In addition, certain
provisions of the federal banking laws, including the Bank Holding Company
Act of 1956, as amended, would prohibit or restrict investments by the
Company in securities of commercial banking organizations.
The Company is permitted by the Investment Company Act, under
specified conditions, to issue multiple classes of senior debt and a single
class of stock senior to the Shares if its asset coverage, as defined in
the Investment Company Act, is at least 200% after the issuance of the debt
or the Company stock. In addition, provision must be made to prohibit any
distribution to Stockholders or the repurchase of any shares unless the
asset coverage ratio is at least 200% at the time of the distribution or
repurchase.
After this offering, the Company may sell its securities at a price
that is below the prevailing net asset value per share only upon the
approval by the holders of a majority of its voting securities, including a
majority of the voting securities held by nonaffiliated persons, at its
last annual meeting.
Under the Investment Company Act as amended by the Small Business
Investment Incentive Act of 1980, certain of the transactions involving the
Company and its affiliates (as well as affiliates of those affiliates) that
would previously have been prohibited without the prior approval of the
Commission require the prior approval of a majority of the Company's
disinterested Directors having no financial interest in the transactions.
Transactions involving certain closely affiliated persons of the Company,
including its Directors, officers and employees, still require the prior
approval of the Commission. In general, (i) any person who owns, controls,
or holds with power to vote, more than 5% of the outstanding Shares, (ii)
any director, executive officer, or general partner of that person, and
(iii) any person who directly or indirectly controls, is controlled by, or
is under common control with, that person, must obtain the prior approval
of a majority of the disinterested Directors and, in some situations, the
prior approval of the Commission, before engaging in certain transactions
involving the Company or any company controlled by the Company. The
Investment Company Act and applicable rules thereunder generally do not
restrict transactions between the Company and its Portfolio Companies. In
accordance with the Investment Company Act, a majority of the Directors are
not interested persons of the Company as defined in the Investment Company
Act. See "Management."
VALUATION OF PORTFOLIO SECURITIES
Under the supervision of and in accordance with procedures adopted by
the Board of Directors, the Managing Investment Adviser will value the
securities in the Company's portfolio quarterly and at such other time as,
in the Board's view, circumstances warrant. In the event of a sale by the
Company of its Shares, the Managing Investment Adviser must determine the
net asset value (the "NAV") of a Share as of a date within 48 hours before
such sale (excluding Sundays and holidays) to comply with the requirement
of the Investment Company Act that shares not be sold below NAV without
stockholder approval.
In order to determine the NAV per Share, (i) the value of the assets
of the Company, including its portfolio securities, will be determined by
the Managing Investment Adviser under the supervision of the Board of
Directors; (ii) the Company's liabilities will be subtracted therefrom; and
(iii) the difference will be divided by the number of outstanding Shares of
the Company.
The value for restricted stock investments for which no public market
exists cannot be precisely determined. 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. In the early stages of development, venture
capital investments will typically be valued based upon their original cost
to the Company (the "cost method"). The cost method will be utilized until
significant developments affecting the Portfolio Company provide a basis
for use of an appraisal valuation (the "appraisal method"). The appraisal
method will be based upon such factors affecting the Portfolio Company as
earnings, net worth, the market prices for similar securities of comparable
companies and an assessment of the Portfolio Company's future prospects.
In the case of unsuccessful operations, the appraisal may be based upon
liquidation value. Valuations based on the appraisal method are
necessarily subjective. The Company will also use third party transactions
(actual or proposed) in the Portfolio Company's securities as a basis of
valuation (the "private market method"). The private market method will
only be used with respect to actual transactions or actual firm offers by
sophisticated, independent investors. Securities with legal, contractual
or practical restrictions on transfer may be valued at a discount
(typically ranging from 10% to 40%) from their value determined by the
foregoing methods to reflect the effect of such restrictions.
The values for the types of investments referred to in the preceding
paragraph will be estimated regularly by the Managing Investment Adviser,
under the supervision of the Board of Directors, 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 Company anticipates that it may invest in securities for which a
public market exists but which are "restricted securities" for purposes of
the Securities Act. In evaluating such securities, the Managing Investment
Adviser, under the supervision of the Board of Directors, will take into
consideration various factors, including the price at which the securities
in question were acquired relative to the market price for unrestricted
shares of the same securities at the time of such acquisition, modified as
appropriate to reflect the nature of the market in which the securities are
traded, if any, the amount of the public float, the existence and terms of
any securities registration rights, the proportion of the Portfolio
Company's securities held by the Company, changes in the financial
condition and prospects of such Portfolio Company and other factors which
may affect their fair value, all in accordance with the Investment Company
Act. Restricted securities for which an established trading market exists
will typically be valued at a discount of 10% to 40% from the public market
price with the amount of the discount decreasing as the restriction period
decreases. If no such market exists, the asset will be valued at cost
unless a good reason exists to use a different valuation method (such as
sustained private sales of a Portfolio Company's securities at prices
higher than the value initially used).
The Company's investments in Private Funds will be valued based upon
the Company's pro-rata share of the value of the assets of a Private Fund
as determined by such Private Fund in accordance with its by-laws,
constitutional or other documents governing such valuation, on the
valuation date. If such valuation with respect to investments in Private
Funds is not available by reason of timing or other event on the valuation
date, the Managing Investment Adviser, under the supervision of the Board
of Directors, will determine such value based upon a judgment of fair value
on the appropriate date, less applicable charges, if any.
The value of unrestricted securities owned by the Company and traded
on a securities exchange or quoted on NASDAQ or the NASDAQ National Market
System will be determined based upon the last sale price for such
securities on the measuring date.
FEDERAL INCOME TAX MATTERS
The following discussion is a general summary of certain of the
United States federal income tax laws relating to the Company and investors
in the Shares. The discussion herein is based on the Code, regulations,
published rulings and procedures and court decisions as of the date hereof.
The tax law, as well as any interpretation thereof, is subject to change
prospectively, as well as retroactively. This discussion does not purport
to address all of the United States federal income tax consequences
applicable to the Company or all categories of investors, some of which may
be subject to special rules. In addition, it does not cover any state,
local, foreign or other taxes to which the Company or the investors may be
subject or any proposed changes in the law.
Taxation as a Regulated Investment Company
Qualification. The Company intends to qualify for special income tax
treatment as a regulated investment company for federal income tax
purposes. Under subchapter M of the Code, the Company must, among other
things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of securities and gains from the
sale or other disposition of securities or certain other related income;
(b) generally derive less than 30% of its gross income from gains from the
sale or other disposition of stock, securities, options or foreign currency
held for less than three months; (c) diversify its holdings so that at the
end of each fiscal quarter or generally within 30 days thereafter, (i) at
least 50% of the value of the Company's assets is represented by cash, cash
items (including receivables), United States government securities,
securities of other regulated investment companies, and other securities
that, with respect to any one issuer, do not represent more than 5% of the
value of the Company's assets nor more than 10% of the voting securities of
such issuer, and (ii) not more than 25% of the value of the Company's
assets is invested in the securities (other than United States government
securities or the securities of other regulated investment companies) of
any one issuer, or in two or more issuers which the Company controls and
which are engaged in the same or similar trade or business; and (d) file an
election to be treated as a regulated investment company.
Taxation of Regulated Investment Companies. If the Company qualifies
as a regulated investment company and distributes to its stockholders at
least 90% of its net investment income, the Company will not be subject to
federal income tax on the net investment income so distributed. The
Company, however, would be subject to the regular corporate income tax
(currently at rates up to 35%) on any undistributed net investment income.
A regulated investment company's net investment income is generally its
taxable income (without any dividends-received deduction), excluding its
net capital gain (which is the excess of its net long-term capital gain
over its net short-term capital loss).
In addition, a regulated investment company is taxable on its
undistributed net capital gain, currently at rates up to 35%. To qualify
as a capital gain dividend which reduces the amount of net capital gain on
which the Company pays tax, it must designate the distribution as a capital
gain dividend in a written notice to the stockholders not later than 60
days after the end of its tax year. Such amount, however, cannot exceed
the Company's net capital gain for the year.
A regulated investment company is also subject to a nondeductible 4%
excise tax on the amount by which the income it distributes in any calendar
year is less than the required distribution amount. The required
distribution for a calendar year is equal to the sum of (a) 98% of the
Company's ordinary income for such calendar year, (b) 98% of the excess of
the Company's capital gains over its capital losses for the one-year period
ending on October 31 (December 31 if the Company makes a special election)
and (c) 100% of the undistributed ordinary income and gains from prior
years. For purposes of the excise tax, any net investment income or
capital gain retained by the Company will be treated as having been
distributed if the Company pays income tax on such income during the
calendar year in which the excise tax is being imposed.
Distributions. Distributions to stockholders attributable to the
Company's net investment income will be taxable as ordinary dividend
income. Capital gain dividends are taxable as long-term capital gains
regardless of how long the Shares have been held. In addition, the Company
may designate all or a portion of its undistributed net capital gain as a
deemed distribution to its stockholders. In such case, the stockholders
are also taxed on the deemed distribution as long-term capital gain, but
are entitled to a tax credit equal to the tax required to be paid by the
Company on such amount and the basis in their Shares will be increased by
65% of the deemed distribution to the stockholder (i.e., the after-tax net
capital gain retained by the regulated investment company with respect to
the stockholder). Stockholders must be notified of any such deemed
distribution within 60 days after the end of the fiscal year.
Under current law, the maximum federal income tax rate imposed on
individuals with respect to ordinary income and net short-term capital gain
is 39.6% whereas the maximum rate on net capital gains is limited to 28%.
In the case of a corporate taxpayer, long-term capital gains are taxed at
the same rates as ordinary income and short-term capital gains. Corporate
stockholders are generally eligible for the 70% dividends-received
deduction with respect to the ordinary income dividends paid by the Company
to the extent such amount is properly designated by the Company and does
not exceed the dividends received by the Company from domestic
corporations.
Distributions by the Company are generally taxable to the
stockholders at the time the distribution is received. Any distribution
declared by the Company in October, November or December, made payable to
stockholders of record in such a month and paid in the following January,
are deemed to have been paid by the Company and received by the
stockholders on December 31 of the year declared.
If, for any calendar year, the Company's total distributions exceed
net investment income and net realized capital gains, the excess will
generally be treated as a tax-free return of capital (up to the amount of
the stockholder's tax basis in his Shares and then as gain from the sale of
the Shares). The amount treated as a tax-free return of capital will
reduce the stockholder's adjusted basis on his Shares, thereby increasing
the potential gain or reducing the potential loss on the sale of the
Shares.
Stockholders will be sent a Form 1099 each year detailing the tax
status of the distributions from the Company.
Other Rules Applicable to Stockholders of Regulated Investment Companies
Sale of Shares. In general, if Shares are sold, the seller will
recognize a gain or loss equal to the difference between the amount
realized on the sale and the seller's adjusted basis in the Shares. Any
loss realized on a sale of Shares will be disallowed to the extent the
seller has acquired (or entered into a contract to acquire) substantially
identical stock within a period beginning 30 days before the disposition of
the Shares and ending 30 days after the disposition. In such case, the
basis of the Shares acquired will be adjusted to reflect the disallowed
loss.
Any gain or loss realized upon a sale of Shares by a stockholder who
is not a dealer in securities will generally be treated as capital gain or
loss. The gain or loss will be long-term capital gain or loss if the
Shares were held for more than one year. In addition, if the Shares sold
were not held for more than six months, any loss on the sale will be
treated as long-term capital loss to the extent of any capital gain
dividend from the Company received by the stockholder with respect to such
Shares.
Tax Exempt Investors. Stockholders who are exempt from tax under the
Code should not be required to include distributions from the Company in
"unrelated business taxable income" except to the extent that dividends or
capital gains would be taxable to such stockholders under subchapter F of
the Code (e.g., as debt financed income). If the Company designates all or
a portion of its undistributed net capital gain as a deemed distribution to
its stockholders, a tax-exempt shareholder should be entitled to claim a
refund for taxes paid on their behalf by filing Form 843 or an appropriate
income tax return.
Backup Withholding
The Company may be required to withhold federal income tax at the
rate of 31% on dividends and on the proceeds of any redemption or other
disposition of Shares paid to a stockholder if the stockholder fails to
provide the Company his taxpayer identification number or a certificate
that he is exempt from backup withholding, or the Internal Revenue Service
notifies the Company that the stockholder is subject to backup withholding.
The stockholder is entitled to a credit against his federal income tax for
the amount of any backup withholding.
Foreign Investors
The United States tax treatment applicable to investors that are not
United States persons (a "non-United States holder") depends upon the
particular circumstances of the non-United States holder. A "United States
person" is a citizen or resident of the United States, a corporation or
partnership created or organized in the United States or under the laws of
the United States or of any State, or an estate or trust whose income is
includible in gross income for United States federal income tax purposes
regardless of its source.
In general, a non-United States holder who is not engaged in a United
States trade or business is subject to a 30% (or reduced treaty rate, if
applicable) United States withholding tax on dividends. Capital gains of a
non-United States holder generally are not subject to the United States
withholding tax unless (i) the gain is effectively connected with the
conduct of a United States trade or business or (ii) the non-United States
holder is an individual and is present in the United States for at least
183 in the year the Shares are sold and has a "tax home" in the United
States or such gain is attributable to an office or fixed place of business
in the United States.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT WITH HIS, HER OR ITS
TAX COUNSEL CONCERNING THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES OF AN INVESTMENT IN THE COMPANY.
ERISA CONSIDERATIONS
The following is intended to be a summary only and is not a
substitute for careful planning with a professional. Employee benefit
plans subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or section 4975 of the Code considering purchasing the
Shares should consult with their own counsel regarding the application of
ERISA and the Code to their purchase of the Shares.
Fiduciary Considerations
Certain employee benefit plans and individual retirement accounts and
individual retirement annuities ("IRAs") (collectively, "Plans") are
subject to various fiduciary and prohibited transaction requirements under
ERISA and the Code. Before investing in the Shares, a Plan fiduciary
should ensure that such investment is in accordance with ERISA's general
fiduciary standards. In making such a determination, a Plan fiduciary
should be sure that the investment is in accordance with the governing
instruments and the overall policies of the Plan, and that the investment
will comply with the diversification and prudence requirements of ERISA.
Plan fiduciaries should also consider the tax aspects of an investment in
the Shares discussed in "Federal Income Tax Matters." In addition,
provisions of ERISA and the Code prohibit transactions involving the assets
of a Plan and persons who have specified relationships with a Plan
("Parties in Interest" under ERISA and "Disqualified Persons" under the
Code, collectively referred to herein as "Parties in Interest"), unless an
exemption is available for such transaction. The consequences of such
prohibited transactions include the imposition of excise taxes, possible
disqualification of IRAs, and other liabilities. A Plan fiduciary should
be sure that an investment in the Shares will not constitute or give rise
to a direct or indirect non-exempt prohibited transaction. A Plan
fiduciary should also consider prohibitions in ERISA relating to improper
delegation of control over or responsibility for "plan assets."
Plan Assets Considerations
In certain circumstances where a Plan holds an interest in an entity,
the assets of the entity are deemed to be "plan assets" of such Plan for
purposes of the fiduciary and prohibited transaction provisions of ERISA
and the Code. In addition, under such circumstances, any person that
exercises authority or control with respect to the management or
disposition of such assets is a Plan fiduciary. Plan assets are not
defined in ERISA or the Code, but the United States Department of Labor has
issued a regulation (the "Regulation"), that outlines the circumstances
under which a Plan's interest in an entity will result in the assets of the
entity being deemed to constitute plan assets.
The Regulation contains a number of exceptions to the treatment of an
entity's assets as plan assets of its Plan investors. One such exception
applies where the securities acquired by the Plan constitute
publicly-offered securities. A "publicly-offered security" is defined
under the Regulation as a security that is (i) freely transferable, (ii)
part of a class of securities that is widely-held, and (iii) either (a)
part of a class of securities that is registered under section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") or (b) sold to a Plan as part of an offering of securities to the
public pursuant to an effective registration statement under the Securities
Act, and the class of securities of which such security is a part is
registered under the Exchange Act within 120 days (or such longer period
allowed by the Commission) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred.
Whether a security is considered "freely transferable" depends on the facts
and circumstances of each case. Generally, if the security is part of an
offering in which the minimum investment is $10,000 or less, any
restriction on or prohibition against transfer or assignment of such
security for the purposes of preventing a termination or reclassification
of the entity for federal or state tax purposes will not of itself prevent
the security from being considered freely transferable. Although the
minimum investment permitted in the Shares is $15,000, the Company has
imposed no restrictions on transfer or assignment of the Shares, other than
the limitations set forth under "Investor Suitability Standards." A class
of securities is considered "widely-held" if immediately after the initial
offering it is owned by 100 or more investors independent of the issuer and
of one another.
It is anticipated by the Company that the Shares will meet the
criteria of the publicly-offered securities exception under the Regulation.
Accordingly, the Company believes that if a Plan purchases the Shares, the
Company's assets should not be deemed to be "plan assets."
DESCRIPTION OF SHARES
General
The Company is authorized to issue 100,000 Shares, par value $0.01
per Share. As of the date of this Prospectus, one Share is outstanding.
Any additional offering will be subject to the requirements of the
Investment Company Act that such Shares may not be issued at a price below
the then current net asset value, except in connection with an offering to
existing stockholders or with the consent of the holders of a majority of
the Company's outstanding voting securities (as defined in the Investment
Company Act). See "Regulation."
Shares of Common Stock
Holders of Shares are entitled to one vote per Share on all matters
submitted for action by the stockholders. There is no provision for
cumulative voting rights with respect to the election of Directors.
Accordingly, the holders of more than 50% of the Shares can, if they choose
to do so, elect all of the Directors. In such event, the holders of the
remaining Shares will not be able to elect any Directors. Holders of
Shares are entitled to receive dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. In the event
of liquidation, dissolution or winding up of the Company, holders of Shares
are entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities and after provision has
been made for each class of stock, if any, having preference over the
Shares. Holders of the Shares, as such, have no conversion, preemptive or
other subscription rights, and there are no redemption provisions
applicable to the Shares. All Shares offered hereby, when issued against
the consideration set forth in this Prospectus, will be fully-paid and
non-assessable.
Duration
The duration of the Company will be ten years from the final closing
of the sale of Shares, however, the Managing Investment Adviser has the
right, in its sole discretion, to extend the term for up to two additional
two-year periods, after which the approval of investors who represent 66
2/3% of the Company's outstanding Shares may determine to extend the term
of the Company. Upon the expiration of the Company's term, the Company
will be dissolved and the Company's portfolio securities will be sold.
Each stockholder will receive a pro rata share of the net proceeds of such
sale. The Company has not adopted any policy with respect to in-kind
distributions and has no present intention of adopting such policies or of
making any such distributions. In fact, there may be substantial legal and
contractual restrictions affecting the timing of any such distributions by
the Company or resales by stockholders of distributed securities.
SELLING ARRANGEMENTS
The Selling Agent has entered into a Selling Agent Agreement with
the Company pursuant to which the Selling Agent has agreed to act as
selling agent for the Shares. This agreement is an agency agreement only
and places the Selling Agent under no obligation to use its best efforts to
sell the Shares or otherwise solicit or promote transactions in such
Shares. Shares are available only to clients of U.S. Trust and its
affiliates who meet the Company's investor suitability standards. The
Selling Agent will not at any time purchase any Shares for its own account
and its sole function is to promote the sale of the Company's Shares. Both
the Selling Agent and the Managing Investment Adviser are subsidiaries of
U.S. Trust Corporation. The address of the Selling Agent is 555 South
Flower Street, Suite 2700, Los Angeles, California 90071.
Pursuant to the Selling Agent Agreement, the Selling Agent may enter
into agreements with one or more sub-selling agents to arrange for the sale
of the Shares in certain states. The Selling Agent agrees under the
Selling Agent Agreement that it shall remain fully responsible for the
performance of all its duties under the Selling Agent Agreement.
The Company has agreed to indemnify the Selling Agent against certain
civil liabilities, including liabilities under the federal securities laws.
However, such indemnification is subject to the provisions of Section 17(i)
of the Investment Company Act which provides, in part, that no agreement
shall contain a provision which protects or purports to protect any person
against any liability to such company or its security holders to which it
would otherwise be subject due to such person's misfeasance, bad faith, or
gross negligence in the performance of its duties or reckless disregard of
its obligations and duties under such agreement.
LEGAL MATTERS
The validity of the Shares offered hereby and other legal matters in
connection with this offering were passed upon for the Company by Mayer,
Brown & Platt, New York, New York.
EXPERTS
The Statement of Assets and Liabilities of the Company included in
this Prospectus has been audited by Ernst & Young LLP, independent
certified public accountants, as stated in their report included herein,
and is included herein in reliance upon such report given on their
authority as experts in auditing and accounting. Ernst & Young LLP is
located at 787 Seventh Avenue, New York, New York 10019.
REPORT OF INDEPENDENT AUDITORS
Shareholder and Board of Directors
UST Private Equity Investors Fund, Inc.
We have audited the accompanying statement of assets and liabilities of UST
Private Equity Investors Fund, Inc. as of September 19, 1994. This
statement of assets and liabilities is the responsibility of the Company's
management. Our responsibility is to express an opinion on this statement
of assets and liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit includes examining
on a test basis, evidence supporting the amounts and disclosures in the
statement of assets and liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall statement of assets and liabilities
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of UST
Private Equity Investors Fund, Inc. at September 19, 1994, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
September 20, 1994
UST PRIVATE EQUITY INVESTORS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 19, 1994
Assets:
Cash................................................ $ 1,000
Deferred organizational and initial offering expenses 221,500
_________
Total Assets................................ $ 222,500
Liabilities:
Accrued organizational expenses and
initial offering costs ......................... 221,500
________
Net Assets consist of:
Common Stock, $0.01 par value; authorized
100,000 shares; issued and
outstanding 1 share.............................. $ 1,000
======
Net Asset Value Per Share........................... $ 1,000
======
________________
Notes:
(1) The Company was incorporated in the State of Maryland on September
16, 1994 and has had no operations to date other than matters
relating to its organization and registration under the Securities
Act of 1933, as amended, as a non-diversified, closed-end management
investment company that will elect to be regulated as a business
development company under the Investment Company Act of 1940, as
amended, and the sale and issuance of 1 share of its Common Stock to
David I. Fann.
(2) Costs incurred by the Company in connection with its organization,
estimated at $25,000, will be amortized on a straight-line basis over
a five year period beginning at the commencement of operations of the
Company. Costs incurred by the Company in connection with the
initial registration of the Shares, estimated at $196,500 will be
charged against the proceeds of the offering. Approximately $45,000
of these costs have been paid by U.S. Trust and will be reimbursed to
it.
EXHIBIT A
SPECIMEN ONLY -- NOT FOR PURCHASES
UST PRIVATE EQUITY INVESTORS FUND, INC.
SUBSCRIPTION AGREEMENT
U.S. Trust Company of California, N.A.
555 South Flower Street
Suite 2700
Los Angeles, CA 90071
Ladies and Gentlemen:
The undersigned, by signing this Subscription Agreement, and subject
to the terms and conditions hereof and the provisions of the Prospectus
(the "Prospectus") of UST Private Equity Investors Fund, Inc. (the
"Company"), hereby subscribes for shares of common stock, par value $.01
per share (the "Shares") of the Company in the aggregate investment amount
set forth herein (the undersigned's "Investment Amount"), and herewith
encloses payment in an amount equal to such Investment Amount. The
undersigned understands that such funds will be held by United States Trust
Company of New York as Escrow Agent, and will be returned promptly,
together with any interest earned thereon, to the undersigned, in the event
that at least 25,000 Shares are not subscribed for and the payments
therefor are not made by May 31, 1995 or such other subsequent date not
later than August 31, 1995 as the Managing Investment Adviser and the
Company may determine.
1. Acceptance of Subscription. It is understood and agreed that the
Company shall have the right, in its sole discretion, to accept or reject
this subscription, in whole or in part. Subscriptions need not be accepted
in the order received, and Shares may be allocated in the event of
oversubscription.
2. Right to Refund. The undersigned shall have the right to receive
a refund for a period of five business days from the date payment for the
investment is submitted by the undersigned. Such request may be made in
any fashion but, if made other than in an originally signed and written
communication, must be confirmed with such a communication within 15
business days after the date payment is submitted.
3. Representations and Warranties of the Undersigned. The
undersigned hereby represents and warrants to the Company and to U.S. Trust
Company of California, N.A., and each officer, director, controlling
person, and agent of the Company and U.S. Trust Company of California,
N.A., that:
(a) the undersigned (i) has a net worth (exclusive of homes, home
furnishings and automobiles) of $250,000 or (ii) has a net worth
(exclusive of homes, home furnishings and automobiles) of $60,000 and
expects to have during each of the current and the next three tax
years income from any source of $60,000 or more;
(b) in the case of a trustee purchasing shares on behalf of a trust
account, such trust account has total assets in excess of $1,000,000;
(c) in the case of a custodian purchasing Shares on behalf of a minor
pursuant to the Uniform Gifts to Minors Act, (i) if the funds used
for the purchase of the Shares are funds gifted from a donor (who is
normally the custodian for and the parent of the minor) to the minor
at the time of purchase of the Shares, then the donor meets the
financial suitability standards set forth in (a) above and (ii) if
the funds used for the purchase of the Shares are funds belonging to
the minor prior to the time of the purchase of the Shares, then the
minor meets the financial suitability standards set forth in (a)
above;
(d) if an investment in the Company is being made by a corporation,
partnership, trust, or estate, the undersigned has all right and
authority, in his/her capacity as an officer, general partner,
trustee, executor, or other representative of such corporation,
partnership, trust, or estate, as the case may be, to make such
decision to invest in the Shares and to execute and deliver this
Subscription Agreement on behalf of such corporation, partnership,
trust, or estate, as the case may be, and this Subscription Agreement
is a valid and binding agreement of such corporation, partnership,
trust, or estate, enforceable in accordance with its terms;
(e) the undersigned has received the Prospectus and has read the
Prospectus and is fully familiar with its contents;
(f) the undersigned is purchasing the Shares for investment only and
with no present intention of reselling or redeeming the Shares;
(g) the undersigned confirms that no representations or warranties
have been made to the undersigned other than those contained in, or
superseded by those contained in, the Prospectus and that he or she
has not relied upon any representation or warranty not contained in
the Prospectus in making this investment;
(h) the undersigned has been given the opportunity to ask questions
of, and receive answers from, the Company with respect to the
Company, concerning the terms and conditions of the offering and
other matters pertaining to this investment, and has been given the
opportunity to obtain such additional information necessary to verify
the accuracy of the information contained in the Prospectus or that
was otherwise provided in order for the undersigned to evaluate the
merits and risks of an investment in the Company;
(i) the undersigned has been advised and understands that an
investment in the Company involves significant risk;
(j) the undersigned has no reason to anticipate any change in its
circumstances, financial or otherwise, which may cause or require any
sale or distribution by the undersigned of all or any part of the
investment subscribed for;
(k) the undersigned has no need for liquidity in this investment, has
the ability to bear the economic risk of this investment, and at the
present time and in the foreseeable future can afford a complete loss
of this investment;
(l) the undersigned has sufficient knowledge and experience in
business and financial matters to evaluate the nature of, and risks
attending, investments of the type herein subscribed for and has
determined that the purchase of the Shares is consistent with the
undersigned's investment objectives;
(m) if the undersigned is subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), in making this investment
he/she is aware of and has taken into consideration the prudence,
diversification, and other fiduciary requirements of ERISA and has
concluded that this investment is in compliance with such
requirements; and
(n) the information provided herein to the Company and to U.S. Trust
Company of California, N.A. by the undersigned as to the undersigned
is true and correct as of the date hereof and the undersigned agrees
to advise the Company and U.S. Trust Company of California, N.A.
prior to any closing with respect to the Shares of any material
change in any such information.
4. Indemnification. The undersigned hereby agrees to indemnify and
hold harmless the Company and U.S. Trust Company of California, N.A., each
officer, director, controlling person, and agent of the Company and U.S.
Trust Company of California, N.A., from and against any and all loss,
claim, damage, liability, or expense, and any action in respect thereof,
joint or several, to which any such person may become subject, due to or
arising out of the falsity or inaccuracy of any representation, warranty or
any other information provided herein, together with all reasonable costs
and expenses (including attorneys' fees) incurred by any such person in
connection with any action, suit, proceeding, demand, assessment, or
judgment incident to any of the matters so indemnified against.
5. Survival. All representations and warranties and the
indemnification provisions contained in Sections 3 and 4 hereof shall
survive (i) the acceptance of the subscription, (ii) changes in the
transactions, documents, and instruments described in the Prospectus that
are not material, and (iii) the death or disability of the undersigned.
6. Governing Law. This Subscription Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
Under penalties of perjury, the undersigned certifies that the information
provided herein is true, correct and complete.
UST PRIVATE EQUITY INVESTORS FUND, INC.
SUBSCRIPTION AGREEMENT
___________________________ Purchase Price of
INVESTMENT AMOUNT: |$ | Shares| $1,000 per Share:
--------------------------- minimum subscrip-
tion is $15,000
(15 Shares)
Make check payable to U.S. Trust of New York, Escrow Agent for UST
PRIVATE EQUITY INVESTORS FUND, INC., 114 West 47th Street, NY, NY
10036. Checks should be delivered to the Selling Agent together with
this Subscription Agreement.
__________________________________________________________________
Individual Accounts: Complete sections 1, 4, 5 and sign below
__________________________________________________________________
Manner in Which Title is To Be Held (Check One)
__________________________________________________________________
(1) Individual Accounts
[] A. Individual Owner [] E. Tenants in Common
[] B. Joint tenants with (all parties must sign)
right of survivorship [] F. Tenants by the entirety
[] C. Community property (both parties must sign)
(both parties must [] G. Corporate owner
sign) [] H. Partnership owner
[] D. Separate property
___________________________________________________________________
Custodial Accounts: Complete sections 2, 3, 4, 5 and sign below
___________________________________________________________________
(2) Custodial Accounts
[] I. IRA [] L. Trust (date est._____)
[] J. Keogh Plan [] M. Pension
[] K. Uniform Gifts to [] N. Profit Sharing
Minors Act.
State of ____________________
CUSTODIAN(S) OR TRUSTEE(S) MUST SIGN
___________________________________________________________________
(3) Trustee or |Name of Custodian (Trustee)_______________________
Custodian |Account #_________________________________________
|Street or P.O. Box _______________________________
|City_____________________ State___________________
|Zip____________ Phone( )_______________________
|Trustee or Custodian Tax ID Number________________
___________________________________________________________________
(4) Investor(s) |Investor Name ____________________________________
|Co-Investor Name _________________________________
|Street or P.O. Box _______________________________
|City ____________________ State __________________
|Zip _____________ Phone ( ) ___________________
|Legal State of Residency
|(if different from above)_________________________
|U.S. Citizen _____ Yes _____ No
|Social Security or Tax ID Number for
|IRS Reporting ____________________________________
___________________________________________________________________
(5) Distribution|Name of Custodian (Trustee)_______________________
Address-- |Account # ________________________________________
If Different |Street or P.O. Box _______________________________
From Address |City____________________________ State____________
Above |Zip________________ Phone ( )___________________
|Trustee or Custodian Tax ID Number________________
(Distributions For Custodial Accounts Will Be Sent To The Custodian)
___________________________________________________________________
I certify, under penalties of perjury, that: (1) The tax
identification number shown on this application is correct and
(2) I am NOT currently under IRS notification that part
of my dividend and interest income is to be withheld as a result of
my failure to report all dividend and interest income on my income
tax return - i.e. backup withholding. (Strike the word "NOT" above
if you have received IRS notification.)
SIGNATURE(S): Please read the reverse before signing; names must
be signed exactly as registered above; each investor is required to
sign his/her/its own Subscription Agreement unless signed by a
trustee or custodian.
Investor's Signature _________________________________ Date______
Co-Investor's Signature _______________________________Date______
Trustee or Custodian's Signature ______________________Date______
THE SELLING AGENT MUST SIGN BELOW TO COMPLETE THE ORDER
Based solely upon the subscriber's representations set forth in
Section 3 hereof, including said subscriber's recognizable capacity
to evaluate the nature of, and risks attending the investment, the
Selling Agent believes that (i) the subscriber is or will be in a
financial position appropriate to enable him/her to realize to a
significant extent the benefits described in the Prospectus; (ii)
the subscriber has a fair market net worth sufficient to sustain
the risks inherent in an investment in the Company, including loss
of investment and lack of liquidity; and (iii) the Company is
otherwise suitable for the subscriber. The Selling Agent also
warrants that it is exempt from licensing or duly licensed, as
appropriate, and may lawfully act as selling agent with respect to
the Shares in the state designated as the subscriber's residence.
Name ______________________________ Address________________________
City ______________________________ State__________________________
Zip______________ Phone __________________
Licensed Firm Name_________________________________________________
Firm's Headquarters Mailing Address _______________________________
City ______________________________ State__________________________
Zip _____________ Phone __________________
Signature _________________________________________________________
<PAGE>
No dealer, salesperson or other person has been authorized
to give any information or to make any representations
other than those contained in this Prospectus in connection
with the offer made by this Prospectus and, if given or
made, such information or representations must not be
relied upon as having been authorized by the Company or
the Selling Agent. This Prospectus does not constitute an
offer to sell or the solicitation of any offer to buy any
security other than the Shares offered by this Prospectus,
nor does it constitute an offer to sell or a solicitation of an
offer to buy the Shares by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in
which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that any
information contained herein is correct as of any time
subsequent to the date hereof.
_________________
TABLE OF CONTENTS Page
FEE TABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . 2
REPORTS TO STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . 2
INVESTOR SUITABILITY STANDARDS . . . . . . . . . . . . . . . . 3
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . 4
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . 8
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . 9
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . .17
TERMS OF THE OFFERING AND PURCHASE OF
SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . .22
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . .23
BROKERAGE ALLOCATION AND OTHER
PRACTICES. . . . . . . . . . . . . . . . . . . . . . . . . . 36
REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . .38
VALUATION OF PORTFOLIO SECURITIES. . . . . . . . . . . . . . .40
FEDERAL INCOME TAX MATTERS . . . . . . . . . . . . . . . . . .41
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . .45
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . .46
SELLING ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . .47
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . .48
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .48
REPORT OF INDEPENDENT AUDITORS . . . . . . . . . . . . . . . .49
STATEMENT OF ASSETS AND LIABILITIES. . . . . . . . . . . . . .50
EXHIBIT A - SUBSCRIPTION AGREEMENT . . . . . . . . . . . . . A-1
_________________
Until January 10, 1995 (25 days after the date of
this Prospectus), all dealers effecting transactions in the
registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This
is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
50,000 Shares
UST PRIVATE
EQUITY INVESTORS FUND, INC.
Common Stock
______________
PROSPECTUS
______________
December 16, 1994
