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UST
PRIVATE EQUITY
INVESTORS FUND, INC.
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ANNUAL REPORT
OCTOBER 31, 1995
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LETTER TO SHAREHOLDERS
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Dear Shareholder:
We are pleased to present you with the first annual report for UST Private
Equity Investors Fund, Inc. This annual report is designed to provide a
financial summary of the Fund's operations for the period August 1, 1995
(commencement of operations) to October 31, 1995.
During this period the Fund was invested in temporary investments in accordance
with the terms and conditions outlined in the prospectus.
In 1995, the managers of the UST Private Equity Investors Fund, Inc. were
dedicated to the establishments of the Fund with a focus on raising capital. At
the end of July 1995, the fund held its first closing on over $28.0 million. In
October 1995, the fund held its second and final closing on an additional $12.4
million, raising the total capitalization to $40.4 million. With $40.4 million,
UST Private Equity Investors Fund, Inc. will be able to access a greater number
of opportunities than with $28.0 million, which benefits all investors.
During this time, the Fund also further developed its presence in the private
equity markets with respect to investment opportunities in: (1) other venture
capital and leveraged buyout funds; (2) later-stage venture capital situations;
and (3) middle-market buyouts.
In 1995, we reviewed over 167 investment opportunities. Of those, we seriously
considered 10.
By year-end calendar 1995, we expect to close on at least three fund
investments:
Fund 1 is a leading management buyout group based in New York that is
spinning out of a large financial institution.
Fund 2 is a private equity firm based in Los Angeles which is focused on
consolidating businesses in fragmented industries.
Fund 3 is a leading balanced venture capital and leveraged buyout fund based
in the Midwest and West Coast specializing in healthcare and information
technology.
We are also seriously contemplating investments in:
1) A middle-stage venture capital firm on the East Coast.
2) A dominant Southeast-based heavy equipment rental business.
3) An early-stage venture capital firm based on the West Coast.
4) A high-growth company providing services to wireless communications
providers.
We will provide greater detail upon the consummation of our investments.
We welcome the opportunity to assist you in fulfilling your investment
objectives.
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Sincerely,
/s/ DAVID I. FANN /s/ DOUGLAS A. LINDGREN
David I. Fann Douglas A. Lindgren
President and Chief Executive Officer Executive Vice President
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UST PRIVATE EQUITY INVESTORS FUND, INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995
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<CAPTION>
PRINCIPAL COUPON MATURITY VALUE
AMOUNT/SHARES RATE DATE (NOTE 1)
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<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- 23.41%
$ 1,000,000 AIG Funding Corp. ..................................... 5.72 % 11/3/95 $ 999,682
1,400,000 American General Finance Corp. ........................ 5.70 11/10/95 1,400,000
1,400,000 Chevron Corp. ......................................... 5.65 12/8/95 1,400,000
1,400,000 Ford Motor Credit Corp. ............................... 5.70 1/2/96 1,400,000
1,400,000 G.E. Capital Corp. .................................... 5.69 12/18/95 1,400,000
1,400,000 G.E. Capital Corp. .................................... 5.66 12/19/95 1,400,000
1,400,000 Toys 'R' Us Corp. ..................................... 5.71 11/3/95 1,399,556
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TOTAL COMMERCIAL PAPER
(Cost $9,399,238).................................... 9,399,238
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CERTIFICATES OF DEPOSIT -- 17.43%
1,400,000 Bank of Hawaii......................................... 5.69 11/1/95 1,400,000
1,400,000 Bank of Scotland....................................... 5.75 11/1/95 1,400,000
1,400,000 Dresdner Bank.......................................... 5.66 11/1/95 1,400,000
1,400,000 Fifth Third Bank....................................... 5.70 11/1/95 1,400,000
1,400,000 Hypo Bank.............................................. 5.69 11/1/95 1,400,000
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TOTAL CERTIFICATES OF DEPOSIT
(Cost $7,000,000).................................... 7,000,000
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CORPORATE BONDS -- 12.22%
500,000 American Express Credit Corp. ......................... 9.45 2/15/96 504,880
500,000 American Express Credit Corp. ......................... 7.00 3/4/96 502,300
1,250,000 J.P. Morgan & Co., Inc. ............................... 8.00 1/24/97 1,280,875
400,000 Merck & Co., Inc. ..................................... 7.75 5/1/96 403,124
1,200,000 Mountain States Telephone & Telegraph Company.......... 7.63 5/15/96 1,204,500
1,000,000 Whirlpool, Inc. ....................................... 8.49 3/15/96 1,009,800
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TOTAL CORPORATE BONDS
(Cost $4,911,768).................................... 4,905,479
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U.S. GOVERNMENT & AGENCY OBLIGATION -- 2.48%
1,000,000 Student Loan Marketing Association`D'
(Cost $994,561)...................................... 4.00 3/1/96 993,890
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BANK NOTES -- 2.47%
1,000,000 Bank of Tokyo (Cost $992,428).......................... 5.80 12/18/95 992,428
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OTHER SHORT-TERM INVESTMENTS -- 6.52%
1,350,609 Dreyfus Treasury Cash Management Fund........................................... 1,350,609
1,268,762 Fidelity Cash Portfolio, U.S. Treasury II....................................... 1,268,762
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TOTAL OTHER SHORT-TERM INVESTMENTS
(Cost $2,619,371)............................................................. 2,619,371
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REPURCHASE AGREEMENT -- 9.08%
3,646,000 Dillon Read & Co., Inc., 5.90%, dated 10/31/95,
due 11/1/95, to be repurchased at $3,646,598,
collateralized by $3,711,237 U.S. Treasury Notes,
5.125%, due 6/30/98, valued at $3,646,290
(Cost $3,646,000)............................................................. 3,646,000
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TOTAL INVESTMENTS
(Cost $29,563,366*)............................................................. 73.61% 29,556,406
OTHER ASSETS & LIABILITIES (NET).................................................. 26.39 10,596,033
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NET ASSETS........................................................................ 100.00% $40,152,439
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* Aggregate cost for Federal tax and book purposes.
`D' Floating rate security -- rate disclosed is as of October 31, 1995.
See Notes to Financial Statements
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UST PRIVATE EQUITY INVESTORS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
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OCTOBER 31,
1995
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ASSETS:
Investments, at value (Cost $29,563,366) (Note 1).......................................... $29,556,406
Cash....................................................................................... 10,977,421
Interest receivable........................................................................ 332,614
Receivable from Managing Investment Adviser (Note 2)....................................... 104,101
Prepaid expenses........................................................................... 37,133
Unamortized organization costs (Note 4).................................................... 28,489
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TOTAL ASSETS............................................................................. 41,036,164
LIABILITIES:
Payable for dividends declared............................................................. 333,081
Payable for offering and organization costs................................................ 407,748
Directors fees payable..................................................................... 30,000
Administration fees payable (Note 2)....................................................... 7,541
Accrued expenses and other payables........................................................ 105,355
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TOTAL LIABILITIES........................................................................ 883,725
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NET ASSETS................................................................................... $40,152,439
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NET ASSETS consist of:
Accumulated undistributed net investment income............................................ $ 42,802
Net unrealized depreciation on investments................................................. (6,960)
Par value.................................................................................. 405
Paid in capital in excess of par value..................................................... 40,116,192
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TOTAL NET ASSETS............................................................................. $40,152,439
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Shares of Common Stock Outstanding ($0.01 par value, 100,000 authorized)..................... 40,463
NET ASSET VALUE PER SHARE.................................................................... $992.32
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See Notes to Financial Statements
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UST PRIVATE EQUITY INVESTORS FUND, INC.
STATEMENT OF OPERATIONS
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<CAPTION>
AUGUST 1,
1995* TO
OCTOBER 31,
1995
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INVESTMENT INCOME:
Interest income............................................................................. $ 410,496
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EXPENSES:
Managing investment advisory fees (Note 2).................................................. 36,125
Directors' fees and expenses (Note 2)....................................................... 30,000
Administration fees (Note 2)................................................................ 7,541
Shareholder servicing fees.................................................................. 4,585
Insurance expenses.......................................................................... 38,065
Audit and other professional service fees................................................... 27,500
Legal fees.................................................................................. 20,000
Shareholder reports......................................................................... 7,500
Custodial fees.............................................................................. 3,523
Organization expenses....................................................................... 1,512
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TOTAL EXPENSES............................................................................ 176,351
Expenses reimbursed by Managing Investment Adviser (Note 2)................................. (140,226)
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NET EXPENSES.............................................................................. 36,125
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NET INVESTMENT INCOME......................................................................... 374,371
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NET CHANGE IN UNREALIZED DEPRECIATION ON INVESTMENTS (Note 1)................................. (6,960)
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......................................... $ 367,411
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* Commencement of operations
See Notes to Financial Statements
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UST PRIVATE EQUITY INVESTORS FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
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AUGUST 1,
1995* TO
OCTOBER 31,
1995
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OPERATIONS:
Net investment income...................................................................... $ 374,371
Net change in unrealized depreciation on investments....................................... (6,960)
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Net increase in net assets resulting from operations..................................... 367,411
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DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................................................. (333,081)
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CAPITAL SHARE TRANSACTIONS:
Subscriptions (40,462 shares).............................................................. 40,462,000
Offering costs............................................................................. (344,891)
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Increase in net assets from capital share transactions................................... 40,117,109
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NET INCREASE IN NET ASSETS................................................................... 40,151,439
NET ASSETS:
Beginning of period (1 share).............................................................. 1,000
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End of period (including accumulated undistributed net investment income of $42,802.)...... $40,152,439
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* Commencement of operations
See Notes to Financial Statements
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UST PRIVATE EQUITY INVESTORS FUND, INC.
FINANCIAL HIGHLIGHTS -- SELECTED PER SHARE DATA AND RATIOS
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For a fund share outstanding throughout the period.
AUGUST 1,
1995* TO
OCTOBER 31,
1995
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NET ASSET VALUE, BEGINNING OF PERIOD............................................................ $1,000.00
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OFFERING COSTS.................................................................................. (8.53)
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INCOME FROM INVESTMENT OPERATIONS
Net Investment Income......................................................................... 12.86
Net Realized and Unrealized Loss on Investments............................................... (0.17)
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Total From Investment Operations.......................................................... 12.69
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DISTRIBUTIONS
Net Investment Income......................................................................... (11.84)
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NET ASSET VALUE, END OF PERIOD.................................................................. $ 992.32
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TOTAL NET ASSET VALUE RETURN`D'................................................................. 0.39%
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RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)......................................................... $ 40,152
Ratio of Net Operating Expenses to Average Net Assets......................................... 0.50%**
Ratio of Gross Operating Expenses to Average Net Assets`D'`D'................................. 2.44%**
Ratio of Net Investment Income to Average Net Assets.......................................... 5.18%**
Portfolio Turnover Rate....................................................................... 0%
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* Commencement of operations
** Annualized
`D' Total investment return based on per share net asset value reflects the
effects of changes in net asset value based on the performance of the Fund
during the period, and assumes dividends and distributions, if any, were
reinvested. The Fund's shares were issued in a private placement and are
not traded, therefore market value total investment return is not
calculated. Total return for periods of less than one year are
unannualized.
`D'`D' Expense ratio before waiver of fees and reimbursement of expenses by
adviser.
See Notes to Financial Statements
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UST PRIVATE EQUITY INVESTORS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
UST Private Equity Investors Fund, Inc. ('the Fund') was incorporated
under the laws of the State of Maryland on September 16, 1994 and is registered
under the Securities Act of 1933, as amended, as a non-diversified, closed-end
management investment company which has elected to be treated as a business
development company under the Investment Company Act of 1940, as amended.
The following is a summary of the Fund's significant accounting policies.
(A) PORTFOLIO VALUATION:
The Fund values portfolio securities quarterly and at other such times
as in the Board of Directors' view, as circumstances warrant. Investments
in securities that are traded on a recognized stock exchange or on the
national securities market are valued at the last sale price for such
securities on the valuation date. Short-term debt instruments with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value. Securities and other assets for which market
quotations are not readily available are valued, pursuant to guidelines
adopted by the Investment Adviser, under the supervision of the Board of
Directors.
(B) SECURITY TRANSACTIONS AND INVESTMENT INCOME:
Security transactions are recorded on a trade date basis. Realized
gains and losses on investments sold are recorded on the basis of
identified cost. Interest income, adjusted for amortization of premiums
and, when appropriate, discounts on investments, is earned from settlement
date and is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date.
(C) REPURCHASE AGREEMENTS:
The Fund enters into agreements to purchase securities and to resell
them at a future date. It is the Fund's policy to take custody of
securities purchased and to ensure that the market value of the collateral
including accrued interest is sufficient to protect the Fund from losses
incurred in the event the counterparty does not repurchase the securities.
If the seller defaults and the value of the collateral declines or if
bankruptcy proceedings are commenced with respect to the seller of the
security, realization of the collateral by the Fund may be delayed or
limited.
(D) FEDERAL INCOME TAXES:
It is the policy of the Fund to continue to qualify as a 'regulated
investment company' under Subchapter M of the Internal Revenue Code and
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income or excise tax provision is required.
Dividends from net investment income are declared and paid at least
annually. Any net realized capital gains, unless offset by any available
capital loss carryforward, are distributed to shareholders at least
annually. Dividends and distributions are determined in accordance with
Federal income tax regulations which may differ from generally accepted
accounting principles. These 'book/tax' differences are either considered
temporary or permanent. To the extent these differences are permanent, such
amounts are reclassified within the capital accounts based on their federal
tax basis treatment; temporary differences do not require reclassification.
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The Fund had permanent book/tax differences primarily attributable to
deferred organizational costs. To reflect reclassifications arising from
permanent book/tax differences as of October 31, 1995, accumulated undistributed
net investment income was credited and paid in capital was charged $1,512.
At October 31, 1995 the tax basis of the Fund's investments for Federal
income tax purposes amounted to $29,563,366. The net unrealized depreciation
amounted to $6,960, which is comprised of gross unrealized appreciation of $537
and aggregate gross unrealized depreciation of $7,497.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE, AND RELATED PARTY TRANSACTIONS
Pursuant to an Investment Management Agreement ('Agreement'), United States
Trust Company of New York ('U.S. Trust') serves as the Managing Investment
Adviser to the Fund. Under the Agreement, for the services provided U.S. Trust
is entitled to receive a fee, at the annual rate of 1.50% of the net assets of
the Fund, determined as of the end of each fiscal quarter, that are invested or
committed to be invested in Portfolio Companies or Private Funds and equal to an
annual rate of 0.50% of the net assets of the Fund, determined as of the end of
each fiscal quarter, that are invested in short-term investments and are not
committed to Portfolio Companies or Private Funds.
In addition to the management fee, the Fund has agreed to pay U.S. Trust an
incentive fee in an amount equal to 10% of the cumulative realized capital gains
(net of realized capital losses and unrealized net capital depreciation), less
the aggregate amount of incentive fee payments in prior years. If the amount of
the incentive fee in any year is a negative number, or cumulative net realized
gains less net unrealized capital depreciation at the end of any year is less
than such amount calculated at the end of the previous year U.S. Trust will be
required to repay the Fund all or a portion of the incentive fee previously
paid.
U.S. Trust has voluntarily agreed to waive or reimburse other operating
expenses of the Fund, exclusive of management fees, to the extent they exceed
0.42% of the Fund's net assets, and U.S. Trust will waive or reimburse,
exclusive of management fees, all such expenses with respect to that portion of
the Fund's net assets, determined as of the end of each fiscal quarter, that is
invested in short-term investments.
Each Director of the Fund receives an annual fee of $9,000, plus a meeting
fee of $1,500 for each meeting attended, and is reimbursed for expenses incurred
for attending meetings. No person who is an officer, director or employee of
U.S. Trust, or of any parent or subsidiary thereof, who serves as an officer,
director or employee of the Fund receives any compensation from the Fund.
3. PURCHASES AND SALES OF SECURITIES
Purchases of securities, excluding short-term investments, for the Fund
aggregated $1,280,913. There were no long-term sales.
4. ORGANIZATION COSTS:
The Fund has borne all costs in connection with the initial organization of
the Fund. All such costs are being amortized on a straight-line basis over a
period of five years from the date on which the Fund commenced operations.
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders 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. including the portfolio of investments, as
of October 31, 1995, and the related statements of operations and changes in net
assets, and financial highlights for the period from August 1, 1995
(commencement of operations) to October 31, 1995. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our 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 financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of October 31, 1995 by
correspondence with the custodian and others. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of UST
Private Equity Investors Fund, Inc. at October 31, 1995, the results of its
operations, the changes in its net assets, and the financial highlights for the
period from August 1, 1995 to October 31, 1995 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
November 22, 1995
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USTPEIA1095
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as ............ 'D'
The double dagger shall be expressed as ............ 'D''D'
