SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to ______
Commission File Number [0-22277]
----------------------------
EXCELSIOR PRIVATE EQUITY FUND II, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 22-3510108
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
114 West 47th Street
New York, NY 10036-1532
(Address of principal executive offices, including zip code)
(212) 852-1000
(Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / / No /X/
As of January 31, 1997, there were 195,730 shares of the Registrant's Common
Stock, $.01 par value, outstanding.
689270.1
<PAGE>
EXCELSIOR PRIVATE EQUITY FUND II, INC.
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. They involve known and unknown risks
and uncertainties that may cause the Company's actual results to differ from
future performance suggested herein. In the context of forward-looking
information provided in this Form 10-Q and in other reports, please refer to the
discussion of risk factors detailed in, as well as the other information
contained in, the Company's filings with the Securities and Exchange Commission
during the past 12 months.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Portfolio of Investments as of January 31, 1998 (Unaudited)
and October 31, 1997.
Statement of Assets and Liabilities as of January 31, 1998
(Unaudited) and October 31, 1997.
Statement of Operations for the three month period ended
January 31, 1998 (Unaudited) and the period from October 8,
1997 to October 31, 1997 (Unaudited).
Statement of Changes in Net Assets for the three month
period ended January 31, 1998 (Unaudited) and the period from
October 8, 1997 to October 31, 1997 (Unaudited).
Notes to Financial Statements (Unaudited).
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Securityholders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
689270.1
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited).
<TABLE>
<CAPTION>
Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1998
Portfolio of Investments Quarter Ended: January 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
January 31, 1998 October 31, 1997
(unaudited)
------------------------------- -----------------------------------
PORTFOLIO STRUCTURE
- -------------------
<S> <C> <C> <C> <C>
PORTFOLIO COMPANIES $ 11,340,409 5.78% $ -- --
SHORT-TERM INVESTMENTS:
Commercial Paper 126,080,731 64.24% 119,559,143 76.62%
Corporate Bonds 8,167,844 4.16% 6,073,060 3.89%
U.S. Government & Agency Obligations 36,597,995 18.65% 21,732,259 13.93%
Investment Companies 11,537,000 5.88% 8,245,780 5.28%
Other Short-term Investments 2,549,196 1.30% -- --
---------------- ----------- ----------------- ----------
TOTAL INVESTMENTS 196,273,175 100.01% 155,610,242 99.72%
OTHER ASSETS & LIABILITIES (NET) (20,003) -0.01% $ 439,299 -0.28%
---------------- ----------- ----------------- --------------
NET ASSETS $ 196,253,172 100.00% $ 156,049,541 100.00%
================ =========== ================= ==============
</TABLE>
689270.1
<PAGE>
<TABLE>
<CAPTION>
Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1998
Statement of Assets and Liabilities Quarter Ended: January 31, 1998
- -------------------------------------------------------------------------------------------------
January 31, 1998
ASSETS (unaudited) October 31, 1997
- ------------------------------------------------------
<S> <C> <C>
Investment Securities, at Cost $ 196,353,675 $ 155,507,901
=============== ============
Investment Securities, at Value 196,273,175 155,610,242
Cash 36,488 63
Receivables:
Interest 375,685 512,987
Unamortized Organization Costs 14,056 14,480
----------------- --------------
TOTAL ASSETS 196,699,404 156,138,103
----------------- --------------
LIABILITIES
- -------------------------------------------------
Managing Investment Advisory Fees Payable 276,398 15,821
Administration & Shareholder Servicing Fees Payable 15,379 3,805
Directors Fees Payable 7,562 15,000
Accrued Expenses and Other Payables 146,893 53,936
--------------- ------------
TOTAL LIABILITIES 446,232 88,562
--------------- ------------
NET ASSETS $ 196,253,172 $ 156,049,541
=============== ============
NET ASSETS CONSIST OF
- -------------------------------------------------
Accumulated Undistributed Net Investment Income $ 1,015,826 $ 1,283,634
Net Unrealized Appreciation/(Depreciation)
of Investments (80,500) 43,640
Par Value 1,957 1,555
Paid In Capital in Excess of Par Value 195,315,889 155,511,445
-------------- ------------
TOTAL NET ASSETS $ 196,253,172 $ 156,049,541
============== ============
Shares of Common Stock Outstanding 195,730 155,512
-------------- ------------
NET ASSET VALUE PER SHARE $ 1,002.67 $ 1,003.46
============== ============
</TABLE>
689270.1
<PAGE>
<TABLE>
<CAPTION>
Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1998
Statement of Operations Quarter Ended: January 31, 1998
- ----------------------------------------------------------------------------------------------------
For the period from
Quarter Ended October 8, 1997 to
INVESTMENT INCOME January 31, 1998 October 31, 1997
(unaudited)
<S> <C> <C>
Interest Income $ 2,694,435 $ 507,951
------------- ------------
TOTAL INCOME 2,694,435 507,951
------------- ------------
EXPENSES
Management Investment Advisory Fees 276,397 49,167
Administrative Fees & Shareholder Servicing Fees 15,229 3,805
Custodial Fees 9,910 1,967
Legal Fees 16,131 10,000
Audit and Other Professional Service Fees 6,553 20,000
Directors' Fees and Expenses 7,562 15,000
Shareholder Reports 1,261 4,000
Organization Expenses 755 189
Insurance Expense 15,270 2,369
Miscellaneous Expenses 151 600
------------- ------------
TOTAL EXPENSES 349,219 107,097
Fees Waived and Reimbursed by Advisor -- (33,346)
------------- -------------
NET EXPENSES 349,219 73,751
------------- -------------
NET INVESTMENT INCOME $ 2,345,216 $ 434,200
------------- ------------
UNREALIZED GAIN/(LOSS)
ON INVESTMENTS
Change in Unrealized Appreciation / (Depreciation)
on Investments (182,841) 102,341
------------- ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS (182,841) 102,341
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 2,162,375 $ 536,541
============ ============
- ------------------------------------------------------------------------------------------------------------
* Commencement of Operations
</TABLE>
689270.1
<PAGE>
<TABLE>
<CAPTION>
Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1998
Statement of Changes in Net Assets Quarter Ended: January 31, 1998
- ----------------------------------------------------------------------------------------------------
For the period from
Quarter Ended October 8, 1997* to
January 31, 1998 October 31, 1997
(unaudited)
OPERATIONS:
<S> <C> <C>
Net Investment Income $ 2,345,216 $ 434,200
Change in Unrealized Appreciation / (Depreciation)
on Investments (182,841) 102,341
--------------- ----------------
Net Increase in Net Assets
Resulting From Operations 2,162,375 536,541
DISTRIBUTIONS TO SHAREHOLDERS:
From Net Investment Income (1,763,590) --
--------------- ----------------
CAPITAL SHARE TRANSACTIONS
Subscriptions 40,217,000 155,512,000
Offering costs (412,154) --
NET INCREASE IN NET ASSETS 40,203,631 156,048,541
NET ASSETS:
Beginning of Period 156,049,541 1,000
------------- ----------------
End of Period $ 196,253,172 $ 156,049,541
=============== ================
</TABLE>
604208.1
<PAGE>
- ----------
Notes to Financial Statements:
(1) Significant Accounting Policies
Excelsior Private Equity Fund II, Inc. (the "Company") was
incorporated under the laws of the State of Maryland on March 20, 1997
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 Company commenced
operations on October 8, 1997.
Certain information and footnote disclosures normally included
in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
Reference is made to the Company's annual report included in Form 10-K
as filed with the Securities and Exchange Commission for the Notes to
the Financial Statements that remain unchanged.
The following is a summary of the Company's significant accounting
policies.
(a) Portfolio valuation:
The Company values portfolio securities quarterly and at other
such times as, in the Board of Directors' view, circumstances warrant.
Investments in unrestricted 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
or that are restricted are valued, pursuant to guidelines adopted by
the Managing Investment Adviser, under the supervision of the Board of
Directors.
(b) Federal income taxes:
It is the policy of the Company to continue to qualify as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code and distribute substantially all of its taxable income to
its shareholders. Therefore, no federal income or excise tax provision
is required.
(2) Purchases and Sales of Securities:
Purchase and sales of securities for the three month period
ended January 31, 1998, excluding short-term investments, for the
Company aggregated $11,340,000 and $0, respectively. At January 31,
1998, the Company had no outstanding investment commitments.
689270.1
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of Operations
- ---------------------
THREE-MONTH PERIOD ENDED JANUARY 31, 1998 AS COMPARED TO THE PERIOD
FROM OCTOBER 8, 1997 (INCEPTION) TO OCTOBER 31, 1997
Pursuant to a Registration Statement on Form N-2 which was declared effective on
June 2, 1997, the Company publicly offered up to 200,000 shares of common stock
(the "Shares") at $1,000 per Share. The Company held its initial and final
closings on October 8, 1997 and November 19, 1997, respectively. The Company
sold a total of 195,730 Shares in the public offering for gross proceeds
totaling $195,730,000 (after taking into account the 1 Share purchased for
$1,000 on March 20, 1997, by Douglas A Lindgren, the Company's Executive Vice
President and Chief Investment Officer). Shares of the Company were made
available through UST Financial Services Corp. (the "Selling Agent") to clients
of U.S. Trust and its affiliates who meet the Company's investor suitability
standards.
In connection with the public offering of its Shares, the Managing Investment
Adviser paid to the Selling Agent a commission totaling $60,000. The Company
incurred offering and organizational costs associated with the public offering
totaling $417,154. Net proceeds to the Company from the public offering, after
offering and organizational costs, totaled $195,312,846.
Realized and Unrealized Gains and Losses from Portfolio Investments
- -------------------------------------------------------------------
For the three months ended January 31, 1998, the Company had a ($182,841) net
change in unrealized appreciation/depreciation from investments as compared to
the period from October 8, 1997 (inception) to October 31, 1997 reflecting a
$102,341 net change in unrealized appreciation from investments. The primary
reason was the investment of the capital received from the previous quarter.
Investment Income and Expenses
- ------------------------------
For the three months ended January 31, 1998, the Company had interest income of
$2,694,435 and net operating expenses of $349,219, resulting in net investment
income of $2,345,216. For the period from October 8, 1997 (inception) to October
31, 1997 the Company had interest income of $507,951, and net operating expenses
of $73,751, resulting in net investment income of $434,200. January 31 1998 is
the Company's first full quarter of operation.
The Managing Investment Adviser provides investment management and
administrative services required for the operation of the Company. In
consideration of the services rendered by the Managing Investment Adviser, the
Company pays a management fee based upon a percentage of the net assets of the
Company invested or committed to be invested in certain types of investments and
an incentive fee based in part on a percentage of realized capital gains of the
Company. Such fee is determined and payable quarterly. For the quarter ended
January 31, 1998, the Managing Investment Adviser earned $276,397 in management
fees and for the period from October 8, 1997 (inception) to October 31, 1997,
the Managing Investment Adviser earned $49,167 in management fees. For the same
periods, the Managing Investment Adviser reimbursed other operating expenses of
the Company in the amount of $0 and $33,346 as a result of expenses incurred in
excess of those permitted pursuant to the Company's Prospectus.
Net Assets
- ----------
At January 31, 1998, the Company's net asset value per common share was
$1002.67, a decrease of $.78 from net assets of $1,003.46 at October 31, 1997,
resulting from the payment of dividendes totaling
689270.1
<PAGE>
$896,840.73. At January 31, 1998, the Company's net assets were $196,253,172, an
increase of $40,203,631 from net assets of $156,049,541 at October 31, 1997.
Liquidity and Capital Resources
- -------------------------------
The Company focuses its investments in the private equity securities of
later-stage venture capital companies and middle-market companies which the
Company believes offer significant long-term capital appreciation. The Company
may offer managerial assistance to certain of these companies. The Company
invests its available cash in short-term investments of marketable securities to
provide the liquidity necessary to make portfolio investments as investment
opportunities arise.
At January 31, 1998, the Company held $36,488 in cash and $196,273,175 in
investments. At January 31, 1998, investments included $11,340,409 in portfolio
companies, $126,080,731 in commercial paper, $8,167,844 in corporate bonds,
$36,597,995 in U.S. Government and agency obligations, $11,537,000 in investment
companies and $2,549,196 in other short-term investments. At October 31, 1997,
the Company held $63 in cash and $155,610,242 in investments. At October 31,
1997, investments included $119,559,143 in commercial paper, $6,073,060 in
corporate bonds, $21,732,259 in U.S. Government and agency obligations and
$8,245,780 in other short-term investments. These changes were primarily the
result of the investment activity discussed above.
During the quarter, the Fund closed its first 2 investments. The Fund (a)
invested $8.2 million in a combination of Preferred and Common stock of
PowerSmart, Inc., as part of a buyout of certain assets of Duracell, Inc. (now,
a subsidiary of Gillette, Inc.) related to power and battery management products
serving the laptop computer and cellular telephone handset markets; and (b) made
a commitment to invest $5.0 million, of which $3.0 million has been drawn, in
the Preferred stock of WNP, a prospective owner and operator of local multipoint
distribution services ("LMDS") throughout the United States. LMDS is a service
that allows high speed transmission of voice and data over wireless networks.
Other
- -----
In 1996, the Managing Investment Adviser established a Year 2000 Committee with
responsibility for developing an effective plan for identifying, renovating,
testing and implementing solutions for Year 2000 processing. The Managing
Investment Adviser is working with Chase Global Fund Services (as administrator
to the Company and as provider of certain of the Managing Investment Adviser's
most significant data processing systems), as well as other vendors, to ensure
compliance with required systems changes. The Managing Investment Adviser
presently believes that with modifications to existing software and compliance,
by vendors who provide significant processing systems to the Managing Investment
Adviser, the Managing Investment Adviser's systems will continue without
disruption. However, if such modifications are not made, or are not completed
timely, the Year 2000 issue could have a material impact on the operations of
the Managing Investment Adviser, and consequently, the Company. Specific factors
that might cause such a material impact include, but are not limited to the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties. The Managing
Investment Adviser's Year 2000 plan anticipates that software code remediation
and testing of all critical systems will be substantively completed by the end
of 1998. The Managing Investment Advisers's total Year 2000 project costs and
its estimated time frame to complete are based on presently available
information. However, there can be no guarantee that the systems of other
companies, on which the Managing Investment Adviser's systems rely, will be
converted timely, or that a failure to convert by another company would not have
a material adverse effect on the Managing Investment Adviser or the Company.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
689270.1
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are no legal proceedings pending or, to the Company's best
knowledge, threatened against the Company.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No.
-----------
(27) Financial Date Schedule (for EDGAR filing purposes only).
(a) The following reports on Form 8-K were filed during the quarter
ended January 31, 1998:
None.
689270.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXCELSIOR PRIVATE EQUITY FUND II, INC.
Date: March 10, 1998
-----------------------------------------------
By: David I. Fann
President and Principal Executive Officer
Date: March 10, 1998
-----------------------------------------------
By: Brian Schmidt
Treasurer and Principal Financial and
Accounting Officer
689270.1
<PAGE>
CONFORMED SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXCELSIOR PRIVATE EQUITY FUND II, INC.
Date: March 10, 1998 /s/ David I Fann
------------------------------------------
By: David I. Fann
President and Principal Executive Officer
Date: March 10, 1998 /s/ Brian Schmidt
------------------------------------------
By: Brian Schmidt
Treasurer and Principal Financial and
Accounting Officer
689270.1
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION FROM UST PRIVATE EQUITY INVESTORS
FUND, INC.'S FORM 10-Q FOR THE PERIOD ENDED APRIL
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001036052
<NAME> EXCELSIOR PRIVATE EQUITY FUND II, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-1-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 196,354
<INVESTMENTS-AT-VALUE> 196,273
<RECEIVABLES> 376
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 50
<TOTAL-ASSETS> 196,699
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 446
<TOTAL-LIABILITIES> 446
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 195,318
<SHARES-COMMON-STOCK> 196
<SHARES-COMMON-PRIOR> 156
<ACCUMULATED-NII-CURRENT> 1,016
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (81)
<NET-ASSETS> 196,253
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,694
<OTHER-INCOME> 0
<EXPENSES-NET> 348
<NET-INVESTMENT-INCOME> 2,345
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (183)
<NET-CHANGE-FROM-OPS> 2,162
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,763)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<PROCEEDS-FROM-SHARES-SOLD> 40,217
<NUMBER-OF-SHARES-SOLD> 40
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<OFFERING-COSTS> (412)
<NET-CHANGE-IN-ASSETS> 40,204
<ACCUMULATED-NII-PRIOR> 434
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 276
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 349
<AVERAGE-NET-ASSETS> 196,253
<PER-SHARE-NAV-BEGIN> 1,003.45
<PER-SHARE-OFFERING-COSTS> (2.11)
<PER-SHARE-NII> 13.50
<PER-SHARE-GAIN-APPREC> (2.02)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (10.15)
<PER-SHARE-ALLOWANCE-FOR-MGT-INCENT> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1,002.67
<EXPENSE-RATIO> .71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
