SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 July 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
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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 July 31, 1998, there were 195,730 shares of the Registrant's Common
Stock, $.01 par value, outstanding.
748419.2
<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.
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INDEX PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Portfolio of Investments as of July 31, 1998 (Unaudited) and
October 31, 1997
Statement of Assets and Liabilities as of July 31, 1998
(Unaudited) and October 31, 1997.
Statement of Operations for the three month period ended July 31,
1998 (Unaudited), the fiscal year to date at July 31, 1998
(Unaudited), and the period from October 8, 1997 (Commencement of
Operations) to October 31, 1997 .
Statement of Changes in Net Assets for the three month period
ended July 31, 1998 (Unaudited), the fiscal year to date at July
31, 1998 (Unaudited), and the period from October 8, 1997
(Commencement of Operations) to October 31, 1997 .
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
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SIGNATURES
748419.2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
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Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1998
Portfolio of Investments Quarter Ended: July 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
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July 31, 1998 October 31, 1997
(Unaudited)
----------------------------- ------------------------------
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PORTFOLIO STRUCTURE
PORTFOLIO COMPANIES $ 27,190,773 13.55% $ -- --
PRIVATE FUNDS 3,041,807 1.52% -- --
SHORT-TERM INVESTMENTS:
Commercial Paper 124,921,566 62.28% 119,559,143 76.62%
Corporate Bonds 11,303,205 5.64% 6,073,060 3.89%
U.S. Government & Agency 20,002,564 9.97% 21,732,259 13.93%
Obligations
Investment Companies 6,418,347 3.20% 8,245,780 5.28%
-------------- ----------- -------------- ------------
TOTAL INVESTMENTS 192,878,262 96.16% 155,610,242 99.72%
OTHER ASSETS & LIABILITIES (NET) 7,703,520 3.84% 439,299 0.28%
-------------- ----------- -------------- ------------
NET ASSETS $ 200,581,782 100.00% $ 156,049,541 100.00%
============== =========== ============== ============
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748419.2
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Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1998
Statement of Assets and Liabilities Quarter Ended: July 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
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ASSETS July 31, 1998 October 31, 1997
(Unaudited)
- -------------------------------------------------------------
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Investment Securities, at Cost $ 192,781,473 $ 155,507,901
=================== ===================
Investment Securities, at Value 192,878,262 155,610,242
Cash 6,999,842 63
Receivables:
Interest 1,130,337 512,987
Prepaid Assets 26,169 --
Unamortized Organization Costs -- 14,811
TOTAL ASSETS 201,034,610 156,138,103
------------------- -------------------
LIABILITIES
- -------------------------------------------------------------
Managing Investment Advisory Fees Payable 364,036 15,821
Administration & Shareholder Servicing Fees Payable 16,005 3,805
Directors Fees Payable 22,438 15,000
Accrued Expenses and Other Payables 50,349 53,936
------------------- -------------------
TOTAL LIABILITIES 452,828 88,562
------------------- -------------------
NET ASSETS $ 200,581,782 $ 156,049,541
=================== ===================
NET ASSETS CONSIST OF
- -------------------------------------------------------------
Accumulated Undistributed Net Investment Income $ 5,167,147 $ 434,200
Net Unrealized Appreciation/(Depreciation) of Investments 96,789 102,341
Par Value 1,957 1,555
Paid In Capital in Excess of Par Value 195,315,889 155,511,445
------------------- -------------------
TOTAL NET ASSETS $ 200,581,782 $ 156,049,541
=================== ===================
Shares of Common Stock Outstanding 195,730 155,512
------------------- -------------------
NET ASSET VALUE PER SHARE $1,024.79 $1,003.46
========= =========
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748419.2
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Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1998
Statement of Operations Quarter Ended: July 31, 1998
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Fiscal For the period from
Quarter Ended Year To Date October 8, 1997* to
July 31, 1998 July 31, 1998 October 31, 1997
INVESTMENT INCOME (Unaudited) (Unaudited)
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Interest Income $ 2,546,000 $ 7,703,809 $ 507,951
--------------- ---------------- ----------------
TOTAL INCOME 2,546,000 7,703,809 507,951
--------------- ---------------- ----------------
EXPENSES
Management Investment Advisory Fees 363,487 964,820 49,167
Administrative Fees & Shareholder Servicing Fees 16,058 46,580 3,805
Custodial Fees 10,365 29,698 1,967
Legal Fees 24,078 58,423 10,000
Audit and Other Professional Service Fees 7,053 19,946 20,000
Directors' Fees and Expenses 7,562 22,438 15,000
Shareholder Reports 3,160 5,640 4,000
Organization Expenses 0 14,811 189
Insurance Expense 14,901 44,466 2,369
Miscellaneous Expenses 152 450 600
--------------- ---------------- ----------------
TOTAL EXPENSES 446,816 1,207,272 107,097
Fees Waived and Reimbursed by Advisor -- -- (33,346)
--------------- ---------------- ----------------
NET EXPENSES 446,816 1,207,272 73,751
--------------- ---------------- ----------------
NET INVESTMENT INCOME 2,099,184 6,496,537 434,200
--------------- ---------------- ----------------
UNREALIZED GAIN/( LOSS)
ON INVESTMENTS
Net Change in Unrealized Appreciation / (Depreciation)
on Investments 106,394 (5,552) 102,341
--------------- ---------------- ----------------
NET UNREALIZED GAIN/(LOSS)
ON INVESTMENTS 106,394 (5,552) 102,341
--------------- ---------------- ----------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 2,205,578 $ 6,490,985 $ 536,541
=============== ================ ================
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- --------
* Commencement of Operations
748419.2
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Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1998
Statement of Changes in Net Assets Quarter Ended: July 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
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Fiscal For the period from
Quarter Ended Year To Date October 8, 1997* to
July 31, 1998 July 31, 1998 October 31, 1997
(Unaudited) (Unaudited)
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OPERATIONS:
Net Investment Income $ 2,099,184 $ 6,496,537 $ 434,200
Net Change in Unrealized Appreciation / (Depreciation)
on Investments 106,394 (5,552) 102,341
------------------ ------------------ ------------------
Net Increase in Net Assets
Resulting From Operations 2,205,578 6,490,985 536,541
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 2,205,578 44,532,241 156,048,541
NET ASSETS:
Beginning of Period 198,376,204 156,049,541 1,000
------------------ --------------- -----------------
End of Period $ 200,581,782 $ 200,581,782 $ 156,049,541
================== =============== =================
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- --------
* Commencement of Operations
748419.2
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Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1998
Notes to Financial Statements Quarter Ended: July 31, 1998
- -------------------------------------------------------------------------------
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 July
31, 1998, excluding short-term investments, for the Company aggregated
$9,573,451 and $-0-, respectively. At July 31, 1998, the Company had
outstanding investment commitments of $12,063,462.
748419.2
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of Operations
THREE-MONTH PERIOD ENDED JULY 31, 1998
At July 31, 1998, the Company's net asset value per common share was $1,024.79,
an increase of $11.27 from net asset value per common share of $1,013.52 at
April 30, 1998 resulting primarily from Net Investment Income earned.
Realized and Unrealized Gains and Losses from Portfolio Investments
For the three months ended July 31, 1998, the Company had no realized
gain/(loss) from investments. For the three months ended July 31, 1998, the
Company had a $106,394 net change in unrealized appreciation/(depreciation) from
investments.
Investment Income and Expenses
For the three months ended July 31, 1998, the Company had interest income of
$2,546,000 and net operating expenses of $446,816, resulting in net investment
income of $2,099,184. July 31, 1998 is the Company's third 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
July 31, 1998, the Managing Investment Adviser earned $363,487 in management
fees. The Managing Investment Adviser has voluntarily agreed to waive or
reimburse operating expenses of the Fund, exclusive of management fees, to the
extent they exceed 0.25% of the Fund's net assets. For the quarter ended July
31, 1998, no such reimbursement was made.
Net Assets
At July 31, 1998, the Company's net assets were $200,581,782, an increase of
$2,205,578 from net assets of $198,376,204 at April 30, 1998.
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.
During the quarter ended July 31, 1998, the Company made investments in
Advantage Schools, Inc., a for-profit operator of charter schools, and Release
Software Corp., a provider of Internet-based electronic software distribution
services. The Company also made an $8 million commitment to Morganthaler
Ventures V and a $3 million commitment to Advanced Technology Ventures V.
At July 31, 1998, the Company held $6,999,842 in cash and $192,878,262 in
investments. At July 31, 1998, investments included $27,190,773 in portfolio
companies, $3,041,807 in private funds, $124,921,566 in commercial paper,
$11,303,205 in corporate bonds, $20,002,564 in U.S. Government and agency
obligations, and $6,418,347 in investment companies. 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
748419.2
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agency obligations and $8,245,780 in other short-term investments. These changes
were primarily the result of the investment activity discussed above.
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.
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.
748419.2
<PAGE>
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 July 31, 1998:
None.
748419.2
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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: September 9, 1998 ____________________________________________
By: David I. Fann
President and Principal Executive Officer
Date: September 9, 1998 ___________________________________________
By: Brian F. Schmidt
Chief Financial Officer
748419.2
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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: September 9, 1998 /s/ David J. Fann
---------------------------------------------
By: David I. Fann
President and Principal Executive Officer
Date: September 9, 1998 /s/ Brian F. Schmidt
----------------------------------------------
By: Brian F. Schmidt
Chief Financial Officer
748419.2
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION FROM EXCELSIOR PRIVATE EQUITY FUND II,
INC.'S FORM 10-Q FOR THE PERIOD ENDED JULY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<CIK> 1036052
<NAME> EXCELSIOR PRIVATE EQUITY FUND II, INC.
<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL YEAR-END> OCT-31-1998
<PERIOD-START> NOV-1-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 192,781
<INVESTMENTS-AT-VALUE> 192,878
<RECEIVABLES> 1,130
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 7,027
<TOTAL-ASSETS> 201,035
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 453
<TOTAL LIABILITIES> 453
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 195,318
<SHARES-COMMON-STOCK> 196
<SHARES-COMMON-PRIOR> 156
<ACCUMULATED-NII-CURRENT> 5,167
<OVERDISTRIBUTION-NII> 0
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<ACCUM-APPREC-OR-DEPREC> 97
<NET ASSETS> 200,582
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,704
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<EXPENSES-NET> 1,207
<NET-INVESTMENT-INCOME> 6,497
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<PROCEEDS-FROM-SHARES-SOLD> 40,217
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<OFFERING COSTS> (412)
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</TABLE>
