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 January 31, 1999
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 /X/ No /_/
As of January 31, 1999, there were 195,730 shares of the
Registrant's Common Stock, $.01 par value, outstanding.
805572.3
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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 PAGE NO.
----- --------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Portfolio of Investments as of January 31, 1999(Unaudited) and
October 31, 1998.
Statement of Assets and Liabilities as of January 31, 1999
(Unaudited) and October 31, 1998.
Statement of Operations for the three month period ended January
31, 1999 (Unaudited) and the three month period
ended January 31, 1998 (Unaudited).
Statement of Changes in Net Assets for the three month period
ended January 31, 1999 (Unaudited) and the three
month period ended January 31, 1998 (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
805572.3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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<CAPTION>
Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1999
Portfolio of Investments Quarter Ended: January 31, 1999
- ------------------------------------------------- -------------- ------------------- -----------------------------------------------
January 31, 1999 October 31, 1998
----------------------------------- --------------------------------
PORTFOLIO STRUCTURE
- -------------------
<S> <C> <C> <C> <C>
PORTFOLIO COMPANIES $ 46,279,473 23.65% $ 46,144,355 22.81%
PRIVATE FUNDS 6,178,896 3.16% 4,061,440 2.01%
SHORT-TERM INVESTMENTS:
Commercial Paper 113,082,185 57.79% 56,000,000 27.69%
Corporate Bonds 13,669,474 6.99% 17,203,182 8.50%
U.S. Government & Agency Obligations -- 0.00% 74,447,794 36.81%
Investment Companies 13,510,002 6.90% 4,088,960 2.02%
------------- ------------- ------------- ----------
TOTAL INVESTMENTS 192,720,030 98.49% 201,945,731 99.84%
OTHER ASSETS & LIABILITIES (NET) 2,963,837 1.51% $ 315,532 0.16%
----------- --------- ------------ ---------
NET ASSETS $ 195,683,867 100.00% $ 202,261,263 100.00%
=========== ========= ============ ========
</TABLE>
805572.3
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<TABLE>
<CAPTION>
Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1999
Statement of Assets and Liabilities Quarter Ended: January 31, 1999
- ------------------------------------------------- ---------------- ----------------------------------------------------------------
<S> <C> <C>
ASSETS January 31, 1999 October 31, 1998
- ---------
Investment Securities, at Cost $ 192,616,189 $ 201,750,317
============================= ===========================
Investment Securities, at Value 192,720,030 201,945,731
Cash 3,031,183 20,601
Receivables:
Interest 498,091 860,744
Prepaid Assets -- 11,391
----------------------------- ---------------------------
TOTAL ASSETS 196,249,304 202,838,467
----------------------------- ---------------------------
LIABILITIES
- -------------
Managing Investment Advisory Fees Payable 477,311 445,607
Administration & Shareholder Servicing Fees Payable 16,528 16,591
Directors Fees Payable 10,965 30,000
Accrued Expenses and Other Payables 60,633 85,006
----------------------------- ---------------------------
TOTAL LIABILITIES 565,437 577,204
----------------------------- ---------------------------
NET ASSETS $ 195,683,867 $ 202,261,263
============================= ===========================
NET ASSETS CONSIST OF
- ----------------------
Accumulated Undistributed Net Investment $ 269,741 $ 6,748,595
Income
Accumulated Net Realized Loss on Investments (7,561) (592)
Net Unrealized Appreciation of Investments 103,841 195,414
Par Value 1,957 1,957
Paid In Capital in Excess of Par Value 195,315,889 195,315,889
----------------------------- ---------------------------
TOTAL NET ASSETS $ 195,683,867 $ 202,261,263
============================= ===========================
Shares of Common Stock Outstanding 195,730 195,730
----------------------------- ---------------------------
NET ASSET VALUE PER SHARE $999.76 $ 1,033.37
============================= ===========================
</TABLE>
805572.3
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<TABLE>
<CAPTION>
Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1999
Statement of Operations Quarter Ended: January 31, 1999
- ---------------------------------------------------------------- ---------------------- --------------------------------------------
<S> <C> <C>
Quarter Ended Quarter Ended
January 31, 1999 January 31, 1998
INVESTMENT INCOME
Interest Income $ 1,794,773 $ 2,694,435
------------------- -----------------------
TOTAL INCOME 1,794,773 2,694,435
------------------- -----------------------
EXPENSES
Management Investment Advisory Fees 476,310 276,397
Administrative Fees & Shareholder Servicing Fees 15,958 15,229
Custodial Fees 9,889 9,910
Legal Fees 51,490 16,131
Audit and Other Professional Service Fees 6,553 6,553
Directors' Fees and Expenses 10,965 7,562
Shareholder Reports 1,639 1,261
Organization Expenses -- 755
Insurance Expense 14,777 15,270
Interest Expense 16,336 --
Miscellaneous Expenses 251 151
------------------- -----------------------
TOTAL EXPENSES 604,168 349,219
Fees Waived and Reimbursed by Advisor -- --
------------------- -----------------------
NET EXPENSES 604,168 349,219
------------------- -----------------------
NET INVESTMENT INCOME 1,190,605 2,345,216
------------------- -----------------------
REALIZED & UNREALIZED GAIN/(LOSS)
ON INVESTMENTS
Net Realized Loss on Security Transactions (6,969) --
Change in Unrealized Appreciation/(Depreciation)
on Investments (91,572) (182,841)
------------------- -----------------------
NET REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS (98,541) (182,841)
------------------- -----------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS
$ 1,092,064 $ 2,162,375
==================== ======================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
805572.3
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<TABLE>
<CAPTION>
Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1999
Statement of Changes in Net Assets Quarter Ended: January 31, 1999
- ------------------------------------------------------------------------------------ -----------------------------------------------
<S> <C> <C>
Quarter Ended Quarter Ended
January 31, 1999 January 31, 1998
OPERATIONS:
Net Investment Income $ 1,190,605 $ 2,345,216
Net Realized Loss on Investments (6,969) --
Change in Unrealized Appreciation/(Depreciation)
on Investments (91,572) (182,841)
------------------------ ------------------------
Net Increase in Net Assets
Resulting From Operations 1,092,064 2,162,375
DISTRIBUTIONS TO SHAREHOLDERS:
From Net Investment Income (7,669,460) (1,763,590)
CAPITAL SHARE TRANSACTIONS
Subscriptions -- 40,217,000
Offering costs -- (412,154)
------------------------ ------------------------
NET INCREASE (DECREASE) IN NET ASSETS (6,577,396) 40,203,631
NET ASSETS:
Beginning of Period $ 202,261,263 156,049,541
------------------------ ------------------------
End of Period $ 195,683,867 $ 196,253,172
======================== ========================
</TABLE>
805572.3
<PAGE>
Excelsior Private Equity Fund II, Inc. Fiscal Year Ended: October 31, 1999
Notes to Financial Statements Quarter Ended: January 31, 1999
- --------------------------------------------------------------------------------
(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, 1999, excluding short-term investments, for the
Company aggregated $2,303,142 and $0, respectively. At January 31,
1999, the Company had outstanding investment commitments totaling
$36,972,140.
805572.3
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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 JANUARY 31, 1999 AS COMPARED TO THE SIMILAR
PERIOD IN 1998
The Company's net asset value per common share was $999.76 at January 31, 1999,
down $33.61 per share from the net asset value per common share of $1,033.37 at
October 31, 1998. The decrease resulted primarily from the distribution of net
investment income to shareholders on December 23, 1998. The Company's net asset
value per common share was $1,002.67 at January 31, 1998, down $0.79 per share
from the net asset value per common share of $1,003.46 at October 31, 1997.
Realized and Unrealized Gains and Losses from Portfolio Investments
- -------------------------------------------------------------------
For the three months ended January 31, 1999 and 1998, the Company had a net
realized loss on security transactions of ($6,969) and $0, respectively. For the
three months ended January 31, 1999 and 1998, the Company had a net change in
unrealized appreciation/(depreciation) on investments of ($91,572) and
($182,841), respectively.
Investment Income and Expenses
- ------------------------------
For the three months ended January 31, 1999, the Company had interest income of
$1,794,773 and net operating expenses of $604,168, resulting in net investment
income of $1,190,605. 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. The primary reason for the
decline in interest income was the decline of assets invested in short-term
instruments and an increase in assets invested in private companies and private
funds.
United States Trust Company of New York (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 quarters ended January 31, 1999 and 1998, the
Managing Investment Adviser earned $476,310 and $276,397 in management fees
respectively.
Net Assets
- ----------
At January 31, 1999, the Company's net assets were $195,683,867, a decrease of
$6,577,396 from net assets of $202,261,263 at October 31, 1998. 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.
During the quarter ended January 31, 1999, the Company made a follow-on
investment in Advantage Schools, Inc.
805572.3
<PAGE>
At January 31, 1999, the Company held $3,031,183 in cash and $192,720,030 in
investments. At January 31, 1999, investments included $46,279,473 in portfolio
companies, $6,178,896 in private funds, $113,082,185 in commercial paper,
$13,669,474 in corporate bonds, $ 0 in U.S. Government and agency obligations,
and $13,510,002 in investment companies. At October 31, 1998, the Company held
$20,601 in cash and $201,945,731 in investments. At October 31, 1998,
investments included $46,144,355 in portfolio companies, $4,061,440 in private
investment funds, $4,088,960 in investment companies, $56,000,000 in commercial
paper, $17,203,182 in corporate bonds, and $74,447,794 in U.S. Government and
agency obligations. These changes were primarily the result of the investment
activity discussed above.
On December 23, 1998, the Company distributed $7,669,460 in net investment
income to shareholders of record as of December 18, 1998.
Other
- -----
Year 2000:
Like other investment companies, financial and business organizations and
individuals around the world, the Company could be affected adversely if the
computer systems used by the Investment Adviser and the Company's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." Based on the Company's current assessment, the costs of addressing
potential problems are not currently expected to have a material adverse impact
on the Company's financial position, results of operations or cash flows in
future periods. The Investment Adviser and the Company's other service providers
have informed the Company that they are taking steps to address the Year 2000
Problem with respect to the computer systems that they use. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Company as a result of the Year 2000 Problem.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Equity Price Risk:
A significant portion of the Company's investment portfolio
consists of equity securities in private companies and private
investment funds which are not publicly traded. These
investments are recorded at fair value as determined by the
Investment Adviser in accordance with valuation guidelines
adopted by the Board of Directors. This method of valuation
does not result in increases or decreases in the fair value of
these equity securities in response to changes in market
prices. Thus, these equity securities are not subject to equity
price risk.
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.
805572.3
<PAGE>
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securityholders.
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, 1999:
None.
805572.3
<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 5, 1999 /s/ David I. Fann
----------------------------------------
By: David I. Fann
President and Principal Executive
Officer
Date: March 5, 1999 /s/ Brian F. Schmidt
---------------------------------------
By: Brian F. Schmidt
Treasurer and Principal Financial and
Accounting Officer
805572.3
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-31-1999
<PERIOD-START> NOV-1-1998
<PERIOD-END> JAN-31-1999
<INVESTMENTS-AT-COST> 192,616
<INVESTMENTS-AT-VALUE> 192,720
<RECEIVABLES> 498
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,031
<TOTAL-ASSETS> 196,249
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 565
<TOTAL-LIABILITIES> 565
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 195,318
<SHARES-COMMON-STOCK> 196
<SHARES-COMMON-PRIOR> 196
<ACCUMULATED-NII-CURRENT> 270
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<INTEREST-INCOME> 1,795
<OTHER-INCOME> 0
<EXPENSES-NET> 604
<NET-INVESTMENT-INCOME> 1,191
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<NET-CHANGE-FROM-OPS> 1,092
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</TABLE>
