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, 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
------------------------------------------
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 July 31, 1999, there were 195,730 shares of the Registrant's Common
Stock, $.01 par value, outstanding.
869333.1
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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.
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INDEX PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Portfolio of Investments as of July 31, 1999 (Unaudited) and
October 31, 1998
Statement of Assets and Liabilities as of July 31, 1999 (Unaudited)
and October 31, 1998
Statement of Operations for the three-month period ended July 31, 1999
(Unaudited), the fiscal year to date at July 31, 1999 (Unaudited), the
three-month period ended July 31, 1998 (Unaudited) and the prior
fiscal year to date at July 31, 1998 (Unaudited)
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), the three-month period ended July 31, 1998 (Unaudited)
and the prior fiscal year to date at July 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
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869333.1
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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, 1999
Portfolio of Investments Quarter Ended: July 31, 1999
- -------------------------------------------------------------------------------------------------------------------------
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July 31, 1999 October 31, 1998
(Unaudited)
------------------------------------ -----------------------------------
PORTFOLIO STRUCTURE
PORTFOLIO COMPANIES $ 91,194,848 38.46% $ 46,144,355 22.81%
PRIVATE FUNDS 18,804,623 7.93% 4,061,440 2.01%
SHORT-TERM INVESTMENTS:
Commercial Paper 56,000,000 23.62% 56,000,000 27.69%
Corporate Bonds 11,234,748 4.73% 17,203,182 8.50%
U.S. Government & Agency 54,769,442 23.09% 74,447,794 36.81%
Obligations
Investment Companies 6,683,980 2.82% 4,088,960 2.02%
----------------- ------------- ---------------- ------------
TOTAL INVESTMENTS 238,687,641 100.65% 201,945,731 99.84%
OTHER ASSETS & LIABILITIES (NET) (1,531,217) -0.65% 315,532 0.16%
----------------- ------------- ---------------- ------------
NET ASSETS $ 237,156,424 100.00% $ 202,261,263 100.00%
================= ============= ================ ============
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869333.1
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Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1999
Statement of Assets and Liabilities Quarter Ended: July 31, 1999
- --------------------------------------------------------------------------------------------------------------------
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ASSETS July 31, 1999 October 31, 1998
(Unaudited)
- ----------------------------------------------------------
Investment Securities, at Cost $ 206,589,006 $ 201,750,317
====================== ===================
Investment Securities, at Value 238,687,641 201,945,731
Cash 141 20,601
Receivables:
Interest 402,416 860,744
For Investments Sold 588,973 0
Prepaid Assets 46,092 11,391
--------------------- -------------------
TOTAL ASSETS 239,725,263 202,838,467
--------------------- -------------------
LIABILITIES
- ----------------------------------------------------------
Managing Investment Advisory Fees Payable 2,469,131 445,607
Administration & Shareholder Servicing Fees Payable 15,963 16,591
Directors Fees Payable 32,536 30,000
Accrued Expenses and Other Payables 51,209 85,006
---------------------- -------------------
TOTAL LIABILITIES 2,568,839 577,204
---------------------- -------------------
NET ASSETS $ 237,156,424 $ 202,261,263
====================== ===================
NET ASSETS CONSIST OF
- ----------------------------------------------------------
Accumulated Undistributed Net Investment Income $ 2,300,099 $ 6,748,595
Accumulated Net Realized Gain/(Loss) on Investments 9,233,487 (592)
Net Unrealized Appreciation/(Depreciation) of Investments 32,098,635 195,414
Allowance for Management Incentive (1,793,643) 0
Par Value 1,957 1,957
Paid In Capital in Excess of Par Value 195,315,889 195,315,889
---------------------- -------------------
TOTAL NET ASSETS $ 237,156,424 $ 202,261,263
====================== ===================
Shares of Common Stock Outstanding 195,730 195,730
---------------------- -------------------
NET ASSET VALUE PER SHARE $ 1,211.65 $1,003.37
====================== =========
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869333.1
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Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1999
Statement of Operations (Unaudited) Quarter Ended: July 31, 1999
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Fiscal Fiscal
Quarter Ended Year to Date Quarter Ended Year To Date
July 31, 1999 July 31, 1999 July 31, 1998 July 31, 1998
INVESTMENT INCOME
Interest Income $ 1,673,265 $ 5,220,400 $ 2,546,000 $ 7,703,809
----------------- ---------------- ---------------- ---------------------
TOTAL INCOME 1,673,265 5,220,400 2,546,000 7,703,809
----------------- ---------------- ---------------- ---------------------
EXPENSES
Management Investment Advisory Fees 673,126 1,683,034 363,487 964,820
Administrative Fees & Shareholder Servicing 16,551 47,947 16,058 46,580
Custodial Fees 25,748 46,037 10,365 29,698
Legal Fees 28,088 101,912 24,078 58,423
Audit and Other Professional Service Fees 6,553 19,446 7,053 19,946
Directors' Fees and Expenses 10,964 32,536 7,562 22,438
Shareholder Reports 1,638 4,862 3,160 5,640
Organization Expenses 0 0 0 14,811
Insurance Expense 17,093 46,328 14,901 44,466
Interest Expense 0 16,336 0 0
Miscellaneous Expenses 503 998 152 450
----------------- ---------------- ---------------- ---------------------
TOTAL EXPENSES 780,264 1,999,436 446,816 1,207,272
Fees Waived and Reimbursed by Advisor 0 0 0 0
----------------- ---------------- ---------------- ---------------------
NET EXPENSES 780,264 1,999,436 446,816 1,207,272
----------------- ---------------- ---------------- ---------------------
NET INVESTMENT INCOME 893,001 3,220,964 2,099,184 6,496,537
----------------- ---------------- ---------------- ---------------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS
Net Realized Gain on Security Transactions 8,812,595 9,234,096 0 0
Change in Unrealized Appreciation/
(Depreciation) on Investments 15,942,539 31,903,204 106,394 (5,552)
----------------- ---------------- ---------------- ---------------------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS 24,755,134 41,137,300 106,394 (5,552)
Change in Management Incentive Fee (1,709,461) (1,793,643) 0 0
----------------- ---------------- ---------------- ---------------------
NET INCREASE IN NET ASSETS $ 23,938,674 $ 42,564,621 $ 2,205,578 $ 6,490,985
RESULTING FROM OPERATIONS ================= ================ ================ =====================
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869333.1
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Excelsior Private Equity Fund II, Inc. Fiscal Year End: October 31, 1999
Statement of Changes in Net Assets (Unaudited) Quarter Ended: July 31, 1999
- ----------------------------------------------------------------------------------------------------------------------------------
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Fiscal Fiscal
Quarter Ended Year to Date Quarter Ended Year To Date
July 31, 1999 July 31, 1999 July 31, 1998 July 31, 1998
OPERATIONS:
Net Investment Income $ 893,001 $ 3,220,964 $ 2,099,184 $ 6,496,537
Net Realized Gain on Investments 8,812,595 9,234,096 0 0
Change in Unrealized Appreciation/(Depreciation)
on Investments 15,942,539 31,903,204 106,394 (5,552)
Change in Allowance for Management Incentive Fee (1,709,461) (1,793,643) 0 0
Net Increase in Net Assets
Resulting From Operations 23,938,674 42,564,621 2,205,578 6,490,985
DISTRIBUTIONS TO SHAREHOLDERS:
From Net Investment Income 0 (7,669,460) 0 (1,763,590)
From Net Realized Gain on Investments 0 0 0 0
CAPITAL SHARE TRANSACTIONS*
Subscriptions 0 0 0 40,217,000
Offering costs 0 0 0 (412,154)
-------------- ---------------- ----------------- ----------------
NET INCREASE IN NET ASSETS 23,938,674 34,895,161 2,205,578 44,532,241
NET ASSETS:
Beginning of Period 213,217,750 202,261,263 198,376,204 156,049,541
--------------- ---------------- ----------------- ----------------
End of Period $ 237,156,424 $ 237,156,424 $ 200,581,782 $ 200,581,782
=============== ================ ================= ================
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* Secondary Offering
869333.1
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Excelsior Private Equity Fund II, Inc. Fiscal Year Ended: October 31, 1999
Notes to Financial Statements: Quarter Ended: July 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 July
31, 1999, excluding short-term investments, for the Company aggregated
$18,335,096 and $588,990, respectively. At July 31, 1999, the Company had
outstanding investment commitments of $40,614,488.
869333.1
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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, 1999
At July 31, 1999, the Company's net asset value per common share was $1,211.65,
an increase of $122.30 from net asset value per common share of $1,089.35 at
April 30, 1999 resulting primarily from the sale of Softcom Microsystems, Inc.
as well as sales of NextLink Communications, Inc. shares received in conjunction
with the Company's merger with WMP Communications, Inc. In addition, there were
significant mark-ups in Classroom Connect, Inc. and LifeMinders.com, Inc.
Realized and Unrealized Gains and Losses from Portfolio Investments
- -------------------------------------------------------------------
For the three months ended July 31, 1999, the Company had a net realized gain on
security transactions of $8,812,595. The realized gains were primarily the
result of the sales of NextLink Communications, Inc. For the three months ended
July 31, 1999, the Company had a $15,942,539 net change in unrealized
appreciation from investments. This change in unrealized appreciation resulted
primarily from the mark-ups in Softcom Microsystems, Inc., Classroom Connect,
Inc., LifeMinders.com, Inc. and ReleaseNow.com Corp.
Investment Income and Expenses
- ------------------------------
For the three months ended July 31, 1999, the Company had interest income of
$1,673,265 and net operating expenses of $780,264, resulting in net investment
income of $893,001. 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.
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
July 31, 1999 and 1998, the Managing Investment Adviser earned $673,126 and
$363,487 in management fees, respectively. In addition, for the quarters ended
July 31, 1999 and 1998, the change in allowance for the Management Incentive Fee
was $1,709,461 and $0, respectively.
Net Assets
- ----------
At July 31, 1999, the Company's net assets were $237,156,424, an increase of
$23,938,674 from net assets of $213,217,750 at April 30, 1999. 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, 1999, the Company made an investment in On The
Go Software, Inc. The Company also made a $5 million commitment to Brentwood
Associates Private Equity III and a $5 million commitment to Mayfield X.
869333.1
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At July 31, 1999, the Company held $141 in cash and $238,687,641 in investments.
At July 31, 1999, investments included $91,194,848 in portfolio companies,
$18,804,623 in private funds, $56,000,000 in commercial paper, $11,234,748 in
corporate bonds, $54,769,442 in U.S. Government and agency obligations, and
$6,683,980 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
funds, $56,000,000 in commercial paper, $17,203,182 in corporate bonds,
$74,447,794 in U.S. Government and agency obligations and $4,088,960 in
investment companies. 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.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Equity Price Risk:
- ------------------
Nearly half 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.
Nevertheless, the Company is exposed to equity price risk through its investment
in the equity securities of one public company. At July 31, 1999, these publicly
traded equity securities were valued at $5,017,672. Thus, there is exposure to
equity price risk, which is estimated as the potential loss in fair value due to
a hypothetical 10% decrease in quoted market prices, and would result in a
decrease of approximately $501,767 in the value of these securities. Actual
results may differ.
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.
869333.1
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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 July 31, 1999:
None.
869333.1
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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 14, 1999 -----------------------------------------
By: David I. Fann
President and Principal Executive Officer
Date: September 14, 1999 -----------------------------------------
By: Brian F. Schmidt
Chief Financial Officer
869333.1
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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.
/s/ David I. Fann
Date: September 14, 1999 -----------------------------------------
By: David I. Fann
President and Principal Executive Officer
/s/ Brian F. Schmidt
Date: September 14, 1999 -----------------------------------------
By: Brian F. Schmidt
Chief Financial Officer
869333.1
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION FROM UST PRIVATE EQUITY INVESTORS
FUND, INC.'S FORM 10-Q FOR THE PERIOD ENDED JULY
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001036052
<NAME> EXCELSIOR PRIVATE EQUITY FUND II, INC.
<MULTIPLIER> 1000
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<FISCAL-YEAR-END> OCT-31-1999
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