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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997
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 333-23811
------------------------------------
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)
Registrant's telephone number, including area code: (212) 852-1000
Title of Each Class Name of Exchange on Which Registered
------------------- ------------------------------------
None None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or Section 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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
FORM 10-K. [ ]
The number of shares outstanding of the registrant's common stock as of October
31, 1997 was 155,512 shares. No active market for the shares of the registrant
exists; therefore, the market value of such shares cannot be determined.
674279.4
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Registrant dated June 2, 1997 (the
"Prospectus") are incorporated by reference in Part I, Part II and Part III
hereof.
EXCELSIOR PRIVATE EQUITY FUND II, INC.
INDEX
Item No. Form 10-K
Report
Page
PART I
1. Business...................................................................................
2. Properties.................................................................................
3. Legal Proceedings..........................................................................
4. Submission of Matters to a Vote of Security Holders........................................
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters......................
6. Selected Financial Data....................................................................
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................................
8. Financial Statements and Supplementary Data................................................
9. Changes in and Disagreements with Accountants and Financial Disclosure.....................
PART III
10. Directors and Executive Officers of the Registrant.........................................
11. Executive Compensation ....................................................................
12. Security Ownership of Certain Beneficial Owners and Management.............................
13. Certain Relationships and Related Transactions.............................................
PART IV
14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K.........................
SIGNATURES
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "RISK FACTORS" AS
SET FORTH IN THE COMPANY'S REGISTRATION STATEMENT ON FORM N-2 (FILE NO.
333-23811) AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING
STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR
TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
674279.4
-2-
PART I
Item 1. Business
Formation:
- ----------
Excelsior Private Equity Fund II, Inc. (the "Company" or the "Registrant") is a
Maryland corporation organized on March 20, 1997. The Company is a
non-diversified, closed-end management investment company operating as a
business development company under the Investment Company Act of 1940, as
amended and has registered its shares under the Securities Act of 1933, as
amended. The Company's investment objective is to achieve long-term capital
appreciation by investing in private later-stage venture capital and private
middle-market companies and in certain venture capital, buyout and private
equity funds that the Managing Investment Adviser (defined herein) believes
offer significant long-term capital appreciation.
United States Trust Company of New York (the "Managing Investment Adviser" or
"U.S. Trust") provides investment management services to the Company pursuant to
a management agreement dated May 13, 1997 (the "Management Agreement"), between
the Managing Investment Adviser and the Company. The Managing Investment Adviser
is a subsidiary of U.S. Trust Corporation. All officers of the Company are
employees and/or officers of the Managing Investment Adviser. The Managing
Investment Adviser is responsible for performing the management and
administrative services necessary for the operation of the Company.
Pursuant to a Registration Statement on Form N-2 (File No. 333-23811) 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 195,780 Shares in the public offering
for gross proceeds totaling $195,780,000 (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 $195,362,846.
The Company's Articles of Incorporation provide that the duration of the Company
will be ten years from the final closing of the sale of the Shares, subject to
the rights of the Managing Investment Adviser and the investors to extend the
term of the Company. Additional characteristics of the Company's business are
discussed in the "Company", "Risk Factors" and "Investment Objective and
Policies" sections of the Prospectus, which sections are incorporated herein by
reference.
Portfolio Investments:
- ----------------------
The Company commenced investment operations on October 8, 1997 and during the
year ended October 31, 1997 ("Fiscal 1997"), the Company's investment portfolio
consisted of marketable securities with an aggregate cost of $155,507,901 and a
fair value of $155,610,242. The Company has invested in temporary investments in
accordance with the provisions in the Prospectus and which are more fully set
forth in Item 8.
674279.4
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Competition:
- ------------
The Company encounters competition from other entities and individuals having
similar investment objectives. Primary competition for desirable investments
comes from investment partnerships, venture capital affiliates of large
industrial and financial companies, investment companies and wealthy
individuals. Some of the competing entities and individuals have investment
managers or advisers with greater experience, resources and managerial
capabilities than the Company and may therefore be in a stronger position than
the Company to obtain access to attractive investments. To the extent that the
Company can compete for such investments, it may not be able to do so on terms
as favorable as those obtained by larger, more established investors.
Employees:
- ----------
At October 31, 1997, the Company had no full-time employees. All personnel of
the Company are employed by and compensated by the Managing Investment Adviser
pursuant to the Management Agreement.
Item 2. Properties.
The Company does not own or lease physical properties.
Item 3. Legal Proceedings.
The Company is not party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
674279.4
-4-
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company has 200,000 Shares authorized, of which 155,512 Shares were issued
and outstanding on October 31, 1997. On November 18, 1997, the Company declared
a dividend payable to shareholders of record on November 17, 1997 in the amount
of $5.57 per share. On December 19, 1997, the Company declared a dividend
payable to shareholders of record on December 18, 1997 in the amount of $4.58
per share.
There is no established public trading market for the Company's Shares.
Item 6. Selected Financial Data.
All selected financial data for the period commencing on October 8, 1997
(inception) and ending on October 31, 1997 may be found in the financial
statements. See Item 8.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources:
- --------------------------------
The Company began the initial public offering of its Shares on June 2, 1997. On
October 8, 1997, the Company held the first closing on its Shares, representing
$155.5 million. On November 19, 1997, the Company held its second and final
closing for an additional $40.2 million. The Company sold a total of 195,780
Shares at $1,000 per Share in the public offering (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). Gross proceeds
received by the Company for the sale of its Shares during 1997 totaled
$195,780,000 and net proceeds after the payment of offering and organizational
expenses totaled $195,362,846.
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.
Results of Operations:
- ----------------------
Investment Income and Expenses
For fiscal 1997, the Company had interest income of $507,951, and net operating
expenses of $73,751, resulting in net investment income of $434,200.
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
674279.4
-5-
of the Company. Such fee is determined and payable quarterly. For the fiscal
year ended October 31, 1997, the Managing Investment Adviser earned $49,167 in
management fees. For the same period, the Managing Investment Adviser reimbursed
other operating expenses of the Company in the amount of $33,346 as a result of
expenses incurred in excess of those permitted pursuant to the Company's
Prospectus.
Net Assets
The Company completed the public offering of its Shares in two separate closings
in October and November 1997. The Company sold a total of 195,780 Shares at a
cost of $1,000 per Share, resulting in gross proceeds raised in the offering of
$195,780,000 (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).
The Company's net asset value per common share was $1,003.46 at October 31,
1997.
For Fiscal 1997, the Company had a net increase in net assets resulting from
operations of $536,541 ($3.46 per share), comprised of net investment income
totaling $434,200 ($2.79 per share), and a net change in unrealized appreciation
of investments of $102,341 ($.67 per share).
At October 31, 1997, the Company's net assets were $156,049,541.
Realized and Unrealized Gains and Losses from Portfolio Investments:
- --------------------------------------------------------------------
For the fiscal year ended October 31, 1997, the Company had a $102,341 net
change in unrealized appreciation from investments.
Item 8. Financial Statements and Supplementary Data.
EXCELSIOR PRIVATE EQUITY FUND II, INC.
INDEX
-----
Portfolio of Investments at October 31, 1997
Statement of Assets and Liabilities as of October 31, 1997
Statement of Operations for the period October 8, 1997 (commencement of
operations) to October 31, 1997.
Statement of Changes in Net Assets for the period October 8, 1997 (commencement
of operations) to October 31, 1997.
Financial Highlights -- Selected Per Share Data and Ratios for the period
October 8, 1997 (commencement of operations) to October 31, 1997.
Notes to Financial Statements
674279.4
-6-
Independent Auditors' Report
Note - All other schedules are omitted because of the absence of conditions
under which they are required or because the required information is
included in the financial statements or the notes thereto.
Please refer to attached pages for above-referenced
Financial Statements and Supplementary Data
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
674279.4
-7-
Excelsior Private Equity Fund II, Inc.
Portfolio of Investments October 31, 1997
Principal Coupon Value
Amount/Shares Rate/Yield (Note 1)
- --------------- ------------ -------------
COMMERCIAL PAPER -- 76.62%
$7,700,000 Associates Corp., 12/03/97 ........................... 5.48% $ 7,700,000
7,700,000 Avco Financial Services, 2/26/98 ..................... 5.54 7,563,479
7,700,000 Bellsouth Telecommunications, Inc., 11/13/97 ......... 5.52 7,685,832
7,700,000 Chevron Corp., 12/01/97 .............................. 5.47 7,700,000
7,700,000 Coca-Cola Co., 11/24/97 .............................. 5.46 7,671,972
7,700,000 Ford Motor Credit Co., 11/26/97 ..................... 5.48 7,700,000
7,700,000 General Electric Capital Corp., 11/13/97 ............ 5.51 7,700,046
7,700,000 General Electric Capital Corp., 11/25/97 ............ 5.51 7,700,046
7,700,000 Goldman Sachs & Co., 11/13/97 ........................ 5.51 7,684,679
7,700,000 Hertz Corp., 11/05/97 .............................. 5.60 7,695,209
7,700,000 IBM Credit Corp., 11/13/97 ........................... 5.47 7,704,475
7,474,000 Metlife Funding Inc., 11/10/97 ..................... 5.48 7,462,623
7,700,000 Nestle Capital Corp., 11/05/97 ..................... 5.45 7,694,172
7,700,000 Sears & Roebuck Acceptance, 11/17/97 ............... 5.49 7,700,000
7,700,000 Societe Generale, 2/18/98 ........................... 5.50 7,697,690
4,500,000 Xerox Credit Corp., 1/20/98 ........................ 5.48 4,498,920
------------
TOTAL COMMERCIAL PAPER (Cost $119,468,767)............ 119,559,143
------------
CORPORATE BONDS -- 3.89%
6,197,000 Revlon Worldwide, Series B, Zero Coupon, 3/15/98
(Cost $6,064,356) .................................... 6,073,060
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 13.93%
1,230,000 Federal National Mortgage Association, 1/13/98 ...... 5.38 1,229,594
20,500,000 Federal National Mortgage Association, 1/15/98 ...... 5.52 20,502,665
------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (Cost $21,728,998)........................ 21,732,259
------------
INVESTMENT COMPANIES -- 5.28%
3,203,780 Dreyfus Treasury Cash Management Fund ............... 3,203,780
5,042,000 Fidelity Cash Portfolio, U.S. Treasury II ............ 5,042,000
------------
TOTAL OTHER SHORT-TERM INVESTMENTS
(Cost $8,245,780) .................................... 8,245,780
------------
TOTAL INVESTMENTS (Cost $155,507,901*) .............................. 99.72% 155,610,242
OTHER ASSETS & LIABILITIES (NET) .................................... 0.28 439,299
------ ------------
NET ASSETS ......................................................... 100.00% $156,049,541
====== ============
* Aggregate cost for Federal tax and book purposes.
See Notes to Financial Statements
674279.4
-8-
Excelsior Private Equity Fund II, Inc.
Statement of Assets and Liabilities
October 31, 1997
ASSETS:
Investments, at value (Cost $155,507,901) (Note 1) .................. $155,610,242
Cash ............................................................... 63
Interest receivable ................................................ 512,987
Unamortized organization costs (Note 3) .............................. 14,811
------------
Total Assets ...................................................... 156,138,103
LIABILITIES:
Management fees payable ............................................. 15,821
Directors' fees payable ............................................. 15,000
Administration fees payable .......................................... 3,655
Accrued expenses and other payables ................................. 54,086
------------
Total Liabilities ................................................ 88,562
------------
NET ASSETS ............................................................ $156,049,541
============
NET ASSETS consist of:
Undistributed net investment income ................................. $ 434,200
Net unrealized appreciation of investments ........................... 102,341
Par value ............................................................ 1,555
Paid-in capital in excess of par value .............................. 155,511,445
------------
Total Net Assets ...................................................... $156,049,541
============
Shares of Common Stock Outstanding ($0.01 par value, 200,000 authorized) 155,512
NET ASSET VALUE PER SHARE ............................................. $ 1,003.46
============
See Notes to Financial Statements
674279.4
-9-
Excelsior Private Equity Fund II, Inc.
Statement of Operations
For the Period October 8, 1997* to October 31, 1997
INVESTMENT INCOME:
Interest income ................................................... $ 507,951
---------
EXPENSES:
Managing investment advisory fees (Note 2) ........................ 49,167
Audit fees ...................................................... 20,000
Directors' fees and expenses (Note 2) ........................... 15,000
Legal fees ...................................................... 10,000
Printing fees ................................................... 4,000
Administration fees ............................................. 3,655
Insurance expense ................................................ 2,369
Amortization of organization expense (Note 3) ..................... 189
Miscellaneous expenses .......................................... 2,717
---------
Total Expenses ................................................ 107,097
Expenses reimbursed by Managing Investment Adviser (Note 2) ...... (33,346)
---------
Net Expenses ................................................... 73,751
---------
NET INVESTMENT INCOME ................................................ 434,200
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS (Note 1) ...... 102,341
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $ 536,541
=========
* Commencement of operations
See Notes to Financial Statements
674279.4
-10-
Excelsior Private Equity Fund II, Inc.
Statement of Changes in Net Assets
For the Period October 8, 1997* to October 31, 1997
OPERATIONS:
Net investment income ................................................... $ 434,200
Net change in unrealized appreciation of investments ..................... 102,341
------------
Net increase in net assets resulting from operations .................. 536,541
CAPITAL SHARE TRANSACTIONS:
Subscriptions (155,511 shares) .......................................... 155,512,000
------------
Net increase in net assets ................................................. 156,048,541
NET ASSETS:
Beginning of period (1 share) .......................................... 1,000
------------
End of period (including undistributed net investment income of $434,200) $156,049,541
============
* Commencement of operations
See Notes to Financial Statements
674279.4
-11-
Excelsior Private Equity Fund II, Inc.
Financial Highlights - Selected Per Share Data and Ratios
For the Period October 8, 1997* to October 31, 1997
For a fund share outstanding throughout the period
NET ASSET VALUE, BEGINNING OF PERIOD .............................. $ 1,000.00
-------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income .......................................... 2.79
Net Unrealized Gain on Investments .............................. 0.67
-------------
Total from Investment Operations .............................. 3.46
-------------
NET ASSET VALUE, END OF PERIOD .................................... $ 1,003.46
=============
TOTAL NET ASSET VALUE RETURN+ .................................... 0.35%
=============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) ........................... $ 156,050
Ratio of Net Operating Expenses to Average Net Assets ......... 0.72%**
Ratio of Gross Operating Expenses to Average Net Assets++ ...... 1.04%**
Ratio of Net Investment Income to Average Net Assets ............ 4.23%**
Portfolio Turnover Rate ....................................... 0%
* Commencement of operations
** Annualized
+ 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.
++ Expense ratio before waiver of fees and reimbursement of expenses by
adviser.
See Notes to Financial Statements
674279.4
-12-
EXCELSIOR PRIVATE EQUITY FUND II, INC.
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 following is a summary of the Company's significant accounting
policies. Such policies are in conformity with generally accepted accounting
principles for investment companies and are consistently followed in the
preparation of financial statements. Generally accepted accounting principles
require management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from these estimates.
(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
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 Company enters into agreements to purchase securities and to resell
them at a future date. It is the Company'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 Company 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 Company may be delayed or limited.
(d) 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.
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.
At October 31, 1997 the tax basis of the Company's investments for
Federal income tax purposes
674279.4
-13-
amounted to $155,507,901. The net unrealized appreciation amounted to $102,341,
which is comprised of gross unrealized appreciation of $102,341.
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 Company. 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 Company, determined as of the end of each fiscal
quarter, that are invested or committed to be invested in Portfolio Companies or
Private Funds and a fee equal to an annual rate of 0.50% of the net assets of
the Company, 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 Company has agreed to pay U.S.
Trust an incentive fee in an amount equal to 20% 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 Company all or a portion of the
incentive fee previously paid.
U.S. Trust has voluntarily agreed to waive or reimburse operating
expenses of the Company, exclusive of management fees, to the extent they exceed
0.25% of the Company's net assets.
Each Director of the Company receives an annual fee of $15,000, 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 Company receives
any compensation from the Company.
3. Organization Costs
The Company has borne all costs in connection with the initial
organization of the Company. All such costs are being amortized on a
straight-line basis over a period of five years from the date on which the
Company commenced operations.
674279.4
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Excelsior Private Equity Fund II, Inc.
We have audited the accompanying statement of assets and liabilities of
Excelsior Private Equity Fund II, Inc., including the portfolio of investments,
as of October 31, 1997, the related statements of operations, the statements of
changes in net assets and financial highlights for the period from October 8,
1997 (commencement of operations) to October 31, 1997. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits 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, 1997 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 audits provide 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
Excelsior Private Equity Fund II, Inc. at October 31, 1997, the results of its
operations, the changes in its net assets and the financial highlights for the
period from October 8, 1997 (commencement of operations) to October 31, 1997
indicated in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
December 22, 1997
674279.4
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PART III
Item 10. Directors and Executive Officers of the Registrant.
Set forth below are names, ages, positions and certain other information
concerning the current directors and executive officers of the Company as of
October 31, 1997.
Served in Present
Name and Age Position Capacity Since
- --------------------------------------------------------------------------------------------
David I. Fann [33] President; Chief March 20, 1997
Executive Officer
Douglas A. Lindgren [35] Executive March 20, 1997
Vice President;
Chief Investment Officer
Brian Schmidt [38] Chief Financial Officer March 20, 1997
Frank Bruno [38] Treasurer March 20, 1997
Ronald A. Schwartz [49] Secretary March 20, 1997
Edith A. Cassidy* [44] Director March 20, 1997
Gene M. Bernstein [50] Director March 20, 1997
Stephen V. Murphy [52] Director March 20, 1997
*Indicates director who is an "interested person" of the Company within the
meaning of the Investment Company Act of 1940.
Additional information concerning the directors and executive officers of the
Company is incorporated herein by reference from the section entitled
"Management -- Directors, Officers and Investment Professionals" in the
Prospectus dated June 2, 1997.
Item 11. Executive Compensation.
At October 31, 1997, the Company had no full-time employees. Pursuant to the
Management Agreement, the Managing Investment Adviser employs and compensates
all of the personnel of the Company, and also furnishes all office facilities,
equipment, management and other 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. For Fiscal 1997, the
Managing Investment Adviser reimbursed $33,346 to the Company, representing
operating expenses (excluding its management fee of $49,167). Additional
information with respect to the management fee payable to the Managing
Investment Adviser is set forth in the "Management" section of the Prospectus,
dated June 2, 1997, which section is incorporated herein by reference.
674279.4
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The disinterested directors receive compensation of $15,000 on an annual basis
plus reasonable expenses. For Fiscal 1997, the disinterested directors of the
Company each received compensation of $7,500.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of October 31, 1997, no person or group is known by the Company to be the
beneficial owner of more than 5% of the aggregate number of Shares held by all
shareholders. The directors and officers of the Company as a group own 291
Shares. The Company is not aware of any arrangement which may, at a subsequent
date, result in a change of control of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the federal securities laws, the Company's directors and executive
officers and any persons holding more than 10% of the Company's units are
required to report their ownership of units and any changes in the ownership of
the Company's units to the Company and the Securities and Exchange Commission.
Item 13. Certain Relationships and Related Transactions.
The Company has engaged in no transactions with the executive officers or
directors other than as described above, in the notes to the financial
statements, or in the Prospectus.
674279.4
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements
Portfolio of Investments at October 31, 1997
Statement of Assets and Liabilities as of October 31, 1997
Statement of Operations for the period from October
8, 1997 (commencement of operations) to October 31,
1997
Statement of Changes in Net Assets for the period
from October 8, 1997 (commencement of operations) to
October 31, 1997
Financial Highlights -- Selected Per Share Data and
Ratios for the period from October 8, 1997
(commencement of operations) to October 31, 1997.
Notes to Financial Statements
Independent Auditors' Report
2. Exhibits
(3)(a) Articles of Incorporation of the Company (1)
(3)(b) By-Laws of the Company (1)
(10)(a) Management Agreement (l)
(10)(b) Transfer Agency and Custody Agreement (l)
(23) Consent of Independent Auditors
(27) Financial Data Schedule (included in EDGAR electronic
filing only)
(29) Prospectus of the Company dated June 2, 1997, filed with
the Securities and Exchange Commission (l)
(b) No reports on Form 8-K have been filed during the last quarter of the
period for which this report is filed.
(1) Incorporated by reference to the Company's Form N-2, as amended, filed
November 7, 1997.
674279.4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ David I. Fann
David I. Fann, President and
Chief Executive Officer
By: /s/ Brian Schmidt
Brian Schmidt, Chief Financial Officer
By: /s/ Edith A. Cassidy
Edith A. Cassidy, Director
By: /s/ Gene M. Bernstein
Gene M. Bernstein, Director
By: /s/ Stephen V. Murphy
Stephen V. Murphy, Director
Date: January 26, 1998
674279.4
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CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Prospectus, which is incorporated by reference, and to the use of our report
dated December 22, 1997, included in this Annual Report (Form 10-K), for the
period from October 8, 1997 (commencement of operations) to October 31, 1997, of
Excelsior Private Equity Fund II, Inc.
ERNST & YOUNG LLP
New York, New York
January 26, 1998
674279.4