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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2000
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: 000-22277
EXCELSIOR PRIVATE EQUITY FUND II, INC.
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 22-3510108
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036-1532
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (212) 852-1000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $0.01 PAR VALUE PER SHARE
(Title of class)
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 [ ]
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. [X]
The registrant's common stock is not listed on any exchange nor does it
trade on any established securities market or other public market.
As of December 31, 2000 there were 195,730 shares outstanding of the
registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on March 16, 2001 are incorporated by reference
herein, including into Part III (Items 10, 11, 12 and 13) to this
Form 10-K.
TABLE OF CONTENTS
Form 10-K
Item No. Report Page
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PART I
1. Business 1
2. Properties 5
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security Holders 5
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 5
6. Selected Financial Data 6
7. Management's Discussion and Analysis of Financial
Condition and Results of 6
Operations
7A. Quantitative and Qualitative Disclosures About Market
Risk 7
8. Financial Statements and Supplementary Data 7
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
10. Directors and Executive Officers of the Registrant 19
11. Executive Compensation 20
12. Security Ownership of Certain Beneficial Owners
and Management 20
13. Certain Relationships and Related Transactions 20
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 21
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FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's prospects are subject to certain uncertainties and
risks. This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of the federal securities laws that also
involve substantial uncertainties and risks. The Company's future results
may differ materially from its historical results and actual results could
differ materially from those projected in the forward-looking statements as
a result of certain risk factors. A description of such risk factors may be
found in the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on March 16, 2001, which will be filed with the
Securities and Exchange Commission not later than 120 days after October
31, 2000. Readers should pay particular attention to the considerations
described in the sections of this report entitled "Business" and
"Management's Discussion and Analysis of Financial Condition and the
Results of Operations." Readers should also carefully review the risk
factors described in the other documents the Company files, or has filed,
from time to time with the Securities and Exchange Commission.
- ------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS
OVERVIEW
Excelsior Private Equity Fund II, Inc. (the "Company" or the
"Fund") 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, in connection with its initial offering of shares, registered
said offering of 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 and U.S. Trust Company
(together, the "Managing Investment Adviser" or "U.S. Trust") provide
investment management services to the Company pursuant to a management
agreement dated July 18, 2000 (the "Management Agreement"). The Managing
Investment Adviser is a subsidiary of U.S. Trust Corporation. On May 31,
2000, U.S. Trust Corporation became an indirect wholly owned subsidiary of
The Charles Schwab 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 at $1,000 per share.
The Company held its initial and final closings on each of October 8, 1997
and November 19, 1997 representing over $155.5 million and $40.2 million,
respectively. The Company sold a total of 195,730 shares in the public
offering for gross proceeds totaling $195,730,000 (after taking into
account one 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 met the Company's investor suitability standards.
In connection with the public offering of the Company's 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.
PORTFOLIO INVESTMENTS
Through October 31, 2000, the Company has committed 91% and invested
83% of the initial capital raised. The Company 's portfolio construction
was completed in its third year of existence. The Company has made a total
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of 20 direct investments and invested in 13 private investment funds. With
respect to direct investments, two companies have been sold and two have
been taken public. In addition, the Company has received meaningful
distributions from several private investment funds.
DIRECT INVESTMENTS
INVESTMENTS SOLD
o SOFTCOM MICROSYSTEMS, INC., Fremont, CA, designs, develops and
markets data acceleration products used in high-speed communications
networks. Softcom's single-chip network accelerator solutions and
integrated subsystems provide processing capabilities which help
alleviate the "data bottleneck" at the point where baseband Local Area
Network traffic moves on to a high-speed broadband Internet backbone.
In August 1999, Softcom was sold to Intel for cash. The Company
realized a 3.7x return on its $4.2 million investment.
o WNP COMMUNICATIONS, INC., Reston, VA, acquired broadband
spectrum covering 30 of the top 50 markets in the United States in the
Local Multipoint Distribution Services auction conducted by the
Federal Communications Commission in 1998. In May 1999, the company
was acquired by NextLink, a leading wireless communication services
provider, for cash and stock. The Company has sold all of its stock of
NextLink and realized a 2.24x return on its $5.9 million investment.
INVESTMENTS HELD -- PUBLIC
o CURON MEDICAL, INC. (NASDAQ: CURN) (formerly known as
Conway-Stuart Medical, Inc.), Sunnyvale, CA, develops and markets
medical devices for the treatment of gastrointestinal diseases using
radio frequency delivered though a catheter. Curon completed its
initial public offering in September 2000. The Company invested $6
million in Curon at an average cost of $2.63 per share and currently
holds 2.3 million shares. As of October 31, 2000, Curon was trading at
approximately $11 3/8 per share.
o LIFEMINDERS, INC. (NASDAQ: LFMN), Herndon, VA, is an online
direct marketing company that provides personalized information and
advertisements via email to a community of members. Email messages
contain helpful reminders and tips that enable its members to better
organize and manage their lives. In November 1999, the company
completed its initial public offering. The Company has invested $11.5
million in LifeMinders at an average cost of $2.70 per share and the
company's stock, as of October 31, 2000, was trading at $11 5/8 per
share. To date, the Company has sold 735,000 shares of LifeMinders and
has realized $26 million in proceeds.
INVESTMENTS HELD -- PRIVATE
o ADVANTAGE SCHOOLS, INC., Boston, MA, is a for-profit provider
of public school education management services. Advantage manages
charter schools in troubled urban school districts in cooperation with
local partners. Its schools are publicly-funded, receiving per-student
capitalization rates generally consistent with those received by other
schools in the district.
o BPA SYSTEMS, INC., Austin, TX, develops fulfillment software
that helps Internet-enabled companies rapidly take advantage of
e-commerce opportunities. The BPA products suite allows large global
companies as well as Internet startups to fully integrate their
existing supply chains with their e-commerce web sites.
o CAPTURA SOFTWARE, INC., Bothell, WA, develops and provides
expense management software and service solutions for large companies.
The company's products significantly increase the efficiency and lower
the cost of expense reports by providing a web-based software
application that automates much of the process. On October 12, 2000,
Captura filed an S-1 registration statement with the SEC for up to $70
million for its initial public offering of its common stock. The lead
underwriter for the offering will be Banc of America Securities, LLC.
The other managing underwriters include U.S. Bancorp Piper Jaffray,
Wit SoundView, and Pacific Crest Securities.
o CLASSROOM CONNECT, INC., Los Angeles, CA, is a provider of
Internet-based educational products for students in the kindergarten
to eighth grade market. The company's product and service offerings
include proprietary
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instruction guides, teaching plans, seminars and unique Internet
content. The company is targeting teachers and school districts
wishing to incorporate the Internet into the classroom.
o EPOD CORP., New York, NY, provides distributed e-commerce,
content syndication and rich media advertising services to
manufacturers, retailers, web publishers and content providers in the
entertainment, retail and advertising industries. The ePod.com
commerce network uses a common merchandising infrastructure whereby
companies can promote and sell products by packaging and distributing
content and merchandise through commerce-enabled showcases called
ePods.
o FIRSTSOURCE CORP., Santa Ana, CA, is the largest full service
provider of e-procurement infrastructure solutions for both buyers and
sellers. firstsource Corp.'s proprietary technology platform, inpowr
FSP, has been developed over the past seven years with over seven
million dollars invested, and has handled over one million procurement
transactions. Each transaction is managed end-to-end by firstsource,
including determination of inventory availability, order processing,
customer services, fulfillment, collections and returns management.
o KILLERBIZ, INC., Santa Clara, CA, is an online
business-to-business marketplace and software solution connecting
small businesses to suppliers of goods and services. The company is
dedicated to reducing the time and costs associated with services
procurement while providing sellers with a cost effective means to
access and respond to qualified sales leads. The KillerBiz web site
offers a business-to-business marketplace that leverages both
Extensive Mark-up Language and patent-pending Intelligent Trained
Agent technology.
o MARKETFIRST SOFTWARE, INC., Mountain View, CA, develops and
markets hosted e-marketing software and services targeting
middle-market corporations. The company's solution is focused on
enabling and managing interactive marketing campaigns through the
Internet. The company's customers are motivated by the prospect of
increasing customer revenue, improving customer relationships and
reducing costs by automating key marketing functions with the
MarketFirst solution.
o MYSEASONS.COM, INC., New York, NY, is a business-to-consumer
and business-to-business Internet commerce site aimed at selling
gardening and related horticultural products, as well as providing
associated content to the gardening community.
o POWERSMART, INC., Shelton, CT, is a provider of "smart" battery
management products designed to maximize battery run-times and safety
in laptop computers, cellular telephones and camcorders as well as a
variety of hand-held electronic devices. PowerSmart recently
introduced two new lines of Application Specific Integrated Circuits
and electronic modules that offer performance and flexibility at
competitive prices. PowerSmart was formed as a spin-off of technology
and related assets from Duracell.
o PROTOGENE LABORATORIES, INC., Palo Alto, CA, is a developer and
manufacturer of DNA gene chip technology used in molecular biology and
genetic research. The company's products allow for flexible, short-run
testing of genetic expression that has broad applications in genetic
research and pharmaceutical development.
o RELEASENOW, INC., Menlo Park, CA, is an outsourced provider of
e-commerce services for vendors and resellers of software and other
digital goods. ReleaseNow provides software publishers, software
resellers and content-driven web sites with technology and services to
establish an Internet-based sales and distribution channel.
o SURVIVALINK CORPORATION, Minnetonka, MN, designs, develops,
manufactures, and markets automated external defibrillators (AEDs),
which are portable, emergency medical devices that deliver electrical
shocks to resuscitate victims of cardiac arrests. SurVivaLink's AEDs
are small, lightweight and easy to use, making them suitable for law
enforcement personnel, firefighters and paramedics.
o ZEUS WIRELESS, INC., Columbia, MD, builds and markets
long-range frequency hopping radios for commercial and industrial
facilities. The company utilizes radio frequency technology as a
substitute for wire with comparable range, reliability and security at
a lower price while offering the flexibility associated with wireless
solutions.
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INVESTMENTS WRITTEN-OFF
o CONSTELLAR CORPORATION, Redwood Shores, CA, a provider of
enterprise application integration software and services to large
organizations in North America, Europe and Australia, was sold in an
asset purchase transaction to the Data Mirror Group. The purchase
price was $15 million, which was used to satisfy the company's debts.
Although the transaction calls for certain contingency payments to
shareholders, the investment has been fully written-off.
o MANAGEMARK, INC. (formerly known as On the Go Software, Inc.),
Sunnyvale, CA, is an Internet application software company focused on
developing finance and administration software and services for small
and middle-market firms. The company's bank foreclosed on its credit
line when Managemark failed to raise additional capital. Consequently,
it is likely that the Company will not receive any proceeds from this
investment and will realize a loss of approximately $5.5 million.
INVESTMENTS IN THIRD-PARTY INVESTMENT FUNDS
o ADVANCED TECHNOLOGY VENTURES V, LP ("ATV V") is an early-stage
focused fund targeting information technology and health care markets.
The Company has received distributions of Vignette common stock from
ATV V.
o BRAND EQUITY VENTURES I, LP ("BEV") is focused on investing
broadly across the consumer sector, particularly in branded
opportunities within e-commerce, retailing, and direct response
markets. The Company has received stock distributions of Cyberian
Outpost and Alloy Online from BEV.
o BRENTWOOD ASSOCIATES III, LP ("BA III") is focused on
middle-market buyouts and consolidations. BA III's strategy is to
identify industries with consolidation characteristics, develop a
strategy for implementation and recruit management to execute that
strategy.
o BROADVIEW CAPITAL PARTNERS, LP is focused on buyouts,
recapitalizations and growth financings within the technology sector.
o COMMONWEALTH VENTURES II, LP ("CV II") invests in early to
later-stage information technology companies in the New England
region. CV II maintains a particular focus on communications
technology, Internet software and services and e-commerce companies.
The Company has received a distribution of Cisco Systems common stock
from CV II.
o COMMUNICATIONS VENTURES III LP ("CV III") targets early-stage
companies exclusively in the communications sector. In October, two of
CV III's portfolio companies, Sitesmith and Entera, were acquired by
Metromedia Fiber Network and CacheFlow, respectively.
o FREIDMAN, FLEISCHER & LOWE, LP is a fund focused exclusively on
participation in middle-market buyouts.
o MAYFIELD X, LP invests in early-stage information technology
and healthcare companies, primarily located in Silicon Valley. To
date, Mayfield X has distributed shares of Aether common stock to the
Company.
o MID-ATLANTIC VENTURE FUND III, LP ("MAVF III") invests in early
and expansion-stage companies throughout the Mid-Atlantic region of
the United States. The principals of MAVF III have significant
investment experience and, over the years, have established a presence
within the investment community in the Mid-Atlantic region.
o MORGENTHALER VENTURE PARTNERS V, LP ("MVP V") is primarily an
early-stage venture fund, investing largely in information technology
and healthcare companies but also invests in buyouts of basic
businesses. The Company has received distributions of CheckFree
Holdings common stock from MVP V.
o QUAD-C PARTNERS V, LP is focused on taking control positions in
leveraged acquisitions and recapitalizations of middle-market
companies.
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o SEVIN ROSEN FUND VI, LP ("Sevin Rosen") invests in early-stage
technology companies, focusing specifically on companies in
communications and eBusiness infrastructure and solutions, as well as
those companies with Internet-enabled business models. From Sevin
Rosen, the Company has received stock distributions of Vitesse
Semiconductor, Cisco Systems and Broadcom.
o TRINITY VENTURES VI, LP ("Trinity") is an early to later-stage
fund, which invests in the software, communications and electronic
commerce sectors. The Company received distributions of Sciquest
shares and cash from Trinity.
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, 2000, 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 any physical properties.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company has 200,000 shares authorized. As of December 31,
2000, 195,730 shares were issued and outstanding. There is no established
securities market or other public market for the Company's shares.
DIVIDENDS
Fiscal Year Ended October 31, 2000. On December 17, 1999, the
Company paid a dividend in the amount of $137.71 per share, $88.70 of that
amount being long-term capital gain and $49.01 of that amount being return
of capital. On December 23, 1999, the Company paid a dividend of $25.56 per
share of short-term capital gain. On October 31, 2000, the Company paid a
dividend of $160.70 per share, $156.11 of that amount being long-term
capital gain and $4.59 of that amount being return of capital.
Fiscal Year Ended October 31, 1999. On December 23, 1998, the
Company paid a dividend of $39.18 of income.
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For additional information concerning the payment of dividends, see
"Significant Accounting Policies" in the notes to the financial statements
of the Company included in Item 8 hereof.
ITEM 6. SELECTED FINANCIAL DATA
The information provided under item 8 is incorporated by reference
herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2000, the Company held $2,174 in cash and
$271,883,525 in investments as compared to $136 in cash and $254,708,299 in
investments at October 31, 1999. At October 31, 2000, investments included
$21,596,142 in U.S. Government and agency obligations, $80,588,257 in
private investment funds, $103,938,112 in private companies, $53,306,657 in
public companies and $12,454,357 in investment companies. As of October 31,
2000, the Company has committed $58,000,000 to private investment funds and
$15,761,052 of this commitment remains outstanding.
RESULTS OF OPERATIONS
Investment Income and Expenses
For the year ended October 31, 2000, the Company had interest
income of $4,202,089, and net operating expenses of $4,663,686, resulting
in net investment loss of ($461,597) as compared to interest income of
$6,991,973, and net operating expense of $2,823,677, resulting in net
investment income of $4,168,296 for the fiscal year ended October 31, 1999
and interest income of $9,813,746 and net operating expense of $1,735,761,
resulting in net investment income of $8,077,985 for the fiscal year ended
October 31, 1998. The decrease in the Company's net investment income over
time is due primarily to the declining balance of interest-bearing cash and
short term securities resulting from continued investment into private
companies and private investment funds. The increase in net operating
expenses is primarily attributable to the increase in Managing Investment
Advisory Fees. 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 (see "Investment Advisory Fee,
Administration Fee, and Related Party Transactions" in the notes to the
financial statements of the Company included in item 8 hereof). For the
fiscal years ended October 31, 2000, 1999 and 1998, the Managing Investment
Adviser earned $4,196,214, $2,364,920 and $1,409,748 in management fees,
respectively. For the same periods, the Managing Investment Adviser did not
reimburse other operating expenses of the Company as a result of expenses
incurred in excess of those permitted pursuant to the Company's Prospectus.
The increase in the fees earned by the Managing Investment Adviser over
time can be attributed primarily to the increase in value of the Company's
assets and continued investment in private companies and private investment
funds.
Net Assets
The Company's net asset value per common share was $1,316.64 at
October 31, 2000 up $64.37 per share from the net asset value per common
share of $1,252.27 at October 31, 1999. This increase was the result of
appreciation of a number of private companies and private funds net of the
writing down of Constellar and Managemark, offset by the distribution of
$323.97 per common share. Contributing to the appreciation of the private
companies was the initial public offerings of two investments, LifeMinders
and Curon Medical, as well as valuation write-ups in Advantage Schools,
Captura Software, PowerSmart and ReleaseNow. Increases in private
investment fund values occurred broadly throughout the Company's portfolio,
with Communications Ventures III and Morgenthaler Venture Partners V
appreciating significantly.
For the year ended October 31, 2000, the Company had a net
increase in net assets resulting from operations of $76,009,514 ($388.34
per share), comprised of net investment loss totaling ($461,597) (($2.36)
per share), a net change in realized and unrealized gain on investments of
$85,407,625 ($436.36 per share) and a net change in allowance for the
management incentive fee of ($8,936,514) (($45.66) per share).
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For the period ending October 31, 2000, the Company's net assets
were $257,705,296, an increase of $12,598,292 from net assets of
$245,106,914 at October 31, 1999. This increase was the result of a
$76,009,514 net increase in net assets resulting from operations and offset
by distributions to shareholders during the period totaling $63,411,222.
REALIZED AND UNREALIZED GAINS AND LOSSES FROM PORTFOLIO INVESTMENTS
For the fiscal year ended October 31, 2000, the Company had a
$85,407,625 net realized and unrealized gain from investments, comprised of
a $31,080,775 net realized gain on investments and a $54,326,850 net change
in unrealized appreciation of investments as compared to a $57,098,372 net
realized and unrealized gain from investments, comprised of a $24,838,281
net realized gain on investments and a $32,260,091 net change in unrealized
appreciation of investments for the fiscal year ended October 31, 1999 and
a $92,481 net realized and unrealized gain from investments, comprised of a
($592) net realized loss on investments and a $93,073 net change in
unrealized appreciation of investments for the fiscal year ended October
31, 1998. The net realized gain on investments for the fiscal year ended
October 31, 2000 is primarily the result of sales of LifeMinders common
stock as well as the receipt and sale of several stock distributions from
private fund investments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion includes forward-looking statements.
Actual results could differ materially from those projected in the
forward-looking statements.
EQUITY PRICE RISK
A majority 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 Managing 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 investments in the equity
securities of two public companies. At October 31, 2000, these publicly
traded equity securities were valued at $53,306,657. 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 $5,330,666 in the value of
these securities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
Portfolio of Investments at October 31, 2000.
Statement of Assets and Liabilities as at October 31, 2000 and October 31,
1999.
Statement of Operations for the years ended October 31, 2000, October 31,
1999 and October 31, 1998.
Statement of Changes in Net Assets for the years ended October 31, 2000,
October 31, 1999 and October 31, 1998.
Statement of Cash Flows for the years ended October 31, 2000, October 31,
1999 and October 31, 1998.
Financial Highlights -- Selected Per Share Data and Ratios for the years
ended October 31, 2000, October 31, 1999 and October 31, 1998 and the
period October 8, 1997 (commencement of operations) to October 31, 1997.
Notes to Financial Statements
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.
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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. as of October 31, 2000 and 1999,
including the statement of portfolio of investments at October 31, 2000,
the related statements of operations, statements of changes in net assets
and statements of cash flows for each of the three years ended October 31,
2000, 1999, and 1998, and the financial highlights for each of the
indicated periods. 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 auditing standards generally
accepted in the United States. 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,
2000, 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, 2000 and 1999, the
results of its operations and its cash flows and the changes in its net
assets for the years ended October 31, 2000, 1999, and 1998, and the
financial highlights for each of the indicated periods in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
New York, New York
December 15, 2000
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EXCELSIOR PRIVATE EQUITY FUND II, INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2000
PRINCIPAL ACQUISITION COUPON VALUE
AMOUNT/SHARES DATE## RATE/YIELD (NOTE 1)
------------- ----------- ---------- ---------
U.S. GOVERNMENT AGENCY OBLIGATIONS-- 8.38%
$21,600,000 Fannie Mae, 11/02/00 (Cost $21,596,142)...... 6.43%* $ 21,596,142
------------
PRIVATE INVESTMENT FUNDS #, @ -- 31.27%
Advanced Technology Ventures V, LP........... 3,994,945
Brand Equity Ventures I, LP.................. 2,735,190
Brentwood Associates III, LP................. 1,771,671
Broadview Capital Partners, LP............... 2,115,080
Commonwealth Capital Ventures II, LP......... 3,154,479
Communications Ventures III, LP.............. 23,066,790
Friedman, Fleischer & Lowe, LLC, LP.......... 1,170,272
Mayfield X, LP............................... 6,555,280
Mid-Atlantic Venture Fund III, LP............ 6,965,132
Morgenthaler Venture Partners V, LP.......... 15,082,031
Quad-C Partners V, LP........................ 3,548,917
Sevin Rosen Fund VI, LP...................... 5,681,909
Trinity Ventures VI, LP...................... 4,746,561
------------
TOTAL PRIVATE INVESTMENT FUNDS (Cost $42,376,908) 80,588,257
------------
PRIVATE COMPANIES #, +, @ -- 40.33%
COMMON AND PREFERRED STOCKS -- 38.58%
BIOTECHNOLOGY -- 2.20%
7,100,000 Protogene Laboratories, Inc., Series B....... 12/99-01/00 5,680,000
------------
COMPUTER SOFTWARE -- 0.00%
1,151,315 Constellar Corp., Series C................... 04/98 --
------------
EDUCATIONAL SERVICES -- 8.09%
7,548 Advantage Schools, Inc., Series C............ 06/98 8,722,510
79,531 Advantage Schools, Inc., Series D............ 03/99 1,010,970
111,074 Advantage Schools, Inc., Series E............ 09/00 1,283,854
38,502 Classroom Connect, Inc., Cumulative.......... 09/98 3,850,200
361,822 Classroom Connect, Inc., Series A............ 09/98 4,121,153
162,297 Classroom Connect, Inc., Series B............ 06/99 1,848,563
------------
20,837,250
------------
INTERNET SERVICES -- BUSINESS -- 16.29%
1,428,572 BPA Systems Inc., Series A................... 06/00 5,000,000
695,652 Captura Software, Inc., Series D............. 02/99 6,462,608
86,114 Captura Software, Inc., Series E............. 02/00 799,999
913,597 ePod Corp., Series B-1....................... 12/99 2,151,521
467,174 ePod Corp., Series B-2....................... 05/00-08/00 1,100,195
2,388,345 firstsource Corp., Series A.................. 02/00 10,000,000
7,113,967 Managemark, Inc., Series B................... 06/99 --
4,694,407 Marketfirst Software, Inc., Series B......... 09/99 4,999,570
2,000,000 MySeasons.com, Inc., Series A................ 02/00-03/00 2,000,000
1,676,229 ReleaseNow, Inc., Series D................... 06/98 8,381,145
115,000 ReleaseNow, Inc., Series E................... 05/99 575,000
100,000 ReleaseNow, Inc., Series F................... 12/99 500,000
------------
41,970,038
MEDICAL DEVICES -- 2.71%
522,388 SurVivaLink Corp., Series B.................. 08/98 6,999,994
------------
-9-
EXCELSIOR PRIVATE EQUITY FUND II, INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2000
SHARES VALUE
- ------ -----
SEMICONDUCTORS -- 7.35%
4,850,000 PowerSmart, Inc., Common..................... 01/98 8,810,510
7,960,371 PowerSmart, Inc., Series A................... 01/98 7,960,371
530,786 PowerSmart, Inc., Series B................... 08/99 1,464,863
252,780 PowerSmart, Inc., Series D................... 10/00 697,622
-----------
18,933,366
-----------
WIRELESS RADIO EQUIPMENT -- 1.94%
3,033,981 Zeus Wireless, Inc., Series B................... 12/99 $ 5,000,001
-----------
PROMISSORY NOTES -- 1.37%
INTERNET SERVICES--BUSINESS -- 1.14%
$750,000 Killerbiz, Inc.......................... 12/99-09/00 8.00% 750,000
$500,000 Managemark, Inc......................... 05/00 10.00 --
$2,200,000 Marketfirst Software, Inc............... 07/00-10/00 9.00 2,200,000
-----------
2,950,000
-----------
MEDICAL DEVICES -- 0.23%
$585,000 SurVivaLink Corp........................ 12/99 12.00 585,000
-----------
WARRANTS -- 0.38%
EDUCATIONAL SERVICES -- 0.14%
27,760 Advantage Schools, Inc.................. 02/99 320,518
46,219 Advantage Schools, Inc., Series D....... 03/99 46,293
-----------
366,811
INTERNET SERVICES-- BUSINESS-- 0.00%
148,148 MySeasons.com, Inc., Series A........... --
-----------
SOFTWARE DISTRIBUTION SERVICES -- 0.24%
173,913 Captura Software, Inc., Series D........ 02/99 615,652
21,529 Captura Software, Inc., Series E........ 02/00 -----------
--
615,652
-----------
TOTAL PRIVATE COMPANIES (Cost $92,071,348) 103,938,112
-----------
PUBLIC COMPANIES #, +, @ -- 20.69%
COMMON STOCK -- 20.28%
MEDICAL DEVICES -- 7.55%
2,280,000 Curon Medical, Inc...................... 08/99 19,451,250
-----------
INTERNET SERVICES -- CONSUMER -- 12.73%
3,526,685 Life Minders, Inc....................... 02/99-09/99 32,798,171
-----------
OPTIONS -- 0.29%
MEDICAL DEVICES -- 0.29%
101,088 Curon Medical, Inc...................... 12/99 738,264
-----------
WARRANTS -- 0.12%
MEDICAL DEVICES -- 0.12%
76,950 Curon Medical, Inc...................... 05/00 318,972
-----------
TOTAL PUBLIC COMPANIES (Cost $16,602,415) 53,306,657
-10-
EXCELSIOR PRIVATE EQUITY FUND II, INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2000
SHARES VALUE
- ------ -----
INVESTMENT COMPANIES -- 4.83%
3,657,768 Dreyfus Treasury Cash Management Fund... 3,657,768
46,400 Dreyfus Government Cash Management Fund. 46,400
8,750,189 Fidelity Cash Portfolio, U.S. Treasury II. 8,750,189
-----------
TOTAL INVESTMENT COMPANIES (Cost $12,454,357) 12,454,357
-----------
TOTAL INVESTMENTS (Cost $185,101,170**) 105.50% 271,883,525
OTHER ASSETS & LIABILITIES (NET) (5.50) (14,178,319)
------- -----------
NET ASSETS... 100.00% $ 257,705,206
======= =============
- -------------------
* Discount Rate.
** Aggregate cost for Federal tax and book purposes.
+ At October 31, 2000, the Company owned 5% or more of such company's
outstanding shares thereby making such company an affiliated company
as defined by the Investment Company Act of 1940. Total market value
of affiliated company securities owned at October 31, 2000 was
$157,244,769.
# Restricted as to public resale. Acquired between January 1, 1998 and
October 31, 2000. Total cost of restricted securities at October 31,
2000 aggregated $151,050,671. Total market value of restricted
securities owned at October 31, 2000 was $237,833,026 or 92.29% of net
assets.
## Required disclosure for restricted securities only. @ Non-Income
producing security.
See Notes to Financial Statements
-11-
EXCELSIOR PRIVATE EQUITY FUND II, INC.
OCTOBER 31,
2000 1999
---- ----
ASSETS:
Investments, at value (cost $185,101,170 and $ 271,883,525 $ 254,708,299
$222,252,794, respectively) (Note 1)
Receivable for investments sold................... 2,022,282 1,705,909
Interest receivable............................... 103,053 241,822
Prepaid insurance -- 28,269
Cash.............................................. 2,174 136
Other Assets...................................... 159,126 --
------------- -------------
TOTAL ASSETS.................................... 274,170,160 256,684,435
LIABILITIES:
Incentive fee payable (Note 2).................... 5,059,389 --
Deferred incentive fee payable (Note 2)........... 9,714,201 5,837,077
Management fees payable (Note 2).................. 928,875 5,599,309
Payable for investments purchased................. 574,999 --
Directors' fees payable (Note 2).................. 66,489 43,500
Administration fees payable (Note 2).............. 14,499 14,499
Accrued expenses and other payables............... 106,502 83,136
------------- -------------
TOTAL LIABILITIES............................... 16,464,954 11,577,521
------------- -------------
NET ASSETS.......................................... $ 257,705,206 $ 245,106,914
============= =============
NET ASSETS CONSIST OF:
Undistributed net investment income............... $ 1,304,582 $ 5,259,727
Accumulated net realized gain on investments...... 4,174 22,825,393
Net unrealized appreciation of investments........ 86,782,355 32,455,505
Allowance for management incentive fee............ (19,688,071) (10,751,557)
Par value......................................... 1,957 1,957
Paid-in capital in excess of par value............ 189,300,209 195,315,889
-------------- -------------
TOTAL NET ASSETS.................................... $ 257,705,206 $ 245,106,914
============= =============
Shares of Common Stock Outstanding ($0.01 par 195,730 195,730
value, 200,000 authorized)..........................
NET ASSET VALUE PER SHARE........................... $ 1,316.64 $ 1,252.27
============== =============
See Notes to Financial Statements
-12-
EXCELSIOR PRIVATE EQUITY FUND II, INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31,
2000 1999 1998
---- ---- ----
INVESTMENT INCOME:
Interest income............................................ $ 4,202,089 $ 6,991,973 $ 9,813,746
-------------- ------------- -------------
EXPENSES:
Managing investment advisory fees (Note 2)................. 4,196,214 2,364,920 1,409,748
Legal fees................................................. 128,390 175,000 82,500
Directors' fees and expenses (Note 2)...................... 66,689 43,500 30,000
Administration fees (Note 2)............................... 58,000 58,000 58,000
Audit fees................................................. 44,200 26,000 27,000
Amortization of organization expense..................... -- -- 14,811
Printing fees.............................................. 8,570 6,500 8,800
Miscellaneous expenses..................................... 161,623 149,757 104,902
-------------- ------------- -------------
TOTAL EXPENSES........................................ 4,663,686 2,823,677 1,735,761
-------------- ------------- -------------
NET INVESTMENT INCOME/(LOSS).................................. (461,597) 4,168,296 8,077,985
-------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN: (Note 1)
Net realized gain/(loss) on investments.................... 31,080,775 24,838,281 (592)
Net change in unrealized appreciation of investments....... 54,326,850 32,260,091 93,073
-------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN.............................. 85,407,625 57,098,372 92,481
-------------- ------------- -------------
Net change in allowance for management incentive fee....... (8,936,514) (10,751,557) --
-------------- ------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS............................................... $ 76,009,514 $ 50,515,111 $ 8,170,466
============== ============= =============
See Notes to Financial Statements
-13-
EXCELSIOR PRIVATE EQUITY FUND II, INC.
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31,
2000 1999 1998
---- ---- ----
OPERATIONS:
Net investment income (loss)......................... $ (461,597) $ 4,168,296 $ 8,077,985
Net realized gain (loss) on investments.............. 31,080,775 24,838,281 (592)
Net change in unrealized appreciation of investments. 54,326,850 32,260,091 93,073
Net change in allowance for management
incentive fee...................................... (8,936,514) (10,751,557) --
------------- ------------ ------------
Net increase in net assets resulting from
operations....................................... 76,009,514 50,515,111 8,170,466
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................ -- (7,669,460) (1,763,590)
Net realized gain.................................... (52,919,404) -- --
Paid-in capital...................................... (10,491,818) -- --
------------- ------------ ------------
Total Distributions................................ (63,411,222) (7,669,460) --
------------- ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Subscriptions................................... -- -- 39,804,846
------------- ------------ ------------
NET INCREASE IN NET ASSETS............................. 12,598,292 42,845,651 46,211,722
NET ASSETS:
Beginning of period.................................. 245,106,914 202,261,263 156,049,541
------------- ------------ ------------
End of period (including undistributed net
investment income of $1,304,582, $5,259,727 and
$6,748,595, respectively).......................... $257,705,206 $245,106,914 $202,261,263
See Notes to Financial Statement
-14-
EXCELSIOR PRIVATE EQUITY FUND II, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31,
2000 1999 1998
---- ---- ----
CASH FLOWS FROM INVESTING
AND OPERATING ACTIVITIES:
Proceeds from Sales of Investments....................... $32,345,524 $33,609,816 --
Purchases of Investments................................. (59,491,934) (54,190,497) $ (50,004,190)
Net Decrease in Short-Term Investments................... 95,513,291 23,210,576 3,761,182
Investment Income........................................ 4,340,858 7,610,895 9,465,989
Management Incentive Fee Paid............................ (4,914,480) -- --
Operating Expenses Paid.................................. (4,379,999) (2,591,795) (1,243,699)
------------- ------------------ ------------
Net Cash Provided for Investing and
Operating Activities............................... 63,413,260 7,648,995 (38,020,718)
------------------- ----------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Distributions Paid....................................... (63,411,222) (7,669,460) (1,763,590)
Capital Share Transactions........................... -- -- 39,804,846
---------------- --------------- ------------
Net Cash Used by Financing Activities.................... (63,411,222) (7,669,460) 38,041,256
---------------- --------------- ------------
Net Increase in Cash..................................... 2,038 (20,465) 20,538
CASH AT BEGINNING OF YEAR.................................. 136 20,601 63
CASH AT END OF YEAR........................................ $ 2,174 $ 136 $ 20,601
================ ================ ===========
RECONCILIATION OF NET INVESTMENT LOSS TO NET
CASH PROVIDED FOR INVESTING AND
OPERATING ACTIVITIES:
Net Investment Income (Loss)............................. $ (461,597) $ 4,168,295 $8,077,985
Proceeds from Sales of Investments....................... 32,345,524 33,609,816 --
Purchases of Investments................................. (59,491,934) (54,190,497) (50,004,190)
Net Decrease in Short-Term Investments................... 95,513,291 23,210,576 3,761,182
Net Increase/(Decrease) in Receivables
Related to Operations.................................. 132,055 602,045 (359,148)
Net Decrease in Payables Related to Operations........... (6,868,574) (1,602,328) (2,643,748)
Amortization of Organization Costs.................... -- -- 14,811
Accretion/Amortization of Discounts and
Premiums........................................ 2,244,495 1,851,088 3,132,390
---------------- --------------- ------------
Net Cash Provided for Investing and Operating
Activities....................................... $ 63,413,260 $ 7,648,995 $(38,020,718)
================ ================ ===========
See Notes to Financial Statements
-15-
EXCELSIOR PRIVATE EQUITY FUND II, INC.
FINANCIAL HIGHLIGHTS -- SELECTED PER SHARE DATA AND RATIOS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
OCTOBER 8,*
YEAR ENDED OCTOBER 31, TO
OCTOBER 31,
2000 1999 1998 1997
---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 1,252.27 $ 1,033.37 $ 1,003.46 $ 1,000.00
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss).................... (2.36) 21.29 41.84 2.79
Net Realized and Unrealized Gain (Loss) on
Investments................................... 436.36 291.72 (1.78) 0.67
Net Change in Allowance for Management
Incentive fee ................................ (45.66) (54.93) -- --
---------- ---------- ---------- ----------
Total From Investment Operations.............. 388.34 258.08 40.06 3.46
---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income........................... -- (39.18) (10.15) --
Net Realized Gains.............................. (270.37) -- -- --
Paid-In Capital................................. (53.60) -- -- --
Total Distributions........................... (323.97) (39.18) (10.15) --
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD.................... $ 1,316.64 $ 1,252.27 $ 1,033.37 $ 1,003.46
---------- ---------- ---------- ----------
TOTAL NET ASSET VALUE RETURN+..................... 35.89% 25.94% 4.04% 0.35%
========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)........... $ 257,705 $ 245,107 $ 202,261 $ 156,050
Ratio of Net Operating Expenses to
Average Net Assets ........................... 1.55% 1.26% 0.87% 0.72%**
Ratio of Gross Operating Expenses to
Average Net Assets++.......................... 1.55% 1.26% 0.87% 1.04%**
Ratio of Net Investment Income (Loss)
to Average Net Assets......................... (0.15)% 1.86% 4.05% 4.23%**
Portfolio Turnover Rate......................... 14 % 40% 0% 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
Company during the period, and assumes dividends and distributions, if
any, were reinvested. The Company's shares are not publicly 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 the
Managing Investment Adviser.
See Notes to Financial Statements
-16-
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Excelsior Private Equity Fund II, Inc. (defined herein these notes as
the "Fund") was incorporated under the laws of the State of Maryland on
March 20, 1997, and is a non-diversified, closed-end management investment
company that 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 Fund'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 the 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 Fund values portfolio securities quarterly and at other such
times, as in the Board of Directors' view, as 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. Direct equity
investments that are the same class as a class of stock that is
registered and publicly traded, but are subject to regulatory holding
periods or other restrictions, are valued based upon the last sales
price of the unrestricted stock on the securities exchange on which
such securities are primarily traded, less a liquidity discount
determined by the Investment Adviser. Direct equity investments for
which market quotations are not readily available are carried at fair
value as determined in good faith by the Investment Adviser after
considering certain pertinent factors, including the cost of the
investment, developments since the acquisition of the investment,
comparisons to similar publicly traded investments, subsequent
purchases of the same investment by other investors, the current
financial position and operating results of the issuer and such other
factors as may be deemed relevant. Investments in limited partnerships
are carried at fair value as determined by the Investment Adviser. In
establishing the fair value of investments in other partnerships, the
Investment Adviser takes into consideration information received from
those partnerships, including their financial statements and the fair
value established by the general partner of the investee partnership.
At October 31, 2000, market quotations were not readily available
for securities valued at $237,833,026. Such securities were valued by
the Investment Adviser, under the supervision of the Board of
Directors. Because of the inherent uncertainty of valuation, the
estimated values may differ significantly from the values that would
have been used had a ready market for the securities existed, and the
differences could be material.
(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 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 Fund enters into agreements to purchase securities and to
resell them at a future date. It is the Fund'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
Fund 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 Fund may be delayed or limited.
-17-
(d) FEDERAL INCOME TAXES:
It is the policy of the Fund 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. During the current year,
permanent differences, primarily due to net operating losses, resulted
in decreases in undistributed net investment income and accumulated
net realized gain on investments and a corresponding increase in
paid-in capital. The reclassification had no effect on net assets.
At October 31, 2000, the tax basis of the Fund's investments for
Federal income tax purposes amounted to $185,101,170. The net
unrealized appreciation amounted to $86,782,355, which is comprised of
gross unrealized appreciation of $99,831,901 and aggregate gross
unrealized depreciation of $13,049,546.
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 Fund. 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 Fund, determined as of the end of each
fiscal quarter, that are invested or committed to be invested in Portfolio
Companies or Private Funds and equal to an annual rate of 0.50% of the net
assets of the Fund, 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 Fund 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) on investments other than Private Funds, 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 Fund all or a portion of the incentive
fee previously paid.
U.S. Trust is a state-chartered bank and trust company and a member
bank of the Federal Reserve System and is a wholly-owned subsidiary of U.S.
Trust Corporation, a registered bank holding company. U.S. Trust
Corporation is a wholly-owned subsidiary of the The Charles Schwab
Corporation.
Chase Global Funds Services Company, a corporate affiliate of The
Chase Manhattan Bank, (the "Administrator") provides administrative
services to the Fund. For the services provided to the Fund, the
Administrator is entitled to an annual fee of $58,000, which is paid
quarterly.
U.S. Trust has voluntarily agreed to waive or reimburse other
operating expenses of the Fund, exclusive of management fees, to the extent
they exceed 0.25% of the Fund's net assets. No such reimbursement was
required during the year ended October 31, 2000.
Each Director of the Fund receives an annual fee of $15,000, and is
reimbursed for expenses incurred for attending meetings. No person who is
an officer, director or employee of U.S. Trust, or of any parent or
subsidiary thereof, who serves as an officer, director or employee of the
Fund receives any compensation from the Fund.
-18-
3. PURCHASES AND SALES OF SECURITIES
Excluding short-term investments, the Fund's purchases and sales of
securities for the years ended October 31, 2000, October 31, 1999 and
October 31, 1988 aggregated:
Year Ended
October 31, Purchases ($) Sales ($)
----------- ------------- ---------
2000 60,066,932 34,368,859
1999 54,183,529 35,315,725
1998 50,004,190 0
At October 31, 2000, the Fund had outstanding investment commitments
totaling $15,761,052.
4. TRANSACTIONS WITH AFFILIATED COMPANIES
An affiliated company is a company in which the fund has ownership of
at least 5% of the voting securities. The Fund did not receive dividend or
interest income from affiliated companies during the period. Transactions
with companies, which are or were affiliates are as follows:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
SALES REALIZED
AFFILIATE PURCHASES PROCEEDS GAINS VALUE (NOTE 1)
- --------- ---------- -------- -------- --------------
Advantage Schools, Inc. ......... $1,283,579 -- -- $11,384,145
BPA Systems, Inc. ............... 5,000,000 -- -- 5,000,000
Captura Software, Inc. .......... 799,999 -- -- 7,878,257
Curon Medical, Inc. ............. 124,144 -- -- 20,508,486
ePod Corp. ...................... 2,099,998 -- -- 3,251,716
firstsource Corp. ............... 10,000,000 -- -- 10,000,000
Killerbiz, Inc. ................. 750,000 -- -- 750,000
Managemark, Inc. ................ 500,000 -- -- --
Marketfirst Software, Inc. ...... 2,200,000 -- -- 7,199,570
MySeasons.com, Inc............... 2,000,000 -- -- 2,000,000
PowerSmart, Inc. ................ 689,343 -- -- 18,933,366
Protogene Laboratories, Inc. .... 5,680,000 -- -- 5,680,000
ReleaseNow, Inc. ................ 500,000 -- -- 9,456,145
SurVivaLink Corp. ............... 585,000 -- -- 7,584,994
Zeus Wireless, Inc. ............. 5,000,001 -- -- 5,000,001
Life Minders, Inc. .............. -- $26,106,023 $25,208,441 32,798,171
$37,212,064 $26,106,023 $25,208,441 $147,424,851
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the headings "Election of
Directors," "Section 16(a) Beneficial Ownership Reporting Compliance" and
"Additional Information--Officers" appearing in the Company's definitive
Proxy Statement for the 2001 Annual Meeting of Stockholders to be held on
March 16, 2001, which will be filed with the Securities and Exchange
Commission not later than 120 days after October 31, 2000, is incorporated
herein by reference.
-19-
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Election of
Directors" in the Company's definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders to be held on March 16, 2001, which will be filed
with the Securities and Exchange Commission not later than 120 days after
October 31, 2000, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" appearing in the Company's
definitive Proxy Statement for the 2001 Annual Meeting of Stockholders to
be held on March 16, 2001, which will be filed with the Securities and
Exchange Commission not later than 120 days after October 31, 2000, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The financial statements listed in Item 8, "Financial
Statements and Supplementary Data," beginning on page 7
are filed as part of this report.
2. FINANCIAL STATEMENT SCHEDULES
The financial statement schedules listed in Item 8,
"Financial Statements and Supplementary Data," beginning
on page 7 are filed as part of this report.
3. EXHIBITS
Exhibit
Number Description
(3)(i) Articles of Incorporation of the Company 1
(3)(ii) By-Laws of the Company 1
(10)(a) Form of Management Agreement 2
(10)(b) Form of Transfer Agency and Custody Agreement 3
(23) Consent of Independent Auditors
(B) REPORTS ON FORM 8-K
None.
- -------------------
1 Incorporated by reference to Excelsior Private Equity Fund II,
Inc.'s registration statement on Form N-2, (File No. 333-23811),
filed with the Securities Exchange Commission on March 24, 1997.
2 Incorporated by reference to Excelsior Private Equity Fund II,
Inc.'s definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders, filed with the Securities and Exchange Commission on
May 25, 2000.
3 Incorporated by reference to Excelsior Private Equity Fund II,
Inc.'s Registration Statement on Form N-2/A (File No. 333-23811),
filed with the Securities and Exchange Commission on May 13, 1997.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, 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: January 29, 2001 By: /S/DAVID I. FANN
---------------------- -------------------------------------
David I. Fann, Chief Executive Officer
and President
(principal executive officer)
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:
Signature Title Date
/S/DAVID I. FANN Chief Executive Officer and President (principal January 29, 2001
- -------------------------------- executive officer)
David I. Fann
/S/BRIAN F. SCHMIDT January 29, 2001
- -------------------------------- Chief Financial Officer
Brian F. Schmidt (principal financial and accounting officer)
/S/JOHN C. HOVER II January 29, 2001
- -------------------------------- Chairman of the Board and Director
John C. Hover II
/S/GENE M. BERNSTEIN January 29, 2001
- -------------------------------- Director
Gene M. Bernstein
/S/STEPHEN V. MURPHY
- -------------------------------- Director January 29, 2001
Stephen V. Murphy
/S/VICTOR F. IMBIMBO, JR. January 29, 2001
- -------------------------------- Director
Victor F. Imbimbo, Jr
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CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated December 15,
2000, included in this Annual Report (Form 10-K), for the fiscal year ended
October 31, 2000, of Excelsior Private Equity Fund II, Inc.
ERNST & YOUNG LLP
New York, New York
January 26, 2001
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