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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended April 30, 2003
-------------------------------------------------
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
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
114 West 47th Street, New York, NY 10036-1532
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 852-1000
----------------------------
________________________________________________________________________________
Former Name, Former Address and Former Fiscal Year, if Changed Since last
Report.
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
As of June 1, 2003, there were 195,730 shares of the Registrant's
Common Stock, $.01 par value per share, outstanding.
EXCELSIOR PRIVATE EQUITY FUND II, INC.
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. They involve known and unknown risks
and uncertainties that may cause Excelsior Private Equity Fund II, Inc.'s (the
"Company's") actual results to differ from future performance suggested herein.
The interim financial statements contained in this quarterly report 10Q
have been reviewed by Ernst & Young LLP, the Company's independent public
accountants.
INDEX PAGE NO.
----- --------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements. 1
Portfolio of Investments as of April 30, 2003. 1
Statement of Assets and Liabilities at April 30, 2003 and October 31, 2002. 4
Statement of Operations for the six-month periods ended April 30, 2003 and April
30, 2002. 5
Statement of Operations for the three-month periods ended April 30, 2003 and
April 30, 2002. 6
Statement of Changes in Net Assets for the six-month periods ended April 30, 2003
and April 30, 2002. 7
Statement of Cash Flows for the six-month periods ended April 30, 2003 and April
30, 2002. 8
Financial Highlights at April 30, 2003 and April 30, 2002. 9
Notes to Financial Statements. 10
Independent Accountant's Review Report. 13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations. 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 16
Item 4. Controls and Procedures. 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 17
Item 2. Changes in Securities and Use of Proceeds. 17
Item 3. Defaults Upon Senior Securities. 17
Item 4. Submission of Matters to a Vote of Security Holders. 17
Item 5. Other Information. 17
Item 6. Exhibits and Reports on Form 8-K.
17
SIGNATURES 18
CERTIFICATIONS 18
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Excelsior Private Equity Fund II, Inc.
Portfolio of Investments (Unaudited)
- --------------------------------------------------------------------------------
April 30, 2003
-------------------------------
PORTFOLIO STRUCTURE
- -------------------
SHORT-TERM INVESTMENTS:
AGENCY OBLIGATIONS $ 10,397,246 19.04%
INVESTMENT COMPANIES 1,887,983 3.46%
PRIVATE INVESTMENT FUNDS 28,041,129 51.35%
PORTFOLIO COMPANIES 12,356,536 22.63%
--------------- ----------
TOTAL INVESTMENTS 52,682,894 96.48%
OTHER ASSETS & LIABILITIES (NET) 1,925,039 3.52%
--------------- ----------
NET ASSETS $ 54,607,933 100.00%
=============== ==========
Notes to Financial Statements are an integral part of these
Financial Statements.
1
Excelsior Private Equity Fund II, Inc.
Portfolio of Investments (Unaudited)
- --------------------------------------------------------------------------------
April 30 2003
-------------
Principal Acquisition Coupon Value
Amount/Shares Date ## Rate/Yield (Note 1)
------------- ------- ---------- --------
AGENCY OBLIGATIONS - 19.04%
$ 5,400,000 Federal Farm Credit Bank Discount Note, 5/06/03 1.15% $ 5,399,137
5,000,000 Federal Home Loan Mortgage Corporation Discount
Note, 5/13/03 1.155% 4,998,109
-------------------
Total - Agency Obligations (Cost $10,397,246) 10,397,246
PRIVATE INVESTMENT FUNDS #, ** - 51.35%
Advanced Technology Ventures V, LP 09/98-10/02 1,617,586
Brand Equity Ventures I, LP 03/98-10/01 597,178
Brentwood Associates III, LP 06/99-10/02 3,079,210
Broadview Capital Partners, LP 04/99-10/02 2,383,960
Commonwealth Capital Ventures II, LP 01/99-10/02 1,823,034
Communications Ventures III, LP 11/98-05/00 928,360
Friedman, Fleischer & Lowe Capital Partners, LP 01/99-10/02 4,183,561
Mayfield X, LP 06/99-05/02 1,210,890
Mayfield X Annex 07/02-10/02 239,570
Mid-Atlantic Venture Fund III, LP 04/98-02/01 1,991,202
Morgenthaler Venture Partners V, LP 10/98-08/01 2,809,501
Quad-C Partners V, LP 04/98-10/02 5,130,643
Sevin Rosen Fund VI, LP 03/98-10/02 1,100,883
Trinity Ventures VI, LP 09/98-10/02 945,551
-------------------
Total - Private Investment Funds (Cost 28,041,129
$55,041,242)
-------------------
PRIVATE COMPANIES #, **, @ -19.24%
Common and Preferred Stocks - 15.64%
Biotechnology - 0.00%
7,100,000 Protogene Laboratories, Inc., Preferred Series B 12/99-08/01 --
-------------------
Educational Services - 6.48%
75,059 Mosaica Education, Inc., Preferred Series C 08/01 3,537,722
-------------------
Internet Services - Business - 9.16%
1,428,572 Clear Orbit, Inc. 06/00 5,000,013
2,388,345 Firstsource Corp., Series A 02/00 --
-------------------
5,000,013
Promissory Notes - 3.60%
Biotechnology - 0.0%
2,140,000 Protogene Laboratories, Inc., Convertible
Promissory Note 08/01-01/02 4.25% --
-------------------
Educational Services - 3.60%
686,415 Mosaica Education, Inc., Bridge Notes 02/01-08/01 0-13.00% 686,415
1,025,748 Mosaica Education, Inc. (Advantage Schools),
Promissory Note 02/01-08/01 0-13.00% 1,025,748
256,437 Mosaica Education, Inc. (ASI Texas LLC),
Promissory Note 02/01-08/01 0-13.00% 256,437
-------------------
1,968,600
Internet Services - Business - 0.00%
750,000 Killerbiz, Inc., Promissory Note 12/99-08/00 8.00% --
-------------------
Total - Private Companies (Cost $33,324,692) 10,506,335
-------------------
Notes to Financial Statements are an integral part of these Financial
Statements.
2
Excelsior Private Equity Fund II, Inc.
Portfolio of Investments (Unaudited) (continued)
- --------------------------------------------------------------------------------
April 30 2003
-------------
Principal Acquisition Coupon Value
Amount/Shares Date ## Rate/Yield (Note 1)
------------- ------- ---------- --------
PUBLIC COMPANIES #, ** - 3.39%
Common Stock - 3.39%
Medical Devices - 1.99%
$ 2,381,088 Curon Medical, Inc. @ 08/99 $ 1,085,776
----------------
Internet Services - Business - 1.40%
211,987 Concur Technologies 10/02 764,425
----------------
Warrants - Business - 0.00%
76,950 Curon Medical, Inc. @ 08/00 --
----------------
----------------
Total - Public Companies (Cost $6,523,669) 1,850,201
----------------
INVESTMENT COMPANIES - 3.46%
1,887,983 Dreyfus Government Cash Management Fund
(Cost $1,887,983) 1,887,983
----------------
----------------
TOTAL INVESTMENTS (Cost $107,174,832*) - 96.48% 52,682,894
OTHER ASSETS & LIABILITIES (NET) - 3.52% 1,925,039
----------------
NET ASSETS - 100.00% $ 54,607,933
================
* Aggregate cost for federal tax and book purposes.
** Restricted as to public resale. Acquired between March 1, 1998 and October
31, 2002. Total cost of restricted securities at April 30, 2003 aggregated
$94,889,603. Total market value of restricted securities owned at April 30,
2003 was $40,397,665 or 73.98% of net assets.
# Non-income producing security.
## Required disclosure for restricted securities only.
@ At April 30, 2003, the Company owned 5% or more of the company's outstanding
shares thereby making the company an affiliate as defined by the Investment
Company Act of 1940. Total market value of affiliated securities owned at
April 30, 2003 was $11,592,111.
Notes to Financial Statements are an integral part of these Financial
Statements.
3
Excelsior Private Equity Fund II, Inc.
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
April 30, 2003 October 31, 2002
---------------- ----------------
(Unaudited)
ASSETS:
Investment Securities, at Cost $ 107,174,832 $ 113,801,501
============== ============
Investment Securities, at Value $ 52,682,894 $ 54,747,094
Cash 133,254 --
Receivables:
Escrow receivable 1,817,148 1,817,148
From Investment Adviser (Note 2) 113,783 1,441,952
Interest 152,144 109,702
Other Assets 25,268 52,616
-------------- ------------
Total Assets 54,924,491 58,168,512
LIABILITIES:
Managing Investment Advisory Fees Payable (Note 2) 173,132 191,628
Professional Fees Payable 60,031 140,000
Administration Fees Payable (Note 2) 28,243 30,314
Directors' Fees Payable (Note 2) 29,753 60,000
Accrued Expenses and Other Payables 25,399 62,728
-------------- ------------
Total Liabilities 316,558 484,670
-------------- ------------
NET assets $ 54,607,933 $ 57,683,842
============== ============
NET ASSETS consist of:
Undistributed Net Investment Loss $ (315,500) $ --
Accumulated Net Realized Loss on Investments (29,827,477) (22,504,599)
Net Unrealized Depreciation on Investments (54,491,938) (59,054,407)
Par Value 1,957 1,957
Paid in Capital in Excess of Par Value 139,240,891 139,240,891
-------------- ------------
Total Net Assets $ 54,607,933 $ 57,683,842
============== ============
Shares of Common Stock Outstanding 195,730 195,730
-------------- ------------
NET ASSET VALUE PER SHARE $ 279.00 $ 294.71
============== ============
Notes to Financial Statements are an integral part of these Financial
Statements.
4
Excelsior Private Equity Fund II, Inc.
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended
April 30,
2003 2002
--------------- --------------
INVESTMENT INCOME:
Interest Income $ 103,029 $ 757,683
Dividend Income 12,541 --
--------------- --------------
Total Income 115,570 757,683
EXPENSES:
Managing Investment Advisory Fees (Note 2) 360,068 733,665
Administrative Fees (Note 2) 83,726 66,438
Professional Fees 80,831 121,701
Insurance Expense 32,327 25,093
Directors' Fees (Note 2) 29,753 29,753
Shareholder Reports 13,231 13,231
Miscellaneous Expense 5,513 6,697
--------------- --------------
Total Expenses 605,449 996,578
Fees Waived and Reimbursed by Adviser (Note 2) (174,379) (92,237)
--------------- --------------
Net Expenses 431,070 904,341
--------------- --------------
NET INVESTMENT LOSS (315,500) (146,658)
--------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net Realized Gain (Loss) on Security Transactions (7,322,878) 4,954,981
Change in Unrealized Appreciation (Depreciation)
On Investments 4,562,469 (7,232,407)
--------------- --------------
NET REALIZED AND UNREALIZED
(LOSS) ON INVESTMENTS (2,760,409) (2,277,426)
Change in Management Incentive Fee -- (1,263,006)
--------------- --------------
NET DECREASE IN NET
ASSETS RESULTING FROM OPERATIONS $ (3,075,909) $ (3,687,090)
=============== ==============
Notes to Financial Statements are an integral part of these Financial
Statements.
5
Excelsior Private Equity Fund II, Inc.
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
April 30,
2003 2002
----------------------- -----------------------
INVESTMENT INCOME:
Interest Income $ 52,296 $ 371,722
Dividend Income 5,559 -
----------------------- -----------------------
Total Income 57,855 371,722
EXPENSES:
Managing Investment Advisory Fees (Note 2) 173,133 294,468
Administrative Fees (Note 2) 40,647 43,761
Professional Fees 39,746 29,701
Insurance Expense 13,250 7,945
Directors' Fees (Note 2) 14,630 14,630
Shareholder Reports 6,506 6,506
Miscellaneous Expense 3,242 (5,458)
----------------------- -----------------------
Total Expenses 291,154 391,553
Fees Waived and Reimbursed by Adviser (Note 2) (113,782) (11,123)
----------------------- -----------------------
Net Expenses 177,372 380,430
----------------------- -----------------------
NET INVESTMENT LOSS (119,517) (8,708)
----------------------- -----------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net Realized Gain on Security Transactions 29,645 1,148,613
Change in Unrealized Appreciation (Depreciation)
On Investments (3,611,956) (13,995,131)
----------------------- -----------------------
NET REALIZED AND UNREALIZED
(LOSS) ON INVESTMENTS (3,582,311) (12,846,518)
Change in Management Incentive Fee - 850,812
----------------------- -----------------------
NET DECREASE IN NET
ASSETS RESULTING FROM OPERATIONS $ (3,701,828) $ (12,004,414)
======================= =======================
Notes to Financial Statements are an integral part of these Financial
Statements.
6
Excelsior Private Equity Fund II, Inc.
Statement of Changes in Net Assets (Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended
April 30,
2003 2002
----------------------- -----------------------
OPERATIONS:
Net Investment Loss $ (315,500) $ (146,658)
Net Realized Gain (Loss) on Investments (7,322,878) 4,954,981
Change in Unrealized Appreciation (Depreciation)
on Investments 4,562,469 (7,232,407)
Change in Allowance for Management Incentive
Fee - (1,263,006)
----------------------- -----------------------
Net Decrease in Net Assets
Resulting From Operations (3,075,909) (3,687,090)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income - (5,981,822)
Return of Capital - (3,822,531)
----------------------- -----------------------
Total Distributions - (9,804,353)
NET DECREASE IN NET ASSETS (3,075,909) (13,491,443)
NET ASSETS:
Beginning of Period 57,683,842 141,423,325
----------------------- -----------------------
End of Period $ 54,607,933 $ 127,931,882
======================= =======================
Notes to Financial Statements are an integral part of these Financial
Statements.
7
Excelsior Private Equity Fund II, Inc.
Statement of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended April 30,
2003 2002
----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Decrease in Net Assets resulting from Operations .......................... $ (3,075,909) $ (3,687,090)
Adjustments to reconcile net decrease in net assets from operations to net
cash provided by operating activities:
Change in unrealized appreciation on investments ............................ (4,562,469) 7,232,407
Change in short-term investments ............................................ (2,647,881) (9,401,334)
Purchase of investments ..................................................... -- (2,084,757)
Proceeds from dispositions of investments ................................... 1,951,672 8,957,604
Realized loss (gain) on investments ......................................... 7,322,878 (4,954,981)
Decrease in receivable for investments sold ................................. -- 3,920,263
Decrease in receivable from investment adviser .............................. 1,328,169 7,711,990
Increase in interest receivable ............................................. (42,442) (393,101)
Decrease in other assets .................................................... 27,348 149,965
Increase (decrease) in expenses payable ..................................... (168,112) 2,001,605
-------------- --------------
Net cash provided by operating activities ................................. 133,254 9,452,571
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution of net investment income ......................................... -- (5,981,822)
From return of capital ........................................................ -- (3,822,531)
-------------- --------------
Net cash used in financing activities ..................................... -- (9,804,353)
-------------- --------------
Net change in cash ........................................................ 133,254 (351,782)
-------------- --------------
Cash at beginning of period .............................................. -- 351,782
-------------- --------------
Cash at end of period .................................................... $ 133,254 $ --
============== ==============
Notes to Financial Statements are an integral part of these Financial
Statements.
8
Excelsior Private Equity Fund II, Inc.
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
Per Share Operating Performance: (1)
Six Months Ended Six Months Ended
April 30, 2003 April 30, 2002
---------------------- ----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 294.71 $ 722.54
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Loss (1.61) (0.75)
Net Realized and Unrealized Gain on Investments (14.10) (11.64)
Change in Allowance for Management Incentive Fee -- (6.45)
---------------------- ----------------------
Total from Investment Operations (15.71) (18.84)
---------------------- ----------------------
DISTRIBUTIONS:
From Investment Income -- (30.56)
Return of Capital -- (19.53)
---------------------- ----------------------
Total Distributions -- (50.09)
---------------------- ----------------------
NET ASSET VALUE, END OF PERIOD $ 279.00 $ 653.61
====================== ======================
TOTAL NET ASSET VALUE RETURN (3),(4) (5.33)% (2.61)%
====================== ======================
Ratios and supplemental data:
Net Assets, End of Period (000's) $ 54,608 $ 127,932
Ratios to Average Net Assets (2)
Gross Expenses (5) 2.13% 1.46%
Net Expenses 1.52% 1.33%
Net Investment Loss (1.11)% (0.21)%
Portfolio Turnover (3) 0.00% 1.51%
(1) For a share outstanding throughout the period
(2) Annualized
(3) Non-annualized
(4) 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 were issued in a private placement
and are not traded. Therefore, market value total investment return is not
calculated. (5) Expense ratio before waiver of fees and reimbursement of
expenses by adviser.
Notes to Financial Statements are an integral part of these Financial
Statements.
9
Excelsior Private Equity Fund II, Inc.
(Notes to Financial Statements Unaudited)
Note 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 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 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 the financial statements. Generally accepted accounting
principles in the United States 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.
The financial information for the Company as of April 30, 2003 and
2002 and for the three and six-month periods then ended is unaudited, but
includes all adjustments (consisting only of normal recurring accruals) which,
in the opinion of management are necessary in order to make the financial
statements not misleading at such dates and for those periods. These financial
statements have been prepared in accordance with the instructions for Form 10-Q
and, therefore, do not include all information and footnotes required by
accounting principles generally accepted in the United States. These financial
statements should be read in conjunction with the audited financial statements
and related notes included in the Company's Form 10-K for the year ended October
31, 2002. Operating results for the three or six months ended April 30, 2003 are
not necessarily indicative of the results that may be expected for the entire
year.
(a) Portfolio valuation:
The Company values portfolio securities quarterly and at such other
times as, in the Board of Directors' view, circumstances warrant.
Investments in securities for which market quotations are readily available
generally will be valued at the last sale price on the date of valuation
or, if no sale occurred, at the mean of the latest bid and ask prices;
provided that, as to such securities that may have legal, contractual or
practical restrictions on transfer, a discount of 10% to 40% from the
public market price will be applied. Securities for which no public market
exists and other assets will be valued at fair value as determined in good
faith by the Managing Investment Adviser (as defined below) or a committee
of the Board of Directors under the supervision of the Board of Directors
pursuant to certain valuation procedures summarized below. Securities
having remaining maturities of 60 days or less are valued at amortized
cost.
The value for securities for which no public market exists is
difficult to determine. Generally, such investments will be valued on a
"going concern" basis without giving effect to any disposition costs. There
is a range of values that is reasonable for such investments at any
particular time. Initially, direct investments are valued based upon their
original cost, until developments provide a sufficient basis for use of a
valuation other than cost. Upon the occurrence of developments providing a
sufficient basis for a change in valuation, direct investments will be
valued by the "private market" or "appraisal" method of valuation. The
private market method shall only be used with respect to reliable third
party transactions by sophisticated, independent investors. The appraisal
method shall be based upon such factors affecting the company such as
earnings, net worth, reliable private sale prices of the company's
securities, the market prices for similar securities of comparable
companies, an assessment of the company's future prospects or, if
appropriate, liquidation value. The values for the investments referred to
in this paragraph will be estimated regularly by the Managing Investment
Adviser or a committee of the Board of Directors and, in any event, not
less frequently than quarterly. However, there can be no assurance that
such values will represent the return that might ultimately be realized by
the Company from the investments.
The valuation of the Company's private funds is based upon its
pro-rata share of the value of the assets of a private fund as determined
by such private fund, in accordance with its partnership agreement,
constitutional or other documents governing such valuation, on the
valuation date. If such valuation with respect to the Company's investments
in private funds is not available by reason of timing or other event on the
valuation date, or are deemed to
10
be unreliable by the Managing Investment Adviser, the Managing Investment
Adviser, under supervision of the Board, shall determine such value based
on its judgment of fair value on the appropriate date, less applicable
charges, if any.
At April 30, 2003, market quotations were not readily available for
securities valued at $38,547,464. Such securities were valued by the
Managing 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 Company enters into agreements to purchase securities and to
resell them at a future date. It is the Company's policy to take receipt 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 carryforwards, are distributed to shareholders at least
annually. Dividends and distributions are determined in accordance with
federal income tax regulations that 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.
The Company has an unused capital loss carryforward of $22,323,602
available for income tax purposes, to be applied against future net
security profits, if any, realized after October 31, 2002. If not applied,
$8,602,181 of the carryover will expire in 2009 and $13,721,421 will expire
in 2010.
At April 30, 2003, the tax basis of the Company's investments for
federal income tax purposes amounted to $107,174,832. The net unrealized
depreciation amounted to $54,491,938 which is comprised of gross unrealized
appreciation of $1,467,681 and aggregate gross unrealized depreciation of
$55,959,619.
Note 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 NY") and U.S. Trust Company ("U.S.
Trust") served during the reporting period as the Managing Investment Adviser to
the Company. Under the Agreement, for the services provided, the Managing
Investment Adviser is entitled to receive a management fee at the annual rate of
1.50% of the net assets of the Company, determined as of the end of each
calendar 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 Company, determined as of the end of each calendar quarter, that
are invested in short-term investments and are not committed to Portfolio
Companies or Private Funds. Pursuant to a sub-advisory agreement among the
Company, U.S. Trust NY, U.S. Trust and U.S. Trust
11
Company, N.A., U.S. Trust Company, N.A. served during the reporting period as
the investment sub-adviser to the Company and received an investment management
fee from the Managing Investment Adviser.
In addition to the management fee, the Company has agreed to pay the
Managing Investment Adviser 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, the Managing Investment
Adviser will be required to repay the Company all or a portion of the incentive
fee previously paid.
U.S. Trust NY is a New York state-chartered bank and trust company and a
member bank of the Federal Reserve System. Effective June 1, 2003, U.S. Trust
Company merged into U.S. Trust Company, N.A., a nationally chartered bank. As a
result, U.S. Trust Company, N.A., acting through its registered investment
advisory division, U.S. Trust Company, N.A. Asset Management Division, will
serve as Managing Investment Adviser to the Company. Pursuant to an assumption
agreement dated June 1, 2003, U.S. Trust Company, N.A. has assumed the duties
and obligations of U.S. Trust Company under the Agreement. The merger will have
no impact on the management or operations of the investment advisory functions
performed for the Company and does not constitute a change in control. U.S.
Trust NY and U.S. Trust Company, N.A. are each 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 Charles Schwab Corporation.
Beginning January 1, 2002, PFPC, Inc. ("PFPC") began providing
administrative and accounting services to the Company pursuant to an
Administration and Accounting Services Agreement. Also beginning January 1,
2002, PFPC Trust Company began providing custodian services to the Company
pursuant to a Custodian Services Agreement. Beginning February 1, 2002, PFPC
began providing transfer agency services to the Company pursuant to a Transfer
Agency Agreement. For the services provided to the Company by PFPC and its
affiliates, PFPC is entitled to an annual fee of 0.02% of average net assets
plus reimbursement of reasonable expenses, and a base fee, payable monthly.
The Managing Investment Adviser has voluntarily agreed to waive or
reimburse other operating expenses of the Company, exclusive of management fees,
to the extent they exceed 0.25% of the Company's net assets. This reimbursement
amounted to $174,379 for the period ended April 30, 2003.
Each director of the Company receives an annual fee of $9,000, plus a
meeting fee of $1,500 for each meeting attended, and is reimbursed for expenses
incurred for attending meetings. No person who is an officer, director or
employee of the Managing Investment Adviser, or U.S. Trust Corporation or its
subsidiaries, who serves as an officer, director or employee of the Company
receives any compensation from the Company.
Note 3 -- Purchases and Sales of Securities
Excluding short-term investments, the Company had $0 in purchases and
$1,914,232 in sales of securities for the six-month period ended April 30, 2003.
Excluding short-term investments, the Company had $2,084,757 in purchases and
$8,897,706 in sales of securities for the six-month period ended April 30, 2002.
The Company received distributions from private investment funds in the
amount of $37,440 for the six-month period ended April 30, 2003. The Company
received distributions from private investment funds in the amount of $59,898
for the six-month period ended April 30, 2002.
Note 4 -- Transactions with Affiliated Portfolio Companies
An affiliated company is a company in which the Company has ownership of at
least 5% of the voting securities. Transactions with companies, which are or
were affiliates are as follows:
12
For the Six Month Period Ended April 30, 2003
----------------------------------------------------------------
Cumulative
October 31, Sale/ Merger Realized Value
Affiliate 2002 Value Purchases Interest Proceeds Gain (Loss) (Note 1)
--------------------------------------------------------------------------------------------------------------------
Cardiac Science, Inc. $ 1,421,986 $ -- $ -- $ 1,241,040 $ 538,331 $ --
ReleaseNow, Inc./Release
Software Corp. -- -- -- 65,850 (7,890,855) --
--------------------------------------------------------------------------------------------------------------------
Total $ 1,421,986 $ -- $ -- $ 1,306,890 $ (7,352,524) $ --
======================================================================================
Independent Accountant's Review Report
To the Shareholders and Board of Directors of
Excelsior Private Equity Fund II, Inc.
We have reviewed the accompanying statement of assets and liabilities of
Excelsior Private Equity Fund II, Inc. ("the Fund"), including the portfolio of
investments, as of April 30, 2003, the related statements of operations for the
three-month and six-month periods ended April 30, 2003 and 2002, and the
statement of changes in net assets, the statement of cash flows, and the
financial highlights for the six-month periods ended April 30, 2003 and 2002.
These financial statements and financial highlights are the responsibility of
the Fund's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements and financial highlights
referred to above for them to be in conformity with accounting principles
generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the statement of assets and liabilities,
including the portfolio of investments, as of October 31, 2002, the related
statements of operations and cash flows for the year then ended, the statement
of changes in net assets for each of the two years then ended and the financial
highlights for each of the five years then ended (not presented herein) and in
our report dated December 17, 2002, we expressed an unqualified opinion on such
financial statements and financial highlights.
ERNST & YOUNG LLP
Boston, Massachusetts
June 11, 2003
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Six-month Period Ended April 30, 2003 as Compared to the Similar Period in 2002
Realized and Unrealized Gains and Losses from Portfolio Investments
For the six-month periods ended April 30, 2003 and 2002, the Company had a
net realized gain/(loss) on security transactions of ($7,322,878) and
$4,954,981, respectively. For the six-month periods ended April 30, 2003 and
2002, the Company had a net change in unrealized appreciation/(depreciation) on
investments of $4,562,469 and ($7,232,407), respectively. The net realized loss
for the period ended April 30, 2003 was primarily the result of the conclusion
of the assignment for the benefit of creditors of ReleaseNow, Inc. ReleaseNow,
Inc. a private company investment, transferred ownership of its assets for
liquidation; the liquidation concluded and the Company received $65,850 as a pro
rata distribution of claims against the assets. The Company, in concluding its
sale of shares of common stock of Cardiac Science, Inc., recorded a realized
gain of $538,331. The net change in unrealized appreciation for the period ended
April 30, 2003 was principally the result of a reclassification of ReleaseNow,
Inc. from unrealized depreciation to realized loss offset by declines in the
valuations of private investment funds held by the Company. For the period ended
April 30, 2002, the net realized gain was primarily the result of the Company's
sale of shares of Cardiac Science, Inc. The net change in unrealized
depreciation was principally the result of declines in the valuations of private
investment funds.
Investment Income and Expenses
For the six-month period ended April 30, 2003, the Company had investment
income of $115,570 and net operating expenses, net of expenses reimbursed by the
Managing Investment Adviser (as defined below), of $431,070, resulting in a net
investment loss of ($315,500) as compared to interest income of $757,683 and net
operating expenses, net of expenses reimbursed by the Managing Investment
Adviser, of $904,341, resulting in net investment loss of ($146,658) for the
six-month period ended April 30, 2002. The primary reason for the decrease in
investment income was a decrease short-term securities held by the Company as
well as a decline in short-term interest rates. The reduction in net operating
expenses is principally attributable to lower management investment advisory
fees due to a decrease in the value of assets under management.
For the three-month period ended April 30, 2003, the Company had investment
income of $57,855 and net operating expenses, net of expenses reimbursed by the
Managing Investment Adviser (as defined below), of $177,372, resulting in a net
investment loss of ($119,517) as compared to interest income of $371,722 and net
operating expenses, net of expenses reimbursed by the Managing Investment
Adviser, of $380,430, resulting in net investment loss of ($8,708) for the
three-month period ended April 30, 2002. The primary reason for the decrease in
investment income was a decrease in interest income due to a decline in
short-term securities held and a reduction in short-term interest rates. The
reduction in net operating expenses is principally attributable to lower
management investment advisory fees.
United States Trust Company of New York and U.S. Trust Company (together,
the "Managing Investment Adviser") provide 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 management fee is determined and payable quarterly. For the
six-month periods ended April 30, 2003 and 2002, the Managing Investment Adviser
earned $360,068 and $733,665 in management fees, respectively. In addition, for
the six-month periods ended April 30, 2003 and 2002, the change in allowance for
the management incentive fee was $0 and ($1,263,006), respectively. As of April
30, 2003, there is no incentive fee receivable from the Managing Investment
Adviser or payable by the Company. There was a payable by the Company to the
Managing Investment Adviser of $1,263,006 at
14
April 30, 2002. For the six-month periods ended April 30, 2003 and 2002, the
Managing Investment Adviser reimbursed other operating expenses of the Company
in the amounts of $174,379 and $92,237, respectively, as a result of expenses
incurred in excess of those permitted pursuant to the Company's prospectus.
Net Assets
At April 30, 2003, the Company's net assets were $54,607,933, or a net
asset value per common share of $279.00. This represents a decrease of
$3,075,909 from net assets of $57,683,842, or a net asset value per common share
of $294.71, at October 31, 2002. The decline is due primarily to declines in the
valuations of private investment funds held by the Company.
Liquidity and Capital Resources
The Company has focused its investments in the private equity securities of
expansion and later- stage venture capital companies and middle-market companies
that the Company believes offer significant long-term capital appreciation. The
Company may offer managerial assistance to certain of these companies. The
Company invests its available cash in short-term investments of marketable
securities pending distributions to shareholders or to provide the liquidity
necessary to make portfolio investments as investment opportunities arise.
At April 30, 2003, the Company held $133,254 in cash and $12,285,229 in
short-term investments as compared to $0 in cash and $9,637,348 in short-term
investments at October 31, 2002. The change in short-term investments from
October 31, 2002 was the result of proceeds received for the sale of Cardiac
Science, Inc. common shares as well as the prior year incentive fee receivable
paid by the Managing Investment Adviser. In connection with the Company's
commitments to private investment funds, a total of $58,250,000 has been
contributed by the Company through April 30, 2003. The Company has no additional
capital commitment obligations to the private funds it has invested in. The
Company made no follow-on investments during the six-month period ended April
30, 2003.
The Company believes that its liquidity and capital resources are adequate
to satisfy its operational needs.
Application of Critical Accounting Policies
Under the supervision of the Company's Valuation and Audit Committees,
consisting of the independent directors of the Company, the Managing Investment
Adviser makes certain critical accounting estimates with respect to the
valuation of portfolio investments. These estimates could have a material impact
on the presentation of the Company's financial condition, because in total, they
currently represent 70.6% of the Company's net assets at April 30, 2003. During
the six-month period ended April 30, 2003, changes to these estimates, i.e.
changes in the valuations of private investments, resulted in a $3.7 million
decrease in net asset value.
The value for securities for which no public market exists is difficult to
determine. Generally speaking, such investments will be valued on a "going
concern" basis without giving effect to any disposition costs. There is a range
of values that is reasonable for such investments at any particular time.
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.
Initially, direct private company investments are valued based upon their
original cost until developments provide a sufficient basis for use of a
valuation other than cost. Upon the occurrence of developments providing a
sufficient basis for a change in valuation, direct private company investments
will be valued by the "private market" or "appraisal" methods of valuation. The
private market method shall only be used with respect to reliable third party
transactions by sophisticated, independent investors. The appraisal method shall
be based upon such factors affecting the company such as earnings, net worth,
reliable private sale prices of the company's securities, the market prices for
similar securities of comparable companies, an assessment of the company's
future prospects or, if appropriate, liquidation value. The values for the
investments referred to in this paragraph will be estimated regularly by the
Managing Investment Adviser or a committee of the Board and, in any event, not
less frequently than quarterly. However, there can be no assurance that such
value will represent the return that might ultimately be realized by the
15
Company from the investments.
The valuation of the Company's private funds is based upon its pro-rata
share of the value of the assets of a private fund as determined by such private
fund, in accordance with its partnership agreement, constitutional or other
documents governing such valuation, on the valuation date. If such valuation
with respect to the Company's investments in private funds is not available by
reason of timing or other event on the valuation date, or are deemed to be
unreliable by the Managing Investment Adviser, the Managing Investment Adviser,
under supervision of the Board, shall determine such value based on its judgment
of fair value on the appropriate date, less applicable charges, if any.
The Managing Investment Advisers also makes estimates regarding discounts
on market prices of publicly traded securities where appropriate. For
securities, which have legal, contractual or practical restrictions on transfer,
a discount of 10% to 40% from the public market price will be applied.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Equity Price Risk
A majority of the Company's investment portfolio consists of securities in
private companies and private investment funds, currently representing 70.6% of
net assets, 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 securities
in response to changes in market prices. Thus, these securities are not subject
to equity price risk normally associated with public equity markets, except that
to the extent that the private investment funds hold underlying public
securities, the Company is indirectly exposed to equity price risk associated
with the public markets. Nevertheless, the Company is directly exposed to equity
price risk through its investments in the equity securities of two public
companies, Concur Technologies, Inc. (NASDAQ: CNQR), Curon Medical, Inc.
(NASDAQ: CURN). At April 30, 2003, these publicly traded equity securities were
valued at $1,850,201, representing 3.4% of the investment portfolio. Thus, there
is exposure to equity price risk, estimated as the potential loss in fair value
due to a hypothetical 10% decrease in quoted market prices, representing a
decrease in the value of these securities of $185,020. At October 31, 2002,
publicly traded securities were valued at $2,680,289, representing 4.7% of the
investment portfolio. Thus, there is exposure to equity price risk, estimated as
the potential loss in fair value due to a hypothetical 10% decrease in quoted
market prices, representing a decrease in the value of these securities of
$268,029. The decrease in market value during the period ended April 30, 2003
was principally the result of the sale of the Company's remaining shares of
Cardiac Science, Inc.
Item 4. Controls and Procedures.
(a) The Company has established and maintained disclosure controls and
procedures which are designed to provide reasonable assurance that material
information relating to the Company is made known to its Co-Chief Executive
Officers and its Treasurer. The Company has established a Disclosure Committee,
which is made up of several key management employees of the Managing Investment
Adviser and its affiliates, that report directly to the Company's Co-Chief
Executive Officers and Treasurer. The Disclosure Committee monitors and
evaluates these disclosure controls and procedures. The Co-Chief Executive
Officers and Treasurer have evaluated the effectiveness of the Company's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this report. Based on this evaluation, the Co-Chief Executive
Officers and Treasurer have concluded that the Company's disclosure controls and
procedures were effective in providing reasonable assurance that material
information relating to the Company was made known to them during the period
covered in this report. However, at the time the evaluation occurred, it was
noted that the quarterly reports of the Company filed on Form 10-Q for the
fiscal quarters ended April 30, 2001 and 2002 and July 31, 2001 and 2002 did not
include Statements of Operations for the three month periods then ended and for
the corresponding periods of the prior years. Such information is included in
this Quarterly Report on Form 10-Q, and the Company will file appropriate
amendments to its prior Reports.
16
(b) Changes in Internal Controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in the Company's internal
controls. Accordingly, no corrective actions were required or undertaken.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company was held at the
offices of United States Trust Company 114 West 47th Street, New York, New York
10036 at 10:00 a.m. (New York time) on March 21, 2003 (the "Meeting"). Of the
195,730 shares outstanding as of January 24, 2003, the record date for the
Meeting, 111,431 were present or represented by proxy at the Meeting. The
shareholders of the Company approved the following matter: to elect each of Mr.
Hover, Mr. Bernstein, Mr. Murphy and Mr. Imbimbo as Directors of the Company.
The results of the voting for this proposal were as follows:
1. Election of Directors: For Withheld
--- --------
John C. Hover II 110,161 1,270
Gene M. Bernstein 110,226 1,205
Stephen V. Murphy 110,266 1,165
Victor F. Imbimbo, Jr. 110,126 1,305
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
15 Independent Accountants' Acknowledgement Letter.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
None.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
EXCELSIOR PRIVATE EQUITY FUND II, INC.
Date: June 16, 2003 By: /s/ David I. Fann
-----------------------------------
David I. Fann
Co-Chief Executive Officer
Date: June 16, 2003 By: /s/ Douglas A. Lindgren
-----------------------------------
Douglas A. Lindgren
Co-Chief Executive Officer
Date: June 16, 2003 By: /s/ Robert F. Aufenanger
-----------------------------------
Robert F. Aufenanger
Treasurer
(Principal Financial Officer)
18
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
I, David I. Fann, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Excelsior Private
Equity Fund II, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 16, 2003
/s/ David I. Fann
- ---------------------
David I. Fann, Co-Chief Executive Officer
19
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
I, Douglas A. Lindgren, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Excelsior Private
Equity Fund II, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 16, 2003
/s/ Douglas A. Lindgren
- -------------------------------
Douglas A. Lindgren, Co-Chief Executive Officer
20
CERTIFICATION OF TREASURER
I, Robert F. Aufenanger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Excelsior Private
Equity Fund II, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 16, 2003
/s/ Robert F. Aufenanger
- -------------------------------
Robert F. Aufenanger, Treasurer
21