THE PACIFIC CORPORATE GROUP
PRIVATE EQUITY FUND
Financial Statements
For the Year Ended March 31, 1999
And Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Pacific Corporate Group Private Equity Fund:
We have audited the accompanying balance sheet of The Pacific Corporate Group
Private Equity Fund (the "Trust"), including the schedule of portfolio
investments, as of March 31, 1999 and the related statements of operations,
changes in shareholders' equity and cash flows and the financial highlights for
the year then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Pacific
Corporate Group Private Equity Fund as of March 31, 1999 and the results of its
operations, and its cash flows and the financial highlights for the year then
ended in conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include investments valued at
$24,576,372 at March 31, 1999, representing 23.0% of net assets, whose values
have been estimated by the Adviser Trustee in the absence of readily
ascertainable market values. We have reviewed the procedures used by the Adviser
Trustee in arriving at its estimate of value of such investments and have
inspected underlying documentation, and, in the circumstances, we believe the
procedures are reasonable and the documentation appropriate. However, because of
the inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the investments existed, and the differences could be material.
Deloitte & Touche LLP
May 12, 1999
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
BALANCE SHEET
March 31, 1999
<TABLE>
ASSETS
<S> <C> <C>
Portfolio investments at fair value (cost $25,484,044) $ 24,576,372
Short-term investments, at amortized cost 79,195,854
Cash and cash equivalents 2,750,218
Accrued interest receivable 12,615
Capital contribution receivable 50,000
Prepaid expenses 447,703
Due from affiliates 114,435
----------------
TOTAL ASSETS $ 107,147,197
================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 94,686
----------------
Total liabilities 94,686
----------------
Shareholders' equity:
Shares of beneficial interest, 108,659.8075 shares issued and outstanding:
Adviser Trustee (500 shares) 492,604
Beneficial Shareholders (108,159.8075 shares) 106,559,907
Total shareholders' equity 107,052,511
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 107,147,197
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
As of March 31, 1999
<TABLE>
Fair Value
<S> <C> <C> <C> <C> <C> <C>
% of
Cost Fair Value Net Assets
Direct Investments:
IRMC Holdings, Inc.
<C> <C> <C>
71,200 shares of Common Stock $ 712,000 $ 712,000
28,480 shares of Preferred Stock 2,848,000 2,848,000
---------------- ----------------
Total Direct Investments 3,560,000 3,560,000 3.33%
---------------- ---------------- --------
Indirect Investments:
Alta California Partners II, L.P. 400,000 363,097 0.34%
$4,000,000 original capital commitment
1.783% limited partnership interest
American Securities Partners II, L.P. 1,032,631 1,000,541 0.93%
$5,000,000 original capital commitment
1.429% limited partnership interest
Apollo Investment Fund IV, L.P. 1,275,669 1,265,473 1.18%
$5,000,000 original capital commitment
.139% limited partnership interest
Atlas Venture Fund IV, L.P. 45,738 43,576 0.04%
$1,540,000 original capital commitment
.381% limited partnership interest
Aurora Equity Partners II L.P. 642,550 562,636 0.53%
$5,000,000 original capital commitment
.663% limited partnership interest
Bedrock Capital Partners I, L.P. 1,064,193 917,451 0.86%
$5,000,000 original capital commitment
4.189% limited partnership interest
CVC European Equity Partners II L.P. 3,119,492 2,762,127 2.58%
$7,500,000 original capital commitment
.397% limited partnership interest
Exxel Capital Partners V, L.P. 2,500,153 2,503,629 2.34%
$2,500,000 original capital commitment
.294% limited partnership interest
Fenway Partners Capital Fund II, L.P. 803,956 775,867 0.73%
$5,000,000 original capital commitment
.676% limited partnership interest
</TABLE>
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
As of March 31, 1999
<TABLE>
Fair Value
<S> <C> <C> <C> <C> <C> <C>
% of
Cost Fair Value Net Assets
First Reserve Fund VIII, L.P. $ 446,290 $ 277,000 0.26%
<C>
$5,000,000 original capital commitment
.616% limited partnership interest
Hicks, Muse, Tate & Furst Latin America Fund, L.P. 1,186,845 1,131,794 1.06%
$2,500,000 original capital commitment
.260% limited partnership interest
Hicks, Muse, Tate & Furst Equity Fund IV, L.P. 2,692,159 2,817,067 2.63%
$5,000,000 original capital commitment
.124% limited partnership interest
Parthenon Investors, L.P. 567,360 560,105 0.52%
$3,500,00 original capital commitment
1.400% limited partnership interest
Providence Equity Partners III, L.P. 377,898 312,534 0.29%
$3,500,000 original capital commitment
.372% limited partnership interest
Sentinel Capital Partners II, L.P. 671,777 578,344 0.54%
$5,000,000 original capital commitment
4.807% limited partnership interest
Sprout Capital VIII, L.P. 1,100,000 1,266,212 1.18%
$5,000,000 original capital commitment
.667% limited partnership interest
Thomas H. Lee Equity Fund IV, L.P. 2,544,437 2,616,392 2.44%
$10,000,000 original capital commitment
.313% limited partnership interest
Triumph Partners III, L.P. 1,392,917 1,225,039 1.14%
$5,000,000 original capital commitment
.831% limited partnership interest
VS&A Communications Partners III, L.P. 59,979 37,488 0.04%
$3,000,000 original capital commitment
.350% limited partnership interest _______
---------------- ----------------
Total Indirect Investments 21,924,044 21,016,372 19.63%
---------------- ---------------- --------
Total Portfolio Investments $ 25,484,044 $ 24,576,372 22.96%
================ ================ ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
STATEMENT OF OPERATIONS
For the Year Ended March 31, 1999
<TABLE>
INVESTMENT INCOME AND EXPENSES
<S> <C>
Interest from short-term investments $ 2,353,340
--------------
Expenses:
Management fee 1,414,927
Legal fees 250,659
Accounting fees 109,809
Independent Trustee fees 46,500
Custody fees 44,423
Insurance expense 126,615
Organizational costs 178,223
Mailing and printing 6,482
Miscellaneous 2,381
--------------
Total expenses 2,180,019
NET INVESTMENT INCOME BEFORE ALLOCATION
FROM INDIRECT INVESTMENTS 173,321
Change in unrealized depreciation of Indirect Investments (907,672)
Expenses paid in connection with Indirect Investments (233,142)
Realized gains/income received from Indirect Investments 39,278
--------------
Net change in net assets from Indirect Investments (1,101,536)
--------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (928,215)
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Year Ended March 31, 1999
<TABLE>
Adviser Beneficial
Trustee Shareholders Total
<S> <C> <C> <C> <C> <C>
Balance as of March 31, 1998 $ 246,280 $ 43,542,296 $ 43,788,576
Capital contributions 250,000 64,282,125 64,532,125
Selling commissions - (334,975) (334,975)
Other syndication costs 494 (5,494) (5,000)
Net decrease in net assets from operations (4,170) (924,045) (928,215)
------------ ---------------- -----------------
Balance as of March 31, 1999 $ 492,604 $ 106,559,907(A) $ 107,052,511
============ ================ =================
</TABLE>
(A) The net asset value per share of beneficial interest was $985.21 as of March
31, 1999.
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
STATEMENT OF CASH FLOWS
For the Year Ended March 31, 1999
<TABLE>
CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES
<S> <C>
Net decrease in net assets from operations $ (928,215)
Adjustments to reconcile net decrease in net assets from operations to net cash
provided from operating activities:
Net change in net assets from Indirect Investments 1,101,536
Organizational costs 178,223
Decrease in accrued interest receivable 61,750
Increase in prepaid expenses (316,767)
Increase in due from affiliates (108,649)
Increase in accounts payable and accrued expenses 69,165
----------------
Net cash provided from operating activities 57,043
----------------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Net purchase of short-term investments (79,111,000)
Purchase of Direct Investments (3,560,000)
Capital contributed to Indirect Investments (19,779,417)
Expenses paid in connection with Indirect Investments (233,142)
Realized gains/income received from Indirect Investments 39,278
----------------
Net cash used for investing activities (102,644,281)
----------------
CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES
Cash contributions from Beneficial Shareholders 64,232,125
Cash contribution from Adviser Trustee 250,000
Payment of organizational costs (146,527)
Payment of selling commissions (334,975)
Payment of other syndication costs (246,000)
----------------
Net cash provided from financing activities 63,754,623
----------------
Decrease in cash and cash equivalents (38,832,615)
Cash and cash equivalents at beginning of period 41,582,833
Cash and cash equivalents at end of period $ 2,750,218
================
Supplemental disclosure of non-cash financing activities:
Capital contribution receivable from Beneficial Shareholder $ 50,000
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
FINANCIAL HIGHLIGHTS
For the Year Ended March 31, 1999
<TABLE>
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION
PROVIDED IN THE FINANCIAL STATEMENTS.
Increase (Decrease) in Net Asset Value
Per Share Operating Performance:
<S> <C>
Net asset value, beginning of period $ 483.39
Net capital contributions 510.36
Net investment income $ 1.60
Net change in net assets from Indirect Investments (10.14)
---------
Net decrease in net assets from operations (8.54)
-------------
Net asset value, end of period $ 985.21
=============
Total investment return (0.86)%
Ratios to Average Net Assets:
Investment expenses 3.54%
Net loss (1.51)%
Supplemental Data:
Net assets, end of period $ 107,052,511
=============
Portfolio turnover 0.00 %
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
1. Organization and Purpose
The Pacific Corporate Group Private Equity Fund (the "Trust") is a Delaware
business trust, formed on September 22, 1997. The Trust, which began operations
on February 9, 1998 ("Commencement of Operations"), is registered under the
Investment Company Act of 1940, as amended, as a closed-end, management
investment company. Pacific Corporate Group, Inc., the Adviser Trustee of the
Trust (the "Adviser Trustee"), manages the investment policies and operations of
the Trust. The Adviser Trustee and four individual Trustees (collectively the
"Trustees"), three of whom are not affiliated with the Adviser Trustee (the
"Independent Trustees"), are responsible for the overall supervision of the
Trust.
The objective of the Trust is to achieve, through selected private market equity
and equity-related investments, rates of return superior to public market
investment alternatives, while reducing risks through the diversification of
investments within the private market. The Trust seeks to achieve this objective
through investments primarily in a portfolio of partnerships ("Indirect
Investments") and, with respect to up to 25% of committed capital, direct
investment in private or public operating companies ("Direct Investments").
The Trust is required to file certain financial information, including its
annual audited financial statements, with the Securities and Exchange
Commission. The Trust's annual audited financial statements are based in part on
information derived from the audited financial statements of the Trust's
Indirect Investments and the Trust generally does not receive the financial
statements of its Indirect Investments in time to meet its own filing
requirements with the SEC. Therefore, in order to include information in the
Trust's annual audited financial statements derived from the audited financial
statements of its Indirect Investments and meet its SEC filing requirements, the
Trust determined that it had to change its fiscal year-end from December 31 to
March 31. Accordingly, these financial statements reflect the Trust's results of
operations and cash flows for the year ended March 31, 1999. The Trust will
continue to report for tax purposes using a fiscal year ending on December 31.
The Trust is scheduled to terminate on December 31, 2009, subject to extension
in the sole discretion of the Trustees, for up to three additional one-year
periods.
2. Summary of Significant Accounting Policies
Valuation of Investments - Short-term investments are valued at amortized cost,
which approximates market. Portfolio investments are carried at fair value as
determined quarterly by the Adviser Trustee in accordance with procedures
established by the Trustees.
In determining the fair value of the Trust's Indirect Investments, the Adviser
Trustee considers, among other things, the valuations provided by the general
partner managers of such investments. The valuations provided by the general
partner managers are reflected by the fair value of the Trust's capital account
balance for each such Indirect Investment. The capital account balance for each
Indirect
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS, continued
Investment includes capital contributed by the Trust, distributions received by
the Trust and the Trust's allocated share of the Indirect Investment's profits
and losses, including unrealized profits and losses. Such allocations reflect
certain fees and expenses incurred by the Indirect Investment entity and drawn
against that entity's cash position. The Trust's capital account balance for
each Indirect Investment is reviewed by the Adviser Trustee for reasonableness
and the fair value of each Indirect Investment may be adjusted in the discretion
of the Adviser Trustee.
The fair value of Direct Investments is determined by the Adviser Trustee as
follows: (i) unrestricted publicly-held securities for which market quotations
are readily available are valued at the closing public market price for the last
trading day of the accounting period, (ii) restricted publicly-held securities
may be valued at a discount from the closing public market price, depending on
the circumstances; and (iii) privately-held securities are valued at cost until
significant developments affecting the portfolio company provide a basis for
change in valuation. Factors to be considered in arriving at a change in
valuation of such privately-held securities include the price of recent
transactions in the company's securities and the company's earnings, sales and
book value.
The values assigned to portfolio investments are based on available information
and do not necessarily represent amounts that might ultimately be realized,
since such amounts depend on future circumstances and cannot be determined until
the investments are actually liquidated. Because of the inherent uncertainty of
valuation, the assigned values may differ significantly from the values that
would have been used had a ready market for the investments existed, and the
differences could be material.
The Trust's investment in IRMC Holdings, Inc. is restricted as to resale.
Additionally, the Trust's investments in limited partnerships may be illiquid
due to provisions of the limited partnership agreements restricting transfers of
partnership interests.
Security Transactions and Investment Income - Security transactions are
accounted for on the date the security is purchased or sold (trade date). Costs
used in determining realized gains and losses on the sale of investment
securities are those of the specific securities sold. Interest income is
recorded on the accrual basis.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Organizational and Start-Up Costs - The Partnership adopted Statement of
Position 98-5 "Reporting on the Cost of Start-up Activities". In accordance with
the Statement of Position, organizational and start-up costs of $183,271 have
been expensed since the inception of the Trust.
Syndication Costs - Selling commissions of $1,926,568 and other costs of
$568,126 associated with selling shares of the Trust have been recorded as a
direct reduction to shareholders' equity since the inception of the Trust.
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS, continued
Income Taxes - No provision for income taxes has been made since all income and
losses are allocable to the shareholders for inclusion in their respective tax
returns.
Statement of Cash Flows - The Trust considers its interest-bearing account to be
a cash equivalent.
Financial Instruments - The Trust carries its financial instruments at amounts
which approximate fair value.
3. Capital Commitments
As of March 31, 1998, the Trust had sold 90,587 shares of beneficial interest
(the "Shares"), accepting capital commitments from shareholders totaling $92.2
million, and had received capital contributions of $46.1 million against such
commitments. In April 1998, the Trust sold an additional 18,073 Shares,
accepting additional capital commitments from shareholders totaling $18.4
million, and received additional capital contributions of $9.2 million. The
remaining capital commitments were due from shareholders on February 9, 1999. As
of March 31, 1999, shareholders had contributed $110.5 million of their total
capital commitments to the Trust. Additionally, the Adviser Trustee owns 500
Shares and has contributed its full capital commitment of $500,000 to the Trust.
4. Management Fee
The Adviser Trustee receives a management fee at the annual rate of 1.25% of the
aggregate capital commitments to the Trust, reduced by capital returned and
realized investment losses. Such fee is determined and payable quarterly in
advance. The management fee is reduced by 100% of directors' fees or other
remuneration received by the Adviser Trustee from any portfolio company of the
Trust.
5. Independent Trustee Fees
As compensation for services rendered to the Trust, each Independent Trustee
receives $10,000 annually in quarterly installments and $500 for each meeting of
the Independent Trustees attended, plus out-of-pocket expenses. Additionally,
the Independent Trustees also are members of the Audit Committee. As
compensation for services rendered to the Trust as members of the Audit
Committee, each of the Independent Trustees receives an additional $2,500
annually in quarterly installments and $250 for each Audit Committee meeting
attended.
6. Allocation of Net Income and Net Loss
Net income and net loss from Indirect Investments, and all other net income and
net loss, other than net income and net loss from Direct Investments, is
allocated to all shareholders, including the Adviser Trustee, pro rata based on
Shares held.
Additionally, the Adviser Trustee will be allocated, on a cumulative basis over
the life of the Trust, 20% of the Trust's aggregate net income and net loss from
Direct Investments, other than "pari passu co-investments", and 15% from Direct
Investments in "pari passu co-investments" (as described below), provided that
such amount is positive. The remaining 80% and/or 85% of such amounts is
allocated to all shareholders including the Adviser Trustee, pro rata based on
Shares held. If the aggregate net income
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS, concluded
and net loss from Direct Investments (including "pari passu co-investments") is
negative, such net income and net loss is allocated to all shareholders,
including the Adviser Trustee, pro rata based on Shares held.
"Pari passu co-investments" refers to Direct Investments that are co-investments
in the same securities and on the same terms alongside general partner managers
of Indirect Investments held by the Trust, in transactions involving issuers
held by investment vehicles in which the Trust has invested.
7. Investment Commitments
As of March 31, 1999, the Trust had unfunded investment commitments in the
following Indirect Investments:
<TABLE>
Investment
<S> <C>
Alta California Partners II, L.P. $ 3,600,000
American Securities Partners II, L.P. 3,967,369
Apollo Investment Fund IV, L.P. 3,724,331
Atlas Venture Fund IV, L.P. 1,494,262
Aurora Equity Partners II L.P. 4,437,937
Bedrock Capital Partners I, L.P. 3,935,807
CVC European Equity Partners II L.P. 4,380,508
Fenway Partners Capital Fund II, L.P. 4,196,044
First Reserve Fund VIII, L.P. 4,553,710
Hicks, Muse, Tate & Furst Latin America Fund, L.P. 1,313,425
Hicks, Muse, Tate & Furst Equity Fund IV, L.P. 2,307,841
Parthenon Investors, L.P. 2,932,640
Providence Equity Partners III L.P. 3,122,102
Sentinel Capital Partners II, L.P. 4,328,223
Sprout Capital VIII, L.P. 3,900,000
Thomas H. Lee Equity Fund IV, L.P. 7,455,563
Triumph Partners III, L.P. 3,607,083
VS&A Communications Partners III, L.P. 2,940,021
---------------
Total $ 66,196,866
===============
</TABLE>
