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, 2000 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 auditing standards generally accepted
in the United States of America. 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, 2000 and the results of its
operations, and its cash flows and the financial highlights for the year then
ended in accordance with accounting principles generally accepted in the United
States of America.
As explained in Note 2, the financial statements include securities valued at
$81,402,811 at March 31, 2000 representing 65.9% 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 securities 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 securities existed, and the differences could be material.
Deloitte & Touche LLP
May 22, 2000
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
BALANCE SHEET
March 31, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Portfolio investments at fair value (cost $68,093,838) $ 81,402,811
Short-term investments, at amortized cost 37,670,989
Cash and cash equivalents 3,819,381
Accrued interest 18,216
Receivable from indirect investments 303,089
Prepaid expenses 409,054
----------------
TOTAL ASSETS $ 123,623,540
================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 86,342
----------------
Total liabilities 86,342
----------------
Shareholders' equity:
Shares of beneficial interest, 108,659.8075 shares issued and outstanding:
Adviser Trustee (500 shares) 568,459
Beneficial Shareholders (108,159.8075 shares) 122,968,739
----------------
Total shareholders' equity 123,537,198
----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 123,623,540
================
</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, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Fair Value
% of
Cost Fair Value Net Assets
Direct Investments:
ADCO Global, Inc.
Raleigh, NC
Adhesives, sealants and coatings
10,000 shares of redeemable exchangeable
cumulative preferred stock $ 1,000,000 $ 1,000,000
100,000 shares of common stock 1,000,000 1,000,000
---------------- ----------------
2,000,000 2,000,000 1.62%
---------------- ----------------
HCS Holdings, Inc.
Beaumont, TX
Home healthcare supplies
27,000 shares of Series A redeemable preferred stock 2,700,000 2,700,000
30,000 shares of Class A common stock 300,000 300,000
---------------- ----------------
3,000,000 3,000,000 2.43%
---------------- ----------------
Integra Telecom, Inc.
Portland, OR
Facilities-based, integrated communications provider
4,000,000 shares of Series F preferred stock 4,000,000 4,000,000 3.24%
IRMC Holdings, Inc.
Columbus, OH
Accounts receivable management and teleservices
28,480 shares of 8% Series A cumulative
redeemable preferred stock 2,848,000 2,848,000
71,200 shares of Class A common stock 712,000 712,000
---------------- ----------------
3,560,000 3,560,000 2.88%
---------------- ----------------
VS&A HW Holding, LLC
Washington, D.C
Business to business publishing trade shows and
related media for residential building industry
2.3077% membership interest 3,000,000 3,000,000 2.43%
Zhone Investors VIII, LLC
La Jolla, CA
Holding company of 1,075,000 shares of Series A-8
Preferred stock of Zhone Technologies, Inc., a next
generation telecommunications equipment, services
and solutions provider located in Oakland, CA
69.8% membership interest of Zhone Investors VIII, LLC 1,200,000 1,200,000 .97%
---------------- ---------------- --------
Total Direct Investments 16,760,000 16,760,000 13.57%
---------------- ---------------- --------
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS , continued
As of March 31, 2000
Fair Value
% of
Cost Fair Value Net Assets
Distributed Investments:
Cisco Systems, Inc. (a)
San Jose, CA
Network solutions for the internet
9,774 shares of common stock $ 144,704 $ 755,652 .61%
---------------- ---------------- --------
Total Distributed Investments (b) 144,704 755,652 .61%
---------------- ---------------- --------
Indirect Investments:
Alta California Partners II, L.P. 1,520,000 2,780,361 2.25%
$4,000,000 original capital commitment
1.783% limited partnership interest
American Securities Partners II, L.P. 2,057,151 1,992,338 1.61%
$5,000,000 original capital commitment
1.429% limited partnership interest
Apollo Investment Fund IV, L.P. 3,547,654 5,025,222 4.07%
$5,000,000 original capital commitment
.139% limited partnership interest
Atlas Venture Fund IV, L.P. 865,211 1,157,427 .94%
$1,540,000 original capital commitment
.492% limited partnership interest
Aurora Equity Partners II L.P. 1,912,023 1,760,230 1.42%
$5,000,000 original capital commitment
.663% limited partnership interest
Bedrock Capital Partners I, L.P. 4,187,091 9,177,525 7.43%
$5,000,000 original capital commitment
4.189% limited partnership interest
CVC European Equity Partners II L.P. 4,652,415 4,110,342 3.33%
$7,500,000 original capital commitment
.397% limited partnership interest
Exxel Capital Partners V, L.P. 2,500,153 2,534,416 2.05%
$2,500,000 original capital commitment
.294% limited partnership interest
Fenway Partners Capital Fund II, L.P. 1,253,831 1,085,897 .88%
$5,000,000 original capital commitment
.550% limited partnership interest
First Reserve Fund VIII, L.P. 2,516,199 2,825,000 2.29%
$5,000,000 original capital commitment
.616% limited partnership interest
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
As of March 31, 2000
Fair Value
% of
Cost Fair Value Net Assets
Hicks, Muse, Tate & Furst Equity Fund IV, L.P. $ 4,099,249 $ 5,405,223 4.38%
$5,000,000 original capital commitment
.124% limited partnership interest
Hicks, Muse, Tate & Furst Latin America Fund, L.P. 2,210,893 2,226,260 1.80%
$2,500,000 original capital commitment
.260% limited partnership interest
Parthenon Investors, L.P. 1,758,552 1,685,750 1.36%
$3,500,00 original capital commitment
.990% limited partnership interest
Providence Equity Partners III, L.P. 1,530,921 2,110,530 1.71%
$3,500,000 original capital commitment
.372% limited partnership interest
Sentinel Capital Partners II, L.P. 1,814,755 1,638,658 1.33%
$5,000,000 original capital commitment
3.973% limited partnership interest
Sprout Capital VIII, L.P. 3,266,110 4,503,496 3.64%
$5,000,000 original capital commitment
.667% limited partnership interest
Thomas H. Lee Equity Fund IV, L.P. 7,509,316 10,153,934 8.22%
$10,000,000 original capital commitment
.313% limited partnership interest
Triumph Partners III, L.P. 3,449,824 3,254,793 2.63%
$5,000,000 original capital commitment
.831% limited partnership interest
VS&A Communications Partners III, L.P. 537,786 459,757 .37%
$3,000,000 original capital commitment
.350% limited partnership interest _______
---------------- ----------------
Total Indirect Investments 51,189,134 63,887,159 51.71%
---------------- ---------------- --------
Total Portfolio Investments $ 68,093,838 $ 81,402,811 65.89%
================ ================ ========
</TABLE>
(a) In February 2000, the Trust received an in-kind distribution from Bedrock
Capital Partners I, L.P. of 4,887 common shares of Cisco Systems, Inc.
valued at $614,846 as of the distribution date. On March 23, 2000, Cisco
effected a two-for-one stock split. As a result, the Trust received 4,887
additional common shares. The Trust sold the Cisco shares in April 2000 for
$634,675, realizing a gain of $489,971 for the quarter ended June 30, 2000.
(b) In October 1999, the Trust received an in-kind distribution from Sprout
Capital VIII, L.P. of 3,973 common shares of Tellabs, Inc. valued at
$241,558 as of the distribution date. The Trust sold the Tellabs shares
in December 1999 for $255,018, realizing a gain of $212,110.
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, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Investment Income and Expenses
Interest from short-term investments $ 3,224,270
---------------
Expenses:
Management fee 1,382,328
Accounting and administrative fees 104,489
Legal fees 85,824
Independent Trustee fees 44,250
Custody fees 68,885
Insurance expense 47,030
Miscellaneous 18,787
---------------
Total expenses 1,751,593
---------------
Net investment income 1,472,677
---------------
Net Change in Net Assets from Portfolio Investments
Change in unrealized appreciation of Distributed Investments (57,844)
Realized gain on Distributed Investments 212,110
---------------
Net change in net assets from Distributed Investments 154,266
---------------
Change in unrealized appreciation or depreciation of
Indirect Investments 14,274,489
Expenses paid in connection with Indirect Investments (70,842)
Realized gains/income received from Indirect Investments 654,097
---------------
Net change in net assets from Indirect Investments 14,857,744
---------------
Net Increase in Net Assets Resulting from Operations $ 16,484,687
===============
</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, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Adviser Beneficial
Trustee Shareholders Total
Balance as of March 31, 1999 $ 492,604 $ 106,559,907 $ 107,052,511
Net increase in net assets from operations 75,855 16,408,832 16,484,687
------------- ------------------ ------------------
Balance as of March 31, 2000 $ 568,459 $ 122,968,739(A) $ 123,537,198
============= ================== ==================
</TABLE>
(A) The net asset value per share of beneficial interest was $1,136.92 as of
March 31, 2000.
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, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES
Net increase in net assets from operations $ 16,484,687
Adjustments to reconcile net increase in net assets from operations to net cash
provided from operating activities:
Net change in net assets from Distributed Investments (154,266)
Net change in net assets from Indirect Investments (14,857,744)
Decrease in accrued interest 60,264
Decrease in prepaid expenses 38,649
Decrease in due from affiliates 114,435
Decrease in accounts payable and accrued expenses (8,344)
----------------
Net cash provided from operating activities 1,677,681
----------------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Net return of short-term investments 41,459,000
Cost of Direct Investments purchased (13,200,000)
Capital contributed to Indirect Investments (29,867,076)
Return of capital distributions received from Indirect Investments 160,951
Expenses paid in connection with Indirect Investments (70,842)
Realized gains/income received from Indirect Investments 604,431
Proceeds from the sale of Distributed Investments 255,018
----------------
Net cash used for investing activities (658,518)
----------------
CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES
Cash contributions from Beneficial Shareholders 50,000
----------------
Net cash provided from financing activities 50,000
----------------
Increase in cash and cash equivalents 1,069,163
Cash and cash equivalents at beginning of period 2,750,218
----------------
Cash and cash equivalents at end of period $ 3,819,381
================
Supplemental disclosure of non-cash investing activities:
In-kind distributions received from Indirect Investments $ 856,404
</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, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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:
Net asset value, beginning of period $ 985.21
Net investment income $ 13.55
Net change in net assets from Portfolio Investments 138.16
---------
Net increase in net assets from operations 151.71
-------------
Net asset value, end of period $ 1,136.92
=============
Total investment return 15.40%
======
Ratios to Average Net Assets:
Investment expenses 1.56%
=====
Net income 14.69%
======
Supplemental Data:
Net assets, end of period $ 123,537,198
=================
Portfolio turnover 0.52%
=====
</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 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 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. No such adjustments have been
made as of March 31, 2000.
The fair value of Direct Investments and securities received from Indirect
Investments ("Distributed 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
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS, continued
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 that 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 Direct Investments are restricted as to resale. Additionally, the
Trust's Indirect Investments in limited partnerships may be illiquid due to
provisions of the limited partnership agreements restricting the sale 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.
Currency Risk - Although the majority of the Trust's investments are denominated
in U.S. dollars, the Trust may invest in securities denominated in currencies
other than its reporting currency, the U.S. dollar. Consequently, the Trust is
exposed to risk that the exchange rate of the U.S. dollar relative to other
currencies may change in a manner which has an adverse effect on the reported
value of that portion of the Trust's assets which are denominated in currencies
other than the U.S. dollar.
Organizational and Start-Up Costs - In accordance with Statement of Position
98-5 "Reporting on the Cost of Start-up Activities" organizational and start-up
costs are expensed as incurred. Since the inception of the Trust, organizational
and start-up costs totaling $183,271 have been expensed.
Syndication Costs - Selling commissions of $1,926,568 and other costs associated
with selling shares of the Trust totaling $568,126 have been recorded as a
direct reduction to shareholders' equity since the inception of the Trust.
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.
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS, continued
3. Shareholders' Equity
In connection with the issuance of 108,659.8075 shares of beneficial interest
(the "Shares") of the Trust, shareholders contributed capital totaling $110.6
million, including a $500,000 capital contribution from the Adviser Trustee. The
Trust paid selling commissions of $1.9 million in connection with the sale of
the shares.
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, 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 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.
<PAGE>
THE PACIFIC CORPORATE GROUP PRIVATE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS, concluded
7. Investment Commitments
As of March 31, 2000, the Trust had the following unfunded investment
commitments:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Investment
Alta California Partners II, L.P. $ 2,480,000
American Securities Partners II, L.P. 2,942,849
Apollo Investment Fund IV, L.P. 1,428,609
Atlas Venture Fund IV, L.P. 674,789
Aurora Equity Partners II L.P. 3,190,005
Bedrock Capital Partners I, L.P. 668,205
CVC European Equity Partners II L.P. 2,845,714
Data Transmission Network Corporation 3,750,000
Fenway Partners Capital Fund II, L.P. 3,746,169
First Reserve Fund VIII, L.P. 2,456,801
Hicks, Muse, Tate & Furst Latin America Fund, L.P. 282,355
Hicks, Muse, Tate & Furst Equity Fund IV, L.P. 900,751
Parthenon Investors, L.P. 1,741,448
Providence Equity Partners III L.P. 1,969,079
Sentinel Capital Partners II, L.P. 3,185,245
Sprout Capital VIII, L.P. 1,600,000
Thomas H. Lee Equity Fund IV, L.P. 2,490,684
Triumph Partners III, L.P. 1,088,628
VS&A Communications Partners III, L.P. 2,462,214
Zhone Investors VIII, LLC 1,800,000
---------------
Total $ 41,703,545
===============
</TABLE>
