UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ]QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from to
Commission file number 0-12444
THE ROCKIES FUND, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 84-0928022
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5373 N. Union, Suite 100, Colorado Springs, Colorado 80918
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (719)590-4900
N/A
(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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 1998, the Company had 640,256 shares of its
$.01 par value common stock outstanding.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Assets and Liabilities at September 30, 1998
(unaudited) and December 31, 1997 (audited)
Schedule of Investments and Restricted Securities
(unaudited)
Statement of Operations for the Three Months Ended
September 30, 1998 and September 30, 1997 (unaudited)
Statement of Operations for the Nine Months Ended
September 30, 1998 and September 30, 1997 (unaudited)
Statements of Stockholders' Equity for the Nine
Months Ended September 30, 1998 (unaudited), and
Years Ended December 31, 1997 and 1996 (audited)
Statement of Changes in Net Assets as of September 30, 1998
and September 30, 1997 (unaudited)
Notes to Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The interim unaudited financial statements have been
prepared by the Rockies Fund, Inc. (the "Fund" or the "Company")
and,in the opinion of management, reflect all material adjustments
which are necessary to a fair statement of results of the interim
periods presented. Certain information and footnote disclosure
made in the last annual report on Form 10-K have been condensed or
omitted for the interim statements. These statements should be read
in conjunction with the financial statements and notes thereto included
in Form 10-K for the year ended December 31, 1997. The results of the
interim periods are not necessarily indicative of results which may be
expected for any other interim period or for the full years.
THE ROCKIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
September 30, December 31,
1998 1997
(unaudited) (audited)
ASSETS
Investments at value
(cost of $1,618,809,
1998 and $1,813,369, 1997)
Restricted and unrestricted
securities $ 1,790,572 $ 1,725,831
Notes receivable 701,460 458,158
Real estate (cost of $621,358,
1998 and $821,358,
1997) 765,000 965,000
3,257,032 3,148,989
Cash:
Held by others 61,914 21,890
Investment securities sold 0 79,511
Accrued interest receivable
held by others 93,053 53,045
Receivables from investees 4,909 562
Prepaid Other 7,280 0
Total Current Assets 3,424,188 3,303,997
Property & Equipment:
Land 390,000 390,000
Automobile 15,162 15,162
Furniture and fixtures 7,939 8,739
Development Cost 104,831 101,242
Deposit on Building 4,400 0
522,332 515,143
Less Accumulated Depreciation (9,010) (5,474)
513,322 509,669
TOTAL ASSETS 3,937,510 3,813,666
THE ROCKIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30,1998 AND DECEMBER 31,1997
(Continued)
September 30, December 31,
1998 1997
(unaudited) (unaudited)
LIABILITIES
Cash overdraft $ 0 $ 8,049
Payables:
Trade 218,216 108,506
Construction 0 55,762
Accrued liabilities:
Property taxes and other 0 23,011
Interest payable 882 8,565
Current maturities of
long-term debt:
Related parties 6,500 172,374
Others 786,188 726,732
Deposits and deferred rent 7,500 41,334
Deferred tax liability,
current 0 13,000
Total Current Liabilities: 1,019,286 1,157,333
Long term debt,net current
liability 243,230 259,531
Deferred tax liability 94,500 92,000
Total Liabilities 1,357,016 1,508,864
NET ASSETS and STOCKHOLDER'S
EQUITY $ 2,580,494 $ 2,304,802
(Equivalent to $4.03 per
share at September 30,1998
and $3.60 per share at
Dec. 31,1997)
COMPONENTS OF NET ASSETS
Common Stock, $.01 par value,
Authorized 5,000,000 shares;
640,256 issued and outstanding
$ 6,403 $ 6,403
Additional paid-in capital 2,901,243 2,901,243
Accumulated (deficit):
Accumulated net investment
loss (2,298,384) (1,919,099)
Accumulated net realized gain
from sales and permanent
write-downs of securities 1,681,012 1,285,337
Unrealized net appreciation
(depreciation) of investments 290,220 30,918
Total accumulated deficit (327,152) (602,844)
NET ASSETS $ 2,580,494 $ 2,304,802
<TABLE>
THE ROCKIES FUND, INC.
Schedules of Investments
September 30, 1998 and December 31, 1997
<CAPTION>
<S> <C> <C> <C> <C> <C>
Company Position Initial **Cost at Fair Value at Fair Value at
Investment September 30, September 30, December 31,
Date 1998 1998 1997
Restricted Securities:
American Educational 16,500 common stock Sep-96 82,500.00 156,750.00 96,937.50
Products, Inc.<F1> (1) 3,000 common stock Sep-96 - - 17,625.00
9,500 common stock Sep-96 - - 55,812.50
2,000 common stock Sep-96 - - 11,750.00
5,000 warrants
(ex. @ $4.50) Sep-96 0.00 25,000.00 6,875.00
15,000 warrants
(ex. @ $4.50) Sep-96 - - 20,625.00
20,000 warrants
(ex. @ $4.50) Sep-96 - - 27,500.00
5,000 warrants
(ex. @ $10.00) Jun-97 0.00 6,250.00 1,250.00
4,000 warrants
(ex. @ $10.00) Jun-97 - - 1,000.00
7,000 warrants
(ex. @ $10.00) Jun-97 - - 1,750.00
15,000 warrants
(ex. @ $10.00) Jun-97 - - 3,750.00
82,500.00 188,000.00 244,875.00
Eclipse (fka) Bear
Star, LLC 5% partnership interest Nov-94 0.00 0.00 0.00
305,000 common stock Jun-96 500.00 0.00 -
500.00 0.00 0.00
COVA Technologies<F1> 917 common stock Jul-96 20,035.00 20,035.00 20,035.00
Global Casinos,
Inc.<F1>(2) 3,800 common stock Nov-93 76,000.00 4,750.00 13,300.00
4,331 common stock Jan-94 50,068.21 5,413.75 15,158.50
1,724 common stock Jan-94 19,931.79 2,155.00 6,034.00
1,250 common stock Feb-94 25,000.00 1,562.50 4,375.00
75 common stock Mar-94 0.00 93.75 262.50
500 common stock Oct-94 10,000.00 625.00 1,750.00
5,000 common stock Feb-96 17,207.50 6,250.00 17,500.00
1,000 common stock Mar-96 3,125.00 1,250.00 3,500.00
201,332.50 22,100.00 61,880.00
Guardian
Technologies,
Inc.<F1> (3) 8,333 common stock Feb-97 8,750.00 20,832.50 22,915.75
90,533 common stock Mar-97 126,450.00 226,335.00 248,965.75
5,000 common stock Jun-97 6,260.00 12,500.00 13,750.00
20,000 common stock Aug-97 29,005.00 50,000.00 55,000.00
2,500 common stock Sep-97 8,061.25 6,250.00 6,875.00
137,000 warrants Mar-97 26,255.00 12,843.75 42,812.50
204,781.25 328,761.25 390,319.00
Hampton Court
Resources 12,500 common stock Sep-97 11,542.00 11,375.00 16,162.50
Kinetiks.Com 300,000 common stock Sep-98 15,000.00 15,000.00 -
Land Resource 10,000 common stock Mar-97 10,000.00 10,000.00 10,000.00
Corporation<F1>
Lone Oak Vineyards,
Inc.<F1> (4) 35,000 common stock Feb-97 - - 93,240.00
7,000 common stock Oct-97 - - 18,648.00
7,000 common stock Nov-97 - - 18,648.00
0.00 0.00 130,536.00
Redwood Broadcasting,
Inc.<F1> (5) 5,000 common stock Feb-97 0.00 6,875.00 8,750.00
200,000 common stock Dec-97 240,000.00 275,000.00 350,000.00
50,000 common stock Dec-97 60,000.00 68,750.00 87,500.00
300,000.00 350,625.00 446,250.00
Training Devices,
Inc. 20,000 common stock Feb-97 25,000.00 40,000.00 40,000.00
Total Restricted 870,690.75 985,896.25 1,360,057.50
Unrestrict Securities:
Astea International 10,000 common stock Feb-97 - - 18,750.00
5,000 common stock Jun-97 16,354.41 10,000.00 9,375.00
16,354.41 10,000.00 28,125.00
Biosource
International 5,000 common stock Sep-98 15,925.00 15,625.00 0.00
5,000 common stock Sep-98 15,928.55 15,625.00 0.00
31,853.55 31,250.00 0.00
Cable & Company
Worldwide 10,000 common stock Mar-97 5,165.00 70.00 1250.00
40,000 common stock Nov-97 8,965.00 280.00 5,000.00
14,130.00 350.00 6,250.00
Cusa Technologies,
Inc. 30,000 common stock Nov-97 - - 30,937.50
Exploration Company,
The 30,600 common stock Oct-97 92,718.00 35,381.25 61,200.00
400 common stock Oct-97 - - 800.00
5,000 common stock Oct-97 - - 10,000.00
92,718.00 35,381.25 72,000.00
Full Tilt Sports 1,000 common stock Jun-98 1,000.00 1,000.00 -
Globex Minining
Enterprises 33,000 common stock Sep-98 6,535.00 8,580.00 0.00
J2 Communications 20,000 common stock May-98 20,312.50 12,500.00 -
10,000 common stock Sep-98 6,425.00 6,250.00 -
26,737.50 18,750.00 0.00
Kinetiks.com 10,000 common stock Sep-96 38,125.00 600.00 0.00
11,000 common stock Oct-96 24,312.50 660.00 0.00
20,000 common stock Nov-96 12,187.50 1,200.00 0.00
62,500 common stock Dec-96 44,851.88 3,750.00 0.00
10,000 common stock Jul-97 3,281.25 600.00 0.00
1 option Feb-98 5,000.00 5,000.00 -
400,000 warrants 2/97 -
9/97 0.00 0.00 0.00
127,758.13 11,810.00 0.00
Online System
Services 1,000 common stock Jun-98 13,000.00 4,937.50 -
4,000 common stock Sep-98 21,906.00 19,750.00 -
5,000 common stock Sep-98 27,034.70 24,687.50 -
10,000 common stock Sep-98 55,628.45 49,375.00 -
5,000 common stock Sep-98 27,659.70 24,687.50 -
5,000 common stock Sep-98 25,003.45 24,687.50 -
170,232.30 148,125.00 0.00
Optimax Industries,
Inc. 115,191 common stock Jun-94 138,229.20 2,879.78 18,004.35
Premium Cigars
International, Inc. 5,000 common stock Aug-97 - - 12,812.50
Shiva Corporation 2,630 common stock Dec-96 0.00 10,191.25 22,519.38
Southshore
Corporation 15,000 common stock Sep-97 7,715.00 937.50 3,750.00
TELS Corporation 20,000 common stock Aug-96 - - 6,250.00
10,000 common stock Sep-96 - - 3,125.00
0.00 0.00 9,375.00
USAsurance Group 12,000 common stock Jul-96 - - 24,000.00
3,000 common stock Jul-96 - - 6,000.00
10,000 common stock Sep-96 - - 20,000.00
2,500 common stock Oct-96 - - 5,000.00
6,250 common stock Dec-96 - - 12,500.00
3,750 common stock Dec-96 8,746.87 46,875.00 7,500.00
20,000 common stock Dec-96 46,602.00 250,000.00 40,000.00
1,500 common stock Dec-96 3,850.00 18,750.00 3,000.00
2,500 common stock Jan-97 8,750.00 31,250.00 5,000.00
4,500 common stock Jun-97 6,106.25 56,250.00 9,000.00
7,500 common stock Dec-97 7,875.00 93,750.00 15,000.00
81,930.12 496,875.00 147,000.00
Whitewing Labs 15,000 common stock Jan-97 23,175.00 8,437.50 11,250.00
5,000 common stock Jan-97 - - 3,750.00
23,175.00 8,437.50 15,000.00
World Cyberlink 9,750 common stock Jun-98 9,750.00 20,109.38 -
Total Unrestricted
Securities 748,118.21 804,676.66 365,773.73
Notes Receivable:
Columbine Home
Sales,LLC <F1> Note Receivable, 10% Dec-95 0.00 5,814.06 5,814.06
Damach Note Receivable,12%,
due on demand Oct-96 32,500.00 32,500.00 32,500.00
Phil Georgeson Note Receivable,12%,
due on demand Aug-96 4,602.13 4,602.13 4,602.13
Note Receivable,12%,
due on demand Mar-98 2,000.00 2,000.00 -
6,602.13 6,602.13 4,602.13
Global Casinos, Inc. Note Receivable, 8%,
<F1> due 11/1/98 Nov-96 175,000.00 175,000.00 175,000.00
Note Receivable, 9%
due on demand Mar-97 125,897.31 125,897.31 43,904.02
Note Receivable, 24%
due 4/15/98 Aug-97 50,850.00 50,850.00 75,000.00
Note Receivable, 12%
due on demand Mar-98 35,000.00 35,000.00 -
386,747.31 386,747.31 293,904.02
Kinetiks.com Note Receivable, 10%, Feb-97
due 3/30/97 25,000.00 25,000.00 25,000.00
Note Receivable, 8%, due 40,008.84 40,008.84 -
65,008.84 65,008.84 25,000.00
Marco Foods, Inc.<F1> Note Receivable, 12%
due on demand Jan-97 235,787.50 235,787.50 127,337.50
Subotal Notes 726,645.78 732,459.84 489,157.71
Receivable
Allowances for
Doubtful Notes 0.00 (31,000.00) (31,000.00)
Net Notes Receivable 726,645.78 701,459.84 458,157.71
Investments in Real
Estate:
Chestnut Property Land & Building at Sep-97 621,358.38 765,000.00 765,000.00
3515 N. Chestnut
Thermopolis Property Building at 116 Sep-97 - - 200,000.00
E. Park St.
Total Real Estate
Investments 621,358.38 765,000.00 965,000.00
Total Investments 2,966,813.12 3,257,032.75 3,148,988.94
<FN>
<F1> These entities are considered to be affiliated companies as a result of the Company's investment
and/or position on the entity's Board of Directors during the last 90 days.
After permanent write-downs.
(1) After giving effect to a 1:5 reverse split
(2) After giving effect to a 1:10 reverse split
(3) After giving effect to a 1:3 reverse split
(4) The value of Loan Oak is based on our pro rata share of a note receivable for the sale of
the company's vineyard property less a 20% discount for tax consequences
(5) The 50,000 shares are subject to FCC of the change in ownership of several radio stations
See accompanying notes to financial statements.
Restricted Unrestricted
and Real Estate 2,240,167.34 2,555,572.91 2,690,831.23
</FN>
</TABLE>
THE ROCKIES FUND, INC.
STATEMENT OF OPERATIONS
For the Three For the Three
Months Months
Ended September Ended September
30, 1998 30, 1997
(Unaudited) (Unaudited)
INVESTMENT INCOME:
Rental income $ 23,708 $ 5,477
Consulting and other services 983 2,280
Interest and dividends 17,490 13,658
Total Income/Revenue 42,181 21,415
Expenses:
Wages and salaries 34,100 32,748
Professional fees & legal 139,917 13,597
Custodian fees 2,463 0
Directors fees 2,000 2,000
Interest 18,383 12,215
Travel and entertainment 7,147 9,795
Office 34,214 27,901
Building expenses 0 15,070
Investment expenses 2,143 3,359
Donations 1,710 4,250
242,077 120,935
Income tax benefit ( 13,559)
Net investment loss $ (199,896) $ (85,961)
Net realized gain from
investments (net of income
tax and deferred tax
adjustment) 185,643 73,277
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 99,477 (398,502)
End of period 290,220 ( 72,491)
Net unrealized appreciation 190,743 326,011
of investments
Net gain from investments $ 376,386 $ 399,288
Net increase in net assets
resulting from operations $ 176,490 $ 313,327
Per share amounts:
Net investment loss $ (0.31) $ (0.13)
Net realized gain from
investments 0.29 0.11
Net unrealized appreciation
of investments 0.30 0.51
$ 0.28 $ 0.49
THE ROCKIES FUND, INC.
STATEMENT OF OPERATIONS
For the Nine For the Nine
Months Months
Ended September Ended September
30, 1998 30, 1997
(Unaudited) (Unaudited)
INVESTMENT INCOME:
Rental income $ 49,083 $ 56,724
Consulting and other services 2,134 4,166
Interest and dividends 47,170 36,599
Total Income/Revenue 98,387 97,489
Expenses:
Wages and salaries 101,138 107,574
Professional fees & legal 179,604 34,588
Custodian fees 5,973 2,475
Directors fees 2,000 6,000
Interest 53,944 23,164
Travel and entertainment 17,860 24,325
Office 77,293 87,712
Building expenses 13,590 55,813
Investment expenses 21,734 18,921
Donations 4,535 10,675
477,671 371,247
Income tax benefit 0 ( 13,559)
Net investment loss $ (379,284) $ (260,199)
Net realized gain from
investments (net of
income tax and deferred
tax adjustment) 395,674 492,807
Net unrealized appreciation
(depreciation) of investments:
Beginning of year 30,918 (20,322)
End of period 290,220 (72,491)
Net unrealized appreciation 259,302 (52,169)
(depreciation) of investments
Net gain from investments $ 654,976 $ 440,638
Net increase in net assets
resulting from operations $ 275,692 $ 180,439
Per share amounts:
Net investment loss $ (0.59) $ (0.40)
Net realized gain from
investments 0.62 0.76
Net unrealized appreciation 0.40 (0.08)
(depreciation) of investments $ 0.43 $ 0.28
<TABLE>
Statements of Stockholders' Equity
Nine Months Ended September 30, 1998 and
Years Ended December 31, 1997 and 1996
<CAPTION>
<C> <C> <C> <C> <C> <C> <C>
Accumulated Net
Realized Unrealized
Gain (Losses) Net
Accumulated From Sales Appreciation
Additional Net And Permanent (Depreciation)
Common Paid-In Investment Write-Downs Of Net
Stock Capital (Loss) Of Securities Investments Assets
BALANCES AT
DECEMBER 31, 1996 $6,403 $2,901,243 $(1,893,303) $1,336,711 $(20,322) $2,330,732
Net investment loss -- -- (25,796) -- -- (25,796)
Net realized loss on
sale of investments -- -- -- (51,374) -- (51,374)
Unrealized net appreciation
of investments -- -- -- -- 51,240 51,240
BALANCES AT
DECEMBER 31, 1997 $6,403 $2,901,243 $(1,919,099) $1,285,337 $ 30,918 $2,304,802
Net investment loss -- -- (88,465) -- -- (88,465)
Net realized gain
on sale of investments -- -- -- 15,702 -- 15,702
Unrealized net appreciation
of investments -- -- -- -- 148,428 148,428
BALANCES AT
MARCH 31, 1998 $6,403 $2,901,243 $(2,007,564) $1,301,039 $ 179,346 $2,380,467
Net investment loss -- -- (90,924) -- -- (90,924)
Net realized gain
on sale of investments -- -- -- 194,330 -- 194,330
Unrealized net depreciation
of investments -- -- -- -- (79,869) (79,869)
BALANCES AT
JUNE 30, 1998 $6,403 $2,901,243 $(2,098,488) $1,495,369 $ 99,477 $2,404,004
Net investment loss -- -- (199,896) -- -- (199,896)
Net realized gain
on sale of investments -- -- -- 185,643 -- 185,643
Unrealized net appreciation
of investments -- -- -- -- 190,743 190,743
BALANCES AT
SEPTEMBER 30, 1998 $6,403 $2,901,243 $(2,298,384) $1,681,012 $ 290,220 $2,580,494
</TABLE>
THE ROCKIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the For the
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
(Unaudited) (Unaudited)
Increase (decrease) in net
assets from investment
activities:
Net investment loss $ (379,284) $ (260,199)
Net realized gain from
investments 395,674 492,808
Net unrealized appreciation
(depreciation)of investments 259,302 (52,169)
Net increase in net assets
from investment activities 275,692 180,440
Net assets at beginning
of year 2,304,802 2,330,732
Net asset at end of year $ 2,580,494 $ 2,511,172
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Summary of Significant Accounting Policies
(a) Organization and Basis of Presentation.
The Rockies Fund, Inc. (the "Fund") was incorporated in
Nevada on August 2, 1983, for the principal purpose of making
venture capital investments in developing companies located
primarily in the Rocky Mountain Region of the United States. The
Fund is registered under the Investment Fund Act of 1940 as a
business development company.
The interim unaudited financial statements have been
prepared by the Rockies Fund, Inc. and, in the opinion of
management, reflect all material adjustments which are necessary
to a fair statement of results of the interim periods presented.
Certain information and footnote disclosure made in the last
annual report on Form 10-K have been condensed or omitted for the
interim statements. These statements should be read in
conjunction with the financial statements and notes thereto
included in Form 10-K for the year ended December 31, 1997. The
results of the interim periods are not necessarily indicative of
results, which may be expected for any other interim period, or
for the full years.
(b) Investment Valuation and Transactions.
Securities listed or traded on an exchange are valued
at their last sales price on the exchange where the securities
are principally traded. Securities reported on the NASDAQ
National Market System are valued at the last sales price on the
valuation date or, absent a last sales price, at the closing bid
price on the valuation date. Securities traded in the over-the-
counter market are valued at the last bid price, based upon quotes
furnished by independent market makers for such securities. Investments
in notes receivable are valued at net realizable value. The Fund
performs on-going evaluations regarding collectability of receivables
and provides allowances for potential losses.
In the absence of readily ascertainable market values,
investments in restricted securities without quoted market prices
are carried at estimated fair value as determined by the Fund's
Board of Directors. Due to 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.
Securities transactions are accounted for on a trade
date basis. Where possible, realized gains and losses on the
sales of investments are determined using the specific identification
method. If the specific identification method cannot be utilized,
realized gains and losses are determined using the first in-first out
method. Substantially all of the Fund's investments are non-income
producing.
(c) Income Taxes.
As a business development Fund, the Fund is subject to
Federal and State income taxes at the applicable corporate rates.
Deferred income taxes are provided for timing differences between
the reporting of income for financial statement and tax return
purposes, principally realized and unrealized gains on investments.
For Federal and State income tax purposes, the investments have the
same cost basis as shown in the financial statements.
A deferred tax liability is recognized for the future
tax consequences attributable to the sale proceeds of the Fund's
previous Northpark Building, sold March 31, 1997, ownership
utilized in a 1031 exchange.
2. Portfolio Securities
AMERICAN EDUCATIONAL PRODUCTS, INC.
The Fund, at September 30, 1998, held 16,500 shares of
American Educational Products, Inc. common stock. The stock is
restricted as to sale due to the company being an affiliate, non-
income producing and has been valued by the Board of Directors at
its quoted market value of $9.50 per share or $156,750. The Fund
also held at September 30, 1998, common stock purchase warrants
exercisable to purchase 5,000 shares of common stock of American
Educational Products, Inc. at an exercise price of $4.50 per
share. The Board of Directors valued these warrants at $5.00
each or $25,000, representing the difference between their
exercise price and the market value of the common stock. The
Fund also held at September 30, 1998, common stock purchase
warrants exercisable to purchase 5,000 shares of common stock, at
an exercise price of $10.00 per share. These warrants were
valued at their quoted market price of $1.25 each or $6,250.
ASTEA INTERNATIONAL
The Fund, at September 30, 1998, held 5,000 shares of Astea
International common stock, which stock is unrestricted as to sale,
non-income producing, and has been valued at its quoted market
price of $2.00 per share or $10,000.
BIOSOURCE INTERNATIONAL
The Fund, at September 30, 1998, held 10,000 shares of
Biosource International common stock which stock is unrestricted
as to sale, non-income producing, and has been valued at its
quoted market price of $3.13 per share or $31,250.
BEAR STAR fka COLUMBINE HOME SALES, LLC
The Fund has invested in Bear Star, which investment is
restricted as to sale, non-income producing, and has been valued
by the Board of Directors at $0.00. The Fund also holds a note
receivable from Columbine Homes with remaining amounts due of
$5,814. The note accrues interest at the rate of 10% per year,
and is due on demand.
CABLE AND COMPANY WORLDWIDE
The Fund, at September 30, 1998, held 50,000 shares of Cable
and Company Worldwide common stock, which stock is unrestricted
as to sale, non-income producing, and has been valued at its
quoted market price of $.007 per share or $350.
COVA TECHNOLOGIES
The Fund, at September 30, 1998, held 917 shares of COVA
Technologies common stock, which stock is restricted as to sale,
non-income producing, and has been valued by the Board of Directors
at its cost of $20,035.
DAMACH, INC.
The Fund, at September 30, 1998, held a note receivable from
Damach in the amount of $32,500, which accrues interest at the
rate of 12% per year and was originally due on March 31, 1998.
An agreement was signed on March 4, 1997; to extend this
promissory note on a month to month basis or until the Fund makes
a written request for payment.
EXPLORATION COMPANY, THE
The Fund, at September 30, 1998, held 30,600 shares of The
Exploration Company common stock, which stock is unrestricted as
to sale, non-income producing, and has been valued at its quoted
market price of $1.16 per share or $35,381.25.
GEORGESON, PHIL
The Fund, at September 30, 1998, held notes receivable from
Phil Georgeson totaling $6,602.13. The notes are unsecured,
accrue interest at the rate of 12% per year and are due on demand.
GLOBAL CASINOS, INC.
The Fund, at September 30, 1998, held 17,680 shares of
Global Casinos, Inc. common stock, after giving effect to a 1-for-
10 reverse split. The stock is restricted as to sale due to the
company being an affiliate, non-income producing, and has been
valued at its quoted market price of $1.25 per share, or $22,100.
The Fund, at September 30, 1998, also held a note receivable from
Global Casinos, Inc. in the amount of $175,000, which note is
unsecured, accrues interest at the rate of 8% per year, and is
due November 1, 1998. Said note is convertible into shares of
Global Casinos, Inc. common stock at a conversion price of $5.00
per share. The Fund holds a second note receivable from Global
Casinos in the amount of $125,897.31, which note is unsecured,
accrues interest at the rate of 9% per year, is due on demand,
and is convertible into Global Casinos common stock at $5.00 per
share. The Fund holds a third note receivable from Global
Casinos in the amount of $50,850, which note is secured,accrues
interest at the rate of 24% per year and is due on April 15,
1998. The Fund holds a fourth note receivable from Global
Casinos in the amount of $35,000, which note is unsecured,accrues
interest at the rate of 12% per year and is due on demand.
GLOBEX MINING ENTERPRISES
The fund, at September 30,1998,held 33,000 shares of
Globex Mining Enterprises common stock, which stock is unrestricted
as to sale, non-income producing and has been valued at its quoted
market price of $.26 per share or $8,580.
GUARDIAN TECHNOLOGIES, INC.
The Fund, at September 30, 1998, held 126,366 shares of
Guardian Technologies common stock, after giving effect to a one-
for-three (1:3) reverse split. The stock is restricted due to
the company being an affiliate, non-income producing, and has
been valued at its quoted market price of $2.50 per share or
$315,917.50. The Fund also held warrants exercisable to purchase
an additional 137,000 shares of Guardian Technologies common
stock, which warrants are also restricted due to the company
being an affiliate, non-income producing, and have been valued at
their quoted market price of $.09 each or $12,843.75.
HAMPTON COURT RESOURCES
The Fund, at September 30,1998, held 12,500 shares of
Hampton Court Resources common stock, which stock is restricted
as to sale, non-income producing and has been valued at its
quoted market price of $.91 per share or $11,375.
J2 COMMUNICATIONS
The Fund, at September 30, 1998, held 30,000 shares of J2
Communications common stock, which stock is unrestricted as to
sale, non-income producing and has been valued at its quoted
market price of $.63 per share or $18,750.
KINETIKS.COM
The Fund, at September 30, 1998, held 113,500 shares of
Kinetiks.com common stock, which stock is unrestricted as to
sale, non-income producing, and has been valued at its quoted
market price of $.06 per share or $6,810. The Fund also held
warrants to purchase and additional 400,000 shares of Kinetiks.com
common stock at an exercise price of $.25 per share. The Board
of Directors has valued the warrants at $0. The Fund also held
an option to purchase the shares held by one of Kinetiks
officer's which option has been valued by the Board of Directors
at its cost of $15,000. The Fund also held a note receivable
in the amount of $25,000 which note is unsecured,accrues interest
at the rate of 10% per year, and was due on March 30, 1997.
The note provides for a default interest rate of 18% and additional
50,000 warrants for each 30-day period that it goes unpaid.
The Fund holds a second note receivable from Kinetiks.com in the
amount of $40,008.84 which note is unsecured, accrues interest at
the rate of 8% per year and is due on demand.
LAND RESOURCE CORPORATION
The fund, at September 30, 1998, held 10,000 shares of Land
Resource Corporation common stock, which stock is restricted as
to sale, non-income producing, and has been valued by the Board
of Directors at its cost of $1.00 each or $10,000.
MARCO FOODS, INC.
The Fund, at September 30, 1998, held a note receivable from
Marco Foods in the amount of $235,787.50, which note is unsecured,
accrues interest at the rate of 12% per year and is due on demand.
ONLINE SYSTEM SERVICES
At September 30, 1998, the Fund held 30,000 shares of Online
System Services common stock, which stock is unrestricted as to
sale, non-income producing and has been valued at its quoted
market price of $4.94 per share or $148,125.
OPTIMAX INDUSTRIES, INC. (fka PLANTS FOR TOMORROW, INC.)
At September 30, 1998, the Fund held 115,191 shares of
Optimax Industries, Inc. common stock, which stock is unrestricted
as to sale, non-income producing and has been valued at its quoted
market price of $.025 per share or $2,879.78. The shares of Optimax
are pledged as collateral securing the Fund's line of credit.
REDWOOD BROADCASTING, INC.
The Fund, at September 30, 1998, held 255,000 shares of
Redwood Broadcasting common stock, which stock is partially
restricted as to sale, non-income producing, and has been valued
at its quoted market price and its book value of $1.38 per share
or $350,625. Of the above shares, 50,000 are pending FFC approval
of the change in ownership of several of Redwood's radio stations.
200,000 of the above shares were purchased in exchange for assuming
$300,000shares of a 10 year 8% promissory note between the seller
of the shares and a third party.
SHIVA CORPORATION
The Fund, at September 30,1998, held 2,630 shares of Shiva
Corporation common stock, which stock is unrestricted as to sale,
non-income producing and has been valued at its quoted market
price of $3.88 per share or $10,191.25.
SOUTHSHORE CORPORATION
At September 30, 1998, the Fund held 15,000 shares of
Southshore Corporation common stock, which stock is restricted as
to sale, non-income producing, and has been valued at its quoted
market price of $.0625 per share or $937.50.
TRAINING DEVICES, INC.
The Fund, at September 30, 1998, held 20,000 shares of
Training Devices common stock, which stock is restricted as to
sale, non-income producing, and has been valued by the Board of
Directors at $2.00 per share or $40,000, based on the price of
the Company's most recent financing in October of 1997.
USASURANCE GROUP
The Fund, at September 30, 1998, held 39,750 shares of
USAsurance Group common stock, which stock is unrestricted as to
sale, non-income producing, and has been valued at its quoted
market price of $12.50 or $496,875.
WHITEWING LABS
The Fund, at September 30, 1998, held 15,000 share of
Whitewing Labs common stock, which stock is unrestricted as to
sale, non-income producing, and has been valued at its quoted
market price of $.56 per share or $8,437.50.
WORLD CYBERLINK
The Fund, at September 30, 1998, held 9,750 shares of World
Cyberlink common stock, which stock is unrestricted as to sale,
non-income producing, and has been valued at its quoted market
price of $2.06 per share or $20,109.38.
3. Real Estate Operations
Effective March 31, 1997, the Rockies Fund, Inc. consummated
the sale of its 26,000 square foot commercial office building
located at 4465 Northpark Drive, Colorado Springs, Colorado (the
"Northpark Building"). The sale price for the building was
$1,080,000, which was paid in cash at closing. The proceeds
received were utilized in part to pay approximately $452,000 of
mortgage and other debt. This transaction resulted in a net gain
of approximately $388,000.
In a concurrent transaction structured to qualify as a tax-
free reorganization under Section 1031 of the Internal Revenue
Code of 1986, as amended, the Fund, on April 1, 1997 consummated
the purchase of 5 acres of undeveloped commercial real estate
located at 3210 Woodman Road, Colorado Springs, Colorado (the
"Woodman Property"). The purchase price for the Property was
$390,000, which was paid in cash on April 1, 1997 at the time of
closing utilizing a portion of the proceeds realized by the Fund
from the sale of the Northpark Building. The Fund is considering
selling the Woodman Property, however no proposals have been
placed as of September 30, 1998.
Effective September 4, 1997, The Fund purchased commercial
real estate located at 3515 North Chestnut, Colorado Springs,
(the "Chestnut Building") for a purchase price of $600,000 and
incurred approximately $20,000 of improvements as of December 31,
1997. The Fund utilized $100,000 from the Northpark Building
sale proceeds towards the purchase of the new Chestnut Building
as a tax-free exchange under Section 1031 of the Code and
borrowed the remaining $500,000 from State Bank and Trust at an
initial interest rate of 9.75% with the assignment of all rents
as collateral. The Fund as of December 31, 1997, had signed an
agreement to lease the Chestnut Building for 8 months and 9 days
expiring on September 1, 1998 for $35,000. In addition, the Fund
agreed to sell and the tenant agreed to buy the Chestnut Building
for $775,000 upon the completion of the lease, September 1, 1998,
for an approximate net gain of $155,000. The tenant as of
December 23, 1997, paid to the Fund $35,000 prepaid rent through
September 1, 1998. The tenant as of January 1998 paid to the
Fund $7,500 earnest and partial payment of the Chestnut purchase
price. As of September 1, 1998, the tenant was in default of the
business lease agreement to purchase the Chestnut Building and
was therefore charged $7,750, 1% of the contract fee, and a
monthly rent charge of $7,500 until closing. The Fund has agreed
to extend the closing date.
In addition, as of September 30, 1997, the Fund sold its 20%
hotel investment, which was also utilized as a tax-free exchange
under section 1031 of the Code. The hotel, which was purchased
on September 24, 1997, was sold for its purchase price of
$200,000. Of that $50,000 was paid in cash and the purchaser
assumed a $150,000 note to Wyoming Resorts, LLC.
As of September 14, 1998, the Fund moved to a 3,720 square
foot office space located at 5373 North Union Blvd., Colorado
Springs, CO with a three year contract through September, 2001 at
$9.50 per square foot lease and $4.60 cam (operating) charge per
year and paid a security deposit of $4,400.
The commercial real estate market in Colorado Springs,
Colorado, although steadily improving over the last several
years, still remains very competitive. While the Board does not
believe that a single firm or group dominates the commercial real
estate industry in Colorado Springs, many of the participants are
well-established and possess far greater financial and market
resources than the Fund.
4. Contingencies
None.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in
conjunction with the Financial Statements and Notes thereto
appearing elsewhere in this report.
LIQUIDITY AND CAPITAL RESOURCES - SEPTEMBER 30, 1998 COMPARED TO
DECEMBER 31, 1997
During the three months ended September 30, 1998, the Fund
liquidated certain securities, including 400 shares of Exploration
Co., 49,000 shares of Lone Oak Vineyards, 30,750 shares of
USAsurance and 10,250 shares of World Cyberlink for total proceeds
of $142,816.
During the three months ended September 30, 1998, The Fund
acquired 10,000 shares of Biosource for a total investment of
$31,854; 33,000 shares of Globex Mining for a total investment of
$6,535; 10,000 shares of J2 Communications for a total investment
of $6,425; 300,000 shares of Kinetiks for a total investment of
$15,000; and 29,000 shares of Online Systems for a total
investment of $157,232. During the same period, the Fund
purchased and subsequently sold securities resulting in a net
gain of approximately $16,600.
The Fund's value in restricted and unrestricted securities
increased from $1,725,831 as of December 31, 1997, to $1,790,572
as of September 30, 1998, an increase of $64,741 or 3%. Notes
receivable increased $243,302 from $458,158 as of December 31,
1997, to $701,460 as ofSeptember 30, 1998, mainly due to
increases in Global Casino's, Marco Foods and Kinetiks.Com notes.
Global Casinos, an international gaming Company, comprises
approximately 55%, Marco Foods, an affiliate of the Fund
comprises approximately 33% and Kinetiks.Com comprises 9% of
total notes receivable.
As of September 30, 1998, the Fund owns commercial real
estate purchased on September 4, 1997, for $621,358 with
improvements, and in contract to sell for $775,000. As of
December 31, 1997, the Fund owned a $200,000 hotel investment
which had been subsequently sold on March 17, 1998, for the equal
$200,000 cost. Therefore, total investments and real estate
increased from $3,148,989 on December 31, 1997, to $3,257,032 on
September 30, 1998, an increase of $108,043 or 3.4%.
Cash held by others increased $40,024 or 182.8% and
accrued interest receivable increased $40,008 or 75.4% from
December 31, 1997, concurrent with the increase in notes.
Investment securities sold at $79,511 as of December 31, 1997,
were 0.00 as of September 30,1998, due to December 31, 1997
trades pending collected during the first three months of 1998.
Prepaid other was $7,280 as of September 30, 1998, and was 0.00
as of December 31, 1997, due to the Fund paying two months of
advance payments on the Merit Broadcasting long term note payable.
Total current assets, therefore, increased from $3,303,997
at December 31, 1997, to $3,424,188 at September 30, 1998, an
increase of $120,191 or 3.5%.
The Woodman property incurred architectural fees
increasing construction in progress by approximately $3,500. The
Fund also placed a $4,400 deposit on its current office space
location. Therefore, property and equipment, less depreciation,
increased by approximately $3,600 or 7% from December 31, 1997.
Based on the foregoing, total assets increased from
$3,813,666 on December 31, 1997, to $3,937,510 on September 30,
1998, an increase of $123,844 or 3.25%.
Total liabilities decreased from $1,508,864 as of December
31, 1997, to $1,357,016 as of September 30, 1998, a reduction of
151,848 or 10%. Payables trade increased 101% from $108,506 as
of December 31, 1997, to 218,216 as of September 30, 1998, mainly
due to a large accrued payable to Skadden Arps legal firm of a
net $85,000. Construction payable decreased from $55,762 as of
December 31, 1997, to 0.00 as of September 30, 1998, as was paid
during the second quarter. Property taxes and other decreased
from $23,000 at December 31, 1997, to 0.00 at September 30, 1998,
as was paid during the second quarter. Interest payable
decreased from $8,565 at December 31, 1997,to $882 at September
30, 1998 as interest due to a related party was paid during third
quarter. Note payable related parties decreased from $172,347
to $6,500 at September 30,1998, as notes to Redwood Microcap
were paid during the first quarter in addition to the sale of the
hotel investment with a note payable of $150,000. Other current
liabilities increased from $726,732 as of December 31, 1997, to
$786,188 as of September 30, 1998 or 8%
The Fund has a long-term debt to Merit Broadcasting,less
current portion, of $243,230 as of September 30, 1998, a decrease
of 6.2% from December 31, 1998. Deferred tax liability decreased
$10,500 or 10% from December 31, 1997 due to the sale of the
hotel investment utilized as part of the 1031 exchange.
The Fund still holds a $75,000 line of credit with a
balance of $72,205 as of September 30, 1998, which accrues
interest at 10.5% secured by the Fund's security holdings. Total
liabilities, therefore, decreased from $1,508,864 as of December
31, 1997, to $1,357,016 as of September 30, 1998, a decrease of
$151,848 or approximately 10%.
Based on the foregoing, Net Asset Value increased during
the nine months ended September 30, 1998, from $2,304,802 at
December 31, 1997, to $2,580,494 at September 30, 1998, an
increase of $275,692 or nearly 12% Net assets per common share
increased from $3.60 per share at December 31, 1997, to $4.03 per
share on September 30, 1998, an increase of $0.43.
Management knows of no trends or demands, commitments,
events or uncertainties that will result in the Fund's liquidity
or capital resources materially increasing or decreasing.
RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997.
The Fund's income/revenue for the three months ended
September 30, 1998, was $42,181, an increase of $20,766 or
approximately 97% compared with the same period in 1997. This
increase in income/revenue was due to the Fund receiving rental
income from the Northpark Building for only the first three
months in 1997 and receiving nine months of rental income from
the Chestnut Building as of September 30, 1998. The Fund's
Chestnut Building is under sales contract and is currently being
leased to the purchaser under contract at $7,500 per month
beginning September 1, 1998.
Expenses increased from $120,935 as of September 30, 1997,
to $242,077 as of September 30, 1998, an increase of $121,142 or
approximately 100% Contributing to the increase in expenses
were increases in professional and legal expenses of $126,320 due
to Skadden Arps legal fee. Custodian fees were $2,463 for the
three months ending September 30, 1998, as was 0.00 during the
same period in 1997. Interest expense on notes and margins
increased $6,168 and office expense increased $6,313 due to the
office relocation during the three months ended September 30,
1998. Offsetting against increased expenses were decreases in
travel and entertainment of $2,648, building expenses of $15,070,
investment expenses of $1,216 and donations of $2,540.
Based on the foregoing, the Fund reported a net investment
loss for the three months ended September 30, 1998, of $(199,896),
an increase of 132.5% when compared to the net investment loss of
$(85,961) incurred during the same period in 1997.
The Fund's net realized gain from sales of as of September
30, 1998 was $185,643, an increase of $112,366 or 153% compared
to a net realized gain of $73,277 as of September 30, 1997.
Unrealized net depreciation relating to the current market value
of securities being held by the Fund decreased $135,268 or 41.5%
from an unrealized net gain of $326,011 as of September 30, 1997,
to an unrealized net gain of $190,743 as of September 30, 1998.
Management knows of no trends or demands, commitments,
events or uncertainties that will result in the Fund's liquidity
or capital resources materially increasing or decreasing.
RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997.
The Fund's income/revenue for the nine months ended
September 30, 1998, was $98,387 an increase of $898 or .9%
compared with the same period in 1997. Rental income decreased
$7,641 from $56,724 as of September 30, 1997, to $49,083 as of
September 30, 1998. Interest and dividend revenue increased from
$36,599 as of September 30, 1997 to $47,170 as of September 30,1998.
Expenses increased from $371,247 as of September 30, 1997,
to $477,671 as of September 30, 1998, an increase of $106,424 or
28.7%. Contributing to the increase in expenses were increases
in professional and legal fees of $145,016, custodian fees of
$3,498 interest expense of $30,780 and investment expense of
$2,813. The Fund also incurred an income tax benefit in 1997 for
$13,559.
Based on the foregoing, The Fund reported a net investment
loss for the nine months ended September 30, 1998, of $(379,284),
an increase of $119,085 or 45.8%, when compared to the net
investment loss of $(260,199) during the same period in 1997.
The Fund's net realized gains from sale of investment as
of September 30, 1998 was $395,674, a decrease of $97,133 or
approximately 20% compared to a net realized gain of $492,807 as
of September 30, 1997. Unrealized net depreciation relating to
the current market value of securities being held by the Fund
increased $311,471 or 597% from an unrealized net loss of $(52,169)
as of September 30, 1997 to an unrealized net gain of $259,302 as
of September 30, 1998.
Management knows of no trends or demands, commitments,
events or uncertainties that will result in the Fund's liquidity
or capital resources materially increasing or decreasing.
PART 1. OTHER INFORMATION
Item 1. Legal Proceedings
The Fund has received requests for information from
the United States Securities and Exchange Commission ("SEC")
related to an investigation begun by the SEC during 1994, into
various matters including the administrative and record keeping
practices of the Fund, its securities trading activities and
those of its officers and directors. In September 1996, the Fund
was notified by the Commission's Staff that it intended to request
that the Commission commence an administrative proceeding against
the Fund and its directors based upon certain transactions in
securities formerly included in the Fund's securities portfolio.
During the period, the commission filed an administrative proceeding
against the Fund and its directors alleging certain violation of
the securities laws and regulations. The Fund intends to vigorously
contest the action. Subsequently,in November 1998, an administrative
hearing was conducted. No decision has been rendered as of the date of
this report. There can be no assurance of the outcome of this matter
or the ultimate effect on the Fund's financial position.
Other than the foregoing, the Fund is not a party to
any material pending legal proceedings.
Item 2. Changes in Securities
None.
Item 3. Default Upon Senior Securities
There have been no defaults on any securities. The Fund
has no obligations with regard to dividends and no preferred
stock is outstanding.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
THE ROCKIES FUND, INC.
Dated: By: /s/ Stephen G. Calandrella
Stephen G. Calandrella,President
Dated: By: /s/Barbara A. Hamstad
Principal Accounting Officer
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