SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
or
__ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to _______________.
Commission File Number 1-9727
Franklin Capital Corporation
--------------------------------------------------
(Exact name of registrant specified in its charter)
Delaware 13-3419202
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 Park Avenue, 10th Floor, New York, New York 10022
- ---------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 486-2323
---------------------------
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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No___
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of November 6, 1998 was $3,357,941 based on the last sale price as
quoted by The American Stock Exchange on such date (officers, directors and 5%
stockholders are considered affiliates for the purposes of this calculation).
The number of shares of common stock, par value $.01 per share, outstanding as
of November 6, 1998 was 771,886.
1
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Registrant dated July 31, 1992 (the
"Prospectus") are incorporated by reference in Part I, Part II and Part III
hereof.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements .................................................3
Balance Sheets........................................................4
Statements of Operations .............................................5
Statements of Cash Flows .............................................6
Statements of Changes in Net Assets ..................................7
Portfolio of Investments .............................................8
Notes to Financial Statements.........................................9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................18
Financial Condition .................................................18
Results of Operations ..............................................20
Liquidity and Capital Resources .....................................21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..................................................23
Item 2. Changes in Securities and Use of Proceeds...........................23
Item 3. Defaults Upon Senior Securities ....................................23
Item 4. Submission of Matters to a Vote of Security Holders ................23
Item 5. Other Information ..................................................23
Item 6. Exhibits and Reports on Form 8-K....................................23
Signature.....................................................................23
2
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS QUARTERLY REPORT ON FORM 10-Q, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS QUARTERLY REPORT ON FORM 10-Q PURSUANT TO THE "SAFE HARBOR" PROVISION OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN THE
COMPANY'S REGISTRATION STATEMENT ON FORM N-2 (FILE NO.811-5103) AND IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE UNDO RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO REFLECT
THE OCCURRENCE OF UNANTICIPATED EVENTS.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The information furnished in the accompanying financial statements
reflects all adjustments that are, in the opinion of management, necessary for a
fair presentation of the results for the interim period presented.
On August 5, 1997, the Board of Directors determined that it would be
in the best interests of the Company and its stockholders to elect to become a
Business Development Company ("BDC') under the 1940 Act. On September 9, 1997,
at the Annual Meeting of Stockholders, the stockholders of Franklin approved the
proposal that the Company be regulated as a BDC. On November 18, 1997, the
Company filed a notification of election to become a BDC with the Commission.
The election became effective upon the receipt of the filing by the Commission.
Certain information and disclosures normally included in the financial
statements in accordance with Generally Accepted Accounting Principles have been
condensed or omitted as permitted by Regulation S-X and Regulation S-K. It is
suggested that the accompanying financial statements be read in conjunction with
the audited financial statements and notes thereto for the year ended December
31, 1997 contained in the Company's 1997 Annual Report on Form 10-K.
3
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN CAPITAL CORPORATION
==============================================================================================================
Balance Sheets
- --------------------------------------------------------------------------------------------------------------
September 30, December 31,
1998 1997
(unaudited) (audited)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Marketable investment securities, at market value (cost: September 30,
1998 - $137,460; December 31, 1997 - $41,522) (Note 2) $135,820 $41,522
Investments, at fair value (cost: September 30,1998 - $4,063,183;
December 31, 1997 - $4,168,150) (Note 2)
Avery Communications Inc. (Note 6) 3,380,013 5,511,000
Other investments 1,826,984 1,322,318
--------- ---------
5,206,997 6,833,318
--------- ---------
Cash and cash equivalents 986,955 348,900
Accrued interest and accounts receivable (Note 6) 138,620 330,048
Other assets 157,014 164,670
$6,625,406 $7,718,458
========== ==========
TOTAL ASSETS
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
LIABILITIES
Accounts payable and accrued liabilities $204,933 $375,326
TOTAL LIABILITIES 204,933 375,326
------- -------
Commitments and contingencies (Note 5)
NET ASSETS
Common stock, $1 par value: 2,000,000 shares authorized;
1,003,986 shares issued: 771,886 and 801,198 shares outstanding
at September 30,1998 and December 31, 1997, respectively (Note 7) 1,003,986 1,003,986
Paid-in capital 8,997,877 8,997,877
Unrealized appreciation of investments,
net of deferred income taxes (Notes 2 and 3) 1,142,174 2,665,168
Accumulated deficit (2,663,978) (3,440,148)
---------- ----------
8,480,059 9,226,883
Deduct:232,100 and 202,788 shares of common stock held in treasury, at cost,
at September 30, 1998 and December 31, 1997, respectively (Note 4) (2,059,586) (1,883,751)
---------- ----------
Net assets, equivalent to $8.32 per share at September 30, 1998
and $9.17 per share at December 31, 1997 6,420,473 7,343,132
--------- ---------
TOTAL LIABILITIES AND NET ASSETS $6,625,406 $7,718,458
========== ==========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN CAPITAL CORPORATION
===============================================================================================================
Statements of Operations
(unaudited)
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Income from controlled affiliates (Note 6) $11,871 $67,499 $217,265 $109,332
Dividend income - 18,745 76,915 19,785
Interest income 20,184 38,842 25,035 215,252
Other Income - 3,940 - 11,926
------ ------ ------ -------
32,055 129,026 319,215 356,295
------- -------- -------- -------
EXPENSES
Salaries and employee benefits (Note 7) 206,617 239,674 628,101 709,252
Professional fees 54,097 80,863 149,834 132,435
Appraisal fees - - 3,087 -
Employment fees - - 12,500 -
Investment banking fee - - - 13,998
Rent (Note 5) 26,531 18,035 78,346 74,768
Insurance 10,232 10,580 31,363 33,016
Directors' fees 13,750 37,142 39,789 102,148
Taxes other than income taxes 10,438 9,748 45,202 37,792
Newswire and promotion 8,086 4,276 12,488 5,961
Depreciation and amortization 9,576 9,451 28,727 28,726
General and administrative 48,576 54,031 153,728 177,433
Professional fees related to conversion to
Business Development Corporation - - - 18,478
Professional fees related to Stearns & Foster
litigation (Note 5) - - - 28,460
Expenses related to Stockholders' litigation
(Note 5) - 788 - 421,488
------- -------- -------- -------
387,903 464,588 1,183,165 1,783,955
-------- -------- ---------- ---------
Net investment loss from operations (355,848) (335,562) (863,950) (1,427,660)
Net realized gain on portfolio of investments 1,323,562 3,517,839 1,646,520 3,866,941
(Provision) benefit for current income taxes (Note 3) (1,600) (6,200) (6,400) 99,300
------- ------- ------- ------
Net realized gain 966,114 3,176,077 776,170 2,538,581
Net decrease in unrealized appreciation of investments,
net of deferred income taxes (1,426,854) (3,065,018) (1,522,994) (3,507,640)
----------- ----------- ----------- -----------
Net (decrease) increase in net assets from operations ($460,740) $111,059 ($746,824) ($969,059)
========== ========= ========== ==========
Net (decrease) increase in net assets per common share ($0.58) $0.14 ($0.93) ($1.21)
========== ========= ========== ==========
Weighted average number of common shares outstanding 798,737 801,198 800,369 801,198
========== ========= ========== ==========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN CAPITAL CORPORATION
===============================================================================================================
Statements of Cash Flows
(unaudited)
- ---------------------------------------------------------------------------------------------------------------
For the Nine Months Ended September 30, 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net decrease in net assets from operations ($746,824) ($969,059)
Adjustments to reconcile net decrease in net assets to net cash
used in operating activities:
Depreciation and amortization 28,727 28,726
Decrease in unrealized appreciation of investments 1,522,994 3,507,640
Amortization of discount on note receivable from Avery (101,176) (33,332)
Net realized gain on portfolio of investments (1,646,520) (3,866,941)
Changes in operating assets and liabilities:
Accrued interest and accounts receivable 191,427 (71,247)
Other assets (21,071) 1,153,446
Accounts payable and accrued liabilities (170,393) (1,549,631)
--------- -----------
Total adjustments (196,012) (831,339)
--------- ---------
Net cash used in operating activities (942,836) (1,800,398)
--------- -----------
Cash flows from investing activities:
Cash consolidated from Excelsior Communications Corporation - 1,710,702
Return of capital from investments 355,284 706,758
Acquisitions of investments (1,605,001) (2,456,335)
Proceeds from sale of controlled affiliate 3,080,001 -
Proceeds from sale of marketable investment securities, net of expenses 132,407 7,085,348
Loan payments received from investments 33,333 -
Purchases of fixed assets - (4,681)
Purchases of marketable investment securities (239,298) (2,748,779)
--------- -----------
Net cash provided by investing activities 1,756,726 4,293,013
---------- ---------
Cash flows from financing activities:
Distribution to stockholders charged to accumulated deficit - (2,603,894)
Purchase of treasury stock (175,835) -
--------- -
Net cash used in financing activities (175,835) (2,603,894)
--------- -----------
Net increase (decrease) in cash and cash equivalents 638,055 (111,279)
Cash and cash equivalents at beginning of period 348,900 318,848
-------- -------
Cash and cash equivalents at end of period $986,955 $207,569
========= ========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN CAPITAL CORPORATION
===============================================================================================================
Statements of Changes in Net Assets
(unaudited)
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Decrease in net assets from operations:
Net investment loss ($355,848) ($335,562) ($863,950) ($1,427,660)
Net realized gain on portfolio of investments,
net of current income taxes 1,321,962 3,511,639 1,640,120 3,966,241
Decrease in unrealized appreciation of investments,
net of deferred income taxes (1,426,854) (3,065,018) (1,522,994) (3,507,640)
----------- ----------- ----------- -----------
Net decrease in net assets from operations (460,740) 111,059 (746,824) (969,059)
--------- -------- --------- ---------
Distribution to stockholders charged to
accumulated deficit and earnings - (2,603,894) - (2,603,894)
Capital stock transactions:
Purchase of treasury stock (175,835) - (175,835) -
--------- -- --------- -
Total decrease in net assets (636,575) (2,492,835) (922,659) (3,572,953)
--------- ----------- --------- -----------
Net assets at beginning of period 7,057,048 8,796,451 7,343,132 9,876,569
---------- ---------- ---------- ---------
Net assets at end of period $6,420,473 $6,303,616 $6,420,473 $6,303,616
=========== =========== =========== ==========
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN CAPITAL CORPORATION
================================================================================================================
Portfolio of Investments
(unaudited)
- ----------------------------------------------------------------------------------------------------------------
Marketable Investment Securities
- ----------------------------------------------------------------------------------------------------------------
Number of
Shares or Market
Principal Value
September 30, 1998 Amount ($) Cost (Note 2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dialog Corp 30,000 $94,970 $93,330
Certificate of Deposit - 4.45%, due 11/04/98..................... $42,490 42,490 42,490
------- ------ ------
Total Marketable Investment Securities (2.5% of total
investments).......................................... $137,460 $135,820
-------- --------
- ----------------------------------------------------------------------------------------------------------------
Investments, at Fair Value
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Directors'
Equity Valuation
September 30, 1998 Investment Interest Cost (Note 2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Controlled Affiliate
Avery Communications Inc................ Common.stock $1,481,482
(Telecommunications)
Avery Communications Inc................ Convertible.preferred 350,000
(Telecommunications) stock - Series E;
12.0% dividend rate
Total Avery Communications (63.3% of total
investments) 12.9% 1,831,482 $ 3,380,013
fully diluted ---------- -----------
basis
Other Investments
FMA High Yield Capital Appreciation
Limited Partnership.................. Limited Partnership 1.2% 1,000,000 929,664
(High yield bond Limited Partnership) interest
Seneca Limited Partnership............... Limited.partnership 0.5% 500,000 477,462
(Investment limited partnership) interest
Codman Research Inc..................... Common stock 2.8% 400,031 254,488
(Healthcare information systems)
CIC Standby Ventures, L.P................ Limited.partnership 1.8% 66,986 88,868
(Computer handwriting systems) interest
GoAmerica Corp........................... Common stock 0.5% 50,000 50,000
(Internet software)
FMA High Yield Income Limited
Partnership Limited partnership 2.8% - 26,502
(Schroders high yield bond interest
limited partnership)
Other investments........................ 214,684 -
------- ------
-
Total Other Investments (34.2% of total
investments) 2,231,701 1,826,984
---------- ---------
Total Investments, at Fair Value...... $4,063,183 $5,206,997
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
8
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Franklin Capital Corporation (formerly The Franklin Holding Corporation
(Delaware)) ("Franklin", the "Company" or the "Corporation") is a Delaware
corporation registered as a Business Development Company ("BDC") under the
Investment Company Act of 1940 (the "Act"). A BDC is a specialized type of
investment company under the Act. A BDC must be primarily engaged in the
business of furnishing capital and managerial expertise to companies that do not
have ready access to capital through conventional financial channels. Such
companies are termed "eligible portfolio companies". The Corporation, as a BDC,
may invest in the securities of public companies and other investments that are
not qualifying assets of eligible portfolio companies, however such investments
may not exceed 30% of the Corporation's total asset value at the time of any
such investment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Effective July 2, 1997, Franklin's wholly owned subsidiary, Excelsior
Communications Corporation ("Excelsior"), was dissolved. For financial reporting
purposes, the assets and operations of Excelsior have been consolidated with
Franklin effective January 1, 1997. The Corporation, as a closed-end investment
company registered under the Act, does not consolidate its non-investment
company subsidiaries.
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.
Statements of Cash Flows
For purposes of the Statements of Cash Flows, Franklin considers only highly
liquid investments with maturities of 90 days or less at the date of their
acquisition to be cash equivalents.
The Corporation paid no interest during the nine months ended September 30, 1998
and 1997, and paid $1,628 and $25,801 for income taxes during the nine months
ended September 30, 1998 and 1997, respectively.
9
<PAGE>
Valuation of Investments
Security investments which are publicly traded on a national exchange or NASDAQ
are stated at the last reported sales price on the day of valuation, or if no
sale was reported on that date, then the securities are stated at the last
quoted bid price. The Board of Directors of Franklin (the "Board of Directors")
may determine, if appropriate, to discount the value where there is an
impediment to the marketability of the securities held.
Investments for which there is no ready market are initially valued at cost and,
thereafter, at fair value based upon the financial condition and operating
results of the issuer and other pertinent factors as determined by the Board of
Directors. The financial condition and operating results have been derived
utilizing both audited and unaudited data. In the absence of a ready market for
an investment, numerous assumptions are inherent in the valuation process. Some
or all of these assumptions may not materialize. Unanticipated events and
circumstances may occur subsequent to the date of the valuation and values may
change due to future events. Therefore, the actual amounts eventually realized
from each investment may vary from the valuations shown and the differences may
be material. Franklin reports the unrealized gain or loss resulting from such
valuation in the Statements of Operations.
Gains on Portfolio of Investments
Amounts reported as realized gains are measured by the difference between the
proceeds of sale or exchange and the cost basis of the investment without regard
to unrealized gains reported in the prior periods. Gains are considered realized
when sales or dissolution of investments are consummated.
Income Taxes
Franklin does not qualify as a Regulated Investment Company for income tax
purposes. Therefore, the Corporation is taxed as a regular corporation.
Franklin has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). The significant components of
deferred tax assets and liabilities are principally related to the Corporation's
net operating loss carryforward and its unrealized appreciation of investments.
Depreciation and Amortization
Depreciation is recorded using the straight-line method at rates based upon
estimated useful lives of five years for the respective assets. Franklin
amortizes its leasehold improvements over its useful life or the remaining life
of the lease, whichever is shorter.
10
<PAGE>
Net (Decrease) Increase in Net Assets Per Common Share
Net (decrease) increase in net assets per common share is based upon the
weighted average number of shares of common stock outstanding. See Note 7 for
discussion of Stock Option Plans.
Reclassification
Certain reclassifications have been made to prior period financial statements to
conform with current period presentation.
3. INCOME TAXES
At December 31, 1997, Franklin had a net operating loss carryforward for Federal
income tax purposes of approximately $3,215,000 that will begin to expire in
2011. At a 34% Federal income tax rate the benefit from this loss would be
approximately $1,093,000.
For the nine months ended September 30, 1998 and 1997, Franklin's tax
(provision) benefit was based on the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net investment loss from operations ...................................................... $ (863,950) $(1,427,660)
Net realized gain on portfolio of investments ............................................ 1,646,520 3,866,941
Decrease in unrealized appreciation ...................................................... (1,522,994) (3,507,640)
----------- -----------
Pre-tax book loss ................................................................... $ (740,424) $(1,068,359)
============ ============
1998 1997
------------ ------------
Tax at 34% on $(740,424) and $(1,068,359)
respectively ........................................................................... $ 251,744 $ 363,242
State and local, net of Federal benefit .................................................. (6,400) (11,700)
Book losses for which no benefit is provided ............................................. (251,744) (363,242)
Adjustment to deferred taxes
provided in prior periods ....................................................... -- 111,000
----------- -----------
$ (6,400) $ 99,300
=========== =============
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
The components of the tax (provision) benefit are as follows:
1998 1997
------------ ------------
<S> <C> <C>
Current state and local tax
provision ................................ $ (6,400) $ (11,700)
Adjustment to Federal, state and local taxes
provided in prior periods ............... -- 111,000
------------ ------------
(Provision) benefit for income taxes ....... $ (6,400) $ 99,300
============ ============
- -------------------------------------------------------------------------------------------------------------------------
Deferred income tax benefit (provision) reflects the impact of "temporary
differences" between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws.
At September 30, 1998 and December 31, 1997, significant deferred tax assets and
liabilities consist of:
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Asset (Liability)
---------------------------------
September 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Deferred Federal and state benefit from net operating
loss carryforward................................................. $ 1,058,949 $ 1,370,552
Deferred Federal and state provision on unrealized
appreciation of investments....................................... (502,558) (1,172,673)
Valuation allowance................................................. (556,391) ( 197,879)
Deferred taxes.................................................... $ - $ -
============= ==============
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1998, the realization of deferred tax assets is dependent upon
future appreciation of the Corporation's investments.
12
<PAGE>
4. TREASURY STOCK
The Board of Directors has authorized Franklin to repurchase up to an aggregate
of 250,000 shares of its common stock in open market purchases on the American
Stock Exchange when such purchases are deemed to be in the best interest of the
Corporation and its stockholders. In September 1998, the Corporation purchased
29,312 shares of its common stock at a total cost of $175,835. To date, Franklin
has repurchased 242,100 shares of its common stock of which 232,100 shares
remain in treasury at September 30, 1998.
5. COMMITMENTS AND CONTINGENCIES
Franklin is obligated under an operating lease which provides for annual minimum
rental payments as follows:
December 31,
1998...................................................$ 139,000
1999................................................... 149,000
2000................................................... 149,000
2001................................................... 149,000
2002................................................... 149,000
2003 .................................................. 151,000
----------
$ 886,000
==========
Rent expense for the nine months ended September 30, 1998 and 1997 was $78,346
and $74,768, respectively. For the nine months ended September 30, 1998 and
1997, the Corporation collected rents of $31,792 and $32,000, respectively, from
subtenants for a portion of its existing office space which is reflected in rent
expense for that period.
In March 1994, Stearns and Foster Bedding Company ("Stearns & Foster") commenced
a private cost recovery and contribution action against Franklin and a number of
other defendants in the United States District Court for the District of New
Jersey (Newark). Stearns & Foster is the current owner of a site located in
South Brunswick, New Jersey (the "Site"), which is the subject of an
investigation and cleanup under the Industrial Site Recovery Act ("ISRA"). A
settlement agreement concerning this matter was executed by the parties on
February 28, 1997. Franklin and its insurer respectively agreed therein to pay
Stearns and Foster $375,000 and $1,125,000. In consideration for these payments,
Stearns and Foster agreed to: (i) dismiss all claims against Franklin and its
related entities with prejudice; (ii) release Franklin and its related entities
from any past, present or future claims related to the matters at issue in the
litigation; and (iii) indemnify and hold Franklin and its related entities
harmless as to any claims arising from or in any way related to the matters at
issue in the litigation. All payments due under this settlement agreement were
made in March, 1997.
13
<PAGE>
In March 1995, a complaint was filed in the United States District Court for the
Southern District of New York by a former director of Franklin (as previously
discussed in the Form 10-K for December 31, 1997). The Settlement was approved
by the District Court on September 11, 1997. Pursuant to terms of the
Settlement, the Board of Directors declared on July 18, 1997 a $3.25 special
distribution to stockholders of record of the Corporation's Common Stock as of
July 28, 1997 and the Corporation paid legal fees of $75,000 to the plaintiff's
counsel.
The Corporation is a plaintiff in an action brought against National Union Fire
Insurance Company of Pittsburgh, PA ("National Union") in the Supreme Court of
the State of New York. The action seeks reimbursement of $ 1,000,000 for fees
and expenses incurred in connection with certain shareholder litigation brought
against Franklin and its directors. National Union filed a motion to dismiss the
complaint, which the Corporation opposed. The motion is pending before the
court.
6. TRANSACTIONS WITH CONTROLLED AFFILIATES
In August 1995, Franklin made an initial investment of $350,000 in Avery
Communications Inc. ("Avery"), a holding company in the telecommunications
industry. This investment consisted of a one year 12% note with warrants and a
conversion option. On June 30, 1996, Franklin exercised its warrants to purchase
158,333 shares of Avery common stock at $0.10 per share. In November 1996, the
note was converted to 350,000 shares of Series B preferred stock which earn
dividends of 12% per annum payable quarterly and are convertible to 350,000
shares of common stock. An additional 28,526 shares of common stock at a price
of $1.00 per share were issued to Franklin at that time in lieu of accrued
interest on the note.
On May 30, 1997, Franklin made an additional investment of $2,500,000 in Avery.
This investment partially consisted of a $1,000,000 note with a maturity of
three years that earns interest at the rate of 10.0% per annum. The first year's
interest payment of $100,000 was made at the time the loan was made. As
additional consideration for this note, the Corporation received warrants to
purchase 666,667 shares of Avery common stock at $1.50 per share. These warrants
expire in five years from the date of issuance. The remainder of the investment,
$1,500,000, purchased 7.5 equity units in Avery. Each unit consists of 133,333
shares of common stock of Avery and 200,000 shares of preferred Series D stock
which are convertible to 100,000 shares of common stock. The shares of preferred
Series D stock earn a dividend of 10.0% per annum payable quarterly. The Series
B preferred shares previously owned by Franklin were converted to Series E
preferred stock with the same terms. This transaction, in conjunction with the
investment in common and preferred stock of Avery that the Corporation held
previously, resulted in Franklin owning in excess of 25% of Avery's outstanding
voting stock on a primary basis. Additionally, three officers of Franklin were
appointed to Avery's six person Board of Directors and the Corporation's
Chairman and Chief Executive Officer was appointed as the Vice Chairman of
Avery's Board of Directors.
On July 6, 1998, Franklin sold the 1,500,000 shares of Avery preferred Series D
stock and the $1,000,000 Avery note along with 280,000 warrants to purchase
Avery common stock for a total of $2,500,000 to the Thurston Group, Inc. The
president of the Thurston Group is also the president and chairman of Avery.
Franklin realized a net gain of $935,297 as a result of this sale. Because
Franklin's valuation at June 30, 1998 of this portion of its Avery investment
was based on this sale price, unrealized appreciation of
14
<PAGE>
investments during the quarter ended September 30, 1998 decreased by $935,297.
In conjunction with this transaction, Franklin's representation on Avery's Board
of Directors was reduced from three directors to two.
On July 13, 1998, Franklin entered into a cashless exercise of its
remaining warrants to purchase 386,667 shares of Avery common stock at $1.50 per
share realizing a net gain of $372,911 and a decrease in unrealized appreciation
of a like amount. In return, Franklin received 196,503 shares of Avery common
stock.
For the nine months ended September 30, 1998 and 1997, Franklin's income from
controlled affiliates consists of $106,500 and $81,500, respectively, in
dividends from Avery, and $110,765 and $27,832, respectively, of interest on the
note. At September 30, 1998 and December 31, 1997, $114,743 and $170,403,
respectively, are included in "Accrued interest and accounts receivable" on the
accompanying balance sheets for amounts due from Avery for dividends and
reimbursable expenses.
7. EMPLOYEE BENEFIT PLANS
On September 9, 1997, Franklin's stockholders approved two Stock Option Plans: a
Stock Incentive Plan ("SIP") to be offered to the Corporation's consultants,
officers and employees (including any officer or employee who is also a director
of the Corporation) and a Non-Statutory Stock Option Plan ("SOP") to be offered
to the Corporation's "outside " directors, i.e., those directors who are not
also officers or employees of Franklin. 75,000 shares of the Corporations Common
Stock have been reserved for issuance under these plans, of which 45,000 shares
have been reserved for the SIP and 30,000 shares have been reserved for the SOP.
Shares subject to options that terminate or expire prior to exercise will be
available for future grants under the Plans.
The SIP is administered by the Compensation Committee of the Board of Directors
(the "Committee") which is composed of three "outside" directors. The Committee
has the authority, among other rights, to select the participants to whom awards
may be granted, determine the types of awards to be granted, and determine the
vesting terms and other conditions of an award to an SIP participant. The SIP
permits the Committee to grant participants options to purchase Common Stock
(including incentive stock options within the meaning of Section 422 of the
Internal Revenue Code ("ISOs") or "non-statutory stock options" ("non-ISOs")),
stock appreciation rights, restricted stock and tax offset bonuses.
The SOP is administered by the full Board of Directors. Only non-ISOs can be
granted under the SOP. Because the issuance of options to "outside" directors is
not permitted under the Act without an exemptive order by the Commission, the
issuance of options under the SOP is conditioned upon the granting of such
order. The Corporation has applied for such relief and will not issue options to
"outside" directors until obtaining such exemptive relief. In the event such
relief is not granted, no "outside" directors will be issued options pursuant to
the SOP.
On January 27, 1998, 45,000 options were granted in total to three eligible
officers of the Corporation under the SIP. The strike price of the options was
$7.00 per share which represented the closing price of Franklin's Common Stock
as reported by the American Stock Exchange on that date. One-third of the
options granted
15
<PAGE>
vested immediately; another one-third vest one year from the date of issuance;
and the final one-third vest two years after the date of issuance. The options
expire after five years.
Franklin accounts for the Stock Option Plans under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for the
Plans been determined consistent with the fair value method required by FASB
Statement No. 123 ("FASB 123"), the Corporation's net realized loss for the nine
months ended September 30, 1998 and the net asset value per share at September
30, 1998 would have been reduced to the following pro forma amounts.
Net realized gain:
As reported $ 776,170
Pro forma $ 722,920
Net decrease in net assets per share:
As reported ($ 0.93)
Pro forma ($ 1.00)
Net Asset Value per share:
As reported $ 8.32
Pro forma $ 8.25
Pro forma - fully diluted $ 8.24
The fair value of the option grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
Stock volatility 27%
Risk-free interest rate 5.5%
Option term in years 4
Stock dividend yield -
16
<PAGE>
A summary of the status of the Stock Option Plans at September 30, 1998 and
changes during the nine months then ended is presented in the table and
narrative below:
Weighted
Average
Exercise
Shares Price
---------- -----------
Outstanding at beginning of
period - -
Granted 45,000 $7.00
Exercised - -
Forfeited - -
Expired - -
Outstanding at end of period 45,000 $7.00
Exercisable at end of period 15,000 $7.00
Weighted average fair value of
options granted $2.13
The exercise price for all options outstanding as of September 30, 1998 is $7.00
with a remaining life of 3.25 years.
Prior to the Stock Option Plans, Franklin had a contributory retirement plan
(the "Plan") covering all employees. Contributions to the Plan were invested in
Franklin's common stock and/or a selected group of mutual funds. Contributions
for the nine months ended September 30, 1997 were $22,178 and are included in
salaries and employee benefits in the accompanying Statements of Operations. The
Plan was terminated in January 1998 and all funds were distributed to the
participating employees.
8. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of investment securities,
excluding short term investments, aggregated $1,844,299 and $3,601,025,
respectively, for the nine months ended September 30, 1998 and $5,205,114 and
$7,792,106, respectively, for the nine months ended September 30, 1997.
9. STOCKHOLDERS' DISTRIBUTION
Franklin paid a $3.25 per share special distribution on August 4, 1997 to its
stockholders of record as of July 28,1997 totaling $2,603,894. Based on the
calculation of current and cumulative earnings and profits at December 31, 1997,
it was determined that this entire distribution was a return of capital to the
stockholders.
17
<PAGE>
Item. 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statement of Operations
The Company accounts for its operations under Generally Accepted
Accounting Principles for investment companies. On this basis, the principal
measure of its financial performance is captioned "Net increase (decrease) in
net assets from operations", which is composed of the following: "Net investment
loss from operations," which is the difference between the Company's income from
interest, dividends and fees and its operating expenses; "Net realized gain on
portfolio of investments," which is the difference between the proceeds received
from dispositions of portfolio securities and their stated cost; any applicable
income tax; and "Net increase (decrease) in unrealized appreciation of
investments," which is the net change in the fair value of the Company's
investment portfolio, net of any increase (decrease) in deferred income taxes
that would become payable if the unrealized appreciation were realized through
the sale or other disposition of the investment portfolio.
"Net realized gain (loss) on portfolio of investments" and "Net
increase (decrease) in unrealized appreciation of investments" are directly
related. When a security is sold to realize a gain, the net unrealized
appreciation decreases and the net realized gain increases. When a security is
sold to realize a loss, the net unrealized appreciation increases and the net
realized gain decreases.
Financial Condition
The Company's total assets and net assets were, respectively,
$6,625,406 and $6,420,473 at September 30, 1998, versus $7,718,458 and
$7,343,132 at December 31,1997. Net asset value per share was $8.32 at September
30, 1998, versus $9.17 at December 31, 1997.
Franklin paid a $3.25 per share special distribution on August 4, 1997
to its stockholders of record as of July 28,1997 totaling $2,603,894. Based on
the calculation of current and cumulative earnings and profits at December 31,
1997, it was determined that this entire distribution was a return of capital to
the stockholders.
The Company's financial condition is dependent on the success of its
investments. A summary of the Company's investment portfolio is as follows:
September 30, 1998 December 31, 1997
Investments, at cost $ 4,200,643 $ 4,209,672
Unrealized appreciation, net of
deferred taxes 1,142,174 2,665,168
------------ ------------
Investments, at fair value $ 5,342,817 $ 6,874,840
=========== ============
18
<PAGE>
The Company has an investment in Avery valued at $3,380,013 at
September 30, 1998 and $5,511,000 at December 31, 1997. This investment
represents 51.0% of the Company's total assets and 52.6% of it net assets at
September 30, 1998, and 71.4% of the Company's total assets and 75.0% of it net
assets at December 31, 1997. Avery is a holding corporation operating in the
telecommunications industry. Its common stock is quoted on the OTC Electronic
Bulletin Board under the symbol "ATEX". Hold Billing Services, Avery's sole
current operating subsidiary, provides billing and collection services for
inter-exchange carriers and long-distance resellers. On July 6, 1998, Franklin
sold 1,500,000 shares of Avery preferred Series D stock and a $1,000,000 note
due from Avery along with 280,000 warrants to purchase Avery common stock for a
total of $2,500,000 to the Thurston Group, Inc. The president of the Thurston
Group is also the president and chairman of Avery. Franklin realized a net gain
of $935,297 as a result of this transaction. In conjunction with this sale,
Franklin's representation on Avery's Board of Directors was reduced from three
directors to two. On July 13, 1998, Franklin entered into a cashless exercise of
its remaining warrants to purchase 386,667 shares of Avery common stock at $1.50
per share realizing a net gain of $372,911. In return, Franklin received 196,503
shares of Avery common stock.
During 1997, the Company dissolved its wholly-owned subsidiary,
Excelsior, which had been formed in 1992 to invest in broadcasting properties,
primarily radio stations. Excelsior's last broadcast assets were sold effective
December 31, 1995, at which point, and through the time of its dissolution, its
assets consisted principally of cash, receivables from customers of the radio
station and marketable securities. All remaining assets of Excelsior were
distributed to Franklin during 1997. The Company realized a net gain of
$3,736,056 for the nine months ended September 30, 1997.
At September 30, 1998 and December 31, 1997, the Company had an
investment in the Seneca Capital, L.P. ("Seneca"), an investment partnership
whose primary investment objective is to invest in securities whose value will
be meaningfully affected by an anticipated event. Seneca invests primarily in
publicly traded equity securities of U.S. companies and, to control market
risks, utilizes short positions, index options and other hedging techniques.
Franklin is a 0.5% limited partner. The Company's original investment of
$500,000 was made in April 1996 through Excelsior. The asset was valued at
$806,849 at December 31, 1997, and $477,462 at September 30, 1998 after Seneca
distributed $350,000 to the Company in March 1998. $76,915 of this distribution,
which represents current period earnings in Seneca, is included in Dividend
income for the nine months ended September 30, 1998. The remaining $273,085 is
included in Net realized gain on portfolio of investments. At September 30,
1998, Seneca represents 7.2% of the Company's total assets and 7.4% of its net
assets. At December 31, 1997, Seneca represents 10.5% of the Company's total
assets and 11.0% of its net assets.
At September 30, 1998, the Company had an investment in the FMA High
Yield Capital Appreciation Limited Partnership ("FMA"), an investment
partnership whose primary investment objective is to invest in high yield
corporate bonds where there is an anticipated increase in the trading value of
the bond. FMA invests primarily in publicly traded equity securities of U.S.
companies. Franklin is a 1.2% limited partner. The Company's investment of
$1,000,000 was made in July 1998. The asset was valued at $929,664 at September
30, 1998 which represents 14.0% of the Company's total assets and 14.5% of its
net assets.
19
<PAGE>
Results of Operations
Investment Income and Expenses:
The Company's principal objective is to achieve capital appreciation
through long-term investments in businesses believed to have favorable growth
potential. Therefore, a significant portion of the investment portfolio is
structured to maximize the potential for capital appreciation and provides
little or no current yield in the form of dividends or interest. The Company
earns interest income from loans, high yield bonds and other fixed income
securities. The amount of interest income varies based upon the average balance
of the Company's fixed income portfolio and the average yield on this portfolio.
The Company had income from controlled affiliates of $217,265 and
$109,332 for the nine months ended September 30, 1998 and 1997, respectively,
which represents dividend and interest income from preferred stock and a note
received in relation to the Company's investment in Avery. Interest income was
$25,035 and $215,252 for the nine months ended September 30, 1998 and 1997,
respectively. The decrease from 1997 to 1998 was the result of the sale of
investments in high yield bonds during 1997, the proceeds of which were used to
make the additional investment in Avery. Dividend income of $76,915 for the nine
months ended September 30, 1998 represents the current period earnings from
Seneca which were distributed in March, 1998.
Operating expenses were $1,183,165 and $1,783,955 for the nine months
ended September 30, 1998 and 1997, respectively. Operating expenses in 1997
included net professional fees, settlement costs and other expenses related to
litigation of $449,948. Most of the Company's other operating expenses are
related to employee and director compensation, office and rent expenses and
professional fees (primarily general legal and audit fees).
Net investment losses from operations were $863,950 and $1,427,660 for
the nine months ended September 30, 1998 and 1997, respectively.
The Company has relied and continues to rely to a large extent upon
proceeds from sales of investments rather than investment income to defray a
significant portion of its operating expenses. Because such sales cannot be
predicted with certainty, the Company attempts to maintain adequate working
capital to provide for fiscal periods when there are no such sales.
Net Realized Gains on Portfolio of Investments:
During the nine months ended September 30, 1998 and 1997, the Company
realized net gains before taxes of $1,646,520 and $3,866,941, respectively, from
the disposition of various investments.
During the nine months ended September 30, 1998, Franklin realized
gains of $935,297 from the sale of a portion of its investment in Avery,
$372,911 from the exercise of Avery warrants, $273,085 from the distribution
from its investment in Seneca, $49,166 from a distribution from its investment
in the FMA High Yield Income L.P. $14,450 from a stock distribution from its
investment in CIC Standby Ventures, L.P. and $12,567 from a distribution from
its investment in the Pixel Multimedia Ltd., partially offset by net losses of
$10,956 on the sales of various marketable securities.
During the nine months ended September 30, 1997, Franklin realized a
net gain from the dissolution of its wholly-owned subsidiary, Excelsior, of
$3,736,056, as well as net gains of
20
<PAGE>
$25,697 on the sales of various marketable securities, including stocks and high
yield bonds, and $105,188 from distributions from limited partnerships.
Unrealized Appreciation of Investments:
Unrealized appreciation of investments, net of deferred taxes,
decreased by $1,522,994 during the nine months ended September 30, 1998,
primarily due to the realization of the gains from the sale of a portion of the
investment in Avery, the exercise of Avery warrants and distributions from
Seneca and CIC Standby Ventures, L.P. and a decrease in the value of FMA. These
were partially offset by an increased value for Avery.
Unrealized appreciation of investments, net of deferred taxes,
decreased by $3,507,640 during the nine months ended September 30, 1997,
primarily due to realized gains from Excelsior Communications and a previous
investment in FMA and decreased values and realized gains on the sales of
various marketable securities. There were also decreases in the values of a loan
to Sola Enterprises, Inc., and investments in CIC Standby Ventures, L.P., Codman
Research Inc. and BP Restaurants, L.P. These were offset by increased values for
Avery, Seneca, and the TCW Global Fund. L.P.
Liquidity and Capital Resources:
The Company's reported total cash and cash equivalents, accrued
interest and accounts receivable and marketable investment securities (the
primary measure of liquidity) at September 30, 1998 was $1,261,395, compared to
$720,470 at December 31, 1997. Management believes that these assets, together
with its investment in Seneca and FMA, provide the Company with sufficient
liquidity for its operations. Funds from both Seneca and FMA, which aggregate
$1,407,126 at September 30,1998, may be withdrawn upon 30 day notice to the
respective general partners.
Risks
Pursuant to Section 64(b) (1) of the Investment Company Act of 1940, a
BDC is required to describe the risk factors involved in an investment in its
securities inherent in the nature of the company's investment portfolio. There
are significant risks inherent in the Company's venture capital business. The
Company has invested a substantial portion of its assets in small private
companies and a non-reporting company with limited management depth and thin
capitalization. Because of the speculative nature of these investments, there is
significantly greater risk of loss than is the case with traditional investment
securities. The Company expects that some of its venture capital investments
will be a complete loss or will be unprofitable. Others will appear likely to
become successful, but will never realize their potential. Neither the Company's
investments nor an investment in the Company is intended to constitute a
balanced investment program. The Company has in the past relied and continues to
rely to a large extent upon proceeds from sales of investments rather than
investment income to defray a significant portion of its operating expenses.
21
<PAGE>
Risks Relating to the Year 2000 Issue
Many existing computer programs were designed and developed without
considering the impact of the upcoming change in the century. The problem exists
when a computer program uses only two digits to identify a year in the date
field. Extensive problems can result to a company's business, requiring
substantial resources to remedy. The Company believes that the "Year 2000"
problem may be material to Franklin's investments. Although the Company is
addressing the problem with respect to its own business operations, there can be
no assurance that the "Year 2000" problem will be properly or timely resolved,
which could have a material adverse effect on the Company's results of
operations and, in turn, cash available for distribution.
22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security
None
Item 5. Other Information
On July 14, 1998, The Franklin Holding Corporation (Delaware) filed a
certificate of amendment with the Secretary of State of the State of Delaware
changing its name to Franklin Capital Corporation. The name change became
effective July 23, 1998. Franklin's stockholders had approved a proposal to
change the name of the Company at the Annual Meeting of Stockholders held on
June 16, 1998.
On July 29 1998, Carl Glickman submitted his resignation as a Director
of Franklin.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(b) Reports on Form 8-K. The Company did not file any reports
on Form 8-K during the first nine months of 1998.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FRANKLIN CAPITAL CORPORATION
Date: November 13, 1998 By: /s/ John Greenbaum
--------------------------
John Greenbaum
Chief Financial Officer
23
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM UST
PRIVATE EQUITY INVESTORS FUND, INC.'S FORM 10-Q FOR THE PERIOD
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000812301
<NAME> FRANKLIN CAPITAL CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 4,063
<INVESTMENTS-AT-VALUE> 5,207
<RECEIVABLES> 139
<ASSETS-OTHER> 1,280
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,625
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 205
<TOTAL-LIABILITIES> 205
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,942
<SHARES-COMMON-STOCK> 772
<SHARES-COMMON-PRIOR> 801
<ACCUMULATED-NII-CURRENT> (2,664)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,142
<NET-ASSETS> 6,420
<DIVIDEND-INCOME> 77
<INTEREST-INCOME> 25
<OTHER-INCOME> 217
<EXPENSES-NET> 1,183
<NET-INVESTMENT-INCOME> (864)
<REALIZED-GAINS-CURRENT> 1,640
<APPREC-INCREASE-CURRENT> (1,523)
<NET-CHANGE-FROM-OPS> (747)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (747)
<ACCUMULATED-NII-PRIOR> (3,440)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,183
<AVERAGE-NET-ASSETS> 7,113
<PER-SHARE-NAV-BEGIN> 9.17
<PER-SHARE-NII> (1.08)
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.32
<EXPENSE-RATIO> 16.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
