<PAGE 1>
Securities and Exchange Commission
Washington, D. C. 20549
Form 10-K
Mark One
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the Fiscal Year Ended December 31, 1997 or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 33-75758
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
(Exact name of Registrant as specified in its charter)
Texas 75-2533518
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
Suite 210, LB 59,
8080 North Central Expressway,
Dallas, Texas 75206
(Address of principle
executive offices) (Zip Code)
Registrant's telephone number, including area code (214)891-8294
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock ($1.00 par value)
(Title of Class)
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 shouter
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( )
Indicate by check mark if disclosure by delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any statement to this Form 10-K. (X)
As of December 31, 1997 there were 4,342,942 shares of Registrant's
stock outstanding. The aggregate market value of the stock held by non-
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affiliates, based on the average bid and ask prices of such stock as of
December 31, 1997 was $41, 590,262. 209,748 shares of stock held by
affiliates were valued at $2,110,589.
Documents Incorporated by Reference: Certain portions of the
Registrant's Definitive Proxy Statement (the "Proxy Statement") for its
Annual Meeting of Limited Partners to be held on May 29, 1998 pursuant to
Regulation 14A are incorporated by reference in Items 10 through 13 of
Part III of this Annual Report on Form 10-K.
Part I
Item 1. Business.
GENERAL DEVELOPMENT OF BUSINESS
Renaissance Capital Growth & Income Fund III, Inc. (sometimes
referred to as the "Fund" or the "Registrant") is a Texas corporation
formed January 20, 1994 that has elected to operate as a Business
Development Company (sometimes referred to herein as a "Business
Development Company" or a "BDC") under the Investment Company Act of 1940,
as amended (the "1940 Act"). Through December 31, 1997, the Fund has
raised $41,489,500 through capital contributions and the public sale of
its common stock, par value $1.00 per share.
The investment objective of the Fund is to provide its shareholders
with current income and long-term capital appreciation by investing
primarily in private placement securities of small and medium size public
companies("Portfolio Companies").
Renaissance Capital Group, Inc. ("Renaissance Group" or the
"Investment Adviser"), a Texas corporation, serves as the investment
adviser to the Fund. In this capacity, Renaissance Group is primarily
responsible for the selection, evaluation, structure, and administration
of the Fund's investment portfolio. Renaissance Group is a registered
investment adviser under the 1940 Act and the Texas Securities Act.
However, its activities are subject to the supervision of the Board of
Directors of the Fund ("Board of Directors") who provide guidance with
respect to the operations of the Fund.
Generally, investments are, and will continue to be, in companies
that have their common stock registered for public trading under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
companies that, in the opinion of the Investment Adviser, have the ability
to effect a public offering within three to five years. The Fund
generally invests in preferred stock or debentures of a Portfolio Company,
which securities are convertible into or exchangeable for common stock of
the Portfolio Company. While such common stock of the Portfolio Company
may be publicly traded, the common stock acquired by the Fund is generally
unregistered. Therefore, such securities are restricted from distribution
or sale to the public except in compliance with certain holding periods
and exemptions under the Securities Act of 1933, as amended ( the
"Securities Act"), or after registration pursuant to the Securities Act.
At December 31, 1997 the Fund had made fourteen (14) portfolio
investments aggregating $33,148,232, of which twelve (12) are still active
as of December 31, 1997. The Fund is seeking additional investment
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opportunities.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Fund has no concentrated industry segments. The Fund does not
contemplate specializing in any particular industry but instead
anticipates diversifying its investments to a variety of industries.
NARRATIVE DESCRIPTION OF THE BUSINESS
The Fund, as a Business Development Company, is engaged primarily in
investments in convertible securities of small and medium sized public
companies.
Under the provisions of the 1940 Act, a Business Development Company
must invest at least 70% of its funds in "eligible portfolio investments,"
such being generally defined as direct placements to eligible companies
and temporary investments in "cash items" pending other investments.
However, under and pursuant to the provisions of the 1940 Act, a Business
Development Company may invest up to 30% of its funds in "Other
Investments" that is, investments that do not qualify as "eligible
portfolio investments," such exception allowing up to the specified
maximum amount, for example, open market purchases or participation in
public offerings.
Pending investment in convertible securities of eligible Portfolio
Companies or other investments as provided under the 1940 Act, the
Registrant's funds are invested in "Short-term Investments" consisting
primarily of U.S. Government and agency debt.
At December 31, 1997, the Fund's investment assets were classified by
amount as follows:
<TABLE>
Classification Cost Percentage
Of Investments (at cost)
<S> <C> <C>
Eligible Portfolio
Companies $18,939,221 78%
Other Portfolio
Companies $5,211,444 22%
</TABLE>
INVESTMENT OBJECTIVES
The investment objective of the Fund is to provide its shareholders
with both current income and long-term capital appreciation.
The Fund seeks to provide current cash returns to shareholders
through a quarterly dividend of current investment interest income while
providing opportunities for capital gains appreciation through the
appreciation in the value of the Fund's convertible securities.
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The Fund anticipates paying a quarterly dividend to the shareholders,
to be made within 120 days of the end of each quarter. Dividends will be
made in such amounts as shall be determined by the Board of Directors and
shall generally reflect the earnings from the prior quarter of the Fund.
Optionally, in addition to the quarterly dividends, the Fund may make
distributions of realized gains or of securities that have appreciated in
value.
GENERAL INVESTMENT POLICIES
The Fund invests in Emerging Growth Company ("Emerging Growth
Company") securities that are generally not available to the public and
which typically require substantial financial commitment. An Emerging
Growth Company is generally considered to have the following attributes:
(1) either a publicly held company with a relatively small market
capitalization or a privately held company; (2) an established operating
history but of a limited period so as to not have fully developed its
market potential for the product of services offered; and (3) generally
have a new product or service that provides an opportunity for exceptional
growth. However, because the extent and nature of the market for such
product or services is not fully known, there is uncertainty as to the
rate and extent of growth and also uncertainty as to the capital and human
resources required to achieve the goals sought.
With respect to investments in Emerging Growth Companies, the Fund
emphasizes investing in convertible preferred stock or convertible
debentures of publicly held companies that the Fund anticipates will be
converted into common stock and registered for public sale within three to
five years after the private placement. In addition, the Fund anticipates
participating in bridge financings in the form of loans which are
convertible into common stock of the issuer or issued together with equity
participation, or both, for companies which the Fund anticipates will
complete a stock offering or other financing within one to two years from
the date of the investment. The Fund will make bridge loans, either
secured or unsecured, intended to carry the borrower to a private
placement, an initial public offering or a merger and acquisition
transaction.
The Fund has no fixed policy concerning the types of businesses or
industry groups in which it may invest or as to the amount of funds that
it will invest in any one issuer. However, the Fund currently intends to
limit its investment in securities of any single Portfolio Company to
approximately 10% (8% to 12%) of its net assets at the time of the
investment.
The Fund's nominees to the boards of directors of Portfolio Companies
will generally be selected from among the officers of Renaissance Group.
When, in the discretion of Renaissance Group, a suitable nominee is not
available from among its officers, Renaissance Group will select, as
alternate nominees, outside consultants who had prior experience as an
independent outside director of a public company.
REGULATION UNDER THE INVESTMENT COMPANY ACT OF 1940
The 1940 Act was enacted to regulate investment companies. In 1980,
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the 1940 Act was amended by the adoption of the Small Business Investment
Incentive Act. The purpose of the amendment was to remove regulatory
burdens on professionally managed investment companies engaged in
providing capital to smaller companies. The Small Business Investment
Incentive Act established a new type of investment company specifically
identified as a Business Development Company as a way to encourage
financial institutions and other major investors to provide a new source
of capital for small developing businesses.
BUSINESS DEVELOPMENT COMPANY ("BDC")
A BDC:
(1) is a closed-end management company making 70% of its investments only
in certain companies (identified as "Eligible Portfolio Companies"), and
in "cash items" pending other investment. Under the regulations
established by the Securities and Exchange Commission (the "SEC") under
the 1940 Act only certain companies may qualify as "Eligible Portfolio
Companies." These qualifications are:
(A) it must be organized under the laws of a state or states,
(B) it may not be an investment company (except for a wholly owned Small
Business Investment Company), and
(C) it must generally fall into one of three following categories:
(1) Companies that do not have a class of securities registered on a
national securities exchange or are listed of the Federal Reserve OTC
margin list,
(2) companies that are actively controlled by the BDC either alone or as
part of a group (for this purpose, control is presumed to exist if the BDC
or group in which the BDC is a member owns 25% or more of the voting
securities), or
(3) it meets such other criteria as established by the SEC.
(2) must be prepared to provide "Significant Managerial Assistance" to
such Portfolio Companies. Significant Managerial Assistance means, as to
the Fund:
(A) any arrangement whereby the Fund, through its officers, employees, or
the officers or employees of the Investment Adviser, seeks to provide
significant guidance concerning management, operations, objectives or
policies of the Portfolio Company, or
(B) the exercise of a controlling influence over the Portfolio Company.
Therefore, the Investment Adviser believes that "Eligible Portfolio
Companies" are, generally, those companies that, while being publicly
held, may not have or do not have a broad based market for their
securities, or the securities that they wish to offer are restricted from
public trading until registered.
Further, the regulations generally provide that the securities must
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be obtained in direct transactions with the Portfolio Company and as such
are generally restricted from transferability in the public markets.
Further, while the 1940 Act allows a BDC to "control" a Portfolio
Company, it is not the general policy of the Fund to acquire a controlling
position in its Portfolio Companies. The Fund only provides managerial
assistance, and seeks to limit its "control" position by requiring only
that a designee of the Fund be elected to the board of directors of the
Portfolio Company, or be selected an advisory director. While these are
the Fund's general policies, the application of these policies, of
necessity, vary with each investment situation.
1940 ACT REQUIREMENTS
The BDC election exempts the Fund from some provisions of the 1940
Act. However, except for those specific provisions, the Fund will
continue to be subject to all provisions of the 1940 Act not exempted,
including the following:
(1) restrictions on the Fund from changing the nature of business so as to
cease to be, or to withdraw its election as, a BDC without the majority
vote of the shares outstanding;
(2) restrictions against certain transactions between the Fund and
affiliated persons;
(3) restrictions on issuance of senior securities, such not being
prohibited by the 1940 Act but being restricted as a percentage of
capital;
(4) compliance with accounting rules and conditions as established by the
SEC, including annual audits by independent accountants;
(5) compliance with fiduciary obligations imposed under the 1940 Act; and
(6) requirement that the shareholders ratify the selection of the Fund's
independent public accountants and the approval of the investment advisory
agreement or similar contracts and amendments thereto.
On September 19, 1996, the Fund and the Investment Advisor filed
their Application for an order pursuant to Sections 6(c) and 57(i) of the
Investment Company Act of 1940 and Rule 17d-1 thereunder authorizing
certain joint transactions otherwise prohibited by Section 57(a)(4) of the
Act requesting an order from the SEC permitting the Fund to co-invest with
companies that are affiliated with the Investment Advisor, including
Renaissance US Growth & Income Trust PLC ("RUSGIT") as "Advisor
Affiliate". The order was granted on December 30, 1996.
In order for the Fund and the Investment Advisor to make co-
investments with the same entity, the following conditions apply:
(a) the Investment Advisor will determine if the investment is eligible
for investment by the Fund;
(b) the Investment Advisor will determine an appropriate amount that the
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Fund should invest;
(c) the Investment Advisor will distribute written information, including
the amount of the proposed investment, concerning all co-investment
opportunities to the Fund's Independent Directors. The Fund will co-
invest only if a required majority of the Fund's Independent Directors
conclude, prior to the acquisition of the investment, that the investment
should be made;
(d) the Fund will not make an investment if any Advisor Affiliate, the
Investment Advisor, or a person controlling, controlled by, or under
common control with the Advisor is an existing investor in such issuer;
(e) the terms, conditions, price, class of securities, settlement date,
and registration rights shall be the same for the Fund and the Advisor
Affiliate;
(f) the Fund's Independent Directors will review quarterly all information
concerning co-investment opportunities during the preceding quarter to
determine whether the conditions set forth in the application were
complied with;
(g) the Fund will maintain the records required by section 57(f)(3) of the
Act as if each of the investments permitted under these conditions were
approved by the Fund's Independent Directors under section 57(f) of the
Act; and
(h) no Independent Director of the Fund will be a director or general
partner of any Advisor Affiliate with the Fund co-investors.
On October 30, 1996, the Advisor Affiliate made an investment of
$1,200,000 in Topro, Inc. Prior to this investment by the Advisor
Affiliate, in February of 1996, the Fund made an original investment of
$2,500,000. This investment was made prior to the entry of an order. At
the time the original investment was made, an additional loan from the
Advisor Affiliate was not contemplated. Therefore, the investment of the
Advisor Affiliate did not fall within the prohibited transactions and an
order of exemption was not necessary.
After the order was granted by the SEC, the Advisor Affiliate and the
Fund made a co-investment into Integrated Security Systems, Inc. of
$2,500,000 each on December 31, 1996.
The Fund anticipates making additional investments with the Advisor
Affiliate in the future.
INVESTMENT ADVISERS ACT OF 1940 ("ADVISERS ACT") AND INVESTMENT ADVISER'S
AGREEMENT
Renaissance Group is the investment adviser to the Fund pursuant to
the Investment Advisory Agreement dated and approved by the Board of
Directors on February 15, 1994 ( the "Investment Advisory Agreement") and
is registered as an investment adviser under the Advisers Act and is
subject to the reporting and other requirements thereof. The Advisers Act
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also provides restrictions on the activities of registered advisers to
protect its clients from manipulative or deceptive practices, while the
Advisers Act generally restricts performance compensation of up to 20% on
realized capital gains computed net of all realized capital losses and
unrealized capital depreciation.
The Investment Advisory Agreement provides that Renaissance Group is
entitled to receive an annual management fee of 1.75% of the Fund's
assets. The agreement also has language that is inconsistent with the
description of the management fee in the Fund's prospectus. The
Investment Advisory Agreement language provides that to the extent any
portion of the annual management fee is based on an increase in Net Asset
Value attributable to non-realized appreciation of securities, such
portion of the fee shall be deferred and not earned or payable until such
time as appreciation or any portion thereof is in fact realized and such
deferred fees shall be earned and paid in proportion to the gains in fact
realized. This inconsistency has caused Renaissance Group to compute the
management fee incorrectly, resulting in a net overpayment to Renaissance
Group of $187,988 through December 31, 1997. This will be refunded to the
Fund by offsetting the net overpayment against payables due by the Fund to
Renaissance Group until the net overpayment is completely satisfied. The
Board of Directors has voted to strike the inconsistent language contained
in the Investment Advisory Agreement, subject to the ratification of the
holders of a majority of the Fund's outstanding shares at the Annual
Meeting to be held as specifically set forth in the Proxy Statement.
In addition to the annual management fee of 1.75% of the Fund's
assets, Renaissance Group is entitled to receive an incentive fee (the
"Incentive Fee") in an amount equal to 20% of the Fund's realized capital
gains computed net of all realized capital losses and unrealized
depreciation.
Investment advisory agreements are further subject to the 1940 Act,
which requires that the agreement, in addition to having to be initially
ratified by a majority of the outstanding shares, shall precisely describe
all compensation to be paid; shall be approved annually by a majority vote
of the Board of Directors; may be terminated without penalty on not more
than 60 days notice by a vote of a majority of the outstanding shares; and
shall terminate automatically in the event of assignment. The Board of
Directors has determined that the Investment Advisory Agreement shall
constitute the Fund's advisory agreements and at all times be construed so
as to comply with the Advisers Act and the 1940 Act.
FUND PORTFOLIO INVESTMENTS
As of December 31, 1997 the Fund has twelve (12) active investments
in Portfolio Companies, nine (9) of which meet the criteria of investments
in Eligible Portfolio Companies:
Bentley Pharmacerticals, Inc. (BNT)
On February 20, 1996, the Fund purchased 800 Units of Bentley
Pharmaceuticals, Inc. ("Bentley"), each unit consisting of a one thousand
dollar ($1,000) principal amount 12% Convertible Senior Subordinated
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<PAGE 9>
Debenture due February, 2006; and 1,000 Class A Redeemable Warrants, each
to purchase one share of common stock and one Class B Redeemable Warrant.
The Partnership paid $1,000 per unit for a total investment of $800,000 of
which $55,200 was allocable to the Warrants and $744,800 to the 12%
Convertible Subordinated Debentures.
The Debentures, which are unsecured, are convertible prior to
maturity beginning on the first year anniversary of the date of issuance
(the "Anniversary Date"), into shares of Common Stock of Bentley
Pharmaceuticals, Inc. at a conversion price per share which is the lesser
of $2.50 or 80% of the average closing price of the Common Stock on the
American Stock Exchange for the 20 consecutive trading days immediately
preceding the Anniversary Date. Interest is payable quarterly.
Each Class A Redeemable Warrant entitles the holder, for a period of
three years, to purchase one share of Common Stock and one Class B
Redeemable Warrant at a price of $3.00 per share. On 30 days prior
written notice, Bentley may redeem all of the Warrants for $0.05 per
warrant if the per share closing price for the underlying common stock on
the American Stock Exchange for each of the 20 consecutive trading days
immediately preceding the record date for redemption equals or exceeds
150% of the then exercise price.
On May 28, 1996, the Company announced it would permit public trading
of its debentures and warrants separately. The Fund elected to separate
its units detaching the $800,000 Debenture with a cost allocation of $931
per
$1,000 Debenture, and the 800,000 Class A Redeemable Warrants with a cost
allocation of $69 per 1,000 warrants.
On September 20, 1996, the Fund sold 400,000 of the Class A
Redeemable Warrants at a price of $1.125 per warrant with aggregate
proceeds of $426,000 and capital gains of $398,400. In October 1996, the
Fund sold an aggregate of 7,000 Warrants for $8,806, allowing the Fund to
realize a gain of $8,323. On January 27, 1997, the Fund sold its
remaining 393,000 Warrants for $447,022, representing approximately
$419,905 in capital gains. From September 20, 1996 to January 27, 1997,
the Fund sold 800,000 of the Class A Redeemable Warrants for $882,208 in
proceeds, representing an approximate gain of $826,628.
The Fund still has its Convertible Debenture, the value of which is
$744,800 on a cost basis.
In the fourth quarter of 1997, the Company announced that it was
awarded a judgment of $7.68 million relating to a claim of fraud the
Company had filed against Medstar Inc., Maximed, Inc. and Robert S. Cohen.
The Company plans to pursue the judgment, but is unsure what portion will
ultimately prove collectible.
Contour Medical, Inc. (CTMI)
Contour Medical, Inc. ("Contour") is a distributor of medical
supplies and prepackaged kits for medical uses as well as a manufacturer
of foam and vinyl based products for medical applications. It is majority
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<PAGE 10>
owned by Retirement Care Associates, an Atlanta-based operator of
retirement care centers and nursing homes.
On July 12, 1996, the Fund invested $2,500,000 in a 9% Convertible
Debenture of Contour. The Debenture had mandatory monthly principal
installments beginning July 1, 1999, which would have amortized
approximately one-half of the principal prior to maturity on July 1, 2003.
The Debentures were callable at 120% of par, once specific earnings per
share and bid price test of the underlying common stock were met.
At the option of the Fund, in multiples of $100,000, the Debentures
were convertible into Common Stock of Contour at $5.00 per share. The
conversion price was subject to certain anti-dilution provisions and a
one-time adjustment in 1997. The adjustment was predicated on earnings
and the bid price of the Company's stock. The Fund had the right to
demand stock registration and certain piggyback stock registration rights.
Cost of two demand registrations were at the Company's expense if
commenced subsequent to July 12, 1998.
In addition to the Fund's investment on July 12, 1996, Renaissance US
Growth & Income Trust PLC ("RUSGIT'), a public limited company registered
in England and Wales, made an identical investment of $2,500,000 in
Contour Medical, Inc. The investment by RUSGIT was made on a pari-passu
basis with the Fund.
On February 18, 1997, Sun Healthcare Group, Inc. ("Sun"), an
Albuquerque, New Mexico based operator of nursing homes, announced it
would acquire all of the outstanding publicly held shares of the Company
as part of its acquisition of the Company's majority owner, Retirement
Care Associates. The announced purchase price of the Company's shares was
$8.50 per share,
payable in cash or in Sun common stock, at the option of Sun. On December
31, 1997, the Fund sold its Convertible Debenture to Sun for $4,200,000 or
$8.40 a share on a fully converted basis, representing a gain of
$1,700,000. The Fund has liquidated its position in this investment as of
December 31, 1997.
The RUSGIT debenture was also sold to Sun on December 31, 1997, under
the same terms and conditions as the sale of the Fund's debenture.
Dwyer Group, Inc. (DWYR)
Dwyer Group, Inc. ("Dwyer") is a holding company for service-based
businesses providing specialty services internally through franchising.
On June 2, 1995, the Fund purchased in the open market 4,000 shares
of Dwyer's common stock at a cost of $12,320. On June 9, 1995, the Fund
and the Company entered into a Stock Purchase Agreement in which the Fund
agreed to purchase from the Company 70,000 shares of common stock at $3.50
per share for a total aggregate consideration of $245,000. Also on June
9, 1995, the Fund entered into a Stock Purchase Agreement with the Estate
of Donald J. Dwyer, Deceased, pursuant to which the Fund agreed to
purchase from the Estate 300,000 shares of common stock at $3.00 per share
for a total consideration of $900,000. The stock purchased pursuant to
the Stock Purchase Agreements is covered by a Demand Registration Rights
<PAGE>
<PAGE 11>
Agreement.
Including its first acquisition of 4,000 shares of common stock in
June 1995, the Fund purchased 334,000 shares of Dwyer's common stock for
an aggregate purchase price of $921,502 through May 1996.
During the quarter ended September 30, 1997, the Fund sold 25,000
shares of common stock for approximately $45,000 and recorded a realized
loss of $42,616. The shares were sold to reduce the Fund's holdings below
10% of the total common shares outstanding.
The Partnership does not have a Director Designee on the Board of
Directors of Dwyer Group, Inc.
Fortune Natural Resources Corporation (FPX)
On November 7, 1997, the Fund invested $350,000 in a 12% Convertible
Debenture of Fortune Natural Resources Corporation ("FNRC"). The
Debenture matures on December 31, 2007 and bears annual interest at the
rate of 12%, payable quarterly, commencing January 1, 1998. The interest
is computed on the basis of a 360-day year and will be subordinated to any
senior debt of the Company, which, as of September 30, 1997, was
$1,893,000 in the aggregate. The Debenture is convertible into the
Company's common stock at $3.00 per share, subject to certain anti-
dilution provisions. The Fund also has limited rights to demand a
registration of its common stock and certain piggyback stock registration
rights.
The Company is an independent public oil and gas company whose
primary focus is exploration and development of domestic onshore and
offshore oil and gas properties located primarily in Louisiana and Texas.
In addition to the Fund's investment on November 7, 1997, RUSGIT made
an identical investment of $350,000 in FNRC. The investment by RUSGIT was
made
on a pari-passu basis with the Fund.
Integrated Security Systems, Inc. (IZZI)
On December 31, 1996, the Fund invested $2,300,000 in a 9%
Convertible Debenture of Integrated Security Systems, Inc. ("IZZI"). The
Company is a holding company which designs, develops, manufactures, sells
and services commercial security and traffic control devices. In
addition, it sells fully integrated turnkey security systems that control
and monitor access to governmental, commercial and industrial sites.
The Debenture has a mandatory monthly principal installment beginning
December 1, 1999, which will amortize approximately one-half of the
principal prior to maturity on December 1, 2003. The Debentures are
callable at 120% of par, once specific earnings per share and bid price
tests of the underlying
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 24,150,665
<INVESTMENTS-AT-VALUE> 27,795,592
<RECEIVABLES> 4,380,025
<ASSETS-OTHER> 208,529
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<NET-ASSETS> 44,497,360
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<EXPENSES-NET> 2,532,983
<NET-INVESTMENT-INCOME> (2,450)
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<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> 0.81
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.25
<EXPENSE-RATIO> .05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
