<PAGE> 1
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UNITED STATES 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 PERIOD JANUARY 1, 1997 TO DECEMBER 31, 1997.
[ ] 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 33-89506
BERTHEL GROWTH & INCOME TRUST I
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1915821
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 SECOND STREET S.E., CEDAR RAPIDS, IOWA 52401
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code 319-365-2506
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities pursuant to Section 12(g) of the Act:
SHARES OF BENEFICIAL INTEREST
(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 shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filings requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of 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 amendment to this
Form 10-K. [X]
As of February 28, 1998, 10,541 Shares of Beneficial Interest were issued
and outstanding. Such shares were issued at $1,000 per share.
EXHIBIT INDEX AT PAGE 28
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<PAGE> 2
BERTHEL GROWTH & INCOME TRUST I
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 2
Item 3. Legal Proceedings........................................... 3
Item 4. Submission of Matters to a Vote of Shareholders............. 3
PART II
Market for the Registrant's Common Equity and Related
Item 5. Shareholder Matters......................................... 3
Item 6. Selected Financial Data..................................... 3
Management's Discussion and Analysis of Financial Condition
Item 7. and Results of Operations................................... 4
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 7
Item 8. Financial Statements and Supplementary Data................. 7
Changes in and Disagreements with Accountants on Accounting
Item 9. and Financial Disclosure.................................... 17
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 17
Item 11. Executive Compensation...................................... 19
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................. 19
Item 13. Certain Relationships and Related Transactions.............. 19
PART IV
Exhibits, Financial Statement Schedules and Reports on Form
Item 14. 8-K......................................................... 20
SIGNATURES.............................................................. 21
</TABLE>
1
<PAGE> 3
PART I
ITEM 1. BUSINESS
Berthel Growth & Income Trust I (the "Trust"), a Delaware business trust
that has elected to be treated as a business development company under the
Investment Company Act of 1940, was organized on February 10, 1995. The Trust's
Registration Statement was declared effective, and the Trust began offering
Shares of Beneficial Interest ("shares") effective June 21, 1995. The Trust's
underwriting period was completed on June 21, 1997. A total of $10,541,000 was
raised. The Trust's principal office is located at 100 Second Street S.E., Cedar
Rapids, Iowa 52401. The Trust is a closed-end investment company designed
primarily as a long-term investment and not as a trading vehicle.
Berthel SBIC, LLC (the "SBIC"), an entity wholly-owned by the Trust within
the meaning of Section 2(a)(43) of the Investment Company Act of 1940, has
applied to the Small Business Administration (the "SBA") for a license to
operate as a Small Business Investment Company. The Trust has funded the SBIC
with a capital contribution of $5,000,000, the minimum amount eligible to be
contributed in order to receive leverage under the SBA Small Business Investment
Company program. The Trust Advisor and Independent Trustees will have the same
responsibilities in the management of the SBIC as they currently do for the
Trust. The application is in the final stage of the SBA approval process. Since
the application was filed, two investments have been completed in the SBIC.
Other investments by the SBIC may be completed while the application is pending.
If an investment has been completed without SBIC pre-approval and is
subsequently not approved by the SBIC, the Trust will be required to provide
additional funds to the SBIC to maintain $5,000,000 of "contributed capital" in
order to remain eligible to receive SBA leverage. The SBIC will attempt to
obtain SBA pre-approval for all future investments in order for the capital to
qualify for leverage. There is no assurance that the Trust will have the
additional funds needed if the SBA does not approve these investments.
Berthel Fisher & Company Planning, Inc. (the "Trust Advisor") is a
corporation organized under the laws of the State of Iowa on March 20, 1989. The
principal office of the Trust Advisor is located at 100 Second Street S.E.,
Cedar Rapids, Iowa 52401. The Trust Advisor is an SEC Registered Investment
Advisor organized as a subsidiary of Berthel Fisher & Company ("Berthel Fisher")
to serve as a registered investment advisor. All of the voting stock of the
Trust Advisor is owned by Berthel Fisher. Berthel Fisher, a financial services
holding company, was formed in 1985 as an Iowa corporation to hold the stock of
Berthel Fisher & Company Financial Services, Inc. a broker-dealer registered
with the National Association of Securities Dealers, Inc. Berthel Fisher &
Company Financial Services, Inc. is the ("Dealer Manager") for the Trust's
current offering of its Shares of Beneficial Interest.
The Trust will terminate upon the liquidation of all of its investments,
but no later than June 21, 2007. However, the Independent Trustees have the
right to extend the term of the Trust for up to two (2) additional one-year
periods if they determine that such extensions are in the best interest of the
Trust and in the best interest of the shareholders, after which the Trust will
liquidate any remaining investments as soon as practicable but in any event
within three years.
The investment objective of the Trust is to provide capital appreciation
potential and current income by investing primarily in subordinated debt,
preferred stock and related equity securities issued by small and medium sized
companies that are in need of capital and that the Trust Advisor believes offer
the opportunity for growth or appreciation of equity value while being able, if
required to do so, to service current yield bearing securities. The Trust
directs its investment efforts to small and medium sized companies which, in the
view of the Trust Advisor, provides opportunities for significant capital
appreciation and prudent diversification of risk. The Trust seeks investments in
a variety of companies and industries. The securities of portfolio companies
purchased by the Trust typically will be rated below investment grade, and more
frequently, not rated at all. The securities of such portfolio companies will
often have significant speculative characteristics.
ITEM 2. PROPERTIES
The Trust does not own or lease any real estate.
2
<PAGE> 4
ITEM 3. LEGAL PROCEEDINGS
The Chapter 11 Bankruptcy of Soil Recovery Services, Inc. ("SRS") continued
into 1997. In early 1997, because of SRS's failure to generally comply with the
requirements of a Chapter 11 bankruptcy, the creditor who originally filed the
involuntary Chapter 7 against SRS filed a motion to convert the SRS Chapter 11
back to a Chapter 7 bankruptcy. The motion was granted. In addition, there was a
foreclosure sale of all real estate and certain personal property in which the
SBA had a first security interest. The lawsuit against SRS, the President of
SRS, Southwest Merchants Group, the investment banking firm, which brought SRS
to the Trust and the principles of that investment banking firm has remained in
the Northern District of Iowa and is in the discovery stage. Interrogatories
have been exchanged and depositions of the principals of the investment banking
firm are scheduled for April 1998 and it is expected that depositions of the
management of the Trust will be taken some time during the first half of 1998 as
well. No trial date has been set. It is unknown at this time what, if anything,
the Trust will realize from the suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of shareholders, through the
solicitation of proxies or otherwise during the period covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Registrant's shares are not publicly traded. There is no established
public trading market for the Shares of Beneficial Interest of the Trust and it
is unlikely that any will develop. The Trust Advisor will resist the development
of a public market for the shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NUMBER OF SHAREHOLDERS BENEFICIAL INTEREST AT
TITLE OF CLASS AT FEBRUARY 28, 1998 FEBRUARY 28, 1998
-------------- ---------------------- ----------------------
<S> <C> <C>
Shares of Beneficial Interest............ 876 10,541
</TABLE>
The Trust accrued an underwriting return based on 10% simple annual
interest computed on a daily basis from the initial closing (August 30, 1995)
until June 21, 1997, the final closing. Shareholders were paid $250,000 in July
1996 and $493,897 in July 1997, leaving $522,791 of the underwriting return
remaining to be paid. Since the final closing, $445,899 representing a priority
return of 8% simple annual interest computed on a daily basis through December
31, 1997 has been accrued. Shareholders were paid $153,611 in November 1997,
leaving $292,288 remaining to be paid on the 8% priority return. There also
remains to be paid $3,610 which represents interest earned by the Trust on the
investor's funds held in escrow through the initial closing.
The Trust intends to make quarterly distributions of all cash revenues to
the extent that the Trust has cash available for such distributions. These
distributions must be approved by a majority of the Independent Trustees and
made within sixty days of the end of each quarter.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FEBRUARY 10, 1995
YEAR ENDED YEAR ENDED (DATE OF INCEPTION) TO
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- ----------------------
<S> <C> <C> <C>
Total assets............................... $7,461,953 $6,543,075 $4,396,815
Net increase (decrease) in net assets
resulting from operations................ 167,229 (879,654) (14,683)
Interest income............................ 529,792 411,551 54,566
Management and administrative fees......... 191,438 195,495 55,155
Unrealized loss on investments............. -0- 1,000,000 -0-
Net income (loss) per beneficial share..... 16.70 (122.07) (4.64)
</TABLE>
3
<PAGE> 5
The above selected data should be read in conjunction with the consolidated
financial statements and related notes appearing elsewhere in this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
<TABLE>
<CAPTION>
FEBRUARY 10, 1995
YEAR ENDED YEAR ENDED (DATE OF INCEPTION) TO
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- ----------------------
<S> <C> <C> <C>
Interest income............................ $529,792 $ 411,551 $54,566
Management fees............................ 151,422 155,847 30,435
Administrative services.................... 40,016 39,648 24,720
Trustee fees............................... 30,000 44,000 8,000
Legal fees................................. 96,692 65,292 -0-
Unrealized loss on investments............. -0- 1,000,000 -0-
</TABLE>
INTEREST INCOME: Below is a summary of the interest income earned by the
Trust on its investments:
<TABLE>
<CAPTION>
REVENUE
INVESTMENT INVESTMENT -----------------------------
AMOUNT DATE 1997 1996 1995
---------- ---------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Money Market.............................. $251,450 $185,108 $54,566
SRS....................................... $1,000,000 May-96 -0- 25,000 -0-
VisionComm................................ 2,180,000 Apr-96 103,655 201,443 -0-
VisionComm................................ 500,000 Dec-97 5,833 -0- -0-
Kinseth................................... 2,000,000 May-97 168,854 -0- -0-
-------- -------- -------
Total................................ $529,792 $411,551 $54,566
======== ======== =======
</TABLE>
Pending investments in enhanced yield investments, the Trust invests idle
cash in money market funds or in bank money market accounts. As such, the
interest earned on these investments will vary based on the amount and duration
of idle cash invested. The interest rate on these investments will vary, but has
approximated 5.5%.
MANAGEMENT FEES: The Trust accrues an annual management fee equal to 2.5%
of the total assets of the Trust paid quarterly. The increase of $125,412 from
1995 to 1996 is attributed to the increase in the assets of the Trust. The Trust
had, for most of its existence, invested a significant portion of its idle funds
in the Fidelity Daily Money Market Money Fund ("Fidelity Fund"). The Staff of
the Division of Investment Management of the Securities and Exchange Commission
has indicated to the Trust and the Trust Advisor its view that investment by the
Trust in the Fidelity Fund, to the extent it exceeded 5% of the Trust's assets,
was in violation of Section 12(d)(1) of the Investment Company Act, because,
unlike a certificate of deposit, bank money market account, or similar
investment, the Fidelity Fund is a registered investment company that charges a
management fee. In 1997, the Trust received a $31,491 credit from the Trust
Advisor for management fees charged on those assets.
TRUSTEE FEES: As compensation for services rendered to the Trust, each
Independent Trustee is paid $1,000 per month plus $1,000 per Board meeting
attended up to a maximum of $24,000 in meeting fees per year. Each Trustee was
paid $7,000 in the second quarter of 1996 for prior unpaid fees.
LEGAL EXPENSE: Legal expenses incurred are associated with the structuring
and monitoring of Trust activities and investments. Additional legal charges
were incurred in connection with the SRS bankruptcy and formation of the SBIC.
UNREALIZED LOSS ON INVESTMENTS: As previously reported, the Trust served a
Notice of Default and a Notice of Rescission on SRS and commenced litigation
against key parties. The last interest payment received by the Trust was in July
1996. SRS filed for Chapter 11 bankruptcy protection on December 12, 1996. The
Trust is continuing its avenues of recovery through the bankruptcy court and
litigation. The Trust believes it
4
<PAGE> 6
has a strong case, however, at this time it is unable to determine the available
assets of the defendants. Accordingly, in 1996, the Trust decided to recognize
an unrealized loss of $1,000,000, the cost of the investment.
SECURITIES AND EXCHANGE COMMISSION FILINGS: On June 14, 1996, the Trust
filed, with the Securities and Exchange Commission, a Cumulative Supplement No.
2 ("Sup. 2") to the prospectus dated June 21, 1995. Sup. 2 provides for the
renewal of registration and extension of the offering period to June 21, 1997.
In addition to the extension of the offering period, the purpose of Sup. 2
was to: a) report the status of the offering; b) provide information on the
status of investments in portfolio companies through May 31, 1996; c) provide a
description of additional information regarding the Trust and the Offering; and
d) report the financial statements of the Trust and Berthel Fisher & Company
Planning, Inc.
FORMATION OF AN SBIC: The SBIC, an entity wholly-owned by the Trust within
the meaning of Section 2(a)(43) of the Investment Company Act of 1940, has
applied to the Small Business Administration (the "SBA") for a license to
operate as a Small Business Investment Company. The Trust has funded the SBIC
with a capital contribution of $5,000,000, the minimum amount eligible to be
contributed in order to receive leverage under the SBA Small Business Investment
Company program. The Trust Advisor and Independent Trustees will have the same
responsibilities in the management of the SBIC as they currently do for the
Trust. The application is in the final stage of the SBA approval process. Since
the application was filed, two investments have been completed. Other
investments by the SBIC may be completed while the application is pending. The
SBIC will attempt to obtain SBA pre-approval for all future investments.
However, the two investments have not been pre-approved and there is a
likelihood that additional investments may not be pre-approved by the SBA. There
is no guarantee that the two or other investments will be approved by the SBA.
If an investment has been completed prior to SBIC approval and is subsequently
not approved by the SBIC, the Trust will be required to provide additional funds
to the SBIC to maintain $5,000,000 of "contributed capital" in order to remain
eligible to receive SBA leverage. There is no assurance that the Trust will have
the additional funds needed if the SBA does not approve the two investments or
other investments.
INVESTMENTS: The Trust has invested in four portfolio companies through
December 31, 1997. The investments have been made in companies engaged in
telecommunications, private cable television business, soil remediation, hotel
and restaurant operations and distance based corporate education.
VISION COMM, INC.
<TABLE>
<CAPTION>
ORIGINAL REMAINING
COST COST VALUATION
-------- --------- ---------
<S> <C> <C> <C>
14% five year secured note receivable....................... $2,180,000 $ -0- $ -0-
Warrants for 125,000 shares at $5 per share................. -0- -0- -0-
14% one year secured note receivable........................ 500,000 500,000 500,000
Warrants for 17,590 shares at $5 per share.................. -0- -0- -0-
---------- -------- --------
Total.................................................. $2,680,000 $500,000 $500,000
========== ======== ========
</TABLE>
VisionComm, Inc. ("VisionComm") is primarily engaged in the
telecommunications and private cable television business. The original
investment of $2,180,000 had a principal repayment of $775,000 in December 1996,
$275,304 in January 1997 and $1,129,696 in August 1997. On December 1, 1997, the
Trust invested $500,000 in a 14% secured note receivable due December 1, 1998.
The note provides for interest at the rate of 14% per annum. Monthly payments of
interest only are due until maturity. At maturity, the final payment will be the
entire unpaid principal balance, plus any and all accrued interest. At December
31, 1997, the Trust holds warrants to purchase approximately 24% of the Company.
5
<PAGE> 7
KINSETH HOSPITALITY COMPANY, INC.
<TABLE>
<CAPTION>
COST VALUATION
------------------------ ------------------------
TRUST SBIC TRUST SBIC
----- ---- ----- ----
<S> <C> <C> <C> <C>
14% six year note receivable.................. $1,000,000 $1,000,000 $1,000,000 $1,000,000
Warrants for 12.5% of the outstanding common
stock of Kinseth at $.01 per share.......... -0- -0- -0- -0-
---------- ---------- ---------- ----------
Total.................................... $1,000,000 $1,000,000 $1,000,000 $1,000,000
========== ========== ========== ==========
</TABLE>
On April 16, 1997 the Trust, together with its subsidiary, Berthel SBIC,
LLC, invested $2,000,000 in Kinseth Hospitality Company, Inc. ("Kinseth").
Kinseth is an owner and operator of hotels and restaurants. In exchange for this
investment, Kinseth has issued to each of the Trust and the SBIC a promissory
note in the amount of $1,000,000 bearing interest at a rate of 14% per annum,
paying current interest and no principal during the term, and to be repaid in
full in six years; and a Warrant to purchase, for nominal consideration,
approximately 12.5% of the outstanding common stock of Kinseth. Repayment of
each promissory note is guaranteed by Kinseth Hotel Corporation, an affiliate of
Kinseth. The Trust has also obtained from Kinseth the right to "put" the shares
obtained by exercise of the Warrant to Kinseth after 6 years, and certain
registration rights.
SOIL RECOVERY SERVICES, INC.
<TABLE>
<CAPTION>
COST VALUATION
---- ---------
<S> <C> <C>
Convertible subordinated debenture.......................... $1,000,000 $-0-
</TABLE>
As previously reported, the Trust served a Notice of Default and a Notice
of Rescission on SRS and commenced litigation against key parties. The last
interest payment received by the Trust was in July 1996. SRS filed for Chapter
11 bankruptcy protection on December 12, 1996. The Trust is continuing its
avenues of recovery through the bankruptcy court and litigation. The Trust
believes it has a strong case, however, at this time it is unable to determine
the available assets of the defendants. Accordingly, at this time, the Trust has
decided to recognize an unrealized loss of $1,000,000, the cost of the
investment.
LIVEWARE5, INC. ("LIVEWARE5")
<TABLE>
<CAPTION>
COST VALUATION
---- ---------
<S> <C> <C>
300,000 shares of common stock and warrants for up to
600,000 shares of common stock of LIVEware5 at $.01 per
share..................................................... $300,000 $300,000
</TABLE>
LIVEware5 is a provider of distance based corporate education via advanced
teleconferencing technologies. On December 11, 1997, the Trust's subsidiary,
Berthel SBIC, LLC, invested $300,000 in LIVEware5. The SBIC acquired 300,000
shares of common stock of LIVEware5 with detachable warrants exercisable for up
to 600,000 shares of common stock.
YEAR 2000 ISSUE: The Trust recognizes that the arrival of the Year 2000
poses a unique challenge to the ability of all systems to recognize the date
change from December 31, 1999 to January 1, 2000 and, like other companies, has
assessed and is repairing its computer applications and business processes to
provide for their continued functionality. An assessment of the readiness of
external entities which it interfaces with, such as vendors, counterparties,
payment systems, and others, is ongoing. The Trust does not expect the cost to
address the Year 2000 will be material.
The Trust has determined that the software it utilizes in its operations is
compatible with the Year 2000. The Trust has not yet determined whether the Year
2000 issue has been addressed by the portfolio companies in which it has
investments. The Trust intends to contact its portfolio companies regarding this
issue by the middle of 1998.
6
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Major Cash Source:
Proceeds from issuance of beneficial shares......... $1,655,000 $3,763,000
Repayment of note receivable........................ 1,405,000 775,000
Major Cash Use:
Payments for syndication costs...................... 233,033 530,488
Distributions....................................... 647,508 250,000
Net cash from investing activities.................. 1,426,954 2,409,523
</TABLE>
Pending investment in enhanced yield investments, the Trust has invested
$4,587,598 in bank money market accounts at December 31, 1997.
Distributions of $818,689 have been accrued as of December 31, 1997. The
Trust will continue to accrue distributions based on 8% simple annual interest
computed on a daily basis until the cumulative distributions to each investor
from the Trust equals 100% of their original investment plus the priority and
underwriting return.
The Trust Advisor is not aware of any regulatory issues that may have a
substantial negative impact on the portfolio companies it is currently
researching for possible investment of Trust funds.
The effect of interest rate fluctuations and inflation on the current Trust
investments is negligible.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and related information as of the years
ended December 31, 1997, December 31, 1996 and for the period February 10, 1995
(Date of Inception) to December 31, 1995 are included in Item 8:
Independent Auditors' Report
Consolidated Statements of Assets and Liabilities
Consolidated Statements of Operations
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
7
<PAGE> 9
INDEPENDENT AUDITORS' REPORT
To the Independent Trustees and Shareholders of
Berthel Growth & Income Trust I
We have audited the accompanying consolidated statements of assets and
liabilities of Berthel Growth & Income Trust I and subsidiary (the "Trust") as
of December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in net assets, and cash flows for the years then ended and
for the period February 10, 1995 (date of inception) to December 31, 1995. These
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Trust at December 31, 1997
and 1996, and the results of their operations and their cash flows for the years
then ended and for the period February 10, 1995 (date of inception) to December
31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements,
investments in securities and warrants not readily marketable amounting to
$2,800,000 as of December 31, 1997 have been valued at fair value, as determined
by the Independent Trustees ("Trustees"). We have reviewed the procedures
applied by the Trustees in valuing such securities and have inspected underlying
documentation and, in the circumstances, we believe that the procedures are
reasonable and the documentation appropriate. However, because of the inherent
uncertainty of valuation, the Trustees' estimate of fair values may differ
significantly from the values that would have been used had a ready market
existed for the securities, and the differences could be material.
Deloitte & Touche LLP
February 14, 1998
8
<PAGE> 10
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS:
Investments in securities (Note 2):
VisionComm, Inc. ...................................... $ 500,000 $1,405,000
Soil Recovery Services, Inc. .......................... -- --
LIVEware5, Inc. ....................................... 300,000
Kinseth Hospitality Company, Inc. ..................... 2,000,000
Cash...................................................... 15,047 97,025
Temporary investment in money market securities........... 4,587,598 4,993,174
Interest receivable....................................... 5,833 40,186
Other assets.............................................. 53,475 7,690
---------- ----------
Total assets......................................... 7,461,953 6,543,075
---------- ----------
LIABILITIES:
Accounts payable and other accrued expenses............... 36,509 23,594
Distributions payable to shareholders (Note 5)............ 818,689 584,480
Due to affiliate (Note 3)................................. 15,797 47,022
---------- ----------
Total liabilities...................................... 870,995 655,096
---------- ----------
COMMITMENTS AND CONTINGENCIES
NET ASSETS (equivalent to $625.27 per share in 1997, and
$662.24 per share in 1996)................................ $6,590,958 $5,887,979
========== ==========
Net assets consist of:
Shares of beneficial interest, 25,000 shares authorized --
10,541 and 8,891 shares issued and outstanding in 1997
and 1996, respectively................................. $7,318,066 $6,782,316
Undistributed net investment loss......................... (727,108) (894,337)
---------- ----------
$6,590,958 $5,887,979
========== ==========
</TABLE>
See notes to consolidated financial statements.
9
<PAGE> 11
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD FEBRUARY 10, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Interest income......................................... $529,792 $ 411,551 $ 54,566
Closing fees............................................ 20,000
Commitment fees......................................... 833 63,600
Other income............................................ 100
-------- ----------- ---------
550,725 475,151 54,566
-------- ----------- ---------
EXPENSES:
Management fees (Note 3)................................ 151,422 155,847 30,435
Administrative services................................. 40,016 39,648 24,720
Trustee fees............................................ 30,000 44,000 8,000
Legal expense........................................... 96,692 65,292
Other general and administrative expenses............... 65,366 50,018 6,094
-------- ----------- ---------
Total expenses.................................. 383,496 354,805 69,249
-------- ----------- ---------
NET INVESTMENT INCOME (LOSS).............................. 167,229 120,346 (14,683)
-------- ----------- ---------
UNREALIZED LOSS ON INVESTMENTS............................ (1,000,000)
-------- ----------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.............................................. $167,229 $ (879,654) $ (14,683)
======== =========== =========
INVESTMENT INCOME PER BENEFICIAL SHARE.................... $ 54.99 $ 65.94 $ 17.23
EXPENSES PER BENEFICIAL SHARE............................. (38.29) (49.24) (21.87)
-------- ----------- ---------
NET INVESTMENT INCOME (LOSS) PER BENEFICIAL SHARE......... 16.70 16.70 (4.64)
UNREALIZED LOSS ON INVESTMENTS PER BENEFICIAL SHARE....... (138.77)
-------- ----------- ---------
NET INCOME (LOSS) PER BENEFICIAL SHARE.................... $ 16.70 $(122.07) $ (4.64)
======== =========== =========
WEIGHTED AVERAGE SHARES................................... 10,013 7,206 3,167
======== =========== =========
</TABLE>
See notes to consolidated financial statements.
10
<PAGE> 12
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD FEBRUARY 10, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES OF
BENEFICIAL
INTEREST AMOUNT
---------- ------
<S> <C> <C>
NET ASSETS AT FEBRUARY 10, 1995
Proceeds from sales of shares of beneficial interest
(initial capitalization)............................... 10 $ 10,000
Proceeds from sales of shares of beneficial interest...... 5,118 5,118,000
Net investment loss....................................... (14,683)
Syndication costs incurred................................ (743,716)
Distributions payable to shareholders..................... (126,787)
------ -----------
NET ASSETS AT DECEMBER 31, 1995............................. 5,128 4,242,814
Net investment income..................................... 120,346
Unrealized loss on investments............................ (1,000,000)
------ -----------
Net decrease in assets resulting from operations.......... (879,654)
Proceeds from sales of shares of beneficial interest...... 3,763 3,763,000
Syndication costs incurred................................ (530,488)
Distributions to shareholders............................. (250,000)
Distributions payable to shareholders..................... (457,693)
------ -----------
NET ASSETS AT DECEMBER 31, 1996............................. 8,891 5,887,979
Net investment income..................................... 167,229
Proceeds from sales of shares of beneficial interest...... 1,655 1,655,000
Shares of beneficial interest redeemed.................... (5) (4,500)
Syndication costs incurred................................ (233,033)
Distributions to shareholders............................. (647,508)
Distributions payable to shareholders..................... (234,209)
------ -----------
NET ASSETS AT DECEMBER 31, 1997............................. 10,541 $ 6,590,958
====== ===========
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 13
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD FEBRUARY 10, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets............... $ 167,229 $ (879,654) $ (14,683)
Adjustments to reconcile net increase (decrease) in
net assets to net cash flows from operating
activities:
Amortization of organizational costs............. 1,000 1,000 833
Unrealized loss on investments................... 1,000,000
Changes in operating assets and liabilities:
Temporary investment in money market
securities.................................. 405,576 (720,625) (4,272,549)
Interest receivable............................ 34,353 (22,356) (17,830)
Other assets................................... (14,831)
Accounts payable and other accrued expenses.... 12,915 23,594
Due to affiliate............................... (31,225) 19,808 27,214
----------- ----------- -----------
Net cash flows from operating activities.... 575,017 (578,233) (4,277,015)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Issuance of Kinseth note receivable................. (2,000,000)
Issuance of VisionComm, Inc. note receivable........ (500,000) (2,180,000)
Repayment of VisionComm, Inc. note receivable....... 1,405,000 775,000
Investment in LIVEware5, Inc........................ (300,000)
Investment in Soil Recovery Services, Inc........... (1,000,000)
Payment of SBIC organizational costs................ (31,954) (4,523)
Payment of organizational costs..................... (5,000)
----------- ----------- -----------
Net cash flows from investing activities.... (1,426,954) (2,409,523) (5,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of shares of beneficial
interest......................................... 1,655,000 3,763,000 5,128,000
Redemption of shares of beneficial interest......... (4,500)
Distribution payments to shareholders............... (647,508) (250,000)
Syndication costs incurred.......................... (233,033) (530,488) (743,716)
----------- ----------- -----------
Net cash flows from financing activities.... 769,959 2,982,512 4,384,284
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH....................... (81,978) (5,244) 102,269
CASH AT BEGINNING OF PERIOD........................... 97,025 102,269
----------- ----------- -----------
CASH AT END OF PERIOD................................. $ 15,047 $ 97,025 $ 102,269
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Noncash financing activities -- Distributions
payable to shareholders.......................... $ 234,209 $ 457,693 $ 126,787
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 14
BERTHEL GROWTH & INCOME TRUST I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD FEBRUARY 10, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- Berthel Growth & Income Trust I (the "Trust") is registered
under the Investment Company Act of 1940, as amended, as a nondiversified,
closed-end management investment company electing status as a business
development company. The Trust was formed on February 10, 1995 under the laws of
the State of Delaware and received approval from the Securities and Exchange
Commission to begin offering shares of beneficial interest ("Shares") effective
June 21, 1995. The Trust's investment objective is to achieve capital
appreciation in the value of its net assets and to achieve current income
principally by making investments through private placements in securities of
small and medium sized privately and publicly owned companies. Securities to be
purchased will consist primarily of subordinated debt or preferred stock
combined with equity participation in common stock or rights to acquire common
stock. The Trust offered a minimum of 1,500 Shares and a maximum of 50,000
Shares at an offering price of $1,000 per Share. The minimum offering of 1,500
Shares sold was reached on August 30, 1995. The offering period expired June 21,
1997.
The Trust will terminate upon the liquidation of all of its investments,
but no later than June 21, 2007. However, the Independent Trustees have the
right to extend the term of the Trust for up to two additional one-year periods
if they determine that such extensions are in the best interest of the Trust and
in the best interest of the shareholders, after which the Trust will liquidate
any remaining investments as soon as practicable but in any event within three
years.
Berthel SBIC, LLC (the "SBIC"), a newly formed entity wholly owned by the
Trust within the meaning of Section 2(a)(43) of the Investment Company Act of
1940, has applied to the Small Business Administration ("SBA") for a license to
operate as a Small Business Investment Company. The Trust has funded the SBIC
with a capital contribution of $5,000,000, the minimum amount eligible to be
contributed in order to receive leverage under the SBA Small Business Investment
Company program. The Trust Advisor and Independent Trustees have the same
responsibilities in the management of the SBIC as they do for the Trust.
Investments by the SBIC may be completed while the application is pending. If an
investment has been completed prior to SBIC approval and is subsequently not
approved by the SBIC, the Trust will be required to provide additional funds to
the SBIC to maintain $5,000,000 of "contributed capital" in order to remain
eligible to receive SBA leverage. The SBIC will attempt to obtain SBA
pre-approval for all future investments in order for the capital to qualify for
leverage. There is no assurance that the Trust will have the additional funds
needed if the SBA does not approve SBIC investments.
Berthel Fisher & Company Planning, Inc. (the "Trust Advisor") is the
Trust's investment advisor and manager. TJB Capital Management, Inc. (the
"Corporate Trustee") provides certain management services necessary for the
conduct of the Trust's business. Shares were offered by Berthel Fisher & Company
Financial Services, Inc. (the "Dealer Manager"). Each of these three entities is
a wholly or majority owned subsidiary of Berthel Fisher & Company.
CONSOLIDATION -- The consolidated financial statements include the accounts
of the Trust and its wholly owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES -- The preparation of the Trust's consolidated 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 significantly
from those estimates. Material estimates that are particularly susceptible to
significant change in the near-term relate to the valuation of not readily
marketable securities by the Trustees.
13
<PAGE> 15
BERTHEL GROWTH & INCOME TRUST I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD FEBRUARY 10, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
TEMPORARY INVESTMENT IN MONEY MARKET SECURITIES -- Pending investment in
enhanced yield investments, the Trust has invested in money market securities
with National Financial Services Corporation which are reported at market value,
which approximates cost.
SBIC ORGANIZATIONAL COSTS -- Costs of organizing the SBIC have been
capitalized and will be amortized over the life of the SBIC upon receiving a
license to operate as a Small Business Investment Company.
INVESTMENTS IN SECURITIES -- In accordance with accounting practices,
investments that are not readily marketable are valued at fair value, as
determined by the Independent Trustees ("Trustees"). The resulting difference
between cost and market is included in the Statements of Operations.
In determining fair value for securities and warrants not readily
marketable, investments are initially stated at cost until significant
subsequent events and operating trends require a change in valuation. Among the
factors considered by the Trustees in determining fair value of investments are
the cost of the investment, terms and liquidity of warrants, developments since
the acquisition of the investment, the sales price of recently issued
securities, the financial condition and operating results of the issuer,
earnings trends and consistency of operating cash flows, the long-term business
potential of the issuer, the quoted market price of securities with similar
quality and yield that are publicly traded and other factors generally pertinent
to the valuation of investments. The Trustees, in making their evaluation, have
relied on financial data of the portfolio companies provided by the management
of the portfolio companies.
NET INCOME (LOSS) PER BENEFICIAL SHARE -- Net income (loss) per beneficial
share is based on the weighted average of shares outstanding.
RECLASSIFICATIONS -- Certain amounts previously reported have been
reclassified to conform to current financial statement presentation.
2. INVESTMENTS
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
COST VALUATION COST VALUATION
---- --------- ---- ---------
<S> <C> <C> <C> <C>
VisionComm, Inc.:
Note receivable............................. $ 500,000 $ 500,000 $1,405,000 $1,405,000
Warrants for 125,000 shares at $5 per
share.................................... -- -- -- --
Warrants for 17,500 at $5 per share......... -- --
Soil Recovery Services, Inc. -- Convertible
subordinated debenture...................... 1,000,000 -- 1,000,000 --
Kinseth Hospitality Company, Inc.:
Note receivable............................. 2,000,000 2,000,000 -- --
Warrants for 25% of the outstanding common
stock at $0.01 per share................. -- -- -- --
LIVEware5, Inc.:
300,000 shares of common stock, no par value
and warrants for 600,000 shares at $0.01
per share................................ 300,000 300,000 -- --
---------- ---------- ---------- ----------
$3,800,000 $2,800,000 $2,405,000 $1,405,000
========== ========== ========== ==========
</TABLE>
On April 30, 1996, the Trust made a commitment to invest up to $2,180,000
in VisionComm, Inc. ("VisionComm"), which is primarily engaged in the
telecommunications and private cable television business. This investment was in
the form of a 14%; five-year secured note with a seven year warrant for
14
<PAGE> 16
BERTHEL GROWTH & INCOME TRUST I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD FEBRUARY 10, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
125,000 shares of common stock exercisable until April 20, 2007 at an exercise
price of $5 per share. VisionComm repaid 100% of the outstanding balance during
1997.
On December 1, 1997, the Trust provided an additional $500,000 in financing
to VisionComm in the form of a 14% 12-month secured note with warrants. This
note is secured by all the private cable assets of the VisionComm. The warrants
received have terms equivalent to those received in conjunction with the Trust's
previous investment in VisionComm with the exception that all warrants now owned
by the Trust provide for the option of a cashless exercise. The warrants
received with this round of financing are for 17,500 shares of common stock
exercisable until April 20, 2007 at an exercise price of $5 per share.
The Trust now has the right through this latter warrant and the other
warrants it previously owned to purchase approximately 24% of the equity
ownership of VisionComm. This right expires on April 30, 2007.
The Trust has also invested $1,000,000 in a convertible subordinated
debenture issued by Soil Recovery Services, Inc. ("SRS"). The debenture is for a
seven year term with an annual interest rate of 15% with no prepayment penalty.
Interest only is due the first two years with equal principal payments due at
the end of years three through seven. The debenture can be converted at any time
at a conversion rate that will provide the Trust with approximately 21.5% of
common stock of SRS.
The Trust served a Notice of Default and a Notice of Recession on SRS and
commenced litigation against key parties. The last interest payment received by
the Trust was in July 1996. SRS filed for Chapter 11 bankruptcy protection on
December 12, 1996. The Trust is continuing its avenues of recovery through the
bankruptcy court and litigation but for the year ended December 31, 1996, the
Trust recognized an unrealized loss of $1,000,000.
The Trust has invested in a senior secured note issued by Kinseth
Hospitality Company, Inc. ("Kinseth"), which is primarily engaged in the
hospitality industry. The six year note carries a 14% interest rate with
interest only payments with a balloon payment due May 16, 2003. The Trust
received a warrant to purchase 25% of Kinseth's common stock for $11.80. The
warrant expires at the end of 2001. The warrant shares can be "put" to Kinseth
beginning in 2002 at a designated multiple or based on independent valuations.
Beginning in 2004, the warrant shares may be called by Kinseth at a designated
multiple or based on independent valuations.
The Trust has invested $300,000 in LIVEware5, Inc. ("LIVEware"). LIVEware
is a provider of distance based corporate education via advanced
teleconferencing technologies. In exchange for this investment, LIVEware has
issued 300,000 shares of common stock, no par value and warrants to purchase
600,000 shares of common stock at $.01 per share. The warrants will cancel upon
LIVEware achieving certain levels of revenues and pretax profit beginning in
fiscal year 2000. If the warrants do not cancel, the Trust may own up to 900,000
shares of LIVEware, which would represent approximately 17.1% of LIVEware.
3. RELATED PARTY TRANSACTIONS
The Trust has entered into a management agreement with the Trust Advisor
that provides for incentive compensation to the Trust Advisor based on the
capital appreciation of the Trust's investments. The Trust pays the Trust
Advisor an annual management fee equal to 2.5% of the value of the assets of the
Trust. The management fee is paid quarterly, in arrears, and is determined by
reference to the value of the assets of the Trust as of the first day of that
quarter. Management fees incurred during the periods ended December 31, 1997,
1996 and 1995 relating to this agreement aggregated $151,422, $155,847 and
$30,435, respectively.
15
<PAGE> 17
BERTHEL GROWTH & INCOME TRUST I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD FEBRUARY 10, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
In addition, the Trust paid the Dealer Manager $40,016, $39,648 and $24,720
during the periods ended December 31, 1997, 1996 and 1995, respectively, for
administration of shareholder accounts and other administrative services.
4. SYNDICATION COSTS
As part of the issuance of Shares, the Trust paid certain fees described
below to the Dealer Manager, Trust Advisor and Corporate Trustee. These
syndication costs have been treated as a direct reduction of net assets.
The Trust compensated the Dealer Manager through selling commissions and a
wholesale marketing fee in conjunction with the offering of Shares, and
reimbursement of due diligence expenses. Selling commissions varied between 7%
and 2% of the aggregate purchase price of all Shares sold, depending on the
number of Shares purchased by the investor. Selling commissions paid during the
periods ended December 31, 1997, 1996 and 1995, aggregated $115,850, $263,410
and $321,300, respectively. The wholesale marketing fee of $41,375, $94,075 and
$27,950 is equal to 2.5% of the public offering price of all Shares sold during
the periods ended December 31, 1997, 1996 and 1995, respectively. Due diligence
expenses totaled $1,333, $3,668, and $27,196 during the periods ended December
31, 1997, 1996, and 1995, respectively.
The Trust paid organizational and offering expenses paid or incurred by the
Trust Advisor in connection with organizing the Trust and offering the Shares.
The amount of reimbursement may not exceed 4% of the aggregate purchase price of
all Shares sold. During the periods ended December 31, 1997, 1996 and 1995,
respectively, these reimbursement costs aggregated $66,200, $150,520 and
$204,720. Any organizational and offering expenses (excluding the expenses
mentioned above) of the Trust in excess of this amount are paid by the Trust
Advisor.
The Trust paid the Corporate Trustee a fee equal to .5% of the aggregate
purchase price of all Shares sold aggregating $8,275, $18,815 and $25,590 during
the periods ended December 31, 1997, 1996 and 1995, respectively.
5. DISTRIBUTIONS PAYABLE TO SHAREHOLDERS
Distributions payable is based on actual interest earned by the Trust on
the investors funds held in escrow through the initial closing, plus 10% simple
annual interest, computed on a daily basis from the initial closing (August 31,
1995) until June 21, 1997, the Final Closing. Shareholders were paid $493,897 in
July 1997 leaving $522,791 remaining to be paid on the 10% underwriting return.
Since the final closing, $445,899 representing a priority return of 8% simple
annual interest computed on a daily basis through December 31, 1997 has been
accrued. Shareholders were paid $153,611 in November 1997, leaving $292,288
remaining to be paid on the 8% priority return. There also remains to be paid
$3,610 which represents interest earned by the Trust on the investor's funds
held in escrow through the initial closing.
The Trust intends to make quarterly distributions of all cash revenues to
the extent that the Trust has cash available for such distributions. These
distributions must be approved by a majority of the Independent Trustees and
made within sixty days of the end of each quarter.
6. FEDERAL INCOME TAXES
The Trust has received an opinion from counsel that it will be treated as a
partnership for federal income tax purposes. As such, under present income tax
laws, no income taxes will be reflected in these financial statements as taxable
income or loss of the Trust is included in the income tax returns of the
investors.
16
<PAGE> 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A management board consisting of the Independent Trustees and the Trust
Advisor is responsible for the management of the Trust and its business.
Trustees of the Registrant:
Corporate Trustee -- TJB Capital Management, Inc. was organized as a
Delaware corporation on January 25, 1995 for the purpose of organizing the
Trust. The principal office of the Corporate Trustee is located at 1105 N.
Market Street, Suite 1300, Wilmington, Delaware, 19801. The Corporate
Trustee is an affiliate of the Trust Advisor.
Henry T. Madden (age 67) -- Mr. Madden is an Independent Trustee of
the Trust. He was awarded a B.S.M.E. from the University of Notre Dame in
1951 and an M.B.A. from the University of Pittsburgh in 1966. He began his
career as an Industrial Engineer, then Quality Control Manager in Technical
Ceramics for 3M Company in Chattanooga, Tennessee. He became Manager of
Production Engineering, then Manager for a 1,500 employee, $50 million in
sales Allis-Chalmers Plant, manufacturing power and distribution
transformers in Pittsburgh, Pennsylvania. In 1966, he became General Plant
Manager of the Allis-Chalmers, Cedar Rapids, Iowa Plant manufacturing
construction machinery. In 1969, Mr. Madden became Division Manager for
Hydraulic Truck Cranes for Harnischfeger Corporation. In 1975 Mr. Madden
became President, Harnischfeger GMBH in Dortmund, West Germany, a joint
venture with August Thyssen A.G. of West Germany, manufacturing truck
cranes, creating a 100 million deutsche mark business. He also served as
Managing Director for Harnischfeger International Corporation for Europe,
East Europe, and North and West Africa, responsible for all product sales
in those areas. In 1981, Mr. Madden became a consultant to and assumed the
responsibilities of General Manager of Oak Hill Engineering Inc. in Cedar
Rapids, Iowa, manufacturing wire harnesses. In 1983, he started a company,
Enertrac Inc., designing, manufacturing and marketing communications
systems. Mr. Madden financed Enertrac Inc. through an initial public
offering and merged it into another company in 1986. Mr. Madden organized
the Institute for Entrepreneurial Management in the University of Iowa
College of Business Administration in 1986, advising potential and new
entrepreneurs and teaching courses on entrepreneurship in the MBA program.
He also teaches courses in Corporate Strategy in the Executive MBA and MBA
programs. Mr. Madden has been consulting with developmental stage companies
since 1981.
Henry Royer (age 65) -- Mr. Royer is an Independent Trustee of the
Trust. He graduated in 1953 from Colorado College with a B.A. in Money and
Banking. From 1950 until 1962, Mr. Royer was employed for four years by
Pillsbury Mills and for four years by Peavey Company as a grain
merchandiser. From 1962 through 1965 he was employed as Treasurer and
served on the Board of Lehigh Sewer Pipe and Tile. Mr. Royer joined First
National Bank of Duluth in 1965, where he served in various capacities,
including Assistant Cashier, Assistant Vice President, Assistant Manager of
the Commercial Loan Department and Senior Vice President in Charge of
Loans. When he left the bank in 1983 he was serving as Executive Vice
President/Loans. He then joined The Merchants National Bank of Cedar Rapids
(currently Firstar Bank Cedar Rapids, N.A.) where he served as Chairman and
President until August, 1994. Since September, 1994, Mr. Royer has been the
President and Chief Executive Officer of River City Bank, Sacramento,
California.
Executive Officers and Directors of the Trust Advisor:
Thomas J. Berthel (age 45) -- Mr. Berthel serves as Chief Executive
Officer and Chairman of the Board of the Trust Advisor and as the Chief
Executive Officer of Berthel Fisher & Company, the parent
17
<PAGE> 19
company of the Trust Advisor and the Dealer Manager. He has held these
positions since 1985. Until June, 1993, Mr. Berthel served as President of
the Dealer Manager. From 1993 until the present he has served as Chief
Executive Officer and as a Director of the Dealer Manager. Mr. Berthel is
also President and a Director of various other subsidiaries of Berthel
Fisher & Company that act or have acted as general partners of separate
private leasing programs and two publicly sold leasing programs. He serves
as the Chairman of the Board of Amana Colonies Golf Course, Inc., and, in
November 1995, he was elected to the Board of Directors of Intellicall,
Inc., an advanced telecommunications technologies company in Carrollton,
Texas. Mr. Berthel holds a Financial and Operation Principal license issued
by the National Association of Securities Dealers, Inc. He is also a
Certified Life Underwriter. Mr. Berthel holds a bachelor's degree from St.
Ambrose College in Davenport, Iowa (1974). He also holds a Master's degree
in Business Administration from the University of Iowa in Iowa City, Iowa
(1993).
James D. Thorp (age 38) -- Mr. Thorp is the President and Managing
Director of the Trust Advisor. As such he is the person primarily
responsible for the day-to-day management of the Trust's portfolio. He was
elected as a Director of Berthel Fisher & Company in April, 1994. He serves
as Vice President -- Investment Banking of Berthel Fisher & Company
Financial Services, Inc., the Dealer Manager, a position he has held since
1993. In this position he is responsible for all the investment banking,
corporate finance and due diligence activities of the Dealer Manager.
During his tenure in this position he has been responsible for, directed
and completed nine private financings for company clients totaling over $20
million. From 1983 to 1992, Mr. Thorp served in various positions and
finally as Principal for Allsop Venture Partners II and its affiliates, a
private equities investment management concern managing over $105 million
in capital invested in over 80 portfolio companies. These companies spanned
a myriad of industries and involved many transaction types that covered the
spectrum of private equities investing, from seed investments to later
stage expansions and turnaround financing to leveraged buyouts. During his
tenure at Allsop Venture Partners III he reviewed and analyzed business
plans for potential financings of over $1.5 billion, performed due
diligence on projects representing potential financings of over $200
million. The funds under management while Mr. Thorp was at Allsop Venture
Partners III and its affiliates consistently yielded twice the average
internal rate of return generated by similar private equities investment
firms. He has served as a director and on the boards of seven portfolio
companies and is a past member of the National Venture Capital Association,
the National Association of Small Business Investment Companies and the
Midwest Regional Association of Small Business Investment Companies. He is
a graduate of the Ninth Annual Management Institute of the National
Association of Small Business Investment Companies. Mr. Thorp received a
Bachelor of Science degree in Business Administration in 1981 from Oklahoma
State University. In 1983 he was awarded a Master of Business
Administration -- Finance from the Wharton School, University of
Pennsylvania.
Ronald O. Brendengen (age 42) -- Mr. Brendengen is the Chief Operating
Officer, Chief Financial Officer, Treasurer and a Director of the Trust
Advisor. He has served since 1985 as Controller and since 1987 as the
Treasurer and a Director of Berthel Fisher & Company, the parent company of
the Trust Advisor. He was elected Secretary and Chief Financial Officer in
1994, and Chief Operating Officer in January 1998, of Berthel Fisher &
Company. He also serves as Chief Financial Officer, Treasurer and a
Director of each subsidiary of Berthel Fisher & Company. Mr. Brendengen
holds a certified public accounting certificate and worked in public
accounting during 1984 and 1985. From 1979 to 1984, Mr. Brendengen worked
in various capacities for Morris Plan and MorAmerica Financial Corp., Cedar
Rapids, Iowa. Mr. Brendengen attended the University of Iowa before
receiving a bachelor's degree in Accounting and Business Administration
with a minor in Economics from Mt. Mercy College, Cedar Rapids, Iowa in
1978.
Leslie D. Smith (age 50) -- Mr. Smith is a Director and the Secretary
of the Trust Advisor. In 1994 Mr. Smith was named General Counsel of
Berthel Fisher & Company. Mr. Smith was awarded his B.A. in Economics in
1976 from Iowa Wesleyan College, Mount Pleasant, Iowa, and his J.D. in 1980
from the University of Dayton School of Law, Dayton, Ohio. Mr. Smith was
employed as Associate Attorney and as a Senior Attorney for Life Investors
Inc., Cedar Rapids, Iowa, from 1981 through 1985 where he was responsible
for managing mortgage and real estate transactions. From 1985 to 1990 Mr.
Smith was
18
<PAGE> 20
General Counsel for LeaseAmerica Corporation, Cedar Rapids, Iowa. In that
capacity, Mr. Smith performed all duties generally associated with the
position of General Counsel. From 1990 to 1992, Mr. Smith was Operations
Counsel for General Electric Capital Corporation located in Cedar Rapids,
Iowa. From 1993 to 1994, Mr. Smith was employed as Associate General
Counsel for Gateway 2000, Inc. in North Sioux City, South Dakota.
ITEM 11. EXECUTIVE COMPENSATION
Set forth is the information relating to all direct remuneration paid or
accrued by the Registrant.
<TABLE>
<CAPTION>
(A) (B) (C) (C1) (C2) (D)
SECURITIES OF
PROPERTY
CASH AND CASH INSURANCE AGGREGATE OF
CONTINGENT
YEAR EQUIVALENT FORMS BENEFITS OR
REIMBURSEMENT
NAME OF INDIVIDUAL AND CAPACITIES IN ENDED OF REMUNERATION FEES PERSONAL BENEFITS OR FORMS OF
WHICH SERVED REMUNERATION
- ----------------------------------------- ---- -- -------- -- --
<S> <C> <C> <C> <C> <C>
TJB Capital Management, Inc.............. 1997 $0 $ 8,275 $0 $0
Corporate Trustee 1996 $0 $ 18,815 $0 $0
1995(1) $0 $ 25,590 $0 $0
Henry T. Madden.......................... 1997 $0 $ 15,000 $0 $0
Corporate Trustee 1996 $0 $ 22,000 $0 $0
1995(1) $0 $ 4,000 $0 $0
Henry Royer.............................. 1997 $0 $ 15,000 $0 $0
Corporate Trustee 1996 $0 $ 22,000 $0 $0
1995(1) $0 $ 4,000 $0 $0
</TABLE>
- -------------------------
(1) For the period February 10, 1995 (Date of Inception) to December 31, 1995
The Trust paid the Trust Advisor $151,422, $155,847 and $30,435 for
management fees and $66,200, $150,250 and $204,720 for reimbursement of
organizational and offering expenses for the years 1997, 1996 and 1995,
respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person owns of record, or is known by the Registrant to own
beneficially, more than five percent of the shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related party transactions are described in Notes 3 and 4 of Notes to
Consolidated Financial Statements. See Item 8.
19
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a)1. Financial Statements
PAGE
NO.
--
<C> <S> <C>
Consolidated Statements of Assets and Liabilities at
December 31, 1997 and December 31, 1996..................... 9
Consolidated Statements of Operations for the Years Ended
December 31, 1997 and 1996, and for the Period February 10,
1995 (Date of Inception) to December 31, 1995............... 10
Consolidated Statements of Changes in Net Assets for the
Years Ended December 31, 1997 and 1996, and for the Period
February 10, 1995 (Date of Inception) to December 31,
1995........................................................ 11
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996, and for the Period February 10,
1995 (Date of Inception) to December 31, 1995............... 12
Notes to Consolidated Financial Statements.................. 13
2. Financial Statement Schedules -- None
(b) Reports on Form 8-K
None
3. Exhibits
3.1 Certificate of Trust
3.2 Declaration of Trust
10.1 Management Agreement between the Trust and the Trust
Advisor
10.2 Safekeeping Agreement between the Trust and Firstar
Bank Cedar Rapids, N.A.
16.0 Letter re change in certifying accountant
</TABLE>
20
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BERTHEL GROWTH & INCOME TRUST I
<TABLE>
<C> <S>
By: /s/ THOMAS J. BERTHEL Date: March 27, 1998
-------------------------------------------------------
Thomas J. Berthel
Chief Executive Officer
(principal executive officer)
of Berthel Fisher & Company Planning, Inc.,
Trust Advisor
By: /s/ RONALD O. BRENDENGEN Date: March 27, 1998
-------------------------------------------------------
Ronald O. Brendengen
Chief Operating Officer,
Chief Financial Officer and Treasurer
(principal financial officer)
of Berthel Fisher & Company Planning, Inc.,
Trust Advisor
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S>
/s/ THOMAS J. BERTHEL Date: March 27, 1998
- -----------------------------------------------------------
Thomas J. Berthel
Chairman and Director of Berthel Fisher & Company,
Berthel Fisher & Company Planning, Inc.,
Trust Advisor
/s/ RONALD O. BRENDENGEN Date: March 27, 1998
- -----------------------------------------------------------
Ronald O. Brendengen
Director of Berthel Fisher & Company Planning, Inc.,
Trust Advisor
/s/ JAMES D. THORP Date: March 27, 1998
- -----------------------------------------------------------
James D. Thorp
Director of Berthel Fisher & Company Planning, Inc.,
Trust Advisor
/s/ LESLIE D. SMITH Date: March 27, 1998
- -----------------------------------------------------------
Leslie D. Smith
Director of Berthel Fisher & Company Planning, Inc.,
Trust Advisor
</TABLE>
21
<PAGE> 23
<TABLE>
<C> <S>
/s/ HENRY ROYER Date: March 27, 1998
- -----------------------------------------------------------
Henry Royer
Independent Trustee of Berthel Growth & Income Trust I
/s/ THOMAS J. BERTHEL Date: March 27, 1998
- -----------------------------------------------------------
Thomas J. Berthel
Chairman of the Board and Chief Executive Officer of
TJB Capital Management, Inc.,
Trustee of Berthel Growth & Income Trust I
By: /s/ DANIEL P. WEGMANN Date: March 27, 1998
-------------------------------------------------------
Daniel P. Wegmann
Controller of
Berthel Fisher & Company Planning, Inc.,
Trust Advisor
</TABLE>
22
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Certificate of Trust(1)
3.2 Declaration of Trust(2)
10.1 Management Agreement between the Trust and the Trust
Advisor(3)
10.2 Safekeeping Agreement between the Trust and Firstar Bank
Cedar Rapids, N.A.(4)
16.0 Letter re change in certifying accountant(5)
</TABLE>
- -------------------------
(1) Incorporated by reference to the Trust's Registration Statement on Form N-2,
filed with the Commission on February 14, 1995 (File No. 33-89605).
(2) Incorporated by reference to Pre-Effective Amendment No. 3 to the Trust's
Registration Statement on Form N-2, filed with the Commission on June 21,
1995 (File No. 33-89605).
(3) Incorporated by reference to Pre-Effective Amendment No. 1 to the Trust's
Registration Statement on Form N-2, filed with the Commission on May 9, 1995
(File No. 33-89605).
(4) Incorporated by reference to Pre-Effective Amendment No. 2 to the Trust's
Registration Statement on Form N-2, filed with the Commission on June 12,
1995 (File No. 33-89605).
(5) Incorporated by reference to Form 8-K filed with the Commission on October
13, 1995 (File No. 33-895056).
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
STATEMENTS OF ASSETS AND LIABILITIES OF BERTHEL GROWTH & INCOME TRUST I AS OF
DECEMBER 31, 1997, AND THE AUDITED STATEMENTS OF OPERATIONS OF THE TRUST FOR THE
YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,047
<SECURITIES> 8,387,598
<RECEIVABLES> 59,308
<ALLOWANCES> (1,000,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,461,953
<CURRENT-LIABILITIES> 870,995
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,590,958
<TOTAL-LIABILITY-AND-EQUITY> 6,590,958
<SALES> 550,725
<TOTAL-REVENUES> 550,725
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 383,496
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 167,229
<INCOME-TAX> 0
<INCOME-CONTINUING> 167,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167,229
<EPS-PRIMARY> 16.70<F1>
<EPS-DILUTED> 16.70
<FN>
<F1>NET INCOME PER BENEFICIAL SHARE IS BASED ON THE WEIGHTED AVERAGE OF SHARES
OUTSTANDING WHICH WAS 10,013 SHARES FOR THE YEAR ENDED DECEMBER 31, 1997.
</FN>
</TABLE>
