<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
===============================================================================
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period January 1, 1998 to December 31, 1998.
[ ] 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)
Delaware 52-1915821
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Second Street S.E., Cedar Rapids, Iowa 52401
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 365-2506
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered 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, 1999, 10,541 Shares of Beneficial Interest were issued and
outstanding. Such shares were issued at $1,000 per share.
EXHIBIT INDEX AT PAGE 34
<PAGE> 2
BERTHEL GROWTH & INCOME TRUST I
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business................................................... 3
Item 2. Properties................................................. 4
Item 3. Legal Proceedings.......................................... 4
Item 4. Submission of Matters to a Vote of Shareholders............ 4
PART II
Item 5. Market for the Registrant's Common Equity
and Related Shareholder Matters............................ 5
Item 6. Selected Financial Data.................................... 5
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations........... 6
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.. 13
Item 8. Financial Statements and Supplementary Data................ 14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................... 27
PART III
Item 10. Directors and Executive Officers of the Registrant......... 27
Item 11. Executive Compensation..................................... 31
Item 12. Security Ownership of Certain
Beneficial Owners and Management........................... 32
Item 13. Certain Relationships and Related Transactions............. 32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................ 32
SIGNATURES............................................................... 33
EXHIBIT INDEX............................................................ 34
<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.
On May 4, 1998, Berthel SBIC, LLC (the "SBIC"), a wholly owned subsidiary
of the Trust within the meaning of Section 2(a)(43) of the Investment Company
Act of 1940, received a license to operate as a Small Business Investment
Company from the Small Business Administration ("SBA"). The SBIC was formed in
1997. The Trust 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 also serve as the Independent Managers of the SBIC. As used
hereinafter, with respect to investment activities, the term "Trust" includes
investment activities of the SBIC.
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. was the ("Dealer Manager") for the Trust's
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,
through its Trust Advisor, 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
<PAGE> 4
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.
ITEM 3. LEGAL PROCEEDINGS
In 1996 Soil Recovery Services, Inc. ("SRS"), an investee of the Trust,
was forced into involuntary Chapter 7 bankruptcy by another creditor. During
1997, there was a foreclosure sale of all real estate and certain personal
property in which the SBA had a first security interest. The Trust's claim in
the bankruptcy proceeding was discharged in September 1998. In the fourth
quarter of 1996, the Trust filed a 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 in the Northern
District of Iowa. This matter is scheduled for trial in April 1999.
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.
<PAGE> 5
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.
Number of Shareholders Number of Shares of
at Beneficial Interest at
Title of Class February 28, 1999 February 28, 1999
- -------------------------------------------------------------------------------
Shares of
Beneficial Interest 872 10,541
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. There 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. Since the final closing, a priority return at 8% simple interest has
been accrued. The earned priority return amounted to $445,899 in 1997 and
$843,280 in 1998. Priority return distributions were $153,611 in 1997 and
$569,029 in 1998, leaving $292,288 to be distributed as of December 31, 1997 and
$566,539 to be distributed as of December 31, 1998.
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
Year Ended December 31 February 10, 1995
------------------------------------- (date of inception)
1998 1997 1996 to December 31, 1995
- --------------------------------------------------------------------------------
Total assets $12,381,442 $ 7,461,953 $ 6,543,075 $ 4,396,815
Net increase
(decrease) in
net assets
resulting from
operations 5,444,032 167,229 (879,654) (14,683)
Interest income 584,555 529,792 411,551 54,566
Management and
administrative
fees 233,836 191,438 195,495 55,155
Unrealized gain
(loss) on
investments 5,255,928 -0- (1,000,000) -0-
Net income (loss)
per beneficial
share 516.46 16.70 (122.07) (4.64)
The above selected data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
report.
<PAGE> 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
<TABLE>
<CAPTION>
Year Ended February 10, 1995
----------------------------------------------------------- (date of inception) to
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 584,555 $ 529,792 $ 411,551 $ 54,566
Management fees 194,820 151,422 155,847 30,435
Administrative services 39,016 40,016 39,648 24,720
Trustee fees 36,000 30,000 44,000 8,000
Legal fees 71,144 96,692 65,292 -0-
Unrealized gain (loss)
on investments 5,255,928 -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>
PERIODS ENDING DECEMBER 31
INVESTMENT INVESTMENT -------------------------------------------
AMOUNT DATE 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market $ 196,712 $ 251,450 $ 185,108 $ 54,566
SRS 1,000,000 May-96 -0- -0- 25,000 -0-
VisionComm 2,180,000 Apr-96 -0- 103,655 201,443 -0-
VisionComm 500,000 Dec-97 70,000 5,833 -0- -0-
Kinseth 2,000,000 May-97 280,000 168,854 -0- -0-
VisionComm 200,000 May-98 17,733 -0- -0- -0-
Hicklin 400,000 Jun-98 20,110 -0- -0- -0-
--------- --------- --------- --------
$ 584,555 $ 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, depending upon
the level of interest rates achieved by the underlying money market accounts.
MANAGEMENT FEES: The Trust accrues an annual management fee equal to 2.5% of the
total assets of the Trust paid quarterly. Changes in management fees from year
to year are directly related to changes in the value of assets in the Trust.
Prior to September 1997, the Trust 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.
<PAGE> 7
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 GAIN (LOSS) ON INVESTMENTS: As of December 31, 1998, the Trust
assigned a value of $3.1586 per VisionComm warrant held by the Trust. Warrants
to purchase 889,153 shares of VisionComm common stock were acquired in
connection with preferred stock and promissory note financings in 1996, 1997 and
1998. This valuation reflects the Trust's valuation of VisionComm stock at $4.00
as of December 31, 1998 less the exercise price of $.8414 per common share. The
valuation resulted in an unrealized gain of $2,808,478 during 1998.
A value of $2,750,000 was assigned to warrants issued by Kinseth Hospitality
Company ("Kinseth"), which provide for purchase of 25% of Kinseth's common stock
for $11.80. The warrants were acquired in connection with a 1997 note financing.
The valuation resulted in an unrealized gain equal to the valuation.
An unrealized loss of $297,750 was recorded as of December 31, 1998, to reflect
the valuation of LiveWare5 common stock as of December 31, 1998.
As previously reported, the Trust served a Notice of Default and a Notice of
Rescission on SRS and commenced litigation against key parties during 1996. The
last interest payment received by the Trust was in July 1996. SRS filed for
Chapter 11 bankruptcy and the Trust's claim has been discharged. The Trust is
continuing its avenues of recovery through litigation. Accordingly, in 1996, the
Trust recognized 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: On May 4, 1998, Berthel SBIC, LLC (the "SBIC"), a wholly
owned subsidiary of the Trust within the meaning of Section 2(a)(43) of the
Investment Company Act of 1940, received a license to operate as a Small
Business Investment Company from the Small Business Administration ("SBA"). The
SBIC was formed in 1997. The Trust funded the SBIC with a capital contribution
of $5,000,000, the minimum amount eligible to be contributed in order to
<PAGE> 8
receive leverage under the SBA Small Business Investment Company program.
INVESTMENTS: The Trust has invested in six portfolio companies through December
31, 1998. 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, vehicular
drive system testing, and internet related technology services.
VISIONCOMM, INC.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Original Cost Valuation Original Cost Valuation
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Notes receivable $ 700,000 $ 700,000 $ 500,000 $ 500,000
Warrants for 742,813 shares
at $.8414 per share -- 2,346,249 -- --
Warrants for 104,529 shares
at $.8414 per share -- 330,165 -- --
Warrants for 41,811 shares
at $84.14 per share -- 132,064 -- --
---------- ---------- ----------- ----------
$ 700,000 $3,508,478 $ 500,000 $ 500,000
========== ========== =========== ==========
</TABLE>
VisionComm, Inc. ("VisionComm") is primarily engaged in the telecommunications
and private cable television business. The shares of VisionComm common stock
referred to in the table have been restated to reflect a 5.9425 to 1 stock split
which was effective July 17, 1998. On April 30, 1996, the Trust received a
warrant for 742,813 shares of VisionComm common stock exercisable until April
20, 2007, at an exercise price of $.8414 per share. The warrants were received
in conjunction with a $2,180,000 note that was repaid in 1996 ($775,000) and
1997 ($1,405,000).
On December 1, 1997 and May 14, 1998, the Trust provided $500,000 and $200,000,
respectively, in financing to VisionComm in the form of a 14% 12-month secured
note with warrants. Effective December 1, 1998, the terms of the $500,000 note
receivable were extended due to VisionComm's negotiations for long-term
financing arrangements. This note will become due on May 1, 1999. These notes
are secured by substantially all the private cable assets of VisionComm. The
warrants entitle the Trust to purchase 104,529 and 41,811 shares of common
stock, respectively, at an exercise price of $.8414 per share, exercisable until
April 30, 2003 and September 30, 2003, respectively. 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 Trust now has the right
through this latter warrant and the other warrants it previously owned to
purchase approximately 19% of the equity ownership of VisionComm. The Trust,
upon the occurrence of certain conditions, may "put" the warrant shares to
VisionComm, beginning after May 15, 2003. The valuation of VisionComm warrants
at December 31, 1998 is based on a recent preferred stock market transaction as
adjusted to reflect the differences between preferred and common stock.
<PAGE> 9
KINSETH HOSPITALITY COMPANY, INC.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Original Cost Valuation Original Cost Valuation
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Note receivable $2,000,000 $2,000,000 $2,000,000 $2,000,000
Warrants for 25% of the
outstanding common stock
of Kinseth at $.01
per share -0- 2,750,000 -0- -0-
---------- ---------- ---------- ----------
$2,000,000 $4,750,000 $2,000,000 $2,000,000
========== ========== ========== ==========
</TABLE>
On April 16, 1997, the Trust 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 during 2002. Beginning in 2004, the common shares may be called
by Kinseth at a designated multiple or based on independent valuations. The
Trust can "put" the common shares to Kinseth beginning May 1, 2003 if the common
stock is not listed on a national exchange or NASDAQ, or prior to May 1, 2003,
if other certain conditions are met, at a price based on fair market value less
certain specified provisions. The valuation of Kinseth warrants at December 31,
1998 reflects improved operating results and expanded operations.
SOIL RECOVERY SERVICES, INC.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Original Cost Valuation Original Cost Valuation
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Convertible subordinated
debenture $1,000,000 $ -0- $1,000,000 $ -0-
========== ========== ========== ==========
</TABLE>
In 1996, the Trust invested $1,000,000 in a convertible subordinated
debenture issued by Soil Recovery Services, Inc. ("SRS"). During 1996, SRS was
forced into involuntary Chapter 7 bankruptcy by another creditor. During 1997,
there was a foreclosure sale of all real estate and certain personal property in
which the SBA has a first security interest. The Trust's claim in the bankruptcy
proceeding was discharged in September 1998. In the fourth quarter of 1996, the
Trust filed a 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 in the Northern District of Iowa.
This matter is scheduled for trial in April 1999.
LIVEWARE5, INC.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Original Cost Valuation Original Cost Valuation
------------- --------- ------------- ---------
<S> <C> <C> <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 $ 2,250 $ 300,000 $ 300,000
========== ========== ========== ==========
</TABLE>
<PAGE> 10
LIVEware5, Inc. ("LIVEware") is a provider of distance based corporate
education via advanced teleconferencing technologies. On December 11, 1997, the
Trust invested $300,000 in LIVEware in exchange for 300,000 shares of no par
value common stock, representing approximately 12% of outstanding LIVEware
common stock 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 18% and 17% of LIVEware as of December 31, 1998 and
1997, respectively. Subject to certain restrictions, the Trust can "put" the
common stock and warrants to LIVEware beginning December 11, 2003 at the greater
of a designated multiple or fair market value. The valuation of warrants at
December 31, 1998 is based on recent market transactions.
HICKLIN ENGINEERING, L.C.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Original Cost Valuation Original Cost Valuation
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Subordinated note $ 400,000 $ 400,000 $ -0- $ -0-
========== ========== ========== ==========
</TABLE>
Hicklin Engineering, L.C. ("Hicklin") specializes in manufacturing drive
train component test equipment and dynometer systems. Hicklin designs equipment
and integrated test systems used to test vehicular drive train components. On
June 30, 1998, the Trust invested $400,000 in a Hicklin secured 10% subordinated
note due June 30, 2003, and a warrant to purchase 6,857 units of membership
interest at an exercise price of $.01. The note is collateralized by
substantially all the assets of Hicklin. The warrant expires on May 1, 2006. The
exercise of these warrants would give the Trust a 6.86% membership interest in
Hicklin. The Trust can "put" the warrant shares to Hicklin beginning June 30,
2003 at a designated multiple or based on independent valuations. As of December
31, 1998 the Trust had a verbal commitment to invest an additional $150,000 in
Hicklin, but Hicklin withdrew its request after December 31, 1998.
OBJECTSPACE, INC.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Original Cost Valuation Original Cost Valuation
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
108,108 shares of Series B
Convertible preferred stock $ 404,800 $ 400,000 $ -0- $ -0-
========== ========== ========== ==========
</TABLE>
ObjectSpace, Inc. provides information technology services to Fortune 500
companies, assisting its clients in realizing the full potential of Java for
enterprise-level systems. On December 30, 1998, the Trust invested $404,800 in
108,108 shares of ObjectSpace Series B Convertible Preferred Stock ("Preferred
Stock"). The Preferred Stock is subordinated to the claims of other secured
creditors and may be converted into common shares at any time at a price equal
to $3.70 divided by the conversion rate in effect on the date of conversion. The
initial conversion rate was $3.70 per share. Subject to other investor rights,
the Trust can "put" the Preferred Stock to ObjectSpace beginning January 1, 2003
at a price equal to the greater of fair market value or the per share sales
price, payable over three years earning interest at prime interest rate.
INVESTMENTS SUBSEQUENT TO DECEMBER 31, 1998: On February 5, 1999, the Trust
invested $100,000 in LIVEware in exchange for 13,333,333 shares of common stock.
In addition,
<PAGE> 11
certain terms of the original investment agreement dated December 11, 1997, were
amended. As a result, the Trust owns approximately 32% of the outstanding shares
of common stock of LIVEware.
During February, 1999, the Trust invested $700,000 in 11% subordinated
debentures due March 1, 2004, of Easy Systems, Inc. ("Easy Systems"). Interest
payments are not scheduled to begin until March 2000. In addition, the Trust
received a warrant to purchase 290,060 shares of Easy Systems' common stock at
an exercise price of $2.95 per share. The warrant expires on the earlier of
February, 2009, or upon the occurrence of a certain specified event. The Trust
also received the right to "put" the shares to Easy Systems upon the occurrence
of certain conditions, at fair market value.
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. The Trust has determined that the software
it uses in its operations is compatible with the Year 2000. The cost of making
software compatible with the Year 2000 has been included in the costs of
software billed to the Trust Advisor and is not believed to be material. There
are no non-information technology processes that the Trust has identified which
would affect the Trust's operations. An assessment of the readiness of external
entities which it interfaces with, such as vendors, counterparties, customers,
and others, is ongoing. At the present the Trust Advisor does not contemplate
any specific charges will be incurred for this assessment, but if separate
charges are identified they will be billed to the Trust as incurred. The amount
of such expenditures is not expected to be significant. The Trust does not
expect the Year 2000 impact of external relationships will have a material
adverse impact on the Trust. But, in a worst case scenario, the Trust expects a
Year 2000 related event might delay the processing of cash flows by up to 90
days, but that recovery from the event would not be beyond the Trust's normal
capabilities.
The Trust is assessing the impact of the Year 2000 issue on information
technology and non-information technology systems used by investee companies. No
investee company is contractually obligated to become Year 2000 compliant or to
disclose their capabilities to the Trust. However, all investee companies have
been contacted and the Trust plans to complete an assessment of their Year 2000
readiness by April 30, 1999. As of the date of this report, the Trust has been
informed that VisionComm expects to be fully compliant by June 1999, and has
implemented an assessment and remedial process to encompass external
relationships.
At this time the Trust is unable to determine if the Year 2000 issue now
jeopardizes any of its investments. In a worst case scenario any investee
company could experience significant disruptions to cash flows and business
processes that would lead to a decrease in the valuation of securities issued.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. SFAS No. 133 is effective for
fiscal years beginning after June 15, 1999. Reclassification of financial
statements for earlier periods provided for comparative purposes is not
required. The Trust has not completed its
<PAGE> 12
assessment of the impact of the adoption of SFAS No. 133 on the financial
statements.
The American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 98-5, "Reporting on the Costs of Start-up Activities". SOP 98-5
requires the expensing of start-up activities and organization costs as
incurred. The SOP is effective for fiscal years beginning after December 15,
1998. The Trust will adopt the SOP in 1999 which will require SBIC organization
costs of $33,818 to be written off and reported as a cumulative effect of a
change in accounting principle.
LIQUIDITY AND CAPITAL RESOURCES: Years Ending December 31
- -------------------------------- ---------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Major Cash Source:
Proceeds from issuance of
beneficial shares $ -0- $1,655,000 $3,763,000
Repayment of note receivable -0- 1,405,000 775,000
Major Cash Use:
Payments for syndication costs -0- 233,033 530,488
Distributions 569,029 647,508 250,000
Investing activities 1,004,800 2,831,954 3,184,523
Pending investment in enhanced yield investments, the Trust had invested
$3,187,453 and $4,587,598 in bank money market accounts at December 31, 1998 and
December 31, 1997, respectively.
Distributions of $1,092,940 and $818,689 were accrued as of December 31, 1998
and December 31, 1997, respectively. 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.
During March 1999, the SBIC received approval for SBA leverage ("Leverage")
reserved in the form of debentures equal to $5,000,000 to be issued on or prior
to September 30, 2003. In exchange for the approved Leverage, the SBIC paid
the SBA a nonrefundable fee of $50,000 during March, 1999 and the remaining
portion of the Leverage fee in the amount of $100,000 will be deducted pro rata
as commitment proceeds are drawn. Each issuance of Leverage is conditional upon
the SBIC's credit worthiness and compliance with specified regulations, as
determined by the SBA. The SBA may also limit the amounts that may be drawn each
year.
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.
<PAGE> 13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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 consist of subordinated debt,
preferred stock, or common stock combined with equity participation in common
stock or rights to acquire common stock. Securities held for investment at
December 31, 1998 are not held for trading purposes.
The primary risk of the portfolio is derived from the underlying
ability of investee companies to satisfy debt obligations and their ability to
maintain or improve common equity values. Levels of interest rates are not
expected to impact the Trust's valuations, but could impact the capability of
investee companies to repay debt or create and maintain shareholder value.
As of December 31, 1998, the portfolio is valued at fair value, as
determined by the Independent Trustees ("Trustees"). In determining fair value
for securities and warrants, 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 relied
on financial data of the portfolio companies provided by the management of the
portfolio companies.
The Trust Advisor maintains ongoing contact with management of the
portfolio companies including participation on their Boards of Directors and
review of financial information.
There is no assurance that any investment made by the Trust will be
repaid or re-marketed. Accordingly, at December 31, 1998, the entire portfolio
value is at risk in light of the underlying operations and financial health of
investee companies. At December 31, 1998, the amount at risk was $9,060,728; at
December 31, 1997, the amount at risk was $2,800,000. The change is a result of
unrealized net appreciation and new investments during 1998.
At December 31, 1998, the portfolio consisted of the following:
Cost Valuation
---------- ----------
Notes and debentures $3,100,000 $3,100,000
Warrant to purchase common stock
as a result of note and
debenture financings -0- 5,558,478
Preferred stock convertible into
common stock 404,800 400,000
Common stock 300,000 2,250
Debenture - subject to litigation
for recovery of investment 1,000,000 -0-
---------- ----------
$4,804,800 $9,060,728
========== ==========
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and related information as of the
years ended December 31, 1998, 1997 and 1996 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
<PAGE> 15
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, 1998 and 1997, and the related consolidated statements of
operations, changes in net assets, and cash flows for each of the three years in
the period ended December 31, 1998. 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, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 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 $9,060,728 as of
December 31, 1998 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
Cedar Rapids, Iowa
March 12, 1999
<PAGE> 16
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
1998 1997
ASSETS:
Investments in securities (81% and
42.5% of net assets as of
December 31, 1998 and 1997,
respectively) (Note 2):
VisionComm, Inc. $ 3,508,478 $ 500,000
Soil Recovery Services, Inc. - -
LIVEware5, Inc. (Note 7) 2,250 300,000
Kinseth Hospitality Company, Inc. 4,750,000 2,000,000
Hicklin Engineering, LC 400,000 -
ObjectSpace, Inc. 400,000 -
----------- ----------
Total investments in securities 9,060,728 2,800,000
Cash 31,663 15,047
Temporary investment in money market securities 3,187,453 4,587,598
Interest receivable 35,382 5,833
Other assets 66,216 53,475
----------- ----------
Total assets 12,381,442 7,461,953
----------- ----------
LIABILITIES:
Accounts payable and other accrued expenses 25,232 36,509
Distributions payable to shareholders (Note 5) 1,092,940 818,689
Due to affiliate (Note 3) 71,560 15,797
----------- ----------
Total liabilities 1,189,732 870,995
----------- ----------
COMMITMENTS AND CONTINGENCIES
NET ASSETS (equivalent to $1,061.73 per
share in 1998, and $625.27 per
share in 1997) $11,191,710 $6,590,958
=========== ==========
Net assets consist of:
Shares of beneficial interest,
25,000 shares authorized -
10,541 shares issued and
outstanding in 1998 and 1997 $ 6,474,786 $7,318,066
Undistributed net investment gain (loss) 4,716,924 (727,108)
----------- ----------
$11,191,710 $6,590,958
=========== ==========
See notes to consolidated financial statements.
<PAGE> 17
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1998 1997 1996
REVENUES:
Interest income $ 584,555 $ 529,792 $ 411,551
Closing fees - 20,000 -
Commitment fees 15,502 833 63,600
Other income - 100 -
---------- --------- -----------
Total revenues 600,057 550,725 475,151
---------- --------- -----------
EXPENSES:
Management fees (Note 3) 194,820 151,422 155,847
Administrative services 39,016 40,016 39,648
Trustee fees 36,000 30,000 44,000
Legal expense 71,144 96,692 65,292
Other general and administrative expenses 70,973 65,366 50,018
---------- --------- -----------
Total expenses 411,953 383,496 354,805
---------- --------- -----------
NET INVESTMENT INCOME 188,104 167,229 120,346
UNREALIZED GAIN (LOSS) ON INVESTMENTS 5,255,928 - (1,000,000)
---------- --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $5,444,032 $ 167,229 $ (879,654)
========== ========= ===========
INVESTMENT INCOME PER BENEFICIAL SHARE $ 56.92 $ 54.99 $ 65.94
EXPENSES PER BENEFICIAL SHARE (39.08) (38.29) (49.24)
---------- --------- -----------
NET INVESTMENT INCOME
PER BENEFICIAL SHARE 17.84 16.70 16.70
UNREALIZED GAIN (LOSS) ON INVESTMENTS
PER BENEFICIAL SHARE 498.62 - (138.77)
---------- --------- -----------
NET OPERATIONAL INCREASE (DECREASE)
IN NET ASSETS PER BENEFICIAL SHARE $ 516.46 $ 16.70 $ (122.07)
========== ========= ===========
WEIGHTED AVERAGE SHARES 10,541 10,013 7,206
========== ========= ===========
See notes to consolidated financial statements.
-3-
<PAGE> 18
BERTHED GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
SHARES OF
BENEFICIAL
INTEREST AMOUNT
NET ASSETS AT JANUARY 1, 1996 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
Net investment income - 188,104
Unrealized gain on investments - 5,255,928
Distributions to shareholders - (569,029)
Distributions payable to shareholders - (274,251)
------ ------------
NET ASSETS AT DECEMBER 31, 1998 10,541 $ 11,191,710
====== ============
See notes to consolidated financial statements.
-4-
<PAGE> 19
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets $ 5,444,032 $ 167,229 $ (879,654)
Adjustments to reconcile net increase
(decrease) in net assets to net cash
flows from operating activities:
Amortization of organizational costs 3,660 1,000 1,000
Unrealized (gain) loss on investments (5,255,928) - 1,000,000
Changes in operating assets and
liabilities:
Temporary investment in money
market securities 1,400,145 405,576 (720,625)
Interest receivable (29,549) 34,353 (22,356)
Other assets (16,401) (14,831) -
Accounts payable and other
accrued expenses (11,277) 12,915 23,594
Due to affiliate 55,763 (31,225) 19,808
----------- ---------- ---------
Net cash flows from
operating activities 1,590,445 575,017 (578,233)
----------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Issuance of Kinseth note receivable - (2,000,000) -
Issuance of Hicklin Engineering, L.C.
note receivable (400,000) -
Issuance of VisionComm, Inc.
note receivable (200,000) (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)
Investment in ObjectSpace, Inc. (404,800) - -
Payment of organizational costs - (31,954) (4,523)
----------- ---------- ---------
Net cash flows from
investing activities (1,004,800) (1,426,954) (2,409,523)
----------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of shares of
beneficial interest - 1,655,000 3,763,000
Redemption of shares of beneficial
interest - (4,500) -
Distribution payments to shareholders (569,029) (647,508) (250,000)
Syndication costs incurred - (233,033) (530,488)
----------- ---------- ---------
Net cash flows from
financing activities (569,029) 769,959 2,982,512
----------- ---------- ---------
NET INCREASE (DECREASE) IN CASH 16,616 (81,978) (5,244)
CASH AT BEGINNING OF PERIOD 15,047 97,025 102,269
----------- ---------- ---------
CASH AT END OF PERIOD $ 31,663 $ 15,047 $ 97,025
=========== ========== =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Noncash financing activities -
Distributions payable
to shareholders $ 274,251 $ 234,209 $ 457,693
=========== ========== =========
See notes to consolidated financial statements.
-5-
<PAGE> 20
BERTHEL GROWTH & INCOME TRUST I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
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 (the
"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, common stock 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 (the
"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 wholly owned subsidiary of the Trust
within the meaning of Section 2(a)(43) of the Investment Company Act of
1940, was formed during 1997 and received a license to operate as a Small
Business Investment Company from the Small Business Administration ("SBA")
on May 4, 1998. The Trust 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 Trustees also serve as the Independent Managers of the SBIC.
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.
-6-
<PAGE> 21
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.
TEMPORARY INVESTMENT IN MONEY MARKET SECURITIES - Pending investment in
enhanced yield investments, the Trust has invested in money market
securities with WFS Clearing Services, which are reported at market value,
which approximates cost.
OTHER ASSETS - Included within other assets are costs of organizing the
SBIC, which are being amortized over the life of the SBIC, eight years,
beginning upon receipt of its license to operate as a Small Business
Investment Company. SBIC organizational costs total $33,818, net of
accumulated amortization of $2,660, as of December 31, 1998.
INVESTMENTS IN SECURITIES - In accordance with accounting practices,
investments that are not readily marketable are valued at fair value, as
determined by the 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.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 133 is effective for fiscal years beginning after June
15, 1999. Reclassification of financial statements for earlier periods
provided for comparative purposes is not required. The Trust has not
completed its assessment of the impact of the adoption of SFAS No. 133 on
the financial statements.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities. SOP 98-5 provides guidance on the financial reporting
of start-up costs and organization costs. SOP 98-5 requires the costs of
start-up activities and organization costs to be expensed as incurred. This
SOP is effective for financial statements for fiscal years beginning after
December 15, 1998. Except for entities meeting certain specified criteria,
entities should report the initial application of this SOP as a cumulative
effect of a change in accounting principle. Entities meeting this specified
criteria should adopt this SOP prospectively. The adoption of this SOP will
require the SBIC organization costs of $33,818, as of December 31, 1998, to
be written off and reported as a cumulative effect of a change in
accounting principle during the year ended December 31, 1999.
-7-
<PAGE> 22
2. INVESTMENTS
<TABLE>
<CAPTION>
1998 1997
------------------------ -------------------------
Cost Valuation Cost Valuation
<S> <C> <C> <C> <C>
VisionComm, Inc.:
Notes receivable $ 700,000 $ 700,000 $ 500,000 $ 500,000
Warrants for 742,813 shares
at $.8414 per share - 2,346,249 - -
Warrants for 104,529 shares
at $.8414 per share - 330,165 - -
Warrants for 41,811 shares
at $.8414 per share - 132,064 - -
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 2,000,000 2,000,000
Warrants for 25% of the outstanding
common stock at $0.01 per share - 2,750,000 - -
LIVEware5, Inc.:
300,000 shares of common stock,
no par value and warrants for
600,000 shares at $0.01 per share 300,000 2,250 300,000 300,000
Hicklin Engineering , L.C. -
10% subordinated note 400,000 400,000 - -
Object Space, Inc. -
108,108 shares of Series B
Convertible Preferred Stock 404,800 400,000 - -
---------- ---------- ---------- ----------
$4,804,800 $9,060,728 $3,800,000 $2,800,000
========== ========== ========== ==========
</TABLE>
VISIONCOMM, INC.
VisionComm, Inc. ("VisionComm") is primarily engaged in the
telecommunications and private cable television business. The shares of
VisionComm common stock mentioned in the following paragraphs have been
restated to reflect a 5.9425 to 1 stock split which was effective July 17,
1998. On April 30, 1996, the Trust received a warrant for 742,813 shares
of VisionComm common stock exercisable until April 20, 2007, at an
exercise price of $.8414 per share.
-8-
<PAGE> 23
On December 1, 1997 and May 14, 1998, the Trust provided $500,000 and
$200,000, respectively, in financing to VisionComm in the form of a 14%
12-month secured note with warrants. Effective December 1, 1998, the terms
of the $500,000 note receivable were extended to May 1, 1999 due to
VisionComm's negotiations for long-term financing arrangements. These notes
are secured by substantially all the private cable assets of VisionComm.
The warrants entitle the Trust to purchase 104,529 and 41,811 shares of
common stock, respectively, at an exercise price of $.8414 per share,
exercisable until April 30, 2003 and September 30, 2003, respectively. 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 Trust, upon the occurrence of certain conditions, may "put"
the warrant shares to VisionComm, beginning after May 15, 2003. The Trust
now has the right through these warrants to purchase approximately 19% of
the equity ownership of VisionComm. As of December 31, 1998, the warrants
are valued at $3.1586 per share based on recent market transactions, and an
unrealized gain of $2,808,478 was recognized for the year ended December
31, 1998.
SOIL RECOVERY SERVICES, INC.
The Trust 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 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. During 1996, SRS was forced into
involuntary Chapter 7 bankruptcy by another creditor and during 1998, the
Trust's claim in the bankruptcy proceeding was discharged. The Trust is
continuing its avenues of recovery through litigation but for the year
ended December 31, 1996, the Trust recognized an unrealized loss of
$1,000,000.
KINSETH HOSPITALITY COMPANY, INC.
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 during 2002. Beginning in 2004, the common shares may
be called by Kinseth at a designated multiple or based on independent
valuations. The Trust can "put" the common shares to Kinseth beginning May
1, 2003 if the common stock is not listed on a national exchange or NASDAQ,
or prior to May 1, 2003, if other certain conditions are met, at a price
based on Kinseth's fair market value less certain specified provisions. As
of December 31, 1998, the warrant to purchase 25% of Kinseth's common stock
is valued at $2,750,000, based on improved operating performance and
expanded operations, and an unrealized gain of $2,750,000 was recognized
during the year ended December 31, 1998.
-9-
<PAGE> 24
LIVEWARE5, INC.
LIVEware5, Inc. ("LIVEware") is a provider of distance based corporate
education via advanced teleconferencing technologies. The Trust has
invested $300,000 in LIVEware in exchange for 300,000 shares of no par
value common stock, representing approximately 12% of outstanding LIVEware
common stock 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 18% and 17% of LIVEware as of December
31, 1998 and 1997, respectively. Subject to certain restrictions, the Trust
can "put" the common stock and warrants to LIVEware beginning December 11,
2003 at the greater of a designated multiple or fair market value. As of
December 31, 1998, the common stock is valued at $.0075 per share, based on
recent market transactions, and an unrealized loss of $297,750 was
recognized for the year ended December 31, 1998.
HICKLIN ENGINEERING, L.C.
Hicklin Engineering, L.C. ("Hicklin") specializes in manufacturing drive
train component test equipment and dynometer systems. Hicklin designs
equipment and integrated test systems used to test vehicular drive train
components. On June 30, 1998, the Trust invested $400,000 in a Hicklin
secured 10% subordinated note due June 30, 2003, and a warrant to purchase
6,857 units of membership interest at an exercise price of $.01. The note
is collateralized by substantially all the assets of Hicklin. The warrant
expires on May 1, 2006. The exercise of these warrants would give the Trust
a 6.86% membership interest in Hicklin. The Trust can "put" the warrant
shares to Hicklin beginning June 30, 2003 at a designated multiple or based
on independent valuations.
OBJECTSPACE, INC.
ObjectSpace, Inc. ("ObjectSpace") provides information technology services
to Fortune 500 companies, assisting its clients in realizing the full
potential of Java for enterprise-level systems. On December 30, 1998, the
Trust invested $404,800 in 108,108 shares of ObjectSpace Series B
Convertible Preferred Stock ("Preferred Stock"). The Preferred Stock is
subordinated to the claims of other secured creditors and may be converted
into common shares at any time at a price equal to $3.70 divided by the
conversion rate in effect on the date of conversion. The initial conversion
rate was $3.70 per share. Subject to other investor rights, the Trust can
"put" the Preferred Stock to ObjectSpace beginning January 1, 2003 at a
price equal to the greater of fair market value or the per share sales
price, payable over three years earning interest at prime interest rate.
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 years ended
December 31, 1998, 1997 and 1996 relating to this agreement aggregated
$194,820, $151,422 and $155,847, respectively.
In addition, the Trust paid the Dealer Manager $39,016, $40,016 and $39,648
during the periods ended December 31, 1998, 1997 and 1996, 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.
-10-
<PAGE> 25
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 and 1996, aggregated $115,850
and $263,410, respectively. The wholesale marketing fee of $41,375 and
$94,075 is equal to 2.5% of the public offering price of all Shares sold
during the periods ended December 31, 1997 and 1996, respectively. Due
diligence expenses totaled $1,333, and $3,668 during the periods ended
December 31, 1997, and 1996, 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 and 1996, respectively, these reimbursement costs aggregated $66,200
and $150,520. 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 and $18,815 during the
periods ended December 31, 1997 and 1996, respectively.
5. DISTRIBUTIONS PAYABLE TO SHAREHOLDERS
Distributions payable represents a 10% accrued underwriting return
("Underwriting Return") and an 8% accrued priority return ("Priority
Return"). The Underwriting Return 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 the Final Closing (June 21, 1997). The
Priority Return is based on 8% simple annual interest computed from Final
Closing on each shareholder's investment balance in the Trust.
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.
-11-
<PAGE> 26
The distributions payable balance is comprised of the following:
Underwriting Priority
Return Return Total
Balance at January 1, 1997 $ 584,480 $ - $ 584,480
Distributions paid (493,897) (153,611) (647,508)
Distributions earned 435,818 445,899 881,717
--------- -------- -----------
Balance at December 31, 1997 526,401 292,288 818,689
Distributions paid - (569,029) (569,029)
Distributions earned - 843,280 843,280
--------- ---------- ----------
Balance at December 31, 1998 $ 526,401 $ 566,539 $1,092,940
========= ========== ==========
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.
7. SUBSEQUENT EVENT
During February 1999, the Trust invested $100,000 in LIVEware in exchange
for 13,333,333 shares of common stock. In addition, certain terms of the
original investment agreement dated December 11, 1997, were amended. As a
result, the Trust owns approximately 32% of the outstanding shares of
common stock of LIVEware.
During February 1999, the Trust invested $700,000 in 11% subordinated
debentures due March 1, 2004, of Easy Systems, Inc. ("Easy Systems").
Interest payments are not scheduled to begin until March 2000. In addition,
the Trust received a warrant to purchase 290,060 shares of Easy Systems'
common stock at an exercise price of $2.95 per share. The warrant expires
on the earlier of February, 2009, or upon the occurrence of a certain
specified event. The Trust also received the right to "put" the shares to
Easy Systems upon the occurrence of certain conditions, at fair market
value.
During March 1999, the SBIC received approval for SBA leverage ("Leverage")
reserved in the form of debentures equal to $5,000,000 to be issued on or
prior to September 30, 2003. In exchange for the approved Leverage, the
SBIC paid the SBA a nonrefundable fee of $50,000 during March, 1999 and the
remaining portion of the Leverage fee in the amount of $100,000 will be
deducted pro rata as proceeds are drawn. Each issuance of Leverage is
conditional upon the SBIC's credit worthiness and compliance with specified
regulations, as determined by the SBA. The SBA may also limit the amounts
that may be drawn each year.
As of December 31, 1998, the Trust verbally committed to invest $150,000 in
Hicklin in exchange for a note receivable, the terms of which were to be
negotiated at a later date; however, subsequent to December 31, 1998,
Hicklin withdrew its request for financing from the Trust. The Trust
continues to hold its original investment in Hicklin.
* * * * *
-12-
<PAGE> 27
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 68) - 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
<PAGE> 28
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 66) - Mr. Royer served as an Independent Trustee
of the Trust from its date of inception through February 5, 1999,
when he resigned as Trustee. 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 served as
the President and Chief Executive Officer of River City Bank,
Sacramento, California from September 1994 through December 31,
1997.
Mary Quass (age 49) - Ms. Quass was elected as an Independent
Trustee, effective February 5, 1999. She received a BA Degree
from the University of Northern Iowa in 1982. In 1982, she was
appointed General Sales Manager of KSO and later in 1982 became
Vice President and General Manager of KHAK AM/FM. In 1988, Ms.
Quass formed Quass Broadcasting Company, Inc., which merged with
CapStar Broadcasting Partners to form Central Star
Communications, Inc. in 1998. She held the position of President
of Quass Broadcasting until 1998. Quass Broadcasting, Inc. and
Central Star Communications, Inc. are primarily involved in the
ownership and management of AM and FM radio stations. Ms. Quass
has served as President and Chief Executive Officer of Central
Star Communications since 1998.
<PAGE> 29
Executive Officers and Directors of the Trust Advisor:
Thomas J. Berthel (age 46) - 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 company of the Trust Advisor and the Dealer Manager.
He has held these positions since 1985. Effective March 24, 1999,
Mr. Berthel was elected President of the Trust Advisor. 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 39) - Mr. Thorp served as President of the
Trust Advisor until March 24, 1999 when he resigned to focus full
attention on Trust investment matters in his role as Managing
Director. He is 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
<PAGE> 30
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 44) - 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 51) - 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 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.
<PAGE> 31
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 Aggregate of
Cash and cash insurance benefits contingent
Name of individual and Year equivalent forms or reimbursement or forms
capacities in which served Ended of remuneration Fees personal benefits of remuneration
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TJB Capital Management, Inc. 1998 $0 $ 0 $0 $0
Corporate Trustee 1997 $0 $ 8,275 $0 $0
1996 $0 $18,815 $0 $0
Henry T. Madden 1998 $0 $18,000 $0 $0
Corporate Trustee 1997 $0 $15,000 $0 $0
1996 $0 $22,000 $0 $0
Henry Royer 1998 $0 $18,000 $0 $0
Corporate Trustee 1997 $0 $15,000 $0 $0
1996 $0 $22,000 $0 $0
</TABLE>
The Trust paid the Trust Advisor $194,280, $151,422, and $155,847 for management
fees and $-0-, $66,200, and $150,250 for reimbursement of organizational and
offering expenses for the years 1998, 1997, and 1996, respectively.
<PAGE> 32
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements Page No.
Consolidated Statements of Assets and Liabilities
at December 31, 1998 and December 31, 1997 16
Consolidated Statements of Operations for the
Years Ended December 31, 1998, 1997 and 1996 17
Consolidated Statements of Changes in Net Assets for
the Years Ended December 31, 1998, 1997 and 1996 18
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996 19
Notes to Consolidated Financial Statements 20
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 rechange in certifying accountant
<PAGE> 33
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
By: /s/ Thomas J. Berthel
------------------------------------------------
Date: March 25, 1999 THOMAS J. BERTHEL, Chief Executive Officer
(principal executive officer) of Berthel
Fisher & Company Planning, Inc., Trust Advisor
By: /s/ Ronald O. Brendengen
------------------------------------------------
Date: March 25, 1999 RONALD O. BRENDENGEN, Chief Operating Officer,
Chief Financial Officer and Treasurer (principal
financial officer) of Berthel Fisher & Company
Planning, Inc., Trust Advisor
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.
/s/ Thomas J. Berthel
------------------------------------------------
Date: March 25, 1999 THOMAS J. BERTHEL, Chairman and Director of
Berthel Fisher & Company, Berthel Fisher &
Company Planning, Inc., Trust Advisor
/s/Ronald O. Brendengen
------------------------------------------------
Date: March 25, 1999 RONALD O. BRENDENGEN, Director of Berthel Fisher
& Company Planning, Inc., Trust Advisor
/s/ James D. Thorp
------------------------------------------------
Date: March 25, 1999 JAMES D. THORP, Director of Berthel Fisher &
Company Planning, Inc., Trust Advisor
/s/ Leslie D. Smith
------------------------------------------------
Date: March 25, 1999 LESLIE D. SMITH, Director of Berthel Fisher &
Company Planning, Inc., Trust Advisor
/s/ Henry T. Madden
------------------------------------------------
Date: March 25, 1999 HENRY T. MADDEN, Independent Trustee of Berthel
Growth & Income Trust I
/s/ Thomas J. Berthel
------------------------------------------------
Date: March 25, 1999 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 25, 1999 DANIEL P. WEGMANN, Controller of Berthel Fisher
& Company Planning, Inc., Trust Advisor
<PAGE> 34
EXHIBIT INDEX
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)
(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. 33-89605).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
STATEMENT OF ASSETS AND LIABILITIES OF BERTHEL GROWTH AND INCOME TRUST I AS OF
DECEMBER 31, 1998, AND THE AUDITED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 31,663
<SECURITIES> 12,248,181
<RECEIVABLES> 101,598
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,381,442
<CURRENT-LIABILITIES> 1,189,732
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,191,710<F1>
<TOTAL-LIABILITY-AND-EQUITY> 12,381,442<F1>
<SALES> 600,057
<TOTAL-REVENUES> 600,057
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 411,953
<LOSS-PROVISION> (5,255,928)<F2>
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,444,032
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,444,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,444,032
<EPS-PRIMARY> 516.46<F3>
<EPS-DILUTED> 516.46<F3>
<FN>
<F1>Net Assets
<F2>Unrealized Loss (Gain) on Investments
<F3>Net Income per beneficial share is based on the weighted average number of
shares outstanding, which was 10,541 shares for the year ended December 31,
1998.
</FN>
</TABLE>
