<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 FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] 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)
701 Tama Street, Marion, Iowa 52302
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 447-5700
--------------
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 March 8, 2000, 10,541 Shares of Beneficial Interest were issued and
outstanding. Based on the book value of $558.69 per share as of February 29,
2000, the aggregate market value at March 8, 2000 was $5,889,151.
EXHIBIT INDEX AT PAGE 35
<PAGE> 2
BERTHEL GROWTH & INCOME TRUST I
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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........................................................ 4
Item 6. Selected Financial Data................................................................ 5
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations....................................... 5
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.............................. 11
Item 8. Financial Statements and Supplementary Data............................................ 12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................................................. 29
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 29
Item 11. Executive Compensation................................................................. 32
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 33
Item 13. Certain Relationships and Related Transactions......................................... 33
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 33
SIGNATURES ....................................................................................... 34
EXHIBIT INDEX ....................................................................................... 35
</TABLE>
2
<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 701 Tama Street, Marion, Iowa
52302. 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 701 Tama Street, Marion, Iowa 52302.
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
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
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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
None
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
Title of Class at March 8, 2000 at March 8, 2000
- ----------------------------- ---------------------- -------------------
<S> <C> <C>
Shares of Beneficial Interest 872 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. 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, $843,280 in
1998, and $843,279 in 1999. Priority return distributions were $153,611 in 1997,
$569,029 in 1998, and $486,550 in 1999, leaving $292,288 to be distributed as of
December 31, 1997, $566,539 to be distributed as of December 31, 1998, and
$923,268 to be distributed as of December 31, 1999.
The Trust intends to make quarterly distributions of all cash revenues to the
extent it 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. The Trustees declared no distribution for the quarter
ended December 31, 1999. Distributions from the Trust's wholly-owned subsidiary,
Berthel SBIC, LLC, to the Trust are restricted under SBA regulations. Under SBA
regulations, the SBIC subsidiary is not able to distribute income to the parent
unless it has "earnings available for distribution" as defined by the SBA. At
December 31, 1999, the SBIC had a deficit of "earnings available for
distribution" in the amount of $880,956.
4
<PAGE> 5
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31 Feb. 10, 1995
---------------------------------------------------------------- (date of inception)
1999 1998 1997 1996 to Dec. 31, 1995
------------ ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Total assets $ 13,316,795 $ 12,381,442 $ 7,461,953 $ 6,543,075 $ 4,396,815
Debentures payable 5,550,000 -0- -0- -0- -0-
Net increase (decrease) in
net assets resulting
from operations (4,229,880) 5,444,032 167,229 (879,654) (14,683)
Interest income 558,451 584,555 529,792 411,551 54,566
Dividend income 73,318 -0- -0- -0- -0-
Management and
administrative fees 356,757 233,836 191,438 195,495 55,155
Unrealized gain (loss)
on investments (2,195,298) 5,255,928 -0- (1,000,000) -0-
Realized (loss) on investments (1,930,000) -0- -0- -0- -0-
Net operational increase
(decrease) in net assets
per beneficial share (401.28) 516.46 16.70 (122.07) (4.64)
Distributions per beneficial share 46.16 53.98 64.67 34.69 -0-
</TABLE>
The above selected data should be read in conjunction with the consolidated
financial statements and related notes appearing elsewhere in this report. As
discussed in the financial statements, during 1999 the Trust adopted Statement
of Position 98-5, "Reporting on the Costs of Start-up Activities", which
resulted in a cumulative effect of a change in accounting principle of $33,817.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net investment income (loss) reflects the Trust's revenues and expenses
excluding realized and unrealized gains and losses on portfolio investments.
Interest income for the past three years is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Portfolio investments $502,817 $387,843 $278,342
Money market 55,634 196,712 251,450
-------- -------- --------
$558,451 $584,555 $529,792
======== ======== ========
</TABLE>
Changes in interest earned on portfolio investments reflect the level of
investment in interest earning debt securities and loans. Money market interest
reflects cash resources that are invested in highly liquid money market savings
funds. Money market interest declined in 1998 and 1999, reflecting uses of cash
to purchase new investments, finance operations, and pay distributions to the
Trust's beneficial owners.
Dividend income totalling $73,318 reflects dividends earned on the three new
preferred stock investments purchased during 1999. Prior to 1999 the Trust held
no investments in dividend-paying equity securities.
Management fees, calculated as 2.5% of the combined temporary investment in
money market
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securities and loans and investments balances, have increased due to increases
in these assets. Management fees are paid quarterly to the Trust Advisor, in
accordance with the management agreement.
Trustee fees were $39,000 in 1999, $36,000 in 1998, and $30,000 in 1997. 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.
Professional fees were $167,406 in 1999, $97,614 in 1998, and $124,972 in 1997,
and includes legal and accounting expenses. A major component of legal fees are
amounts paid to pursue recovery of the Trust's investment in Soil Recovery
Services ("SRS"). In each of the three previous years, these expenses were as
follows: 1999 - $82,960; 1998 - $52,553; 1997 - $35,265. The attempts at
recovery of the SRS loss terminated in 1999. Accounting and auditing fees
increased $18,730 in 1999 over 1998 due to the increase in investment activity.
Interest expense was first incurred by the Trust in 1999 when it issued
debentures payable to the SBA through its wholly owned subsidiary-Berthel SBIC,
LLC. The Trust issued debentures totalling $5,550,000 ("Debentures") during the
year ended December 31, 1999. The Debentures required the semiannual payment of
interest at annual interest rates ranging from 6.437% to 7.22%. In addition to
interest payments, the Trust is required to pay an annual 1% SBA loan fee on the
outstanding Debentures balance. The Debentures contain certain pre-payment
penalties and are subject to all of the regulations promulgated under the Small
Business Investment Act of 1958, as amended. Prepayment penalties are not
applicable within five years of maturity. Debentures totalling $1,000,000 are to
be paid in full on September 1, 2009 and debentures totalling $4,550,000 are to
be paid in full on March 1, 2010.
The change in unrealized gains and losses and the realized gains and losses on
investments that were recognized during the previous three years are summarized
in the following table:
CHANGE IN UNREALIZED GAINS (LOSSES):
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Soil Recovery System, Inc. $ 1,000,000 $ -0- $ -0-
LIVEware5, Inc. -0- (297,750) -0-
Object Space, Inc. -0- (4,800) -0-
Kinseth Hospitality Co., Inc. (2,750,000) 2,750,000 -0-
VisionComm, Inc. (1,358,478) 2,808,478 -0-
Webcasts.com, Inc. 913,180 -0- -0-
------------- ------------- -------------
$ (2,195,298) $ 5,255,928 $ -0-
============= ============= =============
</TABLE>
REALIZED LOSSES:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Soil Recovery Systems, Inc. $ ($1,000,000) $ -0- $ -0-
SunStar Healthcare, Inc. (930,000) -0- -0-
-------------- -------------- --------------
$ (1,930,000) $ -0- $ -0-
============== ============== ==============
</TABLE>
6
<PAGE> 7
The unrealized loss on Soil Recovery Systems, Inc. was initially recognized in
1996. Following three years of efforts to recover the loss through litigation
and claims on SRS's bankruptcy process, it was determined in 1999 that the loss
should be recognized as realized. Other unrealized gains and losses are a result
of valuing each portfolio security at fair value. None of the Trust's
investments are readily marketable; therefore, securities are initially stated
at cost until a significant event or trend in operations requires a change in
valuation. The decreases in valuation in 1999 of warrants to purchase common
stock, issued by Kinseth Hospitality Company, Inc. and VisionComm, Inc. reflect
the Trustees' view of current operations and prospects for the future as
compared to year-end December 31, 1998. The unrealized appreciation of warrants
to purchase Webcasts.com common stock reflects a recent external transaction.
The realized loss on SunStar Healthcare, Inc., an investment purchased during
1999, was a result of action taken by the Florida Department of Insurance to
place SunStar into receivership. This action followed litigation over SunStar's
calculation of loss reserves and capitalization. The Trust will prudently pursue
recovery efforts, but at this time any recovery appears to be highly unlikely.
INVESTMENT ACTIVITY
The Trust's investment objective is to provide capital appreciation and current
income by investing in debt, preferred stock, and related equity securities
issued by small and medium sized companies.
The Trust's new investments for the past three years are summarized by type of
investment as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Debt Securities & Loans $2,907,860 $ 600,000 $2,500,000
Preferred Stock 3,331,212 404,800 -0-
Common Stocks 1,300,000 -0- 300,000
---------- ---------- ----------
$7,539,072 $1,004,800 $2,800.000
========== ========== ==========
</TABLE>
During 1999 and 1997, one portfolio company totally repaid its debt to the Trust
in the amounts of $700,000 and $1,405,000, respectively.
INVESTMENT PORTFOLIO
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
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. The
Trust's investments at December 31, 1999, 1998, and 1997 are summarized by type
of investment in the table below. The securities that were recognized as
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<PAGE> 8
realized losses in 1999, Soil Recovery Systems, Inc. and SunStar Healthcare,
Inc., are not included in the 1999 table.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------
Cost Fair Value
----------- -----------
<S> <C> <C>
Debt Securities and Loans $ 5,307,860 $ 5,307,860
Preferred Stocks 2,806,012 2,801,212
Warrants to Purchase
Common Stock -0- 2,363,180
Common Stocks 1,600,000 1,302,250
----------- -----------
$ 9,713,872 $11,774,502
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-------------------------
Cost Fair Value
---------- ----------
<S> <C> <C>
Debt Securities and Loans $4,100,000 $3,100,000
Preferred Stocks 404,800 400,000
Warrants to Purchase
Common Stock -0- 5,558,478
Common Stocks 300,000 2,250
---------- ----------
$4,804,800 $9,060,728
========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-------------------------
<S> <C> <C>
Debt Securities and Loans $3,500,000 $2,500,000
Preferred Stocks -0- -0-
Warrants to Purchase
Common Stocks -0- -0-
Common Stocks 300,000 300,000
---------- ----------
$3,800,000 $2,800,000
========== ==========
</TABLE>
Whenever possible, the Trust will negotiate enhancements to the securities
purchased in the form of warrants to purchase shares of common stock in
portfolio companies, options to force redemption of securities by portfolio
companies ("Put Options"), and registration rights should a portfolio company
begin to offer its shares in the public market. Agreements with portfolio
companies may also include restrictive covenants that contribute to sound
management practices at portfolio companies. Regardless of terms that the Trust
is able to achieve with any portfolio company, there is no assurance that any
investment made by the Trust will be repaid or redeemed at a profit; and there
is risk of total loss of any investment made by the Trust.
The difference between cost and fair value of the investments represents
accumulated unrealized gains and losses. Accumulated unrealized gains and losses
are reflected in the Statements of Assets and Liabilities. Changes in
accumulated unrealized gains and losses are reflected in the Statements of
Operations.
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.
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<PAGE> 9
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 receive leverage under the SBA
Small Business Investment Company program.
YEAR 2000 ISSUE
As of the date of this filing, the Trust has encountered no problems relating to
the year 2000 issue. The Trust is not aware of any Y2K problems or situations
encountered by its investee companies, vendors, affiliates, or others.
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. In June,
1999, the FASB issued SFAS No. 137, which changed the effective date of adoption
of SFAS No. 133 until fiscal years beginning after June 15, 2000. The Trust has
not completed its 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 adopted the SOP in 1999 which resulted in the expensing of SBIC
organization costs of $33,817 that were written off and reported as a cumulative
effect of a change in accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Years Ending December 31
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Major Cash Source:
Proceeds from issuance of beneficial shares $ -- $ -- $ 1,655,000
Issuance of debentures 5,550,000 -- --
Major Cash Use:
Payments for syndication costs -- -- (233,033)
Deferred financing costs incurred (238,750) -- --
Distributions (486,550) (569,029) (647,508)
Changes in loans and investments (6,839,072) (1,004,800) (1,395,000)
</TABLE>
9
<PAGE> 10
Cash and temporary cash investments amounted to $1,137,535, $3,219,116, and
$4,602,645 as of December 31, 1999, 1998, and 1997, respectively. The net
investing activities reflect the investments the Trust has made less repayments
of notes receivable of $700,000 in 1999 and $1,405,000 in 1997. Net cash from
operating activities was a net use of cash of $3,732,523 in 1999 compared to a
net source of cash of $585,645 in 1998. This decrease in cash flow is due to the
net change in loans and investments in 1999 of $6,839,072.
Prior to 1999, the principal sources of liquidity and capital were the proceeds
of sales of beneficial shares of the Trust combined with the results of
investment operations. During 1999, the SBIC received commitments for SBA
Leverage in the form of debentures in the amount of $10,000,000. The Trust paid
a 1% commitment fee of $100,000 and leverage and underwriting fees totalling
$138,750, which represent 2.5% of the debentures issued during 1999. As of
December 31, 1999, unused SBA leverage commitments amounted to $4,450,000. Each
draw against SBA commitments is conditional upon the SBIC's credit worthiness
and compliance with specific regulations, as determined by the SBA. The SBA may
also limit the amounts that may be drawn each year.
Subsequent to December 31, 1999, an additional $2,025,000 in debentures has been
issued, resulting in an unused commitment from the SBA in the amount of
$2,425,000. Subject to credit worthiness and compliance with SBA regulations,
the Trust expects to use at least one-half of the remaining commitment to fund
new investments and pay operating and interest costs in the first half of 2000.
The unused SBA commitment expires September 30, 2004. The Board of Directors of
the Trust Advisor has approved application for an additional $5,000,000 of SBA
Leverage commitments, which is subject to review by the SBA.
The Trust intends to make quarterly distributions of all cash revenues to the
extent it has cash available for such distributions. The Independent Trustees
must approve distributions. The Trustees declared no distribution for the
quarter ended December 31, 1999. Distributions from the Trust's wholly-owned
subsidiary, Berthel SBIC, LLC, to the Trust are restricted under SBA
regulations. Under SBA regulations, the SBIC subsidiary is not able to
distribute income to the parent unless it has "earnings available for
distribution" as defined by the SBA. At December 31, 1999, the SBIC had a
deficit of "earnings available for distribution" in the amount of $880,956.
Regardless of the ability to make current distributions in cash, the Trust has
accrued an 8% priority return to beneficial owners of the Trust since June 1997.
A 10% underwriting return was accrued through the final closing of the offering
on June 21, 1997. Accrued underwriting and priority returns amounted to
$1,449,669, $1,092,940, and $818,689 as of December 31, 1999, 1998, and 1997,
respectively. Distributions paid to beneficial owners of the Trust amounted to
$486,550, $569,029, and $647,508 during the years 1999, 1998, and 1997,
respectively.
The effect of interest rate fluctuations and inflation on the current Trust
investments is negligible.
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<PAGE> 11
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, 1999 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, 1999, 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, there is a risk of total loss of any investment made
by the Trust. At December 31, 1999, the amount at risk was $11,774,502.
At December 31, 1999, the portfolio consisted of the following:
<TABLE>
<CAPTION>
Cost Valuation
----------- -----------
<S> <C> <C>
Notes and debentures $ 5,307,860 $ 5,307,860
Warrant to purchase common stock as a
result of note and debenture financings -0- 2,363,180
Preferred stock convertible into
common stock 2,806,012 2,801,212
Common stock 1,600,000 1,302,250
----------- -----------
$ 9,713,872 $11,774,502
=========== ===========
</TABLE>
11
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and related information as of the years ended
December 31, 1999, 1998 and 1997 are included in Item 8:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Independent Auditors' Report 13
Consolidated Statements of Assets and Liabilities 14
Consolidated Statements of Operations 15
Consolidated Statements of Changes in Net Assets 17
Consolidated Statements of Cash Flows 18
Notes to Consolidated Financial Statements 19
</TABLE>
12
<PAGE> 13
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, 1999 and 1998, 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, 1999. 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, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, loans and
investment securities not readily marketable amounting to $11,774,502 as of
December 31, 1999 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 investments 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' estimates of fair values may differ
significantly from the values that would have been used had a ready market
existed for the investments, and the differences could be material.
/s/ DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
March 13, 2000
13
<PAGE> 14
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Loans and investments (Notes 2,3,7 and 9) $ 11,774,502 $ 9,060,728
Cash 1,123,840 31,663
Temporary investment in money market securities 13,695 3,187,453
Interest and dividends receivable 168,348 35,382
Deferred financing costs 226,042 --
Organizational costs, net of $2,660 accumulated amortization as of
December 31, 1998 -- 33,817
Other receivables 10,368 32,399
------------ ------------
Total assets 13,316,795 12,381,442
------------ ------------
LIABILITIES:
Accrued interest payable 73,273 --
Accounts payable and other accrued expenses 59,332 23,565
Due to affiliate (Note 3) 88,121 71,560
Deferred income 11,667 1,667
Distributions payable to shareholders (Note 5) 1,449,669 1,092,940
Debentures (Note 6) 5,550,000 --
------------ ------------
Total liabilities 7,232,062 1,189,732
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
NET ASSETS (equivalent to $577.24 per share in 1999,
and $1,061.73 per share in 1998) $ 6,084,733 $ 11,191,710
============ ============
Net assets consist of:
Shares of beneficial interest, 25,000 shares authorized -
10,541 shares issued and outstanding in 1999 and 1998 (Note 4) $ 5,954,103 $ 6,935,782
Accumulated net realized losses (1,930,000) --
Accumulated net unrealized gains 2,060,630 4,255,928
------------ ------------
$ 6,084,733 $ 11,191,710
============ ============
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 15
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
REVENUES:
Interest income $ 558,451 $ 584,555 $ 529,792
Dividend income 73,318 -- --
Application, closing and other fees 4,000 15,502 20,933
----------- ----------- -----------
Total revenues 635,769 600,057 550,725
----------- ----------- -----------
EXPENSES:
Management fees (Note 3) 318,357 194,820 151,422
Administrative services (Note 3) 38,400 39,016 40,016
Trustee fees 39,000 36,000 30,000
Professional fees 167,406 97,614 124,972
Interest expense 98,001 -- --
Other general and administrative expenses 79,187 44,503 37,086
----------- ----------- -----------
Total expenses 740,351 411,953 383,496
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) (104,582) 188,104 167,229
----------- ----------- -----------
UNREALIZED GAIN (LOSS) ON INVESTMENTS (2,195,298) 5,255,928 --
REALIZED LOSS ON INVESTMENTS (Note 2) (1,930,000) -- --
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS (4,125,298) 5,255,928 --
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (4,229,880) 5,444,032 167,229
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE (33,817) -- --
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS $(4,263,697) $ 5,444,032 $ 167,229
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements. (Continued)
15
<PAGE> 16
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
PER BENEFICIAL SHARE DATA:
Investment income $ 60.31 $ 56.92 $ 54.99
Expenses (70.24) (39.08) (38.29)
------------- ------------- -------------
NET INVESTMENT INCOME (LOSS) (9.93) 17.84 16.70
------------- ------------- -------------
UNREALIZED GAIN (LOSS) ON INVESTMENTS (208.26) 498.62 --
REALIZED LOSS ON INVESTMENTS (183.09) -- --
------------- ------------- -------------
NET GAIN (LOSS) ON INVESTMENTS (391.35) 498.62 --
------------- ------------- -------------
NET OPERATIONAL INCREASE (DECREASE)
IN NET ASSETS (401.28) 516.46 16.70
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE (3.21) -- --
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS $ (404.49) $ 516.46 $ 16.70
============= ============= =============
WEIGHTED AVERAGE SHARES 10,541 10,541 10,013
============= ============= =============
PRO FORMA AMOUNTS APPLYING THE
METHODOLOGY OF ORGANIZATION COSTS
RETROACTIVELY:
Net increase (decrease) in net assets $ (4,229,880) $ 5,446,692 $ 135,275
Net increase (decrease) in net assets per
beneficial share $ (401.28) $ 516.72 $ 12.83
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 17
BERTHED GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares of Beneficial Interest Undistributed Accumulated Accumulated
------------------------------ Net Investment Net Realized Net Unrealized Total Net
Shares Amount Income (Loss) Losses Gains (Losses) Assets
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 8,891 $ 6,898,389 $ (10,410) $ -- $ (1,000,000) $ 5,887,979
Net investment income -- -- 167,229 -- -- 167,229
Sale of shares of beneficial interest 1,655 1,655,000 -- -- -- 1,655,000
Shares of beneficial interest redeemed (5) (4,500) -- -- -- (4,500)
Syndication costs incurred -- (233,033) -- -- -- (233,033)
Distributions to shareholders
($64.67 per weighted average --
beneficial shares) -- (490,689) (156,819) -- -- (647,508)
Distributions payable to shareholders
($23.39 per weighted average
beneficial shares) -- (234,209) -- -- -- (234,209)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1997 10,541 7,590,958 -- -- (1,000,000) 6,590,958
Net investment income -- -- 188,104 -- -- 188,104
Unrealized gain on investments -- -- -- -- 5,255,928 5,255,928
Distributions to shareholders
($53.98 per beneficial share) -- (380,925) (188,104) -- -- (569,029)
Distributions payable to shareholders
($26.02 per beneficial share) -- (274,251) -- -- -- (274,251)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1998 10,541 6,935,782 -- -- 4,255,928 11,191,710
Net investment loss -- (104,582) -- -- -- (104,582)
Cumulative Effect of a Change in
Accounting Principle -- (33,817) -- -- -- (33,817)
Unrealized loss on investments -- -- -- -- (2,195,298) (2,195,298)
Realized loss on investments -- -- -- (1,930,000) -- (1,930,000)
Distributions to shareholders
($46.16 per beneficial share) -- (486,550) -- -- -- (486,550)
Distributions payable to shareholders
($33.84 per beneficial share) -- (356,730) -- -- -- (356,730)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1999 10,541 $ 5,954,103 $ -- $ (1,930,000) $ 2,060,630 $ 6,084,733
============ ============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 18
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets $(4,263,697) $ 5,444,032 $ 167,229
Adjustments to reconcile net increase (decrease) in net
assets to net cash flows from operating activities:
Amortization of deferred financing costs 12,708 -- --
Amortization of organizational costs -- 3,660 1,000
Unrealized (gain) loss on investments 2,195,298 (5,255,928) --
Realized loss on investments 1,930,000 -- --
Cumulative effect of a change in accounting principle 33,817 -- --
Changes in operating assets and liabilities:
Loans and investments (6,839,072) (1,004,800) (1,395,000)
Temporary investment in money market securities 3,173,758 1,400,145 405,576
Interest receivable (132,966) (29,549) 34,353
Other receivables 22,031 (16,401) (14,831)
Accrued interest payable 73,273 -- --
Accounts payable and other accrued expenses 35,766 (11,277) 12,915
Deferred income 10,000 -- --
Due to affiliate 16,561 55,763 (31,225)
----------- ----------- -----------
Net cash flows from operating activities (3,732,523) 585,645 (819,983)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of organizational costs -- -- (31,954)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of shares of beneficial interest -- -- 1,655,000
Redemption of shares of beneficial interest -- -- (4,500)
Syndication costs incurred -- -- (233,033)
Distribution payments to shareholders (486,550) (569,029) (647,508)
Deferred financing costs incurred (238,750) -- --
Proceeds from issuance of debentures 5,550,000 -- --
----------- ----------- -----------
Net cash flows from financing activities 4,824,700 (569,029) 769,959
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 1,092,177 16,616 (81,978)
CASH AT BEGINNING OF PERIOD 31,663 15,047 97,025
----------- ----------- -----------
CASH AT END OF PERIOD $ 1,123,840 $ 31,663 $ 15,047
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 18,128 $ -- $ --
Noncash financing activities - Distributions payable
to shareholders 356,730 274,251 234,209
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
BERTHEL GROWTH & INCOME TRUST I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
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.
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.
19
<PAGE> 20
TEMPORARY INVESTMENT IN MONEY MARKET SECURITIES - Pending investment in
enhanced yield investments, the Trust has invested in money market
securities, which are reported at market value, which approximates cost.
LOANS AND INVESTMENTS - 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 Consolidated 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.
DEFERRED FINANCING COSTS - Deferred financing costs consist of a 1% SBA
commitment fee, which is amortized over the commitment period using the
straight-line method, and a 2.5% SBA leverage and underwriting fee, which is
amortized over the life of the loan using the straight-line method, which
approximates the interest method. The straight-line method approximates the
interest method and the relating amortization is reported as amortization
expense.
ORGANIZATIONAL COSTS - During the year ended December 31, 1998, costs of
organizing the SBIC were being amortized over the life of the SBIC, eight
years, beginning upon receipt of its license to operate as a Small Business
Investment Company. 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. This SOP required the SBIC to write-off
organization costs totaling $33,817 and report the effect as a cumulative
effect of a change in accounting principle during the year ended December 31,
1999.
DEFERRED INCOME - Deferred income represents unearned closing fees received
in connection with the purchase of debt portfolio securities and are
amortized over the life of the debt security using the straight-line method,
which approximates the interest method. The relating amortization is reported
as application, closing and other fees.
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. In June
1999, the FASB issued SFAS No. 137, which changed the effective date of
adoption of SFAS No. 133 until fiscal years beginning after June 15, 2000.
The Trust has not completed its assessment of the impact of the adoption of
SFAS No. 133 on the financial statements.
RECLASSIFICATIONS - Certain amounts in the 1998 financial statements have
been reclassified to conform to the 1999 financial statement presentation.
20
<PAGE> 21
2. LOANS AND INVESTMENTS
<TABLE>
<CAPTION>
VALUATION
----------------------------
Company Security 1999 1998
- ------- -------- -------- ---------
<S> <C> <C> <C>
COMMUNICATIONS AND SOFTWARE:
VisionComm, Inc. 14% secured note receivable repaid $ -- $ 700,000
Telecommunications and during 1999, cost $700,000
private cable television * Warrants to purchase 889,153 common
industry shares at $.8414 per share expiring
April 2003 through April 2007 with put
options beginning December 2002
through May 2003 or upon the
occurrence of a specified event,
$2,808,478 unrealized gain recognized
during 1998 based on recent market
transactions, $1,358,478 unrealized
loss incurred during 1999 based on
operating
results, cost $0 1,450,000 2,808,478
LIVEware5, Inc. * 2,726,667 and 60,000, respectively, no par
Provider of distance based common shares and warrant to purchase
corporate education via 120,000 common shares at $.05 per
advanced teleconferencing share expiring during 2007 with put
technologies and web-based options beginning December 2003,
provider of corporate and the number of warrant shares may be
institutional conferencing reduced based upon the occurrence of
and education certain events, shares reflect 1999 5:1
reverse stock split, $297,750
unrealized loss incurred during 1998
based on recent market transaction,
$100,000 was invested during 1999 in
exchange for 2,666,667 common shares,
1999 cost
$400,000, 1998 cost $300,000 102,250 2,250
12% redeemable Series B Debentures
due September 2004 with interest due
beginning September 2000, 1999 cost
$200,000 200,000 --
* Warrant to purchase 800,000 common
shares at $4,000 expiring August 2009 with
put options beginning December 2003,
1999 cost $0 -- --
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
VALUATION
----------------------------
Company Security 1999 1998
- ------- -------- -------- ---------
<S> <C> <C> <C>
COMMUNICATIONS AND SOFTWARE (CONTINUED):
Object Space, Inc. * 108,108 shares of Series B Subordinated
Provider of information Convertible Preferred Stock with put
technology services and options beginning January 2003, $4,800
software products unrealized loss incurred during 1998,
cost $404,800 400,000 400,000
EDmin.com, Inc. 200,000 shares of 9% Cumulative
Provider of internet-based Redeemable Convertible Series A
software products, technology Preferred Stock, 1999 cost $728,000 728,000 --
planning and systems * Warrant to purchase 20,000 common
integration to educational shares at $4 per share expiring
institutions December 2004, 1999 cost $0 -- --
Cadapult Graphic Systems, Inc. 100,000 shares of 11.5% Cumulative
Provider of computer graphic Convertible Preferred Stock, 1999
systems, peripherals, supplies cost $930,000 930,000 --
and services to visual * Warrant to purchase 300,000 common
communicators and graphics shares at prices ranging from $3.125 to
professionals $4.50 per share, expiring October 2004
through December 2004, 1999 cost $0 -- --
Webcasts.com, Inc. 58,628 shares of 8% Cumulative
Creates and delivers tools and Redeemable Series A Preferred
services enabling the Stock, 1999 cost $500,000 500,000 --
convergence of live video, data 10% unsecured note due September
and e-commerce 2000 with warrant to purchase
common shares, the number of which
is contingent upon certain events, at
$.01 per share, 1999 cost $484,860 484,860 --
* Warrant to purchase 1,354,297 common
shares at $1,155 expiring May 2009 with
put options exercisable during June 2004
through June 2006, $913,180 unrealized
gain recognized during 1999 based on
recent market transactions,
1999 cost $0 913,180 --
---------- ---------
TOTAL COMMUNICATIONS AND SOFTWARE (48.5% AND 43.2% OF TOTAL LOANS
AND INVESTMENTS AS OF DECEMBER 31, 1999 AND 1998, RESPECTIVELY) 5,708,290 3,910,728
---------- ---------
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
VALUATION
----------------------------
Company Security 1999 1998
- ------- -------- -------- ---------
<S> <C> <C> <C>
HEALTHCARE PRODUCTS & SERVICES:
Physicians Total Care, Inc. 10% uncollateralized note due September
Provider of prescription 2004, interest payments beginning
medication systems to October 2000 with the option to
physicians' offices for capitalize deferred interest to the
point-of-care dispensing to principal balance, 1999 cost $500,000 500,000 --
patients * Warrants to purchase 350,000 common
shares at $.035 to $5 per share (upon
the occurrence of a specified event,
210,000 shares have an exercise price of
$1 per share), expiring September 2006
with put options beginning October 2004
and terminating upon the occurrence of a
specified
event, 1999 cost $0 -- --
SunStar HealthCare, Inc. 100,000 10% Convertible Redeemable
Provider of managed healthcare Series A Preferred Stock with warrants
services in the State of Florida to purchase 120,000 common shares
through its licensed HMO at $4 to $5 per share expiring April
subsidiary, SunStar Health Plan, 2004, $930,000 realized loss incurred
Inc. during 1999, 1999 cost $930,000 -- --
Inter-Med, Inc. * 1,340.96 common shares with put options
Manufacturer and importer of beginning May 2006 and call options
products for the U.S. dental beginning May 2007, both expiring
market upon the occurrence of a specified
event, 1999 cost $500,000 500,000 --
---------- ------
TOTAL HEALTHCARE PRODUCTS & SERVICES (8.5% OF TOTAL LOANS
AND INVESTMENTS AS OF DECEMBER 31, 1999) 1,000,000 --
---------- ------
MANUFACTURING:
Hicklin Engineering, L.C. 10% secured subordinated note due
Designs, manufactures and June 2003, cost $400,000 400,000 400,000
distributes drive train component * Warrant to purchase 6,857 membership
test equipment and dynometer interests at $.01 per share expiring May
systems 2006 with put options beginning June
2003, cost $0 -- --
12% uncollateralized subordinated note
principal due January 2001 through
December 2004, 1999 cost $23,000 23,000 --
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
VALUATION
----------------------------
Company Security 1999 1998
- ------- -------- -------- ---------
<S> <C> <C> <C>
MANUFACTURING (CONTINUED):
Easy Systems, Inc. 11% unsecured subordinated debenture
Provides control systems and due March 2004 with interest payments
proprietary software primarily beginning March 2000 and deferred
for the agricultural industry interest capitalized to the principal
balance, 1999 cost $700,000 700,000 --
* Warrants to purchase 485,963 common
shares at $2.10 per share with put
options beginning 2004 and expiring
February 2009 or earlier upon the
occurrence of a specified event,
1999 cost $0 -- --
115,816 shares of Series B Cumulative
Redeemable Preferred Stock, 1999
cost $243,212 243,212 --
---------- ---------
TOTAL MANUFACTURING (11.6% AND 4.4% OF TOTAL LOANS
AND INVESTMENTS AS OF DECEMBER 31, 1999 AND 1998, RESPECTIVELY) 1,366,212 400,000
---------- ---------
OTHER SERVICE INDUSTRIES:
Kinseth Hospitality Company, Inc. 14% senior secured note receivable due
Hotel and restaurant industries May 2003, cost $2,000,000 2,000,000 2,000,000
* Warrant to purchase 25% of common
shares at $.01 per share expiring during
2002 with put options beginning May 2003
or earlier if certain conditions are met
and call options beginning 2004,
$2,750,000 unrealized gain recognized
during 1998 based on improved operating
performance and expanded operations,
$2,750,000 unrealized loss incurred
during 1999 based on declining
operating performance, cost $0 -- 2,750,000
Soil Recovery Services, Inc. * 15% convertible subordinated debenture,
Environmental remediation bankruptcy commenced during 1996,
$1,000,000 unrealized loss incurred
during 1996, $1,000,000 realized loss
incurred during 1999, cost $1,000,000 -- --
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
VALUATION
----------------------------
Company Security 1999 1998
- ------- -------- -------- ---------
<S> <C> <C> <C>
OTHER SERVICE INDUSTRIES (CONTINUED):
International Pacific Seafoods, Inc. 12% subordinated note due June 2003
Provider of seafood and through June 2005, 1999 cost
supplemental products to $1,000,000 1,000,000 --
wholesale, retail and food * Warrant to purchase 1,501 common
service industry shares at $.76 per share expiring
June 2006, exercisable upon the
occurrence of certain events with put
options exercisable during June 2005
through June 2006, 1999 cost $0 -- --
ServeCore Business Solutions, Inc. * 2,661 common shares with put options
Provider of copiers and exercisable October 2004 through
ancillary equipment in the October 2006, 1999 cost $700,000 700,000 --
commercial office market ------------ -----------
TOTAL OTHER SERVICE INDUSTRIES (31.4% AND 52.4% OF TOTAL LOANS
AND INVESTMENTS AS OF DECEMBER 31, 1999 AND 1998, RESPECTIVELY) 3,700,000 4,750,000
------------ -----------
TOTAL LOANS AND INVESTMENTS $ 11,774,502 $ 9,060,728
============ ===========
</TABLE>
* Non-income producing investment
During the year ended December 31, 1999, interest payments on the
International Pacific Seafoods, Inc. subordinated note were restructured to
accommodate the borrower's liquidity needs.
During the year ended December 31, 1996, Soil Recovery Services, Inc.
("SRS"), an investee of the Trust, was forced into involuntary Chapter 7
bankruptcy by another creditor. As the Trust was continuing its avenues of
recovery through litigation, the Trust recognized an unrealized loss of
$1,000,000. The Trust filed several claims against SRS, the President of SRS
and the investment banking firm, Southwest Merchants Group. As of December
31, 1999, all claims have been discharged and the Trust recognized a
$1,000,000 realized loss during the year ended December 31, 1999.
During the year ended December 31, 1999, SunStar HealthCare, Inc. ("SunStar")
announced it was being sued by Florida's Department of Insurance for not
meeting its statutory capital requirements for insurance underwritings.
Subsequent to December 31, 1999, SunStar announced that its subsidiary and
operating unit was being involuntarily placed into receivership for
liquidation by the state of Florida. During the year ended December 31, 1999,
the Trust has recognized a $930,000 realized loss.
As of December 31, 1999, Kinseth Hospitality Company, Inc. and VisionComm,
Inc. are in violation of several investment covenants relating to items such
as allowable payments on shareholder notes, financial results, required board
meetings and prompt delivery of interim financial information. The Trust has
not yet determined whether these investment covenant violations will be
waived.
25
<PAGE> 26
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 combined temporary investment in
money market securities and loans and investments 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, 1999, 1998 and
1997 relating to this agreement aggregated $318,357, $194,820 and $151,422,
respectively. Management fees totaling $24,731 as of December 31, 1999, are
currently past due.
In addition, the Trust pays a fee for administration of shareholder accounts
and other administrative services. During the year ended December 31, 1999,
administrative fees totaling $38,400 were paid to the Trust Advisor. During
the years ended December 31, 1998 and 1997, administrative fees were paid to
the Dealer Manager and totaled $39,016 and $40,016, respectively.
During the year ended December 31, 1999, the Dealer Manager acted as a sales
agent for certain investments acquired by the Trust and forfeited the sales
agent fee to the Trust as a discount on the investment cost. During the year
ended December 31, 1999, the Dealer Manager forfeited sales agent fees
totaling $184,000 to the Trust as a discount. Additionally, the Dealer
Manager forfeited various warrants to purchase a total of 60,000 common
shares in various portfolio companies, each with a cost and fair market value
of $0. Due to the above arrangement, the Trust also received fees totaling
$28,000, which was reported as a discount on the investment cost.
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 and due
diligence expenses totaled $115,580 and $1,333, respectively, during the year
ended December 31, 1997. The wholesale marketing fee of $41,375 is equal to
2.5% of the public offering price of all Shares sold during the year ended
December 31, 1997.
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 year ended December 31 1997,
these reimbursement costs aggregated $66,200. 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 during the year ended
December 31, 1997.
26
<PAGE> 27
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. SBA regulations govern the
amount of the SBIC's income available for distributions. At December 31,
1999, no amounts were available for distribution within the SBIC under the
SBA regulations.
The distributions payable balance comprises the following:
<TABLE>
<CAPTION>
UNDERWRITING PRIORITY
RETURN RETURN TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
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
Distributions paid -- (486,550) (486,550)
Distributions earned -- 843,279 843,279
----------- ----------- -----------
Balance at December 31, 1999 $ 526,401 $ 923,268 $ 1,449,669
=========== =========== ===========
</TABLE>
6. DEBENTURES
The Trust issued debentures payable to the SBA totaling $5,550,000 during the
year ended December 31, 1999. The debentures require the semiannual payment
of interest at annual interest rates ranging from 6.437% to 7.22%. In
addition to interest payments, the Trust is required to pay an annual 1% SBA
loan fee on the outstanding debentures balance. The debentures contain
certain pre-payment penalties and are subject to all of the regulations
promulgated under the Small Business Investment Act of 1958, as amended.
Debentures totaling $1,000,000 are to be paid in full on September 1, 2009
and debentures totaling $4,550,000 are to be paid in full on March 1, 2010.
As of December 31, 1999, the SBIC has unused leverage commitments totaling
$4,450,000 and will be required to pay a 2.5% leverage and underwriting fee
totaling $111,250, which will be deducted pro rata as proceeds are drawn.
Each issuance of debentures is conditioned upon the SBIC's credit worthiness
and compliance with specified regulations, as determined by the SBA. The SBA
may also limit the amount that may be drawn each year. The SBA commitment
expires September 30, 2004.
27
<PAGE> 28
7. COMMITMENTS AND CONTINGENCIES
The Trust has committed to invest an additional $250,000 in Physicians Total
Care, Inc. ("PTC") in exchange for a 10% promissory note. This additional
investment is subject to PTC raising a specified level of additional capital
and achieving specified operating results.
8. 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.
9. SUBSEQUENT EVENTS
During January 2000, the Trust invested $500,000 in GMKS Acquisition
Corporation in exchange for the following: 166,666.33 shares of common stock;
166,666.33 shares of Series A Convertible Preferred Stock; 13% subordinated
note with principal $166,666.33 due March 31, 2005; and a warrant to purchase
1.666% of the outstanding common stock at an exercise price of $.01 per share
expiring January 2022. The Trust may put the common, preferred and warrant
shares during the period January 2007 through January 2022.
During January 2000, the Trust invested $1,000,000 in Bristol Retail
Solutions, Inc. in exchange for 500,000 shares of Series C Convertible
Cumulative Preferred Stock with an annual dividend of $.24 per share and a
warrant to purchase 425,000 common shares at $.01 per share expiring January
2005. The Trust may put the common or warrant shares during the period
January 2005 through January 2007.
During February 2000, the Trust converted its note receivable from
Webcasts.com, Inc. totaling $484,860 as of December 31, 1999, into 19,394
shares of Series D Senior Convertible Preferred Stock earning annual
dividends totaling $1.22 per share.
During February 2000, the Trust invested an additional $300,000 in ServeCore
Business Solutions, Inc. in exchange for 1,002 shares of common stock.
During February 2000, the Trust invested $56,788 in Easy Systems, Inc. in
exchange for 27,041 shares of Series B Cumulative Redeemable Preferred Stock
and a warrant to purchase 45,430 common shares at $2.10 per share with put
options expiring February 2009 or earlier upon the occurrence of a specified
event.
During February 2000, the Trust invested $1,000,000 in Future Med
Interventional, Inc. in exchange for a $1,000,000 13.5% promissory note
maturing February 2005 and a warrant to purchase 383,111 shares of common
stock at $.01 per share, expiring February 2007.
During March 2000, the Trust invested $66,667 in Inter-Med, Inc. in exchange
for 178.7947 common shares. The Trust also agreed to invest a total of
$83,333 in exchange for 223.4933 common shares at an unspecified date
subsequent to March 31, 2000, contingent upon certain criteria.
Subsequent to December 31, 1999, the SBIC issued debentures payable to the
SBA totaling $2,025,000 at interest rates of approximately 6.4%. The
debentures are subject to the same terms and fees as the existing debentures
noted within Note 6.
* * * * *
28
<PAGE> 29
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 70) - 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, a manufacturer of 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.
Mary Quass (age 50) - Ms. Quass was elected as an Independent Trustee,
effective February 5, 1999. She received a BA Degree from the
University of Northern Iowa in 1972. In 1981, 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
29
<PAGE> 30
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. Currently, she is
the President and Chief Executive Officer of Quass Enterprises. Ms.
Quass served as President and Chief Executive Officer of Central Star
Communications from 1998 through 1999 when the company was sold.
Executive Officers and Directors of the Trust Advisor:
Thomas J. Berthel (age 47) - 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, served on the Board of Directors of Intellicall,
Inc., an advanced telecommunications technologies company in
Carrollton, Texas, from November, 1995 to December, 1999. 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).
Henry Royer (Age 68) - Mr. Royer was elected President of the Trust
Advisor in July, 1999. 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. Mr. Royer served as the President and Chief Executive Officer of
River City Bank, Sacramento, California from September 1994 through
December 31, 1997.
James D. Thorp (Age 40) - 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
resigned his position with the Trust Advisor in May, 1999. He was
responsible for the day-to-day management of the Trust's portfolio.
30
<PAGE> 31
Ronald O. Brendengen (Age 45) - 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 52) - 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.
31
<PAGE> 32
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. 1999 $ 0 $ 0 $ 0 $ 0
Corporate Trustee 1998 $ 0 $ 0 $ 0 $ 0
1997 $ 0 $ 8,275 $ 0 $ 0
Henry T. Madden 1999 $ 0 $20,000 $ 0 $ 0
Corporate Trustee 1998 $ 0 $18,000 $ 0 $ 0
1997 $ 0 $15,000 $ 0 $ 0
Henry Royer 1999 $ 0 $ 3,000 $ 0 $ 0
Corporate Trustee 1998 $ 0 $18,000 $ 0 $ 0
1997 $ 0 $15,000 $ 0 $ 0
Mary Quass 1999 $ 0 $16,000 $ 0 $ 0
Corporate Trustee
</TABLE>
The Trust paid the Trust Advisor $318,357, $194,280, and $151,422 for management
fees and $-0-, $-0-, and $66,200, for reimbursement of organizational and
offering expenses for the years 1999, 1998, and 1997, respectively.
32
<PAGE> 33
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 the notes to the
consolidated financial statements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Consolidated Statements of Assets and Liabilities
as of December 31, 1999 and 1998 14
Consolidated Statements of Operations for the
Years Ended December 31, 1999, 1998 and 1997 15
Consolidated Statements of Changes in Net Assets for
the Years Ended December 31, 1999, 1998 and 1997 17
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997 18
Notes to Consolidated Financial Statements 19
</TABLE>
2. Financial Statement Schedules - None
(b) Reports on Form 8-K
None
(c) 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. Letter re change in certifying accountant
27. Financial Data Schedule
33
<PAGE> 34
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 24, 2000 THOMAS J. BERTHEL, Chief Executive
Officer (principal executive officer) of
Berthel Fisher & Company Planning, Inc.,
Trust Advisor
By: /s/ Ronald O. Brendengen
-------------------------------------
Date: March 24, 2000 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 24, 2000 THOMAS J. BERTHEL, Chairman and Director
of Berthel Fisher & Company, Berthel
Fisher & Company Planning, Inc., Trust
Advisor
/s/ Ronald O. Brendengen
-----------------------------------------
Date: March 24, 2000 RONALD O. BRENDENGEN, Director of Berthel
Fisher & Company Planning, Inc., Trust
Advisor
/s/ Henry Royer
-----------------------------------------
Date: March 24, 2000 HENRY ROYER, President of Berthel Fisher
& Company Planning, Inc., Trust Advisor
/s/ Leslie D. Smith
-----------------------------------------
Date: March 24, 2000 LESLIE D. SMITH, Director of Berthel
Fisher & Company Planning, Inc., Trust
Advisor
/s/ Henry T. Madden
-----------------------------------------
Date: March 24, 2000 HENRY T. MADDEN, Independent Trustee of
Berthel Growth & Income Trust I
/s/ Thomas J. Berthel
-----------------------------------------
Date: March 24, 2000 THOMAS J. BERTHEL, Chairman of the Board
and Chief Executive Officer of TJB
Capital Management, Inc., Trustee of
Berthel Growth & Income Trust I
/s/ Daniel P. Wegmann
-----------------------------------------
Date: March 24, 2000 DANIEL P. WEGMANN, Controller of Berthel
Fisher & Company Planning, Inc., Trust
Advisor
34
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
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. 33-89605).
35
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
STATEMENT OF ASSETS AND LIABILITIES OF BERTHEL GROWTH AND INCOME TRUST I AS OF
DECEMBER 31, 1999, AND THE AUDITED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,123,840
<SECURITIES> 11,788,197
<RECEIVABLES> 178,716
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,316,795
<CURRENT-LIABILITIES> 1,682,062
<BONDS> 5,550,000
0
0
<COMMON> 0
<OTHER-SE> 6,084,733<F1>
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 635,769
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 642,350
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98,001
<INCOME-PRETAX> (4,229,880)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,229,880)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (33,817)
<NET-INCOME> (4,263,697)
<EPS-BASIC> (404.49)<F2>
<EPS-DILUTED> (404.49)<F2>
<FN>
<F1>Net Assets
<F2>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,
1999.
</FN>
</TABLE>
