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 June 21, 1995, at which time the Trust began offering Shares of Beneficial Interest ("shares"). The underwriting period was completed on June 21, 1997, with a total of $10,541,000 raised. The Trust's principal office is located at 701 Tama Street, Marion, Iowa 52302. The Trust is a closed-end management 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 Trust Advisor is a registered investment advisor organized as a wholly owned subsidiary of Berthel Fisher & Company ("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. ("Financial Services"), a broker-dealer registered with the National Association of Securities Dealers, Inc. Financial Services 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 frequently, not rated at all. The securities of portfolio companies will often have significant speculative characteristics.
ITEM 2.
ITEM 2. PROPERTIES The Trust does not own or lease any real estate.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS None
ITEM 4.
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.
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 Shares of Number of Shareholders Beneficial Interest Title of Class at March 1, 2001 at March 1, 2001 ----------------------------------------------------------------------- Shares of Beneficial Interest 877 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, $843,280 in 1998, $843,279 in 1999, and $845,590 in 2000. Priority return distributions were $153,611 in 1997, $569,029 in 1998, $486,550 in 1999, and $0 in 2000. Priority return distributions payable at December 31 of each year were $292,288, $566,539, $923,268, and $1,768,858 for 1997, 1998, 1999, and 2000, respectively.
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 distributions during 2000. 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, 2000, the SBIC had a deficit of "earnings available for distribution" in the amount of $2,698,943.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
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.
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:
2000 1999 1998 ---- ---- ---- Portfolio investments $796,285 $502,817 $387,843 Money market 17,694 55,634 196,712 -------- -------- -------- $813,979 $558,451 $584,555 ======== ======== ========
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 1999 and 2000, reflecting uses of cash to purchase new investments and finance operations.
Dividend income increased from $73,318 in 1999 to $247,000 in 2000, reflecting dividends earned on preferred stock investments. 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 securities and loans and investments balances, have increased from $318,357 in 1999 to $404,960 in 2000 due to increases in these assets. Management fees are paid quarterly to the Trust Advisor, in accordance with the management agreement.
Trustee fees were $34,000 in 2000, $39,000 in 1999, and $36,000 in 1998. 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 $65,663 in 2000, $167,406 in 1999, and $97,614 in 1998, and include legal and accounting expenses. A major component of legal fees in 1999 are amounts paid to pursue recovery of the Trust's investment in Soil Recovery Services ("SRS"). These costs were $82,960 in 1999 and $52,553 in 1998. The attempts at recovery of the SRS loss terminated in 1999. Accounting and auditing fees increased due to the increase in investment activity and were $60,360, $45,200, and $26,470 for the years 2000, 1999, and 1998, respectively.
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. Through December 31, 2000, the Trust has issued debentures totalling $9,500,000 ("Debentures"). The Debentures require the semiannual payment of interest at annual interest rates ranging from 7.22% to 7.64%. 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. As of December 31, 2000, the Trust was in violation of the maximum capital impairment percentage permitted by the SBA and has not obtained a waiver from the SBA. The remedies available to the SBA include prohibiting the SBIC from making any additional investments other than investments under existing legally binding commitments, prohibiting distributions to investors, reviewing and redetermining management expenses, and declaring the Debentures immediately due and payable. Debentures totalling $1,000,000, $6,575,000, $725,000, and $1,200,000, are to be paid in full in September, 2009, March, 2010, September, 2010, and March, 2011, respectively.
The changes in unrealized gains and losses and the realized gains and losses on investments recognized during the previous three years are summarized in the following table:
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.
During the year 2000, several investment valuations were adjusted as unrealized losses to reflect valuations based upon the portfolio company's financial condition and expected future operating results. These adjustments include reductions in the value of Object Space, Inc., Physicians Total Care, Inc., Easy Systems, Inc., and VisionComm, Inc.
The investment in LIVEware5, Inc., which was acquired by McLeodUSA, Inc., was exchanged for McLeod's common stock, allowing the Trust to reverse previous unrealized losses. Subsequent to the LIVEware5-McLeod transaction, the value of McLeod common stock, a publicly traded security, decreased, resulting in an unrealized loss. Warrants to purchase shares of Bristol Retail Solutions common stock declined reflecting the market for Bristol's common stock, which is publicly traded.
Chequemate International, Inc. acquired the Trust's equity position in VisionComm on December 30, 2000 in exchange for Chequemate common stock, a note receivable, and warrants. The unrealized gain represents the estimated valuation of Chequemate in excess of the carrying value of VisionComm.
Webcasts.com, Inc. was acquired by iBEAM Broadcasting Corporation in April, 2000, and the unrealized loss represents a reversal of the unrealized gain recorded for Webcasts during 1999. The unrealized gain recorded for the investment in iBEAM reflects the value of the publicly traded iBEAM stock in excess of the original cost of the investments in Webcasts.
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:
2000 1999 1998 ---- ---- ----
Debt securities & loans $ 2,646,115 $ 2,907,860 $ 600,000 Preferred stock 1,043,538 3,331,212 404,800 Common stocks and warrants 1,057,785 1,300,000 0 ----------- ----------- ----------- $ 4,747,438 $ 7,539,072 $ 1,004,800 =========== =========== ===========
During 2000, two portfolio companies repaid debt totalling $509,120. During 1999, one portfolio company totally repaid its debt to the Trust in the amount of $700,000.
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, 2000, 1999, and 1998 are summarized by type of investment in the table below. The securities that were recognized as realized losses in 1999, Soil Recovery Systems, Inc. and SunStar Healthcare, Inc., are not included in the 1999 table.
December 31, 2000 ----------------- Cost Fair Value ---- ---------- Debt securities and loans $ 7,290,598 $ 6,386,784 Preferred stocks 3,349,549 2,844,750 Warrants to purchase common stock 435,685 407,041 Common stocks 2,907,039 2,921,376 ----------- ----------- $13,982,871 $12,559,951 =========== ===========
December 31, 1999 ----------------- Cost Fair Value ---- ---------- 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 =========== ===========
December 31, 1998 ----------------- Cost Fair Value ---- ---------- 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 =========== ===========
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.
SUBSEQUENT ACTIVITIES The Trust has committed to invest an additional $200,000 in Pickermans Development Company in exchange for a 12% promissory note and warrants, which was subsequently funded during January through March 2001.
During February 2001, the Trust entered into an agreement with Kinseth Hospitality Company, Inc. ("Kinseth"), in which the Trust agreed to release its warrants to purchase 25% of Kinseth common shares at $.01 per share, in exchange for a lenders commitment to refinance the existing mortgage on certain Kinseth property. The lenders commitment must be received no later than April 12, 2001. The proceeds received from the lenders commitment must be used to pay off the outstanding debt and accrued interest to the Trust by June 30, 2001.
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 the Trust Advisor.
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.
Cash and temporary cash investments amounted to $684,244, $1,137,535, and $3,219,116 as of December 31, 2000, 1999, and 1998, respectively. The net investing activities reflect the investments the Trust has made less repayments of notes receivable of $509,120 in 2000 and $700,000 in 1999. Net cash from operating activities was a net use of cash of $4,291,016 in 2000 compared to a net use of cash of $3,732,523 in 1999. This decrease in cash flow is due to the net change in loans and investments in 2000 of $4,238,317.
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 and leverage and underwriting fees totalling $98,750 in 2000. As of December 31, 2000, unused SBA leverage commitments amounted to $500,000. 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.
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 distributions during 2000. 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, 2000, the SBIC had a deficit of "earnings available for distribution" in the amount of $2,698,943.
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 $2,295,259, $1,449,669, and $1,092,940 as of December 31, 2000, 1999, and 1998, respectively. Distributions paid to beneficial owners of the Trust amounted to $0, $486,550, and $569,029 during the years 2000, 1999, and 1998, respectively.
The Trust plans to fund future operations with dividends and interest income on portfolio investments and sale of certain investments. The Trust anticipates that cash flow from these sources will be sufficient meet its operating needs for at least the next twelve months.
The effect of interest rate fluctuations and inflation on the current Trust investments is negligible.
ITEM 7A.
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, 2000 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, 2000, 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 rely 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, 2000, the amount at risk was $12,559,951. The portfolio consisted of the following at December 31, 2000:
Cost Fair Value ---- ---------- Debt securities and loans $ 7,290,598 $ 6,386,784 Preferred stocks 3,349,549 2,844,750 Warrants to purchase common stock 435,685 407,041 Common stocks 2,907,039 2,921,376 ----------- ----------- $13,982,871 $12,559,951 =========== ===========
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements and related information as of the years ended December 31, 2000, 1999 and 1998 are included in Item 8:
Page No. -------- 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
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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, loans and investment securities not readily marketable amounting to $12,559,951 as of December 31, 2000 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, 2001
BERTHEL GROWTH & INCOME TRUST I
See notes to consolidated financial statements.
BERTHEL GROWTH & INCOME TRUST I
See notes to consolidated financial statements. (Continued)
BERTHEL GROWTH & INCOME TRUST I
See notes to consolidated financial statements.
BERTHEL GROWTH & INCOME TRUST I
See notes to consolidated financial statements.
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 - -------------------------------------------------------------------------------
See notes to consolidated financial statements.
BERTHEL GROWTH & INCOME TRUST I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------
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 accounting principles generally accepted in the United States of America 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 by the Trustees of not readily marketable securities.
TEMPORARY INVESTMENT IN MONEY MARKET SECURITIES - Pending investment in enhanced yield investments, the Trust has invested in money market securities, 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 primarily 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 related 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 number of shares outstanding.
2. LOANS AND INVESTMENTS
* 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. During the year ended to December 31, 2000, 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 recognized a $930,000 realized loss.
During the year ended December 31, 1999, Kinseth Hospitality Company, Inc. and VisionComm, Inc. were in violation of certain debt covenants. The Trust gave waivers to both companies during the year ended December 31, 2000.
As of December 31, 2000, Easy Systems, Inc. and Physicians Total Care, Inc. were in default of interest payments owed to the Trust. The Trust established an allowance for doubtful accounts during the year ended December 31, 2000, to fully reserve for the interest receivable due to the Trust from Easy Systems, Inc. and Physicians Total Care, Inc. totaling $48,868. Beginning June 2000, the Trust discontinued the accrual of interest receivable due to the Trust from Easy Systems, Inc. Interest owed to the Trust from Easy Systems during the period June 2000 through December 31, 2000 totaled $42,759.
During the year ended December 31, 2000, the Trust entered into an Amendment to the Kinseth Hospitality Company, Inc. Investment Agreement, which revised the nature of the underlying collateral on the note receivable due May 2003.
3. DUE TO AFFILIATES
Due to affiliates comprises the following as of December 31, 2000 and 1999:
2000 1999
Accrued management and administrative fees $ 42,419 $ 88,121 10% demand note payable to Trust Advisor 60,500 -- Miscellaneous 2,105 -- -------- -------- $105,024 $ 88,121 ======== ========
Interest expense accrued to the Trust Advisor during the year ended December 31, 2000 totaled $1,960.
4. 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, 2000, 1999 and 1998 relating to this agreement aggregated $404,960, $318,357 and $194,820, respectively.
In addition, the Trust pays a fee for administration of shareholder accounts and other administrative services. During each of the years ended December 31, 2000 and 1999, administrative fees totaling $38,400 were paid to the Trust Advisor. During the year ended December 31, 1998, administrative fees were paid to the Dealer Manager and totaled $39,016.
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.
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, 2000 and 1999, no amounts were available for distribution within the SBIC under the SBA regulations.
The distributions payable balance comprises the following:
UNDERWRITING PRIORITY RETURN RETURN TOTAL
Balance at January 1, 1999 $ 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
Distributions earned -- 845,590 845,590 ----------- ----------- -----------
Balance at December 31, 2000 $ 526,401 $ 1,768,858 $ 2,295,259 =========== =========== ===========
6. DEBENTURES
The SBIC issued debentures payable to the SBA totaling $3,950,000 and $5,500,000 during the years ended December 31, 2000 and 1999, respectively. The debentures require the semiannual payment of interest at annual interest rates ranging from 7.22% to 7.64%. In addition to interest payments, the SBIC is required to pay an annual 1% SBA loan fee on the outstanding debentures balance. As of December 31, 2000 the interest rates on debentures payable totaling $1,200,000 will be adjusted on March 28, 2001. 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, $6,575,000, $725,000 and $1,200,000 and are to be paid in full during September 2009, March 2010, September 2010, and March 2011, respectively.
As of December 31, 2000, the SBIC has unused leverage commitments totaling $500,000 and will be required to pay a 2.5% leverage and underwriting fee totaling $12,500, 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.
7. COMMITMENTS AND CONTINGENCIES
The SBIC has committed to invest an additional $200,000 in Pickermans Development Company in exchange for a 12% promissory note and warrants, which was subsequently funded during January through March 2001.
During the year ended December 31, 2000, the SBIC was in violation of the maximum capital impairment percentage permitted by the SBA. The remedies available to the SBA include prohibiting the SBIC from making any additional investments other than investments under existing legally binding commitments, prohibiting distributions to investors, reviewing and redetermining management expenses, and declaring the SBA debentures immediately due and payable. The SBIC has not obtained a waiver from the SBA, however, management will continue to monitor its investments and work with the SBA to cure this violation.
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 EVENT
During February 2001, the Trust and SBIC entered into an agreement with Kinseth Hospitality Company, Inc. ("Kinseth"), in which the Trust and SBIC agreed to release its warrants to purchase 25% of Kinseth common shares at $.01 per share, in exchange for a lenders commitment to refinance the existing mortgage on certain property owned by an affiliate of Kinseth. The lenders commitment must be received no later than April 12, 2001. The proceeds received from the lenders commitment must be used to pay off the outstanding debt and accrued interest to the Trust and SBIC by June 30, 2001.
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None
PART III
ITEM 10.
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 71) - 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 51) - 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
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 49) - 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 and the Financial Services. 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 Financial Services. From 1993 until the present he has served as Chief Executive Officer and as a Director of the Financial Services. Mr. Berthel is also President and a Director of various other subsidiaries of Berthel Fisher 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 69) - 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.
Ronald O. Brendengen (Age 46) - 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. 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. 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 53) - 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.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION Set forth is the information relating to all direct remuneration paid or accrued by the Registrant.
ITEM 12.
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.
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.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements Page No. --------
Consolidated Statements of Assets and Liabilities as of December 31, 2000 and 1999 14
Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998 15
Consolidated Statements of Changes in Net Assets for the Years Ended December 31, 2000, 1999 and 1998 17
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 18
Notes to Consolidated Financial Statements 19
(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
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 26, 2001 THOMAS J. BERTHEL, Chief Executive Officer (principal executive officer) of Berthel Fisher & Company Planning, Inc., Trust Advisor
By:/s/ Ronald O. Brendengen ---------------------------------- Date: March 26, 2001 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.
By:/s/ Thomas J. Berthel ---------------------------------- Date: March 26, 2001 THOMAS J. BERTHEL, Chairman and Director of Berthel Fisher & Company Planning, Inc., Trust Advisor
By:/s/ Ronald O. Brendengen ---------------------------------- Date: March 26, 2001 RONALD O. BRENDENGEN, Director of Berthel Fisher & Company Planning, Inc., Trust Advisor
By:/s/ Henry Royer ---------------------------------- Date: March 26, 2001 HENRY ROYER, President of Berthel Fisher & Company Planning, Inc., Trust Advisor
By:/s/ Leslie D. Smith ---------------------------------- Date: March 26, 2001 LESLIE D. SMITH, Director of Berthel Fisher & Company Planning, Inc., Trust Advisor
By:/s/ Henry T. Madden ---------------------------------- Date: March 26, 2001 HENRY T. MADDEN, Independent Trustee of Berthel Growth & Income Trust I
By:/s/ Thomas J. Berthel ---------------------------------- Date: March 26, 2001 THOMAS J. BERTHEL, Chairman of the Board and Chief Executive Officer of TJB Capital Management, Inc., Trustee of Berthal Growth & Income Trust I
By:/s/ Daniel P. Wegmann ---------------------------------- Date: March 26, 2001 DANIEL P. WEGMANN, Controller of Berthel Fisher & Company Planning, Inc., Trust Advisor
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).