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 intended as a long-term investment and not as a trading vehicle.
On May 4, 1998, Berthel SBIC, LLC (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 initially 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. During 2001, the Trust contributed an additional $700,000 in capital to the SBIC. The Trust Advisor and Independent Trustees (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. (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.
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.
During the years ended December 31, 2003 and 2002, the Trust continues to have a deficiency in net assets, as well as net investment losses and negative cash flow from operations during the year ended December 31, 2002. In addition, the SBIC is in violation of the maximum capital impairment percentage permitted by the SBA. On August 22, 2002, the SBA notified the SBIC that all debentures, accrued interest and fees were immediately due and payable. The SBIC was transferred into the Liquidation Office of the SBA effective August 22, 2002. On September 1, 2003, management signed a loan agreement with the SBA for $8,100,000 (after paying $1,400,000 on the $9,500,000 debentures) with a term of 48 months at an interest rate of 7.49%. The loan is secured by substantially all assets of the SBIC. The loan agreement contains various covenants including establishment of a reserve account in the amount of $250,000 with excess cash paid to the SBA, limits on the amounts of expenses, other than interest expense, that can be incurred and paid. The loan agreement also contains various events of default, including a decrease in the aggregate value of the SBIC's assets of 10% or greater.
The SBIC's total assets and liabilities are $8,968,659 and $7,878,960, respectively, as of December 31, 2003. These factors raise substantial doubt about the ability of the Trust to continue as a going concern. No assurance can be given that the Trust will have sufficient cash flow to repay the debt or that the Trust will be financially viable.
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 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 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 Number of Shares of Shareholders Beneficial Interest Title of Class at March 4, 2003 at March 4, 2003 ------------------------------------------------------------------------- Shares of Beneficial Interest 880 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 $843,279, $845,590, $843,280, $843,280, and $843,280 in 1999, 2000, 2001, 2002, and 2003, respectively. Priority return distributions were $486,550 in 1999, and $0 in 2000, 2001, 2002, and 2003. Priority return distributions payable at December 31 of each year were $923,268, $1,768,858, $2,612,138, $3,455,418, and $4,298,698 for 1999, 2000, 2001, 2002, and 2003 respectively.
Liquidity and Capital Resources Net cash from operating activities was a net source of cash of $913,981 in 2003 compared to a net use of cash of $506,254 in 2002. This increase in cash flow is primarily due to the net changes in loans and investments. In 2003, the Trust had a net use of cash of $1,790,828 relating to the payment of debt to the SBA.
During the years ended December 31, 2003 and 2002, the Trust continues to have a deficiency in net assets, as well as net investment losses and negative cash flow from operations during the year ended December 31, 2002. In addition, the SBIC is in violation of the maximum capital impairment percentage permitted by the SBA. On August 22, 2002, the SBA notified the SBIC that all debentures, accrued interest and fees were immediately due and payable. The SBIC was transferred into the Liquidation Office of the SBA effective August 22, 2002. On September 1, 2003, management signed a loan agreement with the SBA for $8,100,000 (after paying $1,400,000 on the $9,500,000 debentures) with a term of 48 months at an interest rate of 7.49%. The loan is secured by substantially all assets of the SBIC. The loan agreement contains various covenants including establishment of a reserve account in the amount of $250,000 with excess cash paid to the SBA, limits on the amounts of expenses, other than interest expense, that can be incurred and paid. The loan agreement also contains various events of default, including a decrease in the aggregate value of the SBIC's assets of 10% or greater.
The loan agreement with the SBA is due as follows:
Maturity Date Amount ------------- ------ 2007 $7,709,172
The SBIC's total assets and liabilities are $8,968,659 and $7,878,960, respectively, as of December 31, 2003. These factors raise substantial doubt about the ability of the Trust to continue as a going concern. No assurance can be given that the Trust will have sufficient cash flow to repay the debt or that the Trust will be financially viable.
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 Trustees and made within sixty days of the end of each quarter. The Trustees declared no distributions during 2003. Distributions from the SBIC 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, 2003, the SBIC had a deficit of "earnings available for distribution" in the amount of $8,354,577 and, accordingly, no distributable cash.
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 $4,825,099, $3,981,819, and $3,138,539 as of December 31, 2003, 2002, and 2001, respectively. No distributions have been paid to beneficial owners of the Trust since 1999.
Inflation The Trust does not believe that moderate rates of inflation experienced in the United States over the last three years have had a material effect on its operations.
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 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 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, 2003, the portfolio is valued at fair value, as determined by the 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, 2003, the amount at risk was $8,654,855 and consisted of the following:
Cost Fair Value ------------- ------------- Debt securities and loans $ 3,434,017 $ 2,066,038 Preferred stocks 1,008,915 1,640,180 Warrants to purchase common stock 259,058 2,543,569 Common stocks 2,934,286 2,405,068 ------------- ------------- $ 7,636,276 $ 8,654,855 ============= =============
On September 1, 2003, the SBIC signed a loan agreement with the SBA. As interest rates have not changed substantially since that time, the carrying value approximates the fair value of the loan to the SBA.
Item 8. Financial Statements and Supplementary Data ------------------------------------------- The following financial statements and related information as of the years ended December 31, 2003, 2002 and 2001 are included in Item 8:
Independent Auditors' Reports Consolidated Statements of Assets and Liabilities Consolidated Statements of Operations Consolidated Statements of Changes in Net Assets (Liabilities) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements
McGLADREY & PULLEN CERTIFIED PUBLIC ACCOUNTANTS
Independent Auditor's Report
To the Independent Trustees and Stockholders Berthel Growth & Income Trust I Marion, Iowa
We have audited the accompanying consolidated statement of assets and liabilities of Berthel Growth & Income Trust I and subsidiary (Trust) as of December 31, 2003, and the related consolidated statements of operations, changes in net assets (liabilities), and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Berthel Growth & Income Trust I and subsidiary as of December 31, 2003, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements for the year ended December 31, 2003 have been prepared assuming that the Trust will continue as a going-concern. As discussed in Note 1 to the financial statements, the Trust continues to have a deficiency in net assets, as well as net losses and negative cash flow from operations. In addition, Berthel SBIC, LLC, a wholly-owned subsidiary of the Trust, has agreed to liquidate its portfolio assets in order to pay its indebtedness to the United States Small Business Administration. These events raise substantial doubt about the Trust's ability to continue as a going-concern. Management's plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 1, the investment securities included in the financial statements have been valued by the Independent Trustees (Trustees) using valuation criteria applicable to the licensee. These criteria were established in accordance with Section 310(d)(2) of the Small Business Investment Act of 1958, as amended, and 13 CFR 107.503(e)(2) of the SBA regulations. Such investment securities have been valued at $8,654,855 (97% of assets), whose values have been estimated by the Trustees in the absence of readily ascertainable market values. We have reviewed the procedures used by the Trustees in preparing the valuations of investment securities and have inspected the underlying documentation and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate. However, in the case of those securities with no readily ascertainable market value, because of the inherent uncertainty of the valuation, the Trustees' estimate of values may differ significantly from the values that would have been used had a ready market existed for the securities and the differences could be material.
/s/ McGladrey & Pullen, LLP ----------------------------------- McGladrey & Pullen, LLP Cedar Rapids, Iowa January 29, 2004
McGladrey & Pullen, LLP is a member firm of RSM International - an affiliation of separate and independent legal entities.
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, 2002, and the related consolidated statements of operations, changes in net liabilities, and cash flows for each of the two years in the period ended December 31, 2002. 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, 2002, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements for the year ended December 31, 2002 have been prepared assuming that the Trust will continue as a going concern. As discussed in Note 1 to the financial statements, the Trust continues to have a deficiency in net assets, as well as net losses and negative cash flow from operations. In addition, Berthel SBIC, a wholly owned subsidiary of the Trust, is in default under the terms of its SBA debentures. These events raise substantial doubt about the Trust's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 1 to the consolidated financial statements, loans and investment securities not readily marketable amounting to $8,159,033 as of December 31, 2002 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 - ----------------------------- DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa March 15, 2003
Berthel Growth & Income Trust I
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------- Note 1. Organization and Significant Accounting Policies
Organization:
Berthel Growth & Income Trust I (the "Trust") is registered under the Investment Company Act of 1940, as amended, as a non-diversified, 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 stockholders, 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. During 2001, the Trust contributed an additional $700,000 in capital to the SBIC. 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.
Going-concern considerations: During the years ended December 31, 2003 and 2002, the Trust continues to have a deficiency in net assets, as well as net investment losses and negative cash flow from operations for the year ended December 31, 2002. In addition, the SBIC was in violation of the maximum capital impairment percentage permitted by the SBA. The SBIC received notice of default from the Small Business Administration advising that the SBIC must cure its default on the outstanding debentures prior to March 22, 2002. Since March 2002, the capital impairment violation has not been cured.
On August 22, 2002, the SBA notified the SBIC that all debentures, accrued interest, and fees were immediately due and payable. The SBIC was transferred into the Liquidation Office of the SBA effective August 22, 2002. On September 1, 2003, management signed a loan agreement with the SBA for $8,100,000 (after paying $1,400,000 on the $9,500,000 debentures) with a term of 48 months at an interest rate of 7.49%. The loan is secured by substantially all assets of the SBIC. The loan agreement contains various covenants including establishment of a reserve account in the amount of $250,000 with excess cash paid to the SBA, limits on the amounts of operating expenses that can be incurred and paid. The loan agreement also contains various events of default, including a decrease in the aggregate value of the SBIC's assets of 10% or greater.
Berthel Growth & Income Trust I
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------- Note 1. Organization and Significant Accounting Policies (Continued)
The assets and liabilities of the SBIC are $8,968,659 and $7,878,960, respectively. These factors may raise substantial doubt about the ability of the Trust to continue as a going-concern. No assurance can be given that the Trust will have sufficient cash flow to repay the debt or that the Trust will be financially viable.
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 and allowance for doubtful accounts.
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 as of December 31, 2002 primarily consisted of a 1% SBA commitment fee, which is amortized over the commitment period using the straight-line method, and 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. In conjunction with the refinancing discussed previously, these costs were expensed in 2003.
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.
Note 3. Due to Affiliates
Due to affiliates is comprised of the following as of December 31, 2003 and 2002:
2003 2002 ------- ------- Accrued management fees $76,640 $ -- Accrued administrative fees -- 3,000 Other amounts due Trust Advisor 11,077 -- ------- Due to affiliates $87,717 $ 3,000 ======= =======
Note 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, 2003, 2002, and 2001 relating to this agreement aggregated $228,541, $263,906, and $314,313, respectively. As part of the loan agreement with the SBA, these expenses can continue to be accrued, but cannot be paid until the SBA loan is paid in full.
In addition, the Trust pays a fee for administration of stockholder accounts and other administrative services. During each of the years ended December 31, 2003, 2002, and 2001, administrative fees totaling $9,830, $38,400, and $38,400, respectively, were paid to the Trust Advisor.
Note 5. Distributions Payable to Stockholders
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 stockholder'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. As of December 31, 2003 and 2002, 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, December 31, 2001 $ 526,401 $ 2,612,138 $ 3,138,539 Distributions earned -- 843,280 843,280 ------------ ------------ ------------ Balance, December 31, 2002 526,401 3,455,418 3,981,819 Distributions earned -- 843,280 843,280 ------------ ------------ ------------ Balance, December 31, 2003 $ 526,403 $ 4,298,698 $ 4,825,099 ============ ============ ============
Note 6. Debentures
The SBIC issued debentures payable to the SBA totalling $9,500,000 since inception. The original debenture terms required semiannual payments of interest at annual interest rates ranging from 6.353% to 7.64%. In addition to interest payments, the SBIC was required to pay an annual 1% SBA loan fee on the outstanding debentures balance.
On August 22, 2002, the SBA notified the SBIC that all debentures, accrued interest and fees were immediately due and payable. The SBIC submitted a plan of debt and interest repayment to the SBA on January 31, 2003 and received a response dated February 21, 2003. On September 1, 2003, management signed a loan agreement (Agreement) with the SBA for $8,100,000 (after paying $1,400,000 on the $9,500,000 debentures) with a term of 48 months at an interest rate of 7.49%. The Agreement requires principal payments on the debt to the extent the SBIC receives cash proceeds exceeding $250,000 for the sale or liquidation of investments. As of December 31, 2003, $7,709,172 is outstanding under the loan agreement. The loan is secured by substantially all assets of the SBIC. The loan agreement contains various covenants, including limits on the amounts of expenses, other than interest expense, that can be incurred and paid. The loan agreement also contains various events of default, including a decrease in the aggregate value of the SBIC's assets of 10% or greater.
Note 7. 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.
Note 8. Financial Highlight Information
In accordance with newly issued financial reporting requirements applicable to investment companies including funds that are exempt from registration requirements, the Trust was required to disclose certain financial highlight information.
Due to the net liability position of the Trust as of December 31, 2003, the negative ratios do not represent meaningful data and will, therefore, be excluded from disclosure in the footnotes.
Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure -------------------- On October 13, 2003, the Trust notified Deloitte & Touche (Deloitte) that it would be dismissing Deloitte and appointing a new independent certifying accountant for the current fiscal year. The Trust has engaged McGladrey & Pullen, LLP as its new independent certifying accountant for the current fiscal year.
Prior to such notification, the Trust did not consult with McGladrey & Pullen, LLP regarding the application of accounting principles to a specific completed or contemplated transaction or any matter that was either the subject of a disagreement or a reportable event. The Trust also did not consult with McGladrey & Pullen, LLP regarding the type of opinion that might be rendered on the Trust's consolidated financial statements.
The reports of Deloitte on the Trust's consolidated financial statements for the fiscal years ended December 31, 2002 and 2001 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles other than disclosed in Note 1 of the financial statements. In connection with its audits for the fiscal years ended December 31, 2002 and 2001 and the subsequent interim accounting period preceding the Trust's notification to Deloitte of its intention to dismiss such firm, there has been no disagreements with Deloitte on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure that, if not resolved to the satisfaction of Deloitte, would have caused such firm to make reference to the subject matter of the disagreement(s) in connection with this report.
The Audit Committee of the Parent of the Trust Advisor participated in and approved the decision to change the Trust's external auditors and the Board made the appointment.
Item 9A. Controls and Procedures ----------------------- Evaluation of Disclosure Controls and Procedures An evaluation was performed under the supervision and with the participation of the Trust's management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO concluded that as of the end of the period covered by this report, our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange of 1934 is recorded, processed, summarized, and timely reported as provided in the SEC's rules and forms.
Changes in Internal Controls No changes occurred since the quarter ended September 30, 2003 in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 74) - 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, along with 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 54) - 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. Upon the merger, Quass served as President and CEO of Central Star Communications. In 1999 Central Star/Capstar Partners merged with Chancellor Media to form AMFM, Inc. and Quass continued to serve as CEO and President of Central Star Communications under AMFM until she left the company in early 2000. Quass formed a LLC to acquire businesses and provide consulting services. In 2002 she formed NewRadio Group, LLC which owns and operates radio stations.
Executive Officers and Directors of the Trust Advisor: - ------------------------------------------------------ Thomas J. Berthel (age 52) - Mr. Berthel was elected President of the Trust Advisor in August, 2001, and also serves as Chief Executive Officer and Chairman of the Board of the Trust Advisor and as Chief Executive Officer of Berthel Fisher and Financial Services. He has held these positions since 1985. 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 72) - Mr. Royer was elected Executive Vice President of the Trust Advisor in August, 2001. Mr. Royer was President of the Trust Advisor from July, 1999 to August, 2001. 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 49) - 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 56) - 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 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.
Item 14. Principal Accountant Fees and Services -------------------------------------- Audit and Non-Audit Fees The following table presents fees for professional audit services rendered by McGladrey & Pullen, LLP for the audit of Berthel Growth & Income I's annual financial statements for the year ended December 31, 2003, and fees billed for other services rendered by McGladrey & Pullen, LLP and RSM McGladrey, Inc. (an affiliate of McGladrey & Pullen, LLP).
- ------------- Audit Fees (1) $ 38,500 Audit-Related Fees (2) 2,000 Tax Services -0- All Other Fees -0-
(1) Audit fees consist of fees for professional services rendered for the audit of Berthel Growth & Income Trust I's financial statements and review of financial statements included in the Trust's third quarter report and services normally provided by the independent auditor in connection with statutory and regulatory filings or engagements.
(2) Audit-related fees consist of fees for professional services rendered for the custody report examination required by rule 17f-1 and rule 17f-2 under the Investment Company Act of 1940 of Berthel Growth & Income Trust I and its wholly-owned subsidiary, Berthel SBIC, LLC.
PART IV
Item 15. 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, 2003 and 2002 13
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001 14
Consolidated Statements of Changes in Net Assets (Liabilities) for the Years Ended December 31, 2003, 2002 and 2001 15
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001 16
Notes to Consolidated Financial Statements 17
(b) Reports on Form 8-K
A report was filed on October 16, 2003 for a Change in Registrant's Certifying Accountant.
(c) Exhibits 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
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 29, 2004 THOMAS J. BERTHEL, Chief Executive Officer (principal executive officer) of Berthel Fisher & Company Planning, Inc., Trust Advisor
By: /s/ Ronald O. Brendengen ------------------------------------ Date: March 29, 2004 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 29, 2004 THOMAS J. BERTHEL, Chairman and Director of Berthel Fisher & Company, Berthel Fisher & Company Planning, Inc., Trust Advisor
/s/ Ronald O. Brendengen --------------------------------------- Date: March 29, 2004 RONALD O. BRENDENGEN, Director of Berthel Fisher & Company Planning, Inc., Trust Advisor
/s/ Henry Royer --------------------------------------- Date: March 29, 2004 HENRY ROYER, President of Berthel Fisher & Company Planning, Inc., Trust Advisor
/s/ Leslie D. Smith --------------------------------------- Date: March 29, 2004 LESLIE D. SMITH, Director of Berthel Fisher & Company Planning, Inc., Trust Advisor
/s/ Henry T. Madden --------------------------------------- Date: March 29, 2004 HENRY T. MADDEN, Independent Trustee of Berthel Growth & Income Trust I
/s/ Mary Quass --------------------------------------- Date: March 29, 2004 MARY QUASS, Independent Trustee of Berthel Growth & Income Trust I
/s/ Thomas J. Berthel --------------------------------------- Date: March 29, 2004 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 29, 2004 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) 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
----------- (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).
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 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 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, 2003, the portfolio is valued at fair value, as determined by the 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, 2003, the amount at risk was $8,654,855 and consisted of the following:
Cost Fair Value ------------- ------------- Debt securities and loans $ 3,434,017 $ 2,066,038 Preferred stocks 1,008,915 1,640,180 Warrants to purchase common stock 259,058 2,543,569 Common stocks 2,934,286 2,405,068 ------------- ------------- $ 7,636,276 $ 8,654,855 ============= =============
On September 1, 2003, the SBIC signed a loan agreement with the SBA. As interest rates have not changed substantially since that time, the carrying value approximates the fair value of the loan to the SBA.
Item 8.
Item 8. Financial Statements and Supplementary Data ------------------------------------------- The following financial statements and related information as of the years ended December 31, 2003, 2002 and 2001 are included in Item 8:
Independent Auditors' Reports Consolidated Statements of Assets and Liabilities Consolidated Statements of Operations Consolidated Statements of Changes in Net Assets (Liabilities) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements
McGLADREY & PULLEN CERTIFIED PUBLIC ACCOUNTANTS
Independent Auditor's Report
To the Independent Trustees and Stockholders Berthel Growth & Income Trust I Marion, Iowa
We have audited the accompanying consolidated statement of assets and liabilities of Berthel Growth & Income Trust I and subsidiary (Trust) as of December 31, 2003, and the related consolidated statements of operations, changes in net assets (liabilities), and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Berthel Growth & Income Trust I and subsidiary as of December 31, 2003, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements for the year ended December 31, 2003 have been prepared assuming that the Trust will continue as a going-concern. As discussed in Note 1 to the financial statements, the Trust continues to have a deficiency in net assets, as well as net losses and negative cash flow from operations. In addition, Berthel SBIC, LLC, a wholly-owned subsidiary of the Trust, has agreed to liquidate its portfolio assets in order to pay its indebtedness to the United States Small Business Administration. These events raise substantial doubt about the Trust's ability to continue as a going-concern. Management's plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 1, the investment securities included in the financial statements have been valued by the Independent Trustees (Trustees) using valuation criteria applicable to the licensee. These criteria were established in accordance with Section 310(d)(2) of the Small Business Investment Act of 1958, as amended, and 13 CFR 107.503(e)(2) of the SBA regulations. Such investment securities have been valued at $8,654,855 (97% of assets), whose values have been estimated by the Trustees in the absence of readily ascertainable market values. We have reviewed the procedures used by the Trustees in preparing the valuations of investment securities and have inspected the underlying documentation and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate. However, in the case of those securities with no readily ascertainable market value, because of the inherent uncertainty of the valuation, the Trustees' estimate of values may differ significantly from the values that would have been used had a ready market existed for the securities and the differences could be material.
/s/ McGladrey & Pullen, LLP ----------------------------------- McGladrey & Pullen, LLP Cedar Rapids, Iowa January 29, 2004
McGladrey & Pullen, LLP is a member firm of RSM International - an affiliation of separate and independent legal entities.
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, 2002, and the related consolidated statements of operations, changes in net liabilities, and cash flows for each of the two years in the period ended December 31, 2002. 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, 2002, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements for the year ended December 31, 2002 have been prepared assuming that the Trust will continue as a going concern. As discussed in Note 1 to the financial statements, the Trust continues to have a deficiency in net assets, as well as net losses and negative cash flow from operations. In addition, Berthel SBIC, a wholly owned subsidiary of the Trust, is in default under the terms of its SBA debentures. These events raise substantial doubt about the Trust's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 1 to the consolidated financial statements, loans and investment securities not readily marketable amounting to $8,159,033 as of December 31, 2002 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 - ----------------------------- DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa March 15, 2003
Berthel Growth & Income Trust I
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------- Note 1. Organization and Significant Accounting Policies
Organization:
Berthel Growth & Income Trust I (the "Trust") is registered under the Investment Company Act of 1940, as amended, as a non-diversified, 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 stockholders, 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. During 2001, the Trust contributed an additional $700,000 in capital to the SBIC. 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.
Going-concern considerations: During the years ended December 31, 2003 and 2002, the Trust continues to have a deficiency in net assets, as well as net investment losses and negative cash flow from operations for the year ended December 31, 2002. In addition, the SBIC was in violation of the maximum capital impairment percentage permitted by the SBA. The SBIC received notice of default from the Small Business Administration advising that the SBIC must cure its default on the outstanding debentures prior to March 22, 2002. Since March 2002, the capital impairment violation has not been cured.
On August 22, 2002, the SBA notified the SBIC that all debentures, accrued interest, and fees were immediately due and payable. The SBIC was transferred into the Liquidation Office of the SBA effective August 22, 2002. On September 1, 2003, management signed a loan agreement with the SBA for $8,100,000 (after paying $1,400,000 on the $9,500,000 debentures) with a term of 48 months at an interest rate of 7.49%. The loan is secured by substantially all assets of the SBIC. The loan agreement contains various covenants including establishment of a reserve account in the amount of $250,000 with excess cash paid to the SBA, limits on the amounts of operating expenses that can be incurred and paid. The loan agreement also contains various events of default, including a decrease in the aggregate value of the SBIC's assets of 10% or greater.
Berthel Growth & Income Trust I
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------- Note 1. Organization and Significant Accounting Policies (Continued)
The assets and liabilities of the SBIC are $8,968,659 and $7,878,960, respectively. These factors may raise substantial doubt about the ability of the Trust to continue as a going-concern. No assurance can be given that the Trust will have sufficient cash flow to repay the debt or that the Trust will be financially viable.
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 and allowance for doubtful accounts.
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 as of December 31, 2002 primarily consisted of a 1% SBA commitment fee, which is amortized over the commitment period using the straight-line method, and 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. In conjunction with the refinancing discussed previously, these costs were expensed in 2003.
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.
Note 3. Due to Affiliates
Due to affiliates is comprised of the following as of December 31, 2003 and 2002:
2003 2002 ------- ------- Accrued management fees $76,640 $ -- Accrued administrative fees -- 3,000 Other amounts due Trust Advisor 11,077 -- ------- Due to affiliates $87,717 $ 3,000 ======= =======
Note 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, 2003, 2002, and 2001 relating to this agreement aggregated $228,541, $263,906, and $314,313, respectively. As part of the loan agreement with the SBA, these expenses can continue to be accrued, but cannot be paid until the SBA loan is paid in full.
In addition, the Trust pays a fee for administration of stockholder accounts and other administrative services. During each of the years ended December 31, 2003, 2002, and 2001, administrative fees totaling $9,830, $38,400, and $38,400, respectively, were paid to the Trust Advisor.
Note 5. Distributions Payable to Stockholders
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 stockholder'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. As of December 31, 2003 and 2002, 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, December 31, 2001 $ 526,401 $ 2,612,138 $ 3,138,539 Distributions earned -- 843,280 843,280 ------------ ------------ ------------ Balance, December 31, 2002 526,401 3,455,418 3,981,819 Distributions earned -- 843,280 843,280 ------------ ------------ ------------ Balance, December 31, 2003 $ 526,403 $ 4,298,698 $ 4,825,099 ============ ============ ============
Note 6. Debentures
The SBIC issued debentures payable to the SBA totalling $9,500,000 since inception. The original debenture terms required semiannual payments of interest at annual interest rates ranging from 6.353% to 7.64%. In addition to interest payments, the SBIC was required to pay an annual 1% SBA loan fee on the outstanding debentures balance.
On August 22, 2002, the SBA notified the SBIC that all debentures, accrued interest and fees were immediately due and payable. The SBIC submitted a plan of debt and interest repayment to the SBA on January 31, 2003 and received a response dated February 21, 2003. On September 1, 2003, management signed a loan agreement (Agreement) with the SBA for $8,100,000 (after paying $1,400,000 on the $9,500,000 debentures) with a term of 48 months at an interest rate of 7.49%. The Agreement requires principal payments on the debt to the extent the SBIC receives cash proceeds exceeding $250,000 for the sale or liquidation of investments. As of December 31, 2003, $7,709,172 is outstanding under the loan agreement. The loan is secured by substantially all assets of the SBIC. The loan agreement contains various covenants, including limits on the amounts of expenses, other than interest expense, that can be incurred and paid. The loan agreement also contains various events of default, including a decrease in the aggregate value of the SBIC's assets of 10% or greater.
Note 7. 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.
Note 8. Financial Highlight Information
In accordance with newly issued financial reporting requirements applicable to investment companies including funds that are exempt from registration requirements, the Trust was required to disclose certain financial highlight information.
Due to the net liability position of the Trust as of December 31, 2003, the negative ratios do not represent meaningful data and will, therefore, be excluded from disclosure in the footnotes.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure -------------------- On October 13, 2003, the Trust notified Deloitte & Touche (Deloitte) that it would be dismissing Deloitte and appointing a new independent certifying accountant for the current fiscal year. The Trust has engaged McGladrey & Pullen, LLP as its new independent certifying accountant for the current fiscal year.
Prior to such notification, the Trust did not consult with McGladrey & Pullen, LLP regarding the application of accounting principles to a specific completed or contemplated transaction or any matter that was either the subject of a disagreement or a reportable event. The Trust also did not consult with McGladrey & Pullen, LLP regarding the type of opinion that might be rendered on the Trust's consolidated financial statements.
The reports of Deloitte on the Trust's consolidated financial statements for the fiscal years ended December 31, 2002 and 2001 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles other than disclosed in Note 1 of the financial statements. In connection with its audits for the fiscal years ended December 31, 2002 and 2001 and the subsequent interim accounting period preceding the Trust's notification to Deloitte of its intention to dismiss such firm, there has been no disagreements with Deloitte on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure that, if not resolved to the satisfaction of Deloitte, would have caused such firm to make reference to the subject matter of the disagreement(s) in connection with this report.
The Audit Committee of the Parent of the Trust Advisor participated in and approved the decision to change the Trust's external auditors and the Board made the appointment.
Item 9A.
Item 9A. Controls and Procedures ----------------------- Evaluation of Disclosure Controls and Procedures An evaluation was performed under the supervision and with the participation of the Trust's management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO concluded that as of the end of the period covered by this report, our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange of 1934 is recorded, processed, summarized, and timely reported as provided in the SEC's rules and forms.
Changes in Internal Controls No changes occurred since the quarter ended September 30, 2003 in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 74) - 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, along with 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 54) - 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. Upon the merger, Quass served as President and CEO of Central Star Communications. In 1999 Central Star/Capstar Partners merged with Chancellor Media to form AMFM, Inc. and Quass continued to serve as CEO and President of Central Star Communications under AMFM until she left the company in early 2000. Quass formed a LLC to acquire businesses and provide consulting services. In 2002 she formed NewRadio Group, LLC which owns and operates radio stations.
Executive Officers and Directors of the Trust Advisor: - ------------------------------------------------------ Thomas J. Berthel (age 52) - Mr. Berthel was elected President of the Trust Advisor in August, 2001, and also serves as Chief Executive Officer and Chairman of the Board of the Trust Advisor and as Chief Executive Officer of Berthel Fisher and Financial Services. He has held these positions since 1985. 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 72) - Mr. Royer was elected Executive Vice President of the Trust Advisor in August, 2001. Mr. Royer was President of the Trust Advisor from July, 1999 to August, 2001. 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 49) - 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 56) - 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 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.
Item 14. Principal Accountant Fees and Services -------------------------------------- Audit and Non-Audit Fees The following table presents fees for professional audit services rendered by McGladrey & Pullen, LLP for the audit of Berthel Growth & Income I's annual financial statements for the year ended December 31, 2003, and fees billed for other services rendered by McGladrey & Pullen, LLP and RSM McGladrey, Inc. (an affiliate of McGladrey & Pullen, LLP).
- ------------- Audit Fees (1) $ 38,500 Audit-Related Fees (2) 2,000 Tax Services -0- All Other Fees -0-
(1) Audit fees consist of fees for professional services rendered for the audit of Berthel Growth & Income Trust I's financial statements and review of financial statements included in the Trust's third quarter report and services normally provided by the independent auditor in connection with statutory and regulatory filings or engagements.
(2) Audit-related fees consist of fees for professional services rendered for the custody report examination required by rule 17f-1 and rule 17f-2 under the Investment Company Act of 1940 of Berthel Growth & Income Trust I and its wholly-owned subsidiary, Berthel SBIC, LLC.
PART IV
Item 15. 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, 2003 and 2002 13
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001 14
Consolidated Statements of Changes in Net Assets (Liabilities) for the Years Ended December 31, 2003, 2002 and 2001 15
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001 16
Notes to Consolidated Financial Statements 17
(b) Reports on Form 8-K
A report was filed on October 16, 2003 for a Change in Registrant's Certifying Accountant.
(c) Exhibits 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
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 29, 2004 THOMAS J. BERTHEL, Chief Executive Officer (principal executive officer) of Berthel Fisher & Company Planning, Inc., Trust Advisor
By: /s/ Ronald O. Brendengen ------------------------------------ Date: March 29, 2004 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 29, 2004 THOMAS J. BERTHEL, Chairman and Director of Berthel Fisher & Company, Berthel Fisher & Company Planning, Inc., Trust Advisor
/s/ Ronald O. Brendengen --------------------------------------- Date: March 29, 2004 RONALD O. BRENDENGEN, Director of Berthel Fisher & Company Planning, Inc., Trust Advisor
/s/ Henry Royer --------------------------------------- Date: March 29, 2004 HENRY ROYER, President of Berthel Fisher & Company Planning, Inc., Trust Advisor
/s/ Leslie D. Smith --------------------------------------- Date: March 29, 2004 LESLIE D. SMITH, Director of Berthel Fisher & Company Planning, Inc., Trust Advisor
/s/ Henry T. Madden --------------------------------------- Date: March 29, 2004 HENRY T. MADDEN, Independent Trustee of Berthel Growth & Income Trust I
/s/ Mary Quass --------------------------------------- Date: March 29, 2004 MARY QUASS, Independent Trustee of Berthel Growth & Income Trust I
/s/ Thomas J. Berthel --------------------------------------- Date: March 29, 2004 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 29, 2004 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) 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
----------- (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).
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.
Item 14.
Item 14. Principal Accountant Fees and Services -------------------------------------- Audit and Non-Audit Fees The following table presents fees for professional audit services rendered by McGladrey & Pullen, LLP for the audit of Berthel Growth & Income I's annual financial statements for the year ended December 31, 2003, and fees billed for other services rendered by McGladrey & Pullen, LLP and RSM McGladrey, Inc. (an affiliate of McGladrey & Pullen, LLP).
- ------------- Audit Fees (1) $ 38,500 Audit-Related Fees (2) 2,000 Tax Services -0- All Other Fees -0-
(1) Audit fees consist of fees for professional services rendered for the audit of Berthel Growth & Income Trust I's financial statements and review of financial statements included in the Trust's third quarter report and services normally provided by the independent auditor in connection with statutory and regulatory filings or engagements.
(2) Audit-related fees consist of fees for professional services rendered for the custody report examination required by rule 17f-1 and rule 17f-2 under the Investment Company Act of 1940 of Berthel Growth & Income Trust I and its wholly-owned subsidiary, Berthel SBIC, LLC.
PART IV
Item 15.
Item 15. 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, 2003 and 2002 13
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001 14
Consolidated Statements of Changes in Net Assets (Liabilities) for the Years Ended December 31, 2003, 2002 and 2001 15
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001 16
Notes to Consolidated Financial Statements 17
(b) Reports on Form 8-K
A report was filed on October 16, 2003 for a Change in Registrant's Certifying Accountant.
(c) Exhibits 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
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 29, 2004 THOMAS J. BERTHEL, Chief Executive Officer (principal executive officer) of Berthel Fisher & Company Planning, Inc., Trust Advisor
By: /s/ Ronald O. Brendengen ------------------------------------ Date: March 29, 2004 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 29, 2004 THOMAS J. BERTHEL, Chairman and Director of Berthel Fisher & Company, Berthel Fisher & Company Planning, Inc., Trust Advisor
/s/ Ronald O. Brendengen --------------------------------------- Date: March 29, 2004 RONALD O. BRENDENGEN, Director of Berthel Fisher & Company Planning, Inc., Trust Advisor
/s/ Henry Royer --------------------------------------- Date: March 29, 2004 HENRY ROYER, President of Berthel Fisher & Company Planning, Inc., Trust Advisor
/s/ Leslie D. Smith --------------------------------------- Date: March 29, 2004 LESLIE D. SMITH, Director of Berthel Fisher & Company Planning, Inc., Trust Advisor
/s/ Henry T. Madden --------------------------------------- Date: March 29, 2004 HENRY T. MADDEN, Independent Trustee of Berthel Growth & Income Trust I
/s/ Mary Quass --------------------------------------- Date: March 29, 2004 MARY QUASS, Independent Trustee of Berthel Growth & Income Trust I
/s/ Thomas J. Berthel --------------------------------------- Date: March 29, 2004 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 29, 2004 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) 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
----------- (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).