NEXTEL STRYPES TRUST
FINANCIAL REPORT
DECEMBER 31, 1997
CONTENTS
ACCOUNTANTS' REPORT ...........................................................1
FINANCIAL STATEMENTS:
Statement of assets and liabilities...................................2
Schedule of investments...............................................3
Statement of operations...............................................4
Statement of changes in net assets....................................5
Notes to financial statements.......................................6-8
Financial highlights..................................................9
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Nextel STRYPES Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Nextel STRYPES Trust as of December 31, 1997,
the related statements of operations and changes in net assets, and the
financial highlights for the period March 10, 1997 (commencement of operations)
to December 31, 1997. These financial statements and the financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial highlights
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Nextel STRYPES Trust
as of December 31, 1997, the results of its operations, the changes in its net
assets, and the financial highlights for the period March 10, 1997 to December
31, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Princeton, New Jersey
June 23, 1998
NEXTEL STRYPES TRUST
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (amortized cost $93,398,610) (notes 2, 4, and 8) $170,417,941
Cash 8,417
Total Assets $170,426,358
Net Assets $170,426,358
COMPOSITION OF NET ASSETS
Structured Yield Product Exchangeable for Stock ("STRYPES"), no par value; $92,614,533
7,175,731 shares issued and outstanding (Note 9)
Unrealized appreciation of investments 77,019,331
Undistributed net investment income 792,494
Net Assets $170,426,358
Net Asset value per STRYPES $23.75
</TABLE>
See Notes to Financial Statements.
NEXTEL STRYPES TRUST
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Par Maturity Market Amortized
Securities Description Value Date Value Cost
UNITED STATES GOVERNMENT
SECURITIES:
<S> <C> <C> <C> <C> <C> <C>
United States Treasury Strips $1,820,000 2/15/98 $ 1,807,642 $ 1,807,103
United States Treasury Strips 1,820,000 5/15/98 1,784,201 1,781,848
United States Treasury Strips 1,820,000 8/15/98 1,758,884 1,755,063
United States Treasury Strips 1,820,000 11/15/98 1,735,079 1,729,946
United States Treasury Strips 1,820,000 2/15/99 1,710,036 1,702,121
United States Treasury Strips 1,820,000 5/15/99 1,686,157 1,676,094
United States Treasury Strips 1,820,000 8/15/99 1,662,570 1,650,618
United States Treasury Strips 1,820,000 11/15/99 1,639,420 1,624,166
United States Treasury Strips 1,820,000 2/15/00 1,616,433 1,598,113
United States Treasury Strips 1,820,000 5/15/00 1,594,720 1,574,731
--------- --------- ---------
$18,200,000 $ 16,995,142 $16,899,803
=========== === ========== ===========
FORWARD PURCHASE CONTRACT:
Nextel Communications, Inc. Common Stock Forward 5/15/00 153,422,799 76,498,807
----------- ----------
Purchase Agreement
Total $170,417,941 $93,398,610
============ ===========
</TABLE>
See Notes to Financial Statements.
NEXTEL STRYPES TRUST
STATEMENT OF OPERATIONS
For the period from March 10, 1997 (commencement of operations) to December 31,
1997
<TABLE>
<CAPTION>
<S> <C> <C>
ACCRETION OF ORIGINAL ISSUE DISCOUNT $ 914,611
EXPENSES:
Administrative fees and expenses $35,140
Legal fees 4,341
Accounting fees 16,599
Trustees fees 9,194
Other expenses 17,876
--------
Total fees and expenses 83,150
EXPENSE REIMBURSEMENT (Note 7) (83,150)
---------
Total expenses - Net -
-------------
Net investment income 914,611
Net change in unrealized appreciation of investments 77,019,331
-----------
Net increase in net assets resulting from operations $ 77,933,942
============
</TABLE>
See Notes to Financial Statements.
NEXTEL STRYPES TRUST
STATEMENT OF CHANGES IN NET ASSETS
For the period from March 10, 1997 (commencement of operations) to December 31,
1997
<TABLE>
<CAPTION>
<S> <C>
OPERATIONS $ 914,611
Net investment income 77,019,331
Unrealized appreciation of investments
- ------------------------------------------------------------------------------------- ------------------------------
Net increase in net assets from operations 77,933,942
DISTRIBUTIONS:
Net investment income (122,117)
Return of capital (4,834,878)
- ------------------------------------------------------------------------------------- ------------------------------
Net decrease in net assets from distributions (4,956,995)
- ------------------------------------------------------------------------------------- ------------------------------
INCREASE IN NET ASSETS FROM CAPITAL SHARES TRANSACTIONS (Note 9):
Gross proceeds from the sale of 7,168,587 STRYPES 100,360,218
Less selling commissions (3,010,807)
- ------------------------------------------------------------------------------------- ------------------------------
Net increase in net assets from capital shares transactions 97,349,411
- ------------------------------------------------------------------------------------- ------------------------------
Total increase in net assets for the period 170,326,358
100,000
Net assets, beginning of period
- ------------------------------------------------------------------------------------- ------------------------------
Net assets, end of period $ 170,426,358
</TABLE>
See Notes to Financial Statements.
NEXTEL STRYPES TRUST
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization
Nextel STRYPES Trust ("Trust") was established on October 25, 1995 and is
registered as a non-diversified, closed-end management investment company under
the Investment Company Act of 1940 (the "Act"). In March 1997, the Trust sold
Structured Yield Product Exchangeable for Stock ("STRYPES") to the public
pursuant to a registration statement on Form N-2 under the Securities Exchange
Act of 1933 and the Act. The Trust used the proceeds to purchase a portfolio
comprised of stripped U.S. Treasury securities and a forward purchase contract
for shares of common stock of Nextel Communications, Inc. ("Nextel") with
certain existing shareholders of Nextel (the "Contracting Stockholders"). The
shares are deliverable pursuant to the contract on May 15, 2000 and the Trust
will thereafter terminate.
Pursuant to the Administration Agreement between the Trust and The Bank of New
York (the "Administrator"), the Trustees have delegated to the Administrator the
administrative duties with respect to the Trust.
Note 2. Significant Accounting Policies
The following is a summary of the significant accounting policies followed by
the Trust, which are in conformity with generally accepted accounting
principles:
Valuation of Investments
The U.S. Treasury Strips are valued at the mean of the bid and ask price at the
close of the period. Amortized cost is calculated on a basis which approximates
the effective interest method. The forward purchase contract is valued at the
mean of the bid prices received by the Trust at the end of each period from two
independent broker-dealer firms unaffiliated with the Trust who are in the
business of making bids on financial instruments similar to the contract and
with terms comparable thereto.
Investment Transactions
Securities transactions are accounted for as of the date the securities are
purchased and sold (trade date). Interest income is recorded as earned and
consists of accrual of discount. Unrealized gains and losses are accounted for
on the specific identification method.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount 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 from those estimates.
Note 3. Distributions
STRYPES holders are entitled to receive distributions from the maturity of U.S.
Treasury Strips of $1.015 per annum or $0.25375 per quarter (except for the
first distribution on May 15, 1997 which was $0.1833).
Note 4. Purchases and Sales of Investments
Purchases and maturities of U.S. Treasury Strips for the period ended December
31, 1997 totaled $20,940,192 and $4,955,000, respectively. There were no sales
of such investments during the period. Purchase of the forward purchase contract
during the period totaled $76,498,807.
Note 5. Trustees Fees
Each of the three Trustees was paid a one-time, upfront fee of $10,800 for their
services during the life of the Trust. In addition, the Managing Trustee was
paid an additional one-time, upfront fee of $3,600 for serving in such capacity.
The total Trustees fees paid to the Trustees of $36,000 is being expensed over
the life of the Trust. As of December 31, 1997, the Trust had expensed $9,194 of
such fees.
Note 6. Income Taxes
The Trust is not an association taxable as a corporation for Federal income tax
purposes; accordingly, no provision is required for such taxes.
As of December 31, 1997, gross unrealized appreciation and depreciation of
investments, based on cost for Federal income tax purposes, aggregated
$77,019,331 and $0, respectively. The amortized cost of investment securities
for Federal income tax purposes was $93,398,610 at December 31, 1997.
Note 7. Expenses
The estimated expenses to be incurred in connection with the offering of the
STRYPES and its ongoing operations is $687,117. Of this amount, $361,517
represents offering expenses ($351,517) and organizational expenses ($10,000)
incurred by the Trust. All of the expenses are being paid from cash received by
the Administrator from the Contracting Stockholders. At December 31, 1997, the
Administrator had paid $291,358 relating to such expenses. The remaining amount
of $325,600 represents a prepayment of estimated administrative and other
operating expenses of the Trust. Such amount was paid to the Administrator by
the Contracting Stockholders. Expenses incurred in excess of this amount will be
paid by the Contracting Stockholders.
Cash received by the Administrator from the Contracting Stockholders of $325,600
for the payment of administrative and related operating expenses of the Trust
has not been included in the Trust's financial statements since the amount does
not represent Trust property. At December 31, 1997, $113,764 had been paid by
the Administrator for current and prepaid administrative and related operating
expenses. All administrative and related operating expenses incurred by the
Trust are reflected in the Trust's financial statements net of amounts
reimbursed.
Note 8. Forward Purchase Contracts
On March 10, 1997, the Trust entered into a forward purchase contract with
certain existing stockholders of Nextel (the "Contracting Stockholders") and
paid to the Contracting Stockholders $76,498,807 in connection therewith.
Pursuant to such contract, the Contracting Stockholders are obligated to deliver
to the Trust a specified number of shares of common stock on May 15, 2000 (the
"Exchange Date") so as to permit the holders of the STRYPES to exchange on the
Exchange Date each of their STRYPES for between 0.8403 and 1.00 shares of common
stock. See the Trust's original prospectus dated March 4, 1997 for the formula
upon which such exchange will be determined.
The forward purchase contract held by the Trust at December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
Exchange Cost of Contract Unrealized
Date Contract Value Appreciation
- --------------------------------------------- ----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Nextel Communications, Inc. Common
Stock Forward Purchase Agreement 5/15/00 $76,498,807 $153,422,799 $76,923,992
============================================= ================= ================== ================== ==================
</TABLE>
The Contracting Stockholders' obligations under the forward purchase contract
are collateralized by shares of Nextel common stock which are being held in the
custody of the Trust's Custodian, The Bank of New York. At December 31, 1997,
the Custodian held 7,175,731 shares with an aggregate value of $186,569,006.
Note 9. Capital Share Transactions
On February 26, 1997 two STRYPES were sold to two of the underwriters of the
STRYPES for $100,000 ($50,000 per STRYPES). As a result of a stock split
effected immediately prior to the public offering of the STRYPES, these two
STRYPES were converted into 7,144 STRYPES. During the offering period, the Trust
sold 7,168,587 STRYPES to the public and received net proceeds of $97,349,411
($100,360,218 net of sales commission of $3,010,807). As of December 31, 1997,
there were 7,175,731 STRYPES issued and outstanding with an aggregate cost, net
of sales commission, and return of capital, of $92,614,533.
NEXTEL STRYPES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Trust's financial highlights are presented below. The per share operating
performance data is designed to allow investors to trace the operating
performance, on a per share basis, from the Trust's beginning net asset value to
the ending net asset value so that they can understand what effect the
individual items have on their investment assuming it was held throughout the
period. Generally, the per share amounts are derived by converting the actual
dollar amounts incurred for each item as disclosed in the financial statements
to their equivalent per share amounts.
The total return based on market value measures the Trust's performance assuming
investors purchased shares at market value as of the beginning of the period,
reinvested dividends and other distributions at market value, and then sold
their shares at the market value per share on the last day of the period. The
total return computations do not reflect any sales charges investors may incur
in purchasing or selling shares of the Trust. The total return for period of
less than one year is not annualized.
<TABLE>
<CAPTION>
March 10, 1997
(Commencement of
Operations) to
December 31, 1997
---------------------
Per Share Operating Performance (for a STRYPE outstanding throughout
the period)
<S> <C>
Investment income $ 0.13
Expenses 0.00
---------------------
Investment income - net 0.13
Distribution from income (0.02)
Return of capital (0.67)
Unrealized gain on investments 10.73
---------------------
Net increase in net asset value 10.04
Beginning net asset value 13.58
---------------------
Ending net asset value $ 23.75
=====================
Ending market value $ 23.75
=====================
Total investment return based on market value 75.57%
Ratios/Supplemental data Ratio of expenses to average net assets:
Before reimbursement (1) 0.08%
After reimbursement (1) 0.00%
Ratio of net investments income to average net assets:
Before reimbursement (1) 0.75%
After reimbursement (1) 0.83%
Net assets, end of period (in thousands) $ 170,426
</TABLE>
(1) Annualized
