NEXTEL STRYPES TRUST
FINANCIAL REPORT
JUNE 30, 1998
(UNAUDITED)
<PAGE>
CONTENTS
FINANCIAL STATEMENTS:
Statement of net assets...............................................1
Schedule of investments...............................................2
Statement of operations...............................................3
Statement of changes in net assets....................................4
Notes to financial statements.......................................5-7
Financial highlights..................................................8
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MCGLADREY & PULLEN, LLP
-----------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
ACCOUNTANT'S REPORT
The accompanying statement of net assets, including the schedule of
investments, of Nextel Strypes Trust as of June 30, 1998, and the related
statement of operations for the six months then ended, the statements of
changes in net assets for the six months then ended and the period from March
10, 1997 (commencement of operations) to December 31, 1997, and the financial
highlights for the periods indicated were not audited by us and, accordingly,
we do not express an opinion on them.
McGladrey & Pullen, LLP
New York, New York
October 27, 1998
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NEXTEL STRYPES TRUST
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
- ------------------------------------------------------------------------------
ASSETS:
Investments, at value (amortized cost $90,210,744)
(notes 2, 4, and 8) $159,669,823
Cash 6,733
------------
TOTAL ASSETS $159,676,556
============
NET ASSETS $159,676,556
============
COMPOSITION OF NET ASSETS
Structured Yield Product Exchangeable for Stock
("STRYPES"), no par value;
7,175,731 shares issued and outstanding (Note 9) $89,185,608
Unrealized appreciation of investments 69,459,079
Undistributed net investment income 1,031,869
-----------
NET ASSETS $159,676,556
============
NET ASSET VALUE PER STRYPES $22.25
============
See Notes to Financial Statements.
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NEXTEL STRYPES TRUST
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Maturity Market Amortized
Securities Description Value Date Value Cost
UNITED STATES GOVERNMENT
SECURITIES:
<S> <C> <C> <C> <C>
United States Treasury Strips $1,820,000 08/15/98 $1,808,516 $1,806,650
United States Treasury Strips 1,820,000 11/15/98 1,784,947 1,780,481
United States Treasury Strips 1,820,000 02/15/99 1,760,286 1,753,062
United States Treasury Strips 1,820,000 05/15/99 1,736,389 1,726,824
United States Treasury Strips 1,820,000 08/15/99 1,712,584 1,700,661
United States Treasury Strips 1,820,000 11/15/99 1,689,743 1,673,838
United States Treasury Strips 1,820,000 02/15/00 1,666,337 1,647,319
United States Treasury Strips 1,820,000 05/15/00 1,664,952 1,623,102
--------- --------- ---------
$14,560,000 $13,803,754 $13,711,937
=========== =========== ===========
FORWARD PURCHASE CONTRACT:
Nextel Communications, Inc. Common Stock Forward 5/15/00 145,866,069 76,498,807
----------- ----------
Purchase Agreement
TOTAL $159,669,823 $90,210,744
============ ===========
See Notes to Financial Statements.
</TABLE>
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NEXTEL STRYPES TRUST
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
ACCRETION OF ORIGINAL ISSUE DISCOUNT $452,133
EXPENSES:
Administrative fees and expenses $21,414
Legal fees 2,646
Accounting fees 10,116
Trustees fees (Note 5) 5,602
Other expenses 10,894
------
TOTAL FEES AND EXPENSES 50,672
EXPENSE REIMBURSEMENT (Note 7) (50,672)
TOTAL EXPENSES - NET -
----------
NET INVESTMENT INCOME 452,133
NET DECREASE IN UNREALIZED APPRECIATION OF INVESTMENTS (7,560,252)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(7,108,119)
============
See Notes to Financial Statements.
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NEXTEL STRYPES TRUST
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 and the
Period from March 10, 1997 (commencement of
operations to December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Six Months Period
Ended Ended
June 30, 1998 December 31, 1997
<S> <C> <C>
OPERATIONS
Net investment income $452,133 $914,611
Unrealized appreciation (depreciation) of investments (7,560,252) 77,019,331
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (7,108,119) 77,933,942
----------- ----------
DISTRIBUTIONS:
Net investment income (212,758) (122,117)
Return of capital (3,428,925) (4,834,878)
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NET DECREASE IN NET ASSETS FROM DISTRIBUTIONS (3,641,683) (4,956,995)
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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 commission (3,010,807)
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NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 0 97,349,411
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TOTAL INCREASE IN NET ASSETS FOR THE PERIOD (10,749,802) 170,326,358
NET ASSETS, BEGINNING OF PERIOD 170,426,358 100,000
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NET ASSETS, END OF PERIOD $159,676,556 $170,426,358
- ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
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NEXTEL STRYPES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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
Maturities of U.S. Treasury Strips for the six months ended June 30, 1998 and
the period ended December 31, 1997 totaled $3,640,000 and $4,955,000,
respectively. There were no sales of such investments during the period.
Purchase of U.S. Treasury Strips and the forward purchase contract during the
period ended December 31, 1997 totaled $20,940,192 and $76,498,807,
respectively.
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 June 30, 1998, the Trust had
expensed $14,796 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 June 30, 1998, gross unrealized appreciation and depreciation of
investments, based on cost for Federal income tax purposes, aggregated
$64,459,079 and $0, respectively. The amortized cost of investment securities
for Federal income tax purposes was $90,210,744 at June 30, 1998.
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 June 30, 1998, 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 June 30, 1998, $175,639 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 June 30, 1998 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 $145,866,069 $69,367,262
====================================================================================================================
</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 June 30, 1998,
the Custodian held 7,175,731 shares with an aggregate value of $178,469,309.
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 June
30, 1998, there were 7,175,731 STRYPES issued and outstanding with an
aggregate cost, net of sales commission and return of capital, of $89,185,608.
NEXTEL STRYPES TRUST
FINANCIAL HIGHLIGHTS (UNAUDITED)
- ------------------------------------------------------------------------------
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
Six Months Ended Operations) to
June 30, 1998 December 31, 1997
----------------- ---------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE FOR A STRYPES
OUTSTANDING THROUGHOUT THE PERIOD
Investment income $0.06 $0.13
Expenses 0.00 0.00
----------------- ---------------------
Investment income - net 0.06 0.13
Distributions from income (0.03) (0.02)
Return of capital (0.48) (0.67)
Unrealized gain (loss) on investments (1.05) 10.73
----------------- ---------------------
Net increase (decrease) in net asset value (1.50) 10.04
Beginning net asset value 23.75 13.58
----------------- ---------------------
Ending net asset value $22.25 $23.75
================= =====================
Ending market value $22.25 $23.75
================= =====================
TOTAL INVESTMENT RETURN BASED ON MARKET VALUE (4.27)% 75.57%
RATIOS/SUPPLeMENTAL DATA
Ratio of expenses to average net assets:
Before reimbursement (1) 0.06% 0.08%
After reimbursement (1) 0.00% 0.00%
Ratio of net investments income to average net assets:
Before reimbursement (1) 0.49% 0.75%
After reimbursement (1) 0.55% 0.83%
Net assets, end of period (in thousands) $159,677 $ 170,426
(1) Annualized
</TABLE>
