NEXTEL STRYPES TRUST
FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1998 AND THE PERIOD
MARCH 10, 1997 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1997, AND INDEPENDENT AUDITORS' REPORT
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TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT.............................................1
FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1998 AND THE PERIOD MARCH 10, 1997
COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997:
Statement of Net Assets.........................................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
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INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
WBK STRYPES Trust:
We have audited the accompanying statement of net assets, including the schedule
of investments, of WBK STRYPES Trust as of December 31, 1998, the related
statement of operations for the year then ended and statements of changes in net
assets and the financial highlights for the year ended December 31, 1998 and the
period October 6, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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, 1998 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 audits provide 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 WBK STRYPES Trust as
of December 31, 1998, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
July 6, 1999
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NEXTEL STRYPES TRUST
STATEMENT OF NET ASSETS
December 31, 1998
ASSETS:
<TABLE>
<CAPTION>
<S> <C>
Investments, at value (amortized cost $86,936,856 ) (Notes 2, 4, and 8) $147,106,419
Cash 5,050
Total Assets $147,111,469
Net Assets $147,111,469
COMPOSITION OF NET ASSETS
Structured Yield Product Exchangeable for Stock ("STRYPES"), no par value; $85,859,694
7,175,731 shares issued and outstanding (Note 9)
Net unrealized appreciation of investments 60,169,563
Undistributed net investment income 1,082,212
Net Assets $147,111,469
Net Asset value per STRYPES $ 20.50
===================
See Notes to Financial Statements.
</TABLE>
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NEXTEL STRYPES TRUST
SCHEDULE OF INVESTMENTS
December 31, 1998
<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 02/15/99 $1,810,263 $1,806,411
United States Treasury Strips 1,820,000 05/15/99 1,789,952 1,779,970
United States Treasury Strips 1,820,000 08/15/99 1,770,078 1,753,088
United States Treasury Strips 1,820,000 11/15/99 1,750,330 1,725,891
United States Treasury Strips 1,820,000 02/15/00 1,730,274 1,698,893
United States Treasury Strips 1,820,000 05/15/00 1,710,345 1,673,796
--------- --------- ---------
$10,920,000 $10,561,242 $10,438,049
=========== =========== ===========
FORWARD PURCHASE CONTRACT:
Nextel Communications, Inc. Common Stock Forward 5/15/00 136,545,177 76,498,807
----------- ----------
Purchase Agreement
Total $147,106,419 $86,936,856
============ ===========
See Notes to Financial Statements.
</TABLE>
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NEXTEL STRYPES TRUST
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<TABLE>
<CAPTION>
ACCRETION OF ORIGINAL ISSUE DISCOUNT $818,246
EXPENSES:
Administrative fees and expenses $43,184
Legal fees 5,336
Accounting fees 20,400
Trustees fees (Note 5) 11,298
Other expenses 21,969
------
Total fees and expenses 102,187
EXPENSE REIMBURSEMENT (Note 7) ______
<S> <C>
Total expenses - Net -
------------
Net Investment Income 818,246
Net change in unrealized appreciation of investments (16,849,768)
------------
Net decrease in net assets resulting from operations $(16,031,522)
=============
See Notes to Financial Statements.
</TABLE>
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NEXTEL STRYPES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
Year March 10, 1999
Ended (Commencement of
December 31, 1998 Operations) to
OPERATIONS December 31, 1997
<S> <C> <C>
Net investment income $818,246 $914,611
Unrealized appreciation (depreciation) of investments (16,849,768) 77,019,331
- ------------------------------------------------------------------------------------------------------- ---------------------
Net increase (decrease) in net assets from operations (16,031,522) 77,933,942
------------ ----------
DISTRIBUTIONS:
Net investment income (528,528) (122,117)
Return of capital (6,754,839) (4,834,878)
- ------------------------------------------------------------------------------------------------------- ---------------------
Net decrease in net assets from distributions (7,283,367) (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 commission -- (3,010,807)
---------------------
- -------------------------------------------------------------------------------------------------------
Net increase in net assets from capital share transactions -- 97,349,411
- ------------------------------------------------------------------------------------------------------- ---------------------
Total increase in net assets for the period (23,314,889) 170,326,358
Net assets, beginning of period 170,426,358 100,000
- ------------------------------------------------------------------------------------------------------- ---------------------
Net assets, end of period $147,111,469 $170,426,358
- ------------------------------------------------------------------------------------------------------- ---------------------
See Notes to Financial Statements.
</TABLE>
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NEXTEL STRYPES TRUST
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998 AND
THE PERIOD MARCH 10, 1997 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 1997
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 using 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 (including amortization of
discount) is recognized on the accrual basis. Realized 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. Dividends and 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 November 15, 1997 which was $0.1833). Distributions are
payable quarterly and commenced November 15, 1997.
Note 4. Purchases and Sales of Investments
Maturities of U.S. Treasury Strips for the periods ended December 31, 1998 and
1997 totaled $7,280,000 and $4,955,000, respectively. There were no sales of
such investments during either period. Purchase of U.S. Treasury Strips and the
forward purchase contract during the year ended December 31, 1998 and 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 on a
straight-line basis over the life of the Trust. For the year ended December 31,
1998, the Trust had expensed $20,492 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, 1998, gross unrealized appreciation and depreciation of investments, based
on amortized cost for Federal income tax purposes, aggregated $60,169,563 and
$0, respectively. The amortized cost of investment securities for Federal income
tax purposes was $86,936,856 at December 31, 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 December 31, 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 December 31, 1998, $190,472 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 Contract
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 shares and 1.00 share 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, 1998 is as
follows:
<TABLE>
<CAPTION>
Exchange Cost of Contract Unrealized
Date Contract Value Appreciation
- --------------------------------------------- ----------------- ------------------ ------------------ ------------------
Nextel Communications, Inc. Common
<S> <C> <C> <C> <C>
Stock Forward Purchase Agreement 5/15/00 $76,498,807 $136,545,177 $60,046,370
============================================= ================= ================== ================== ==================
</TABLE>
The Sellers' 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, 1998, the Custodian
held 7,175,731 shares with an aggregate value of $169,526,645.
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, 1998
and 1997, there were 7,175,731 STRYPES issued and outstanding with an aggregate
cost, net of sales commission and return of capital, of $85,859,694 and
$92,614,533, respectively.
<PAGE>
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>
For the Period
March 10, 1997
Year Ended (Commencement of
December 31, Operations) to
1998 December 31, 1997
----------------- ---------------------
Per Share Operating Performance for a STRYPES
outstanding throughout the period
<S> <C> <C>
Investment income - net $0.11 $0.13
Dividends and distributions from income (0.07) (0.02)
Return of capital (0.94) (0.67)
Unrealized (loss) gain on investments (2.35) 10.73
----------------- ---------------------
Net (decrease) increase in net asset value (3.25) 10.04
Beginning net asset value 23.75 13.58
-----------------
---------------------
Ending net asset value $20.50 $23.75
================= =====================
Ending market value $20.50 $23.75
================= =====================
Total investment return based on market value (9.71)% 75.57%
Ratios/Supplemental data Ratio of expenses to average net assets:
Before reimbursement 0.06% 0.08% (1)
After reimbursement 0.00% 0.00% (1)
Ratio of net investments income to average net assets:
Before reimbursement 0.45% 0.75% (1)
After reimbursement 0.52% 0.83% (1)
Net assets, end of period (in thousands) $147,111 $ 170,426
(1) Annualized
</TABLE>
