<PAGE>
DOLE FOOD AUTOMATIC COMMON
EXCHANGE SECURITY TRUST
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary Information......................................................................... 1
Report of Independent Accountants........................................................... 2
Financial Statements for the Period August 8, 1996 (Commencement of Operations) to December
31, 1996:
Statement of Assets and Liabilities....................................................... 3
Schedule of Investments................................................................... 4
Statement of Operations................................................................... 5
Statement of Changes in Net Assets........................................................ 6
Notes to the Financial Statements......................................................... 7
Financial Highlights...................................................................... 10
</TABLE>
<PAGE>
SUMMARY INFORMATION
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Each of the $2.7475 Automatic Common Exchange Securities (the "Securities") of
the Dole Food Automatic Common Exchange Security Trust represents the right to
receive an annual distribution of $2.7475, and will be exchanged on August 15,
1999 for between 0.8329 share and one share of common stock, no par value
("Common Stock"), of Dole Food Company, Inc. ("Dole"). The annual distribution
of $2.7475 per Security is payable quarterly on each February 15, May 15, August
15 and November 15, through August 15, 1999. The Securities are not subject to
redemption.
The Trust was established to purchase and hold a portfolio of stripped U.S.
Treasury securities maturing on a quarterly basis through August 15, 1999, and a
forward purchase contract with a shareholder of Dole (the "Seller"). The
trustees of the Trust do not have the power to vary the investments held by the
Trust. The Trust's investment objective is to provide each holder of Securities
with a quarterly distribution of $0.6869 per Security and, on August 15, 1999, a
number of shares of Common Stock per Security computed as follows: if the
Current Market Price is equal to or greater than $47.125, 0.8329 share of Common
Stock per Security; if the Current Market Price is less than $47.125 but equal
to or greater than $39.25, a number (or fractional number) of shares of Common
Stock per Security having a value (determined at the Current Market Price) equal
to $39.25; and if the Current Market Price is less than $39.25, one share of
Common Stock per Security, subject in each case to adjustment in certain events.
The "Current Market Price" means, with certain exceptions, the average closing
price per share of Common Stock as reported on the New York Stock Exchange
Consolidated Tape for the 20 trading days immediately prior to, but not
including, August 15, 1999. In lieu of delivery of the Common Stock, the Seller
may elect to pay cash in an amount equal to the then current market value of the
number of shares of the Common Stock determined under the above formula.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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To the Trustees and Shareholders of Dole Food Automatic Common Exchange Security
Trust
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Dole Food Automatic Common Exchange Security
Trust (the "Trust") as of December 31, 1996, and the related statements of
operations, changes in net assets and the financial highlights for the period
from August 8, 1996 (commencement of operations) to December 31, 1996. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and 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 the securities owned at December 31, 1996,
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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Dole
Food Automatic Common Exchange Security Trust as of December 31, 1996, the
results of its operations, the changes in its net assets, and its financial
highlights for the period referred to above, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 27, 1997
2
<PAGE>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
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<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $107,714,912)................................... $104,973,487
Cash........................................................................ 92,287
Receivable from Goldman, Sachs & Co......................................... 33,000
Prepaid expenses............................................................ 101,600
Deferred organization costs, net of accumulated amortization of $4,080...... 32,638
-----------
Total Assets............................................................ 105,233,012
-----------
LIABILITIES:
Accrued expenses............................................................ 33,000
Unearned expense reimbursement.............................................. 125,213
-----------
Total Liabilities....................................................... 158,213
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Net Assets.................................................................... $105,074,799
-----------
-----------
COMPOSITION OF NET ASSETS:
$2.75 Trust Automatic Common Exchange Securities ("TRACES")
no par value; 2,875,000 shares issued and outstanding....................... $107,815,091
Unrealized depreciation of investments........................................ (2,741,425)
Undistributed net investment income........................................... 1,133
-----------
NET ASSETS.................................................................... $105,074,799
-----------
-----------
NET ASSET VALUE PER TRACES.................................................... $ 36.55
-----------
-----------
($105,074,799/2,875,000)
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
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<TABLE>
<CAPTION>
PAR MATURITY AMORTIZED MARKET
SECURITIES DESCRIPTION VALUE DATE COST VALUE
- ------------------------------------------------------ ------------- --------- -------------- --------------
<S> <C> <C> <C> <C>
UNITED STATES GOVERNMENT SECURITIES:
United States Treasury Strips................. $ 1,975,000 2/15/97 $ 1,962,133 $ 1,962,735
United States Treasury Strips................. 1,975,000 5/15/97 1,935,216 1,936,962
United States Treasury Strips................. 1,975,000 8/15/97 1,907,613 1,910,121
United States Treasury Strips................. 1,975,000 11/15/97 1,878,766 1,882,056
United States Treasury Strips................. 1,975,000 2/15/98 1,850,542 1,855,354
United States Treasury Strips................. 1,975,000 5/15/98 1,823,339 1,827,922
United States Treasury Strips................. 1,975,000 8/15/98 1,794,611 1,799,205
United States Treasury Strips................. 1,975,000 11/15/98 1,766,973 1,772,266
United States Treasury Strips................. 1,975,000 2/15/99 1,738,691 1,744,913
United States Treasury Strips................. 1,975,000 5/15/99 1,711,012 1,718,053
United States Treasury Strips................. 1,975,000 8/15/99 1,683,841 1,691,015
------------- -------------- --------------
$ 21,725,000 20,052,737 20,100,602
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FORWARD PURCHASE CONTRACTS:
D. Murdock Living Trust/
Dole Food Automatic Common Exchange Security
Trust Purchase Agreement.............................................. 87,662,175 84,872,885
-------------- --------------
Total........................................................... $ 107,714,912 $ 104,973,487
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM AUGUST 8, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
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<TABLE>
<S> <C> <C>
INTEREST INCOME $ 465,733
EXPENSES
Administrative fees and expenses $ 35,000
Accounting fees 28,000
Insurance expense 8,700
Trustees fees 4,000
Amortization of deferred organization costs 4,080
Other expenses 5,000
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Total fees and expenses 84,780
EXPENSE REIMBURSEMENT 84,780
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TOTAL EXPENSES -- Net 0
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NET INVESTMENT INCOME 465,733
UNREALIZED DEPRECIATION OF INVESTMENTS (2,741,425)
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NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (2,275,692)
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM AUGUST 8, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
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<TABLE>
<S> <C>
OPERATIONS:
Net investment income..................................................... $ 465,733
Unrealized depreciation of investments.................................... (2,741,425)
-----------
Net decrease in net assets from operations............................ (2,275,692)
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DISTRIBUTIONS FROM:
Return of capital......................................................... (1,532,087)
Net investment income..................................................... (464,600)
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Total distributions................................................... (1,996,687)
INCREASE IN NET ASSETS FROM CAPITAL SHARES TRANSACTIONS:
Gross proceeds from the sale of TRACES.................................... 112,743,741
Less:
Selling commissions and offering expenses............................... (3,496,563)
-----------
Net increase in net assets from capital shares transactions........... 109,247,178
TOTAL INCREASE IN NET ASSETS FOR THE PERIOD................................... 104,974,799
NET ASSETS, BEGINNING OF PERIOD............................................... 100,000
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NET ASSETS, END OF PERIOD..................................................... $105,074,799
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-----------
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 8, 1996 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1996
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(1) ORGANIZATION
Dole Food Automatic Common Exchange Security Trust ("Trust") was established
on January 18, 1996 and amended and restated as of August 8, 1996 and is
registered as a non-diversified, closed-end management investment company
under the Investment Company Act of the 1940 (the "Act"), as amended. In
August 1996, the Trust sold $2.75 Trust Automatic Common Exchange Securities
("TRACES") 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 to pay the purchase price for a forward purchase contract for
shares of common stock of Dole Food Company, Inc. ("DFCI"), a Hawaii
corporation, with an existing shareholder of DFCI. Each TRACES represents
between 0.8329 shares and 1 share of DFCI common stock. The DFCI common
stock or its cash equivalent is deliverable pursuant to the contract on
August 15, 1999 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.
(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 based on bid
side prices at the close of the period. Amortized cost is calculated on an
interest method. The forward purchase contract is valued at the mean of the
bid prices received by the Trust at the end of the period from three
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.
ORGANIZATION EXPENSES--Organization expenses of $36,718 are being amortized
on a straight-line basis over the life of the Trust beginning at the
commencement of operations of the Trust.
7
<PAGE>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 8, 1996 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1996
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(3) DISTRIBUTIONS
TRACES holders are entitled to receive distributions from the maturity of
U.S. Treasury Strips of $2.7475 per annum or $0.6869 per quarter (except for
the first distribution on November 15, 1996 which was $0.6945), payable
quarterly commencing November 15, 1996.
(4) PURCHASES AND SALES OF INVESTMENTS
Purchases of U.S. Treasury Strips and forward purchase contracts were
$21,585,003 and $87,769,245, respectively. On November 15, 1996, the Trust
redeemed $1,998,000 of U.S. Treasury Strips.
(5) TRUSTEES FEES
Each of the three Trustees has been paid a one-time, upfront fee of $10,800
for their services during the life of the Trust. In addition, the Managing
Trustee has been paid a one-time, upfront fee of $3,600 for serving in such
capacity. The total prepaid trustees fees of $35,000 will be amortized over
the life of the Trust. At December 31, 1996, the Trust had amortized $4,000
of such fees.
(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, 1996, unrealized depreciation of investments, based on
cost for Federal income tax purposes, aggregated $2,741,425, all of which
related to depreciated securities. The cost of investment securities for
Federal income tax purposes was $107,714,912 at December 31, 1996.
(7) EXPENSES
The estimated expenses to be incurred by the Trust in connection with its
ongoing operations is $100,000 annually. Of this amount, $101,600 has been
prepaid by Goldman, Sachs & Co. on behalf of the Trust. Goldman, Sachs & Co.
has agreed to pay all additional expenses on behalf of the Trust out of its
selling commissions.
(8) FORWARD PURCHASE CONTRACTS
On August 8, 1996, the Trust entered into one forward purchase contract with
one principal shareholder of DFCI (the "Seller") and paid to the Seller
$87,769,245 in connection therewith. Pursuant to such contract, the Seller
is obligated to deliver to the Trust a specified number of shares of DFCI
common stock on August 15, 1999 (the "Exchange Date") so as to permit the
holders of the TRACES to exchange on the Exchange Date each of their shares
of TRACES for between 0.8329 shares and 1 share of DFCI common stock.
The Seller paid $107,070 of offering expenses related to the Trust. This
amount has been recorded as a reduction in the cost of the forward contract.
8
<PAGE>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 8, 1996 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1996
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The forward purchase contract held by the Trust at December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
EXCHANGE COST OF CONTRACT UNREALIZED
FORWARD CONTRACT DATE CONTRACT VALUE DEPRECIATION
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
David H. Murdock Living Trust................. 8/15/99 $87,662,175 $84,872,885 ( $2,789,290)
</TABLE>
The Seller's obligation under the forward purchase contract is
collateralized by shares of DFCI common stock which are being held in the
custody of the Trust's Custodian, The Bank of New York. At December 31,
1996, the Custodian held 2,875,000 shares of DFCI common stock with an
aggregate value $97,390,625.
(9) CAPITAL SHARE TRANSACTIONS
On August 5, 1996, one TRACES was sold to the underwriter of the TRACES for
$100,000. As a result of a stock split effected immediately prior to the
public offering of the TRACES, this 1 TRACES was converted into 2,548
TRACES. During the period ended December 31, 1996, the Trust sold 2,872,452
TRACES to the public and received net proceeds of $109,247,178 ($112,743,741
net of sales commission and offering expenses of $3,496,563). As of December
31, 1996, there were 2,875,000 TRACES issued and outstanding.
9
<PAGE>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
FINANCIAL HIGHLIGHTS
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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 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 investment return based on market value measures the Trust's
performance assuming investors purchased shares at market value as of the
beginning of the period, 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 the period is not annualized.
The ratio of expenses and net investment income to average net assets is
expressed with and without the application of the expense reimbursement waiver.
<TABLE>
<CAPTION>
PERIOD FROM AUGUST 8, 1996
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
<S> <C>
Investment income $ 0.16
Expenses 0.00
------------
Investment income--net 0.16
Less distributions from:
Return of capital (0.53)
Net investment income (0.16)
------------
Total distributions (0.69)
Adjustment to capital (offering expenses) (0.04)
Unrealized loss on investments (0.95)
------------
Net decrease in net asset value (1.52)
Beginning net asset value 38.07*
------------
Ending net asset value $ 36.55
------------
------------
Ending market value $ 35.88**
------------
------------
Total investment return based on market value (7.00%)
Ratio of expenses to average net assets:
Before waiver 0.08%
After waiver 0.00%
Ratio of net investment income to average net assets:
Before waiver 0.36%
After waiver 0.43%
Net assets, end of period (in thousands) $ 105,075
</TABLE>
* Net proceed is less selling commissions.
** Closing price on American Stock Exchange at December 31, 1996.
10
<PAGE>
TRUSTEES
Donald J. Puglisi, Managing Trustee
William R. Latham III
James B. O'Neill
ADMINISTRATOR, CUSTODIAN, TRANSFER AGENT
AND PAYING AGENT
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street
New York, New York 10286
