Dole Food Automatic Common
Exchange Security Trust
Semiannual Report
June 30, 1997
<PAGE> 1
Dole Food Automatic Common Exchange Security Trust
Table of Contents
Page
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Summary Information.......................................................2
Unaudited Financial Statements for the Six Months Ended June 30, 1997:
Statements of Assets and Liabilities.................................3
Schedule of Investments..............................................4
Statement of Operations..............................................5
Statements of Changes in Net Assets..................................6
Notes to Financial Statements........................................7
Financial Highlights.....................................................10
<PAGE> 2
Summary Information
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, the 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.
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DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
June 30, 1997 Dec. 31, 1996
<S> <C> <C>
ASSETS:
Investments, at value (cost $104,285,033) $ 122,737,821 $ 104,973,487
Cash 162,612 92,287
Receivable from Goldman, Sachs & Company 38,000 33,000
Prepaid expenses 84,630 101,600
Deferred organization costs, net of
accumulated amortization of $10,200 26,518 32,638
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Total Assets 123,049,581 105,233,012
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LIABILITIES:
Accrued expenses 38,000 33,000
Unearned expense reimbursement 172,123 125,213
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Total Liabilities 210,123 158,213
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Net Assets $ 122,839,458 $ 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. $ 104,353,446 $ 107,815,091
Unrealized appreciation (depreciation)
of investments 18,452,788 (2,741,425)
Undistributed net investment income 33,224 1,133
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NET ASSETS $ 122,839,458 $ 105,074,799
============== ==============
NET ASSET VALUE PER TRACES $ 42.73 $ 36.55
============== ==============
</TABLE>
See accompanying notes to financial statements
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DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
SCHEDULE OF INVESTMENTS
JUNE 30, 1997
<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 08/15/97 $ 1,960,142 1,962,064
United States Treasury Strips 1,975,000 11/15/97 1,931,822 1,934,710
United States Treasury Strips 1,975,000 02/15/98 1,903,439 1,906,902
United States Treasury Strips 1,975,000 05/15/98 1,875,643 1,879,943
United States Treasury Strips 1,975,000 08/15/98 1,846,797 1,850,318
United States Treasury Strips 1,975,000 11/15/98 1,818,707 1,822,313
United States Treasury Strips 1,975,000 02/15/99 1,790,100 1,794,031
United States Treasury Strips 1,975,000 05/15/99 1,761,958 1,765,650
United States Treasury Strips 1,975,000 08/15/99 1,734,250 1,737,428
------------- -------------- -------------
$ 17,775,000 16,622,858 16,653,359
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FORWARD PURCHASE CONTRACTS:
D.Murdock Living Trust/Dole Food
Automatic Common Exchange Security Trust
Purchase Agreement 87,662,175 106,084,462
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Total $ 104,285,033 $ 122,737,821
============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE> 5
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
INTEREST INCOME $ 520,121
EXPENSES:
Administrative fees and expenses $ 17,500
Legal fees 15,000
Insurance expense 13,850
Accounting fees 12,500
Amortization of deferred organization costs 6,120
Trustees fees 6,000
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Total fees and expenses 70,970
EXPENSE REIMBURSEMENT 70,970
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TOTAL EXPENSES - Net 0
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NET INVESTMENT INCOME 520,121
UNREALIZED APPRECIATION OF INVESTMENTS 21,194,213
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NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 21,714,334
=============
</TABLE>
See accompanying notes to financial statements
<PAGE> 6
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
June 30, 1997 Dec. 31, 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 520,121 $ 465,733
Unrealized appreciation (depreciation) of investments 21,194,213 (2,741,425)
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Net increase in net assets from operations 21,714,334 (2,275,692)
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DISTRIBUTIONS FROM:
Return of capital (3,461,644) (1,532,087)
Net investment income (488,031) (464,600)
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Total distributions (3,949,675) (1,996,687)
INCREASE IN NET ASSETS FROM CAPITAL SHARES TRANSACTIONS:
Gross proceeds from the sale of TRACES 0 112,743,741
Less:
Selling commissions and offering expenses 0 (3,496,563)
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Net increase in net assets from capital
shares transactions 0 109,247,178
TOTAL INCREASE (DECREASE) IN NET ASSETS FOR THE PERIOD 17,764,659 104,974,799
NET ASSETS, BEGINNING OF PERIOD 105,074,799 100,000
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NET ASSETS, END OF PERIOD $ 122,839,458 $ 105,074,799
============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE> 7
Dole Food Automatic Common Exchange Security Trust
Notes to the Financial Statements
FOR THE SIX MONTHS ENDED JUNE 30,1997
(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.
(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.
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(4) Purchases and Sales of Investments
On February 18, 1997 and May 15, 1997, the Trust redeemed $1,975,000 each 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 $36,000 will be amortized over the life of
the Trust. At June 30, 1997, the Trust had amortized $10,000 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 June 30, 1997, unrealized appreciation of investments, based on cost for
Federal income tax purposes, aggregated $18,452,788, all of which related to
appreciated securities. The cost of investment securities for Federal income
tax purposes was $104,285,033 at June 30, 1997.
(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.
The forward purchase contract held by the Trust at June 30, 1997 is as follows:
<TABLE>
<CAPTION>
Exchange Cost of Contract Unrealized
Forward Contract Date Contract Value Appreciation
<S> <C> <C> <C> <C>
David H. Murdock Living Trust 8/15/99 $87,662,175 $106,084,462 $18,422,287
</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 June 30, 1997, the Custodian held 2,875,000
shares of DFCI common stock with an aggregate value of $122,906,250.
<PAGE> 9
(9) Capital Share Transactions
There were no transactions reported for the period. As of June 30, 1997, there
were 2,875,000 TRACES issued and outstanding.
<PAGE> 10
Dole Food Automatic Common Exchange Security 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 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)
June 3O, 1997 to December 31, 1996
<S> <C> <C>
Investment income $ 0.18 $ 0.16
Expenses 0.00 0.00
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Investment income - net 0.18 0.l6
Less distributions from:
Return of capital (1.20) (0.53)
Net investment income (0.17) (0.16)
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Total distributions (1.37) (0.69)
Adjustment to capital (offering expenses) 0.00 (0.04)
Unrealized gain (loss) on investments 7.37 (0.95)
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Net increase (decrease) in net asset value 6.18 (1.52)
Beginning net asset value 36.55 38.07 *
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Ending net asset value $ 42.73 $ 36.55
========== ==========
Ending market value $ 43.00 ** $ 35.88 **
========== ==========
Total investment return based on market value 23.94% (7.00%)
Ratio of expenses to average net assets:
Before waiver 0.06% 0.08%
After waiver 0.00% 0.00%
Ratio of net investment income to average
net assets:
Before waiver 0.39% 0.36%
After waiver 0.46% 0.43%
Net assets, end of period (in thousands) $ 122,839 $ 105,075
* Net proceed is less selling commissions and offering expenses.
** Closing price on American Stock Exchange at June 30, 1997 and December 31,
1996, respectively.
<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
101 Barclay Street
New York, New York 10286
</TABLE>
