DOLE FOOD AUTOMATIC COMMON EXCHANGE
SECURITY TRUST
Annual Report
December 31, 1997
Administrator, Custodian, Transfer Agent
Trustees and Paying Agent
Donald J. Puglisi, Managing The Bank of New York
Trustee Corporate Trust Administration
William R. Latham III 101 Barclay Street
James B. O'Neill New York, New York 10286
<PAGE>
Dole Food Automatic Common Exchange Security Trust
Table of Contents
Page
Report of Independent Accountants 1
Financial Statements:
Statement of Assets and Liabilities as of December 31, 1997 2
Schedule of Investments as of December 31, 1997 3
Statement of Operations for the Year Ended December 31, 1997 4
Statements of Changes in Net Assets for the Year Ended
December 31, 1997 and the Period August 8, 1996
(Commencement of Operations) to December 31, 1996 5
Notes to Financial Statements 6-8
Financial Highlights for the Year Ended December 31, 1997
and the Period August 8, 1996 (Commencement of Operations)
to December 31, 1996 9
<PAGE>
Report of Independent Accountants
- ---------------------------------
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, 1997, and the related statements of
operations for the year then ended, and changes in net assets and the financial
highlights for the year then ended and 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 audits.
We conducted our audits 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, 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 audits 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, 1997, the
results of its operations for the year then ended, and the changes in its net
assets and the financial highlights for the periods referred to above, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
February 27, 1998
1
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DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<S> <C>
ASSETS:
Investments, at value (cost $100,760,952) $ 141,374,694
Cash 162,937
Receivable from Goldman, Sachs & Company 68,000
Prepaid expenses 65,100
Deferred organization costs, net of accumulated amortization
of $16,319 20,399
--------------
Total Assets 141,691,130
--------------
LIABILITIES:
Accrued expenses 68,000
Unearned expense reimbursement 146,474
--------------
Total Liabilities 214,474
--------------
Net Assets $ 141,476,656
==============
COMPOSITION OF NET ASSETS:
$2.75 Trust Automatic Common Exchange Securities ("TRACES"),
no par value; 2,875,000 shares issued and outstanding. $ 100,862,914
Unrealized appreciation (depreciation) of investments 40,613,742
--------------
NET ASSETS $ 141,476,656
==============
NET ASSET VALUE PER TRACES $ 49.21
($141,476,656/2,875,000 shares) ==============
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
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 02/15/1998 $ 1,957,214 $ 1,961,669
United States Treasury Strips 1,975,000 05/15/1998 1,928,814 1,936,152
United States Treasury Strips 1,975,000 08/15/1998 1,899,848 1,908,502
United States Treasury Strips 1,975,000 11/15/1998 1,871,298 1,882,531
United States Treasury Strips 1,975,000 02/15/1999 1,842,360 1,855,670
United States Treasury Strips 1,975,000 05/15/1999 1,813,749 1,829,758
United States Treasury Strips 1,975,000 08/15/1999 1,785,494 1,804,162
------------ ------------- -------------
$ 13,825,000 13,098,777 13,178,444
============ ------------- -------------
FORWARD PURCHASE CONTRACTS:
D.Murdock Living Trust/
Dole Food Automatic Common Exchange
Security Trust Purchase Agreement 87,662,175 128,196,250
------------- -------------
Total $ 100,760,952 $ 141,374,694
============= =============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<S> <C> <C>
INTEREST INCOME $ 946,040
EXPENSES:
Administrative fees and expenses $ 35,000
Legal fees 15,000
Insurance expense 27,380
Accounting fees 25,000
Amortization of deferred organization costs 12,239
Trustees fees 12,000
------------
Total fees and expenses 126,619
EXPENSE REIMBURSEMENT 126,619
------------
TOTAL EXPENSES - Net 0
-------------
NET INVESTMENT INCOME 946,040
INCREASE IN UNREALIZED APPRECIATION OF INVESTMENTS 43,355,167
-------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 44,301,207
=============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Period from
August 8, 1996
(Commencement
of Operations)
Year Ended to
Dec. 31, 1997 Dec. 31, 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 946,040 $ 465,733
Increase in unrealized appreciation (depreciation) of investments 43,355,167 (2,741,425)
---------------- ---------------
Net increase (decrease) in net assets from operations 44,301,207 (2,275,692)
---------------- ---------------
DISTRIBUTIONS FROM:
Return of capital (6,952,177) (1,532,087)
Net investment income (947,173) (464,600)
---------------- ---------------
Total distributions (7,899,350) (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)
---------------- ---------------
Net increase in net assets from capital shares transactions 0 109,247,178
---------------- ---------------
TOTAL INCREASE IN NET ASSETS FOR THE PERIOD 36,401,857 104,974,799
NET ASSETS, BEGINNING OF PERIOD 105,074,799 100,000
NET ASSETS, END OF PERIOD (Including undistributed net investment income
of $1,133 in 1996) $ 141,476,656 $ 105,074,799
=============== ===============
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM
AUGUST 8, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
- ----------------------------------------------------------------
(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 year. 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.
6
<PAGE>
(4) Purchases and Sales of Investments
Maturities of U.S. Treasury Strips totaled $7,900,000 for the year ended
December 31, 1997; there were no purchases or sales of U.S. Treasury Strips
investments or forward purchase contracts during the year.
(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 December 31, 1997, the Trust had amortized
$16,000 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, 1997, unrealized appreciation of investments, based on
cost for Federal income tax purposes, aggregated $40,613,742, all of which
related to appreciated securities. The cost of investment securities for
Federal income tax purposes was $100,760,952 at December 31, 1997.
(7) Expenses
The estimated expenses to be incurred by the Trust in connection with its
ongoing operations is approximately $100,000 annually. Goldman, Sachs & Co.
has prepaid $101,600 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 December 31, 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 $128,196,250 $40,534,075
</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, 1997,
the Custodian held 2,875,000 shares of DFCI common stock with an aggregate
value of $131,531,250.
7
<PAGE>
(9) Capital Share Transactions
There were no transactions reported for the period. As of December 31,
1997, there were 2,875,000 TRACES issued and outstanding.
8
<PAGE>
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 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
Year Ended (Commencement of Operations)
December 31, 1997 to December 31, 1996
<S> <C> <C>
Investment income $ 0.33 $ 0.16
Expenses 0.00 0.00
------------- -------------
Investment income - net 0.33 0.16
Less distributions from:
Return of capital (2.42) (0.53)
Net investment income (0.33) (0.16)
------------- -------------
Total distributions (2.75) (0.69)
Adjustment to capital (offering expenses) 0.00 (0.04)
Unrealized gain(loss) on investments 15.08 (0.95)
------------- -------------
Net increase(decrease) in net asset value 12.66 (1.52)
Beginning net asset value 36.55 38.07*
------------- -------------
Ending net asset value $ 49.21 $ 36.55
============= =============
Ending market value $ 43.50** $ 35.88**
============= =============
Total investment return based on market value 29.57% (7.00%)
Ratio of expenses to average net assets:
Before waiver 0.10% 0.08%
After waiver 0.00% 0.00%
Ratio of net investment income to average net assets:
Before waiver 0.67% 0.36%
After waiver 0.77% 0.43%
Net assets, end of period (in thousands) $ 141,477 $ 105,075
</TABLE>
* Net proceed is less selling commissions and offering expenses.
** Closing price on American Stock Exchange at December 31, 1997 and
December 31, 1996, respectively.
9
