DOLE FOOD AUTOMATIC COMMON EXCHANGE
SECURITY TRUST
Annual Report
December 31, 1998
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
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Dole Food Automatic Common Exchange Security Trust
Financial Statements as of December 31, 1998
and for the year then ended, Financial Highlights,
and Report of Independent Accountants
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Dole Food Automatic Common Exchange Security Trust
Table of Contents
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Page
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Report of Independent Accountants 1
Financial Statements:
Statement of Assets and Liabilities 2
Schedule of Investments 3
Statement of Operations 4
Statements of Changes in Net Assets 5
Notes to Financial Statements 6-7
Financial Highlights 8
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REPORT OF INDEPENDENT ACCOUNTANTS
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To the Trustees and Shareholders of Dole Food Automatic Common Exchange Security
Trust
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and related statements of operations and of changes
in net assets and financial highlights presents fairly, in all material
respects, the financial position of Dole Food Automatic Common Exchange Security
Trust (the "Trust"), at December 31, 1998, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trusts'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
March 9, 1999
1
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<TABLE>
<CAPTION>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31,1998
<S> <C>
ASSETS:
Investments, at value (cost $93,411,838) $ 93,921,793
Cash 79,197
Receivable from Goldman, Sachs & Company 53,000
Prepaid expenses 26,041
Deferred organization costs, net of accumulated amortization
of $28,559 8,159
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Total Assets 94,088,190
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LIABILITIES:
Accrued expenses 53,000
Unearned expense reimbursement 10,785
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Total Liabilities 63,785
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Net Assets $ 94,024,405
=============
COMPOSITION OF NET ASSETS:
$2.75 Trust Automatic Common Exchange Securities ("TRACES"),
no par value; 2,875,000 shares issued and outstanding. $ 93,514,450
Unrealized appreciation of investments 509,955
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NET ASSETS $ 94,024,405
=============
NET ASSET VALUE PER TRACES $ 32.70
($94,024,405 / 2,875,000 shares) =============
</TABLE>
See accompanying notes to financial statements
2
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<TABLE>
<CAPTION>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
SCHEDULE OF INVESTMENTS
DECEMBER 31,1998
Par Maturity Amortized Market
Securities Description Value Date Cost Value
---------------------- ----- ---- ---- -----
<S> <C> <C> <C> <C>
UNITED STATES GOVERNMENT SECURITIES: - 6.20%
United States Treasury Strips 1,975,000 2/15/99 $ 1,946,029 $ 1,964,453
United States Treasury Strips 1,975,000 5/15/99 1,916,487 1,942,176
United States Treasury Strips 1,975,000 8/15/99 1,887,147 1,920,372
------------ ------------
Total U.S. government securities 5,749,663 5,827,001
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FORWARD PURCHASE CONTRACTS: - 93.69%
D. Murdock Living Trust/
Dole Food Automatic Common Exchange
Security Trust Purchase Agreement 87,662,175 88,094,792
------------ ------------
Total forward purchase contracts 87,662,175 88,094,792
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TOTAL INVESTMENTS: - 99.89% $ 93,411,838 93,921,793
============
OTHER ASSETS LESS LIABILITIES: - 0. 11% 102,612
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NET ASSETS: - 100.00% $ 94,024,405
============
</TABLE>
See accompanying notes to financial statements
3
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<TABLE>
<CAPTION>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,1998
<S> <C> <C>
INTEREST INCOME $ 550,886
EXPENSES:
Administrative fees and expenses $ 35,000
Insurance expense 27,060
Accounting fees 25,000
Legal fees 19,495
Amortization of deferred organization costs 12,240
Trustees fees 12,000
Other expenses 9,390
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Total fees and expenses 140,185
EXPENSE REIMBURSEMENT 140,185
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TOTAL EXPENSES - Net 0
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NET INVESTMENT INCOME 550,886
DECREASE IN UNREALIZED APPRECIATION OF INVESTMENTS (40,103,787)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (39,552,901)
===============
</TABLE>
See accompanying notes to financial statements
4
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<TABLE>
<CAPTION>
DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997
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<S> <C> <C>
OPERATIONS:
Net investment income $ 550,886 $ 946,040
Increase (Decrease) in unrealized appreciation of investments (40,103,787) 43,355,167
--------------- --------------
Net increase (decrease) in net assets from operations (39,552,901) 44,301,207
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DISTRIBUTIONS FROM:
Return of capital (7,348,464) (6,952,177)
Net investment income (550,886) (947,173)
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Total distributions (7,899,350) (7,899,350)
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TOTAL INCREASE (DECREASE) IN NET ASSETS FOR THE PERIOD (47,452,251) 36,401,857
NET ASSETS. BEGINNING OF PERIOD 141,476,656 105,074,799
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NET ASSETS, END OF PERIOD $ 94,024,405 $ 141,476,656
=============== ==============
</TABLE>
See accompanying notes to financial statements
5
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DOLE FOOD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31,1998 AND DECEMBER 31,1997
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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 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 includes 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 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
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NOTES TO FINANCIAL STATEMENTS - CONTINUED
(4) PURCHASES AND SALES OF INVESTMENTS
Maturities of U.S. Treasury Strips totaled $7,900,000 for the year ended
December 31, 1998; there were no purchases or sales of U.S. Treasury Strips
investments or forward purchase contracts during the period.
(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, 1998, the Trust had amortized
$28,559 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, 1998, unrealized appreciation of investments, based on
cost for Federal income tax purposes, aggregated $509,955, all of which
related to appreciated securities. The cost of investment securities for
Federal income tax purposes was $93,411,838 at December 31, 1998.
(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, 1998 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 $88,094,792 $432,617
</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,
1998, the Custodian held 2,875,000 shares of DFCI common stock with an
aggregate value of $86,250,000.
(9) CAPITAL SHARE TRANSACTIONS
There were no transactions reported for the period. As of December 31,
1998, there were 2,875,000 TRACES issued and outstanding.
7
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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 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 Year Ended (Commencement of Operations)
December 31, 1998 December 31, 1997 to December 31, 1996
----------------- ----------------- --------------------
<S> <C> <C> <C>
Investment income $ 0.19 $ 0.33 $ 0.16
Expenses 0.00 0.00 0.00
---------- ---------- ----------
Investment income-net 0.19 0.33 0.16
Less distributions from:
Return of capital (2.55) (2.42) (0.53)
Net investment income (0.20) (0.33) (0.16)
---------- ---------- ----------
Total distributions (2.75) (2.75) (0.69)
Unrealized gain (loss) on investments (13.95) 15.08 (0.04)
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Adjustment to capital (offering expenses) (0.95)
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Net increase (decrease) in net value (16.51) 12.66 (1.52)
Beginning net asset value 49.21 36.55 38.07 *
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Ending net asset value $ 32.70 $ 49.21 $ 36.55
========== ========== ==========
Ending market value $ 30.38 ** $ 43.50 ** $ 35.88 **
========== ========== ==========
Total investment return based on
market value (28.01%) 29.57% (7.00%)
Ratio of expenses to average net assets:
Before waiver 0.12% 0.10% 0.08%
After waiver 0.00% 0.00% 0.00%
Ratio of net investment income to
average net assets:
Before waiver 0.35% 0.67% 0.36%
After waiver 0.47% 0.77% 0.43%
Net assets, end of period (in thousands) $ 94,024 $ 141,477 $ 105,075
</TABLE>
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* Net proceed is less selling commissions and offering expenses.
** Closing price on American Stock Exchange at December 31, 1998, December 31,
1997 and December 31, 1996 respectively.
8
