WBK STRYPES TRUST
FINANCIAL REPORT
JUNE 30, 1998
(UNAUDITED)
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CONTENTS
FINANCIAL STATEMENTS:
Statement of net assets...................................................1
Schedule of investments...................................................2
Statement of operations...................................................3
Statement of changes in net assets........................................4
Notes to financial statements...........................................5-7
Financial highlights......................................................8
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MCGLADREY & PULLEN, LLP
-----------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
ACCOUNTANT'S REPORT
The accompanying statement of net assets, including the schedule of investments,
of WBK Strypes Trust as of June 30, 1998, and the related statement of
operations for the six months then ended, the statements of changes in net
assets and the financial highlights for the six months then ended and the period
from October 6, 1997 (commencement of operations) to December 31, 1997, were not
audited by us and, accordingly, we do not express an opinion on them.
McGladrey & Pullen, LLP
New York, New York
November 20, 1998
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WBK STRYPES TRUST
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (amortized cost $946,157,942)
(notes 2, 4, and 8) $991,441,510
Cash 602,457
------------
Prepaid expenses 1,912
Deferred organizational costs, net of
accumulated amortization of $3,300 (Note 2) 10,700
------------
TOTAL ASSETS 992,056,579
LIABILITIES
Accounts payable and accrued expenses 258,510
------------
NET ASSETS $991,798,069
============
COMPOSITION OF NET ASSETS
Structured Yield Product Exchangeable for Stock
("STRYPES"), no par value; 32,840,000 shares
issued and outstanding (Note 9) $936,807,868
Net unrealized appreciation of investments 45,283,568
Undistributed net investment income 9,706,633
------------
NET ASSETS $991,798,069
============
NET ASSET VALUE PER STRYPES $30.20
============
See Notes to Financial Statements.
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WBK STRYPES TRUST
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
<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 $ 25,737,000 08/15/98 $ 25,571,768 $ 25,557,030
United States Treasury Strips 25,737,000 11/15/98 25,235,901 25,196,073
United States Treasury Strips 25,737,000 02/15/99 24,886,285 24,836,931
United States Treasury Strips 25,737,000 05/15/99 24,553,613 24,483,082
United States Treasury Strips 25,737,000 08/15/99 24,212,597 24,127,788
United States Treasury Strips 25,737,000 11/15/99 23,895,003 23,774,747
United States Treasury Strips 25,737,000 02/15/00 23,563,461 23,426,158
United States Treasury Strips 25,737,000 05/15/00 23,260,832 23,099,939
United States Treasury Strips 25,737,000 08/15/00 22,936,866 22,750,345
United States Treasury Strips 25,737,000 11/15/00 22,618,190 22,409,562
------------ ------------ ------------
$257,370,000 $240,734,516 $239,661,655
============ ============ ============
FORWARD PURCHASE CONTRACT:
Westpac Banking Corporation Ordinary Shares Forward 11/15/00 750,706,994 706,496,287
------------ ------------
Purchase Agreement
TOTAL $991,441,510 $946,157,942
============ ============
See Notes to Financial Statements.
</TABLE>
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WBK STRYPES TRUST
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
ACCRETION OF ORIGINAL ISSUE DISCOUNT $7,384,034
EXPENSES:
Administrative fees and expenses $18,307
Legal fees........ 13,531
Accounting fees... 14,168
Mailing expense... 7,164
Trustees fees .... 5,730
Other expenses.... 10,324
Amortization of deferred organizational costs 2,229
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TOTAL FEES AND EXPENSES 71,453
-----------
NET INVESTMENT INCOME 7,312,581
NET DECREASE IN UNREALIZED APPRECIATION OF INVESTMENTS (64,473,890)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(57,161,309)
============
See Notes to Financial Statements.
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<TABLE>
<CAPTION>
WBK STRYPES TRUST
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 and the Period from October 6, 1997
(commencement of operations to December 31, 1997 (Unaudited))
<S> <C> <C>
Six Months Period
Ended Ended
June 30, 1998 December 31, 1997
OPERATIONS
Net investment income $7,312,581 $ 3,789,712
Unrealized appreciation (depreciation) of investments (64,473,890) 109,757,458
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (57,161,309) 113,547,170
------------ -----------
DISTRIBUTIONS:
Net investment income (1,330,869) (64,791)
Return of capital (50,145,831) (11,088,658)
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NET DECREASE IN NET ASSETS FROM DISTRIBUTIONS (51,476,700) (11,153,449)
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INCREASE IN NET ASSETS FROM CAPITAL SHARES TRANSACTIONS (Note 9):
Gross proceeds from the sale of 32,839,997 STRYPES 1,029,533,906
Less selling commission (30,902,437)
Less offering expenses (589,212)
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NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 0 998,042,257
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TOTAL INCREASE (DECREASE) IN NET ASSETS FOR THE PERIOD (108,638,009) 1,100,435,978
NET ASSETS, BEGINNING OF PERIOD 1,100,436,078 100
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NET ASSETS, END OF PERIOD $991,798,069 $1,100,436,078
====================================================================================================================================
See Notes to Financial Statements.
</TABLE>
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WBK STRYPES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. ORGANIZATION
WBK STRYPES Trust ("Trust") was established on March 14, 1996 and is registered
as a non-diversified, closed-end management investment company under the
Investment Company Act of 1940 (the "Act"). In October 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 Ordinary Shares ("Reference Property") of Westpac Banking Corporation
("Westpac"), an Australian corporation, with an existing shareholder of Westpac
(the "Contracting Stockholder"). The Reference Property is deliverable pursuant
to the contract on November 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 on a basis which approximates
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 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.
Organizational Expenses
- -----------------------
Organizational expenses of $14,000 are being amortized on a straight-line basis
over the life of the Trust beginning at the commencement of operations of the
Trust.
NOTE 3. DISTRIBUTIONS
STRYPES holders are entitled to receive distributions from the maturity of U.S.
Treasury Strips of $3.135 per annum or $0.78375 per quarter (except for the
first distribution on November 15, 1997 which was $0.33963).
NOTE 4. PURCHASES AND SALES OF INVESTMENTS
Maturities of U.S. Treasury Strips for the six months ended June 30, 1998 and
the period ended December 31, 1997 totaled $51,474,000 and $11,153,000,
respectively. There were no sales of such investments during either period.
Purchase of the forward purchase contract and the U.S. Treasury Strips during
the period ended December 31, 1997 totaled $706,496,287 and $291,080,565,
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 fees paid to the Trustees of $36,000 is being expensed over the life
of the Trust. As of June 30, 1998, the Trust had expensed $8,485 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 June 30, 1998, net unrealized appreciation of investments, based on cost
for Federal income tax purposes, aggregated $45,283,568, consisting of gross
unrealized appreciation of $45,283,568 and gross unrealized depreciation of $0.
The amortized cost of investment securities for Federal income tax purposes was
$946,157,942 at June 30, 1998.
NOTE 7. EXPENSES
The estimated expenses to be incurred in connection with the offering of the
STRYPES and its ongoing operations are $1,038,068. All expenses are being paid
from proceeds received from the offering of the STRYPES. Of this amount,
$603,212 represents offering expenses ($589,212) and organizational expenses
($14,000) incurred by the Trust. The remaining amount of $434,856 represents
estimated administrative and other operating expenses. Expenses incurred in
excess of this amount will be paid by the Contracting Stockholder. At June 30,
1998, the Administrator had paid $344,702 relating to offering and
organizational expenses.
In addition, $104,410 had been paid by the Trust for current and prepaid
administrative and other operating expenses.
NOTE 8. FORWARD PURCHASE CONTRACTS
On October 6, 1997, the Trust entered into a forward purchase contract with an
existing stockholder of Westpac (the "Contracting Stockholder") and paid to the
Contracting Stockholder $706,496,287, less $1,000,000 being held in escrow, in
connection therewith. Pursuant to such contract, the Contracting Stockholder is
obligated to deliver to the Trust a specified amount of Reference Property
(initially defined as five Ordinary Shares) on November 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 89.68% and 100% of the Reference
Property. See the Trust's original prospectus dated September 30, 1997 for the
formula upon which such exchange will be determined.
The forward purchase contract held by the Trust at June 30, 1998 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Exchange Cost of Contract Unrealized
Date Contract Value Appreciation
- --------------------------------------------------------------------------------------------------------------------
Westpac Banking Corporation Ordinary
Shares Forward Purchase Agreement 11/15/00 $706,496,287 $750,706,994 $44,210,707
====================================================================================================================
</TABLE>
NOTE 9. CAPITAL SHARE TRANSACTIONS
On September 24, 1997 one STRYPES was sold to the underwriter of the Trust for
$100. As a result of a stock split effected immediately prior to the public
offering of the STRYPES, this STRYPES was converted into three STRYPES. During
the offering period, the Trust sold 32,839,997 STRYPES to the public and
received net proceeds of $998,042,257 ($1,029,533,906 net of sales commission of
$30,902,437 and offering costs of $589,212). As of June 30, 1998, there were
32,840,000 STRYPES issued and outstanding with an aggregate cost, net of sales
commissions, offering costs and return of capital, of $936,807,868.
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WBK STRYPES TRUST
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
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>
<S> <C> <C>
October 6, 1997
(Commencement of
Six Months Ended Operations) to
June 30, 1998 December 31, 1997
----------------- ---------------------
PER SHARE OPERATING PERFORMANCE FOR A STRYPES
OUTSTANDING THROUGHOUT THE PERIOD
Investment income $0.22 $0.12
Expenses 0.00 0.00
----------------- ---------------------
Investment income - net 0.22 0.12
Adjustments to capital (offering expenses) 0.00 (0.02)
Distributions from income (0.04) (0.00)
Return of capital (1.53) (0.34)
Unrealized gain (loss) on investments (1.96) 3.34
----------------- ---------------------
Net increase (decrease) in net asset value (3.31) 3.10
Beginning net asset value 33.51 30.41
----------------- ---------------------
Ending net asset value $30.20 $33.51
================= =====================
Ending market value $30.19 $33.50
================= =====================
TOTAL INVESTMENT RETURN BASED ON MARKET VALUE (5.62)% 7.96%
RATIOS/SUPPLeMENTAL DATA
Ratio of expenses to average net assets(1): .01% .01%
Ratio of net investments income to average net assets(1): 1.41% 1.50%
Net assets, end of period (in thousands) $991,798 $ 1,100,436
(1) Annualized
</TABLE>
