WBK STRYPES TRUST
FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1998 AND THE PERIOD
OCTOBER 6, 1997 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1997, AND INDEPENDENT AUDITORS' REPORT
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TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT..................................................1
FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1998 AND THE PERIOD OCTOBER
6, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997:
Statement of Net Assets..............................................2
Schedule of Investments..............................................3
Statement of Operations..............................................4
Statement of Changes in Net Assets...................................5
Notes to Financial Statements......................................6-8
Financial Highlights.................................................9
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INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
WBK STRYPES Trust:
We have audited the accompanying statement of net assets, including the schedule
of investments, of WBK STRYPES Trust as of December 31, 1998, the related
statement of operations for the year then ended and statements of changes in net
assets and the financial highlights for the year ended December 31, 1998 and the
period October 6, 1997 (commencement of operations) to December 31, 1997. These
financial statements and the financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the 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 securities owned at December
31, 1998 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 provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of WBK STRYPES Trust as
of December 31, 1998, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Princeton, New Jersey
July 6, 1999
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WBK STRYPES TRUST
STATEMENT OF NET ASSETS
December 31, 1998
ASSETS:
<TABLE>
<CAPTION>
<S> <C>
Investments, at value (amortized cost $900,958,432) (Notes 2, 4, and 8) $1,036,561,268
Cash 584,923
Deferred organizational costs, net of
accumulated amortization of $5,565 (Note 2) 8,435
-------------
Total Assets 1,037,154,626
LIABILITIES
Accounts payable and accrued expenses 312,139
Net Assets $1,036,842,487
COMPOSITION OF NET ASSETS
Structured Yield Product Exchangeable for Stock ("STRYPES"), no par value;
$888,086,609 32,840,000 shares issued and outstanding (Note 9)
Net unrealized appreciation of investments 135,602,836
Undistributed net investment income 13,153,042
Net Assets $1,036,842,487
Net Asset value per STRYPES $ 31.57
===============
See Notes to Financial Statements.
</TABLE>
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WBK STRYPES TRUST
SCHEDULE OF INVESTMENTS
December 31, 1998
<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 02/15/99 $25,599,549 $25,554,414
United States Treasury Strips 25,737,000 05/15/99 25,309,251 25,198,691
United States Treasury Strips 25,737,000 08/15/99 25,025,114 24,835,384
United States Treasury Strips 25,737,000 11/15/99 24,751,788 24,474,565
United States Treasury Strips 25,737,000 02/15/00 24,467,022 24,117,695
United States Treasury Strips 25,737,000 05/15/00 24,186,549 23,780,525
United States Treasury Strips 25,737,000 08/15/00 23,915,351 23,424,687
United States Treasury Strips 25,737,000 11/15/00 23,647,413 23,076,184
---------- ---------- ----------
$205,896,000 $196,902,037 $194,462,145
============ ============ ============
FORWARD PURCHASE CONTRACT:
Westpac Banking Corporation Ordinary Shares Forward 11/15/00 839,659,231 706,496,287
----------- -----------
Purchase Agreement
Total $1,036,561,268 $900,958,432
============== ============
See Notes to Financial Statements.
</TABLE>
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WBK STRYPES TRUST
STATEMENT OF OPERATIONS
December 31, 1998
<TABLE>
<CAPTION>
ACCRETION OF ORIGINAL ISSUE DISCOUNT $13,658,523
EXPENSES:
Administrative fees and expenses $36,918
Legal fees 27,287
Accounting fees 28,571
Mailing expense 14,446
Trustees fees 11,556
Other expenses 20,820
Amortization of deferred organizational costs 4,494
<S> <C>
Total fees and expenses 144,092
Net Investment Income 13,514,431
Net decrease in unrealized appreciation of investments 25,845,378
-----------
Net decrease in net assets resulting from operations $ 39,359,809
============
See Notes to Financial Statements.
</TABLE>
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WBK STRYPES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period from
October 6, 1997
Year (commencement of
Ended operations) to
OPERATIONS December 31, 1998 December 31, 1997
<S> <C> <C>
Net investment income $13,514,431 $ 3,789,712
Net change in unrealized appreciation of investments 25,845,378 109,757,458
- ------------------------------------------------------------------------------------------------------------ ---------------------
Net increase in net assets from operations 39,359,809 113,547,170
---------- -----------
DIVIDENDS AND DISTRIBUTIONS:
Net investment income (4,086,310) (64,791)
Return of capital (98,867,090) (11,088,658)
- ------------------------------------------------------------------------------------------------------------ ---------------------
Net decrease in net assets from dividends and distributions (102,953,400) (11,153,449)
- ------------------------------------------------------------------------------------------------------------ ---------------------
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)
---------------------
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets from capital share transactions -- 998,042,257
- ------------------------------------------------------------------------------------------------------------ ---------------------
Total (decrease) increase in net assets for the period (63,593,591) 1,100,435,978
Net assets, beginning of period 1,100,436,078 100
- ------------------------------------------------------------------------------------------------------------ ---------------------
Net assets, end of period $1,036,842,487 $1,100,436,078
- ------------------------------------------------------------------------------------------------------------ ---------------------
See Notes to Financial Statements.
</TABLE>
<PAGE>
WBK STRYPES TRUST
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD
OCTOBER 6, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
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 using 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 (including amortization of
discount) is recognized on the accrual basis. Realized 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, in accordance with Statement of Position 98-5.
Note 3. Dividends and 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). Distributions are
payable quarterly and commenced November 15, 1997.
Note 4. Purchases and Sales of Investments
Maturities of U.S. Treasury Strips for the year ended December 31, 1998 and the
period ended December 31, 1997 totaled $102,948,000 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 year ended December 31, 1998 and 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 on a
straight-line basis over the life of the Trust. For the year ended December 31,
1998, the Trust had expensed $14,311 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 December 31, 1998, net unrealized appreciation of investments, based on
amortized cost for Federal income tax purposes, aggregated $135,602,836,
consisting of gross unrealized appreciation of $135,602,836 and gross unrealized
depreciation of $0. The amortized cost of investment securities for Federal
income tax purposes was $900,958,432 at December 31, 1998.
Note 7. Expenses
The estimated expenses to be incurred by the Trust 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 December 31, 1998, the Trust had paid $344,702 relating to offering and
organizational expenses. In addition, $119,244 had been paid by the Trust for
current and prepaid administrative and other operating expenses.
Note 8. Forward Purchase Contract
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 December 31, 1998 is
as follows:
<TABLE>
<CAPTION>
Exchange Cost of Contract Unrealized
Date Contract Value Appreciation
- --------------------------------------------- ----------------- ------------------ ------------------ ------------------
Westpac Banking Corporation Ordinary
<S> <C> <C> <C> <C>
Shares Forward Purchase Agreement 11/15/00 $706,496,287 $839,659,231 $133,162,944
============================================= ================= ================== ================== ==================
</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 December 31, 1998 and 1997,
there were 32,840,000 STRYPES issued and outstanding with an aggregate cost, net
of sales commissions, offering costs and return of capital, of $888,086,609 and
$986,953,699, respectively.
<PAGE>
WBK STRYPES 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 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>
For the Period
October 6, 1997
Year Ended (Commencement of
December 31, Operations) to
1998 December 31, 1997
----------------- ----------------------
Per Share Operating Performance for a STRYPES
outstanding throughout the period
<S> <C> <C>
Investment income $0.41 $0.12
Adjustments to capital (offering expenses) 0.00 (0.02)
Distributions from income (0.13) (0.00)
Return of capital (3.01) (0.34)
Unrealized gain (loss) on investments 0.79 3.34
----------------- ----------------------
Net increase (decrease) in net asset value (1.94) 3.10
Beginning net asset value 33.51 30.41
-----------------
----------------------
Ending net asset value $31.57 $33.51
================= ======================
Ending market value $31.56 $33.50
================= ======================
Total investment return based on market value 3.73% 7.96%
Ratios/Supplemental data
Ratio of expenses to average net assets 0.01% .01% (1)
Ratio of net investments income to average net assets 1.28% 1.50% (1)
Net assets, end of period (in thousands) $1,036,842 $ 1,100,436
(1) Annualized
</TABLE>
