DOLLAR GENERAL STRYPES TRUST
FINANCIAL REPORT
JUNE 30, 1998
(UNAUDITED)
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CONTENTS
FINANCIAL STATEMENTS:
Statement of net assets....................................4
Schedule of investments....................................5
Statement of operations....................................6
Statement of changes in net assets.........................7
Notes to financial statements............................8-9
Financial highlights......................................10
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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 Dollar General STRYPES Trust as of June 30, 1998, and the related statements
of operations, changes in net assets, and the financial highlights for the six
months then ended and the period from May 28, 1998 (commencement of operations)
to June 30, 1998, were not audited by us and, accordingly, we do not express an
opinion on them.
McGladrey & Pullen, LLP
New York, New York
November 23, 1998
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<TABLE>
<CAPTION>
DOLLAR GENERAL STRYPES TRUST
STATEMENT OF NET ASSETS
June 30, 1998 (Unaudited)
ASSETS:
<S> <C>
Investments, at value (amortized cost $322,337,971) (notes 2, 4, and 8) $330,356,476
Cash 10,411
TOTAL ASSETS $330,366,887
NET ASSETS $330,366,887
COMPOSITION OF NET ASSETS
Structured Yield Product Exchangeable for Stock ("STRYPES"), no par value; $321,987,385
8,417,002 shares issued and outstanding (Note 9)
Net unrealized appreciation of investments 8,018,505
Undistributed net investment income 360,997
NET ASSETS $330,366,887
NET ASSET VALUE PER STRYPES $39.25
See Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
DOLLAR GENERAL STRYPES TRUST
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
Par Maturity Market Amortized
Securities Description Value Date Value Cost
UNITED STATES GOVERNMENT
SECURITIES:
<S> <C> <C> <C> <C>
United States Treasury Strips $ 6,034,000 08/15/98 $ 5,995,262 $ 5,993,669
United States Treasury Strips 7,053,000 11/15/98 6,915,678 6,912,044
United States Treasury Strips 7,053,000 02/15/99 6,819,757 6,815,845
United States Treasury Strips 7,053,000 05/15/99 6,728,703 6,722,929
United States Treasury Strips 7,053,000 08/15/99 6,635,251 6,629,282
United States Treasury Strips 7,053,000 11/15/99 6,544,338 6,539,956
United States Treasury Strips 7,053,000 02/15/00 6,454,976 6,448,020
United States Treasury Strips 7,053,000 05/15/00 6,371,116 6,360,665
United States Treasury Strips 7,053,000 08/15/00 6,282,601 6,272,414
United States Treasury Strips 7,053,000 11/15/00 6,198,317 6,187,696
United States Treasury Strips 7,053,000 02/15/01 6,112,271 6,100,267
United States Treasury Strips 7,053,000 05/15/01 6,030,174 6,015,385
------------ ----------- -----------
$83,617,000 $77,088,444 $76,998,172
=========== =========== ===========
FORWARD PURCHASE CONTRACT:
Dollar General Common Stock Forward 05/15/01 253,268,032 245,339,799
----------- -----------
Purchase Agreement
TOTAL $330,356,476 $322,337,971
============ ============
</TABLE>
See Notes to Financial Statements.
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DOLLAR GENERAL STRYPES TRUST
STATEMENT OF OPERATIONS
For the Period from May 28, 1998 (commencement
of operations ) to June 30, 1998 (Unaudited)
ACCRETION OF ORIGINAL ISSUE DISCOUNT $360,997
EXPENSES:
Administrative fees and expenses $3,607
Legal fees 2,666
Accounting fees 2,792
Printing and Mailing expense 1,411
Trustees fees (Note 5) 1,129
Other expenses 1,981
-------
TOTAL FEES AND EXPENSES 13,586
EXPENSE REIMBURSEMENT (Note 7) (13,586)
----------
TOTAL EXPENSES - NET --
NET INVESTMENT INCOME 360,997
NET INCREASE IN UNREALIZED APPRECIATION OF INVESTMENTS $ 8,018,505
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,379,502
============
See Notes to Financial Statements.
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<TABLE>
<CAPTION>
DOLLAR GENERAL STRYPES TRUST
STATEMENT OF CHANGES IN NET ASSETS
For the Period from May 28, 1998 (commencement of operations) to June 30, 1998
(Unaudited)
OPERATIONS
<S> <C>
Net investment income $ 360,997
Unrealized appreciation of investments 8,018,505
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS 8,379,502
---------
INCREASE IN NET ASSETS FROM CAPITAL SHARES TRANSACTIONS (Note 9)
Gross proceeds from the sale of 8,417,000 STRYPES 331,945,438
Less selling commission (9,958,153)
- -------------------------------------------------------------------------------------- -------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 321,987,285
- -------------------------------------------------------------------------------------- -------------------------
TOTAL INCREASE IN NET ASSETS FOR THE PERIOD 330,366,787
NET ASSETS, BEGINNING OF PERIOD 100
- -------------------------------------------------------------------------------------- -------------------------
NET ASSETS, END OF PERIOD $330,366,887
- -------------------------------------------------------------------------------------- -------------------------
</TABLE>
See Notes to Financial Statements.
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DOLLAR GENERAL STRYPES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. ORGANIZATION
Dollar General STRYPES Trust ("Trust") was established on April 15,
1998 and is registered as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940 (the
"Act"). In May 1998, 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 Common Stock of Dollar General Corporation (the "Company")
from an existing shareholder of the Company (the "Contracting
Stockholder"). The Stock is deliverable pursuant to the contract on May
15, 2001 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.
NOTE 3. DISTRIBUTIONS
STRYPES holders are entitled to receive distributions from the maturity
of U.S. Treasury Strips of 8.50% per annum of the "Investment Amount".
The "Investment Amount" means, with respect to each STRYPES, $39.4375
initially and is subject to adjustment from time to time prior to the
Exchange Date to reflect the distribution of assets by the Trust upon
any exercise by the Contracting Stockholder of its acceleration right
under the Contract. Distributions are payable quarterly and commence on
August 15, 1998.
NOTE 4. PURCHASES AND SALES OF INVESTMENTS
Purchasers of U.S. Treasury Strips for the period ended June 30, 1998
totaled $76,637,175. There were no sales of such investments during the
period. Purchase of the forward purchase contract during the period
totaled $245,339,799.
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 $1,129 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 $8,018,505 which
consists of gross unrealized appreciation of $8,018,505 and gross
unrealized depreciation of $0. The amortized cost of investment
securities for Federal income tax purposes was $322,337,971 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 $856,850. Of this amount,
$423,700 represents offering expenses ($410,100) and organizational
expenses ($13,600) incurred by the Trust. The offering and
organizational expenses were paid to the Administrator by the Sponsor
of the Trust. The remaining amount of $433,150 represents a prepayment
of estimated administrative and other operating expenses. Such amount
was paid to the Administrator by the Sponsor of the Trust ($115,000)
and the Contracting Stockholder ($318,150). Expenses incurred in excess
of this amount will be paid by the Contracting Stockholder.
Cash received by the Administrator from the Sponsor of the Trust and
the Contracting Stockholder of $433,150 for the payment of
administrative and related operating expenses of the Trust has not been
included in the Trust's financial statements since the amount does not
represent Trust property. At June 30, 1998, $81,000 had been paid by
the Administrator for current and prepaid administrative and related
operating expenses. All administrative and related operating expenses
incurred by the Trust are reflected in the Trust's financial statements
net of amounts reimbursed.
NOTE 8. FORWARD PURCHASE CONTRACTS
On May 28, 1998, the Trust entered into a forward purchase contract
with an existing stockholder of Westpac (the "Contracting Stockholder")
and paid to the Contracting Stockholder $245,339,799, in connection
therewith. Pursuant to such contract, the Contracting Stockholder is
obligated to deliver to the Trust a specified number of shares of
common stock on May 15, 2001 (the "Exchange Date") so as to permit the
holders of the STRYPES to exchange on the Exchange Date each of their
STRYPES for a number of shares of Dollar General. See the Trust's
original prospectus dated May 21, 1998 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>
Exchange Cost of Contract Unrealized
Date Contract Value Appreciation
- --------------------------------------------- ----------------- ------------------ ------------------ ------------------
Dollar General Common Stock
<S> <C> <C> <C> <C>
Forward Purchase Agreement 05/15/01 $245,339,799 $253,268,032 $7,928,233
============================================= ================= ================== ================== ==================
The Contracting Stockholder's obligation under the forward purchase
contract is collateralized by 531,400 shares of Dollar General Series A
Convertible Junior Preferred Stock which are being held in the custody
of the Trust's custodian, The Bank of New York.
NOTE 9. CAPITAL SHARE TRANSACTIONS
On May 18, 1998 one STRYPES was sold to the underwriters of the STRYPES
for $100. As a result of a stock split effected immediately prior to
the public offering of the STRYPES, this STRYPES was converted into 2
STRYPES. During the offering period, the Trust sold 8,417,000 STRYPES
to the public and received net proceeds of 321,987,285 ($331,945,438
less sales commission of $9,958,153). As of June 30, 1998, there were
8,417,002 STRYPES issued and outstanding with an aggregate cost, net of
sales commission of $321,987,385.
</TABLE>
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DOLLAR GENERAL 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>
May 28, 1998
(Commencement of
Operations) to June
30, 1997
---------------------
PER SHARE OPERATING PERFORMANCE FOR A STRYPES
OUTSTANDING THROUGHOUT THE PERIOD
<S> <C>
Investment income $ 0.05
Expenses 0.00
---------------------
Investment income - net 0.05
Unrealized gain on investments 0.95
---------------------
Net increase in net asset value 1.00
Beginning net asset value 38.25
---------------------
Ending net asset value $ 39.25
=====================
Ending market value $ 39.31
=====================
TOTAL INVESTMENT RETURN BASED ON MARKET VALUE (0.32)%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets:
Before reimbursement(1) 0.05%
After reimbursement(1) 0.00
Ratio of net investment income to average net assets:
Before reimbursement(1) 1.14%
After reimbursement(1) 1.19%
Net assets, end of period (in thousands) $ 330,367
(1) Annualized
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