DOLLAR GENERAL STRYPES TRUST
FINANCIAL STATEMENTS FOR THE PERIOD
MAY 28, 1998 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998 AND INDEPENDENT AUDITORS' REPORT
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TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT................................................1
FINANCIAL STATEMENTS FOR THE PERIOD MAY 28, 1998 TO DECEMBER 31, 1998:
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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DOLLAR GENERAL STRYPES TRUST
STATEMENT OF NET ASSETS
December 31, 1998
- ------------------------------------------------------------------------------
ASSETS:
Investments, at value (amortized cost $311,232,290)
(Notes 2, 4, and 8) $299,862,907
Cash 8,615
------------
Total Net Assets $299,871,522
============
COMPOSITION OF NET ASSETS
Structured Yield Product Exchangeable for Stock
("STRYPES"), no par value; $309,138,891
8,417,002 shares issued and outstanding (Note 9)
Net unrealized depreciation of investments (11,369,383)
Undistributed net investment income 2,102,014
------------
Net Assets $299,871,522
============
Net Asset Value per STRYPES $ 35.63
============
See Notes to Financial Statements.
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DOLLAR GENERAL STRYPES TRUST
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
Par Maturity Market Amortized
Securities Description Value Date Value Cost
<S> <C> <C> <C> <C>
UNITED STATES GOVERNMENT
SECURITIES:
United States Treasury Strips $7,053,000 02/15/99 $7,015,337 $7,004,918
United States Treasury Strips 7,053,000 05/15/99 6,953,779 6,911,382
United States Treasury Strips 7,053,000 08/15/99 6,857,914 6,815,734
United States Treasury Strips 7,053,000 11/15/99 6,780,754 6,723,151
United States Treasury Strips 7,053,000 02/15/00 6,700,138 6,629,346
United States Treasury Strips 7,053,000 05/15/00 6,628,974 6,539,666
United States Treasury Strips 7,053,000 08/15/00 6,553,859 6,449,076
United States Treasury Strips 7,053,000 11/15/00 6,480,367 6,361,582
United States Treasury Strips 7,053,000 02/15/01 6,403,772 6,272,145
United States Treasury Strips 7,053,000 05/15/01 6,328,798 6,185,491
------------ --------- ---------
$70,530,000 $66,685,692 $65,892,491
=========== =========== ===========
FORWARD PURCHASE CONTRACT:
Dollar General Common Stock Forward 05/15/01 233,177,215 245,339,799
----------- -----------
Purchase Agreement
Total $299,862,907 $311,232,290
============ ============
See Notes to Financial Statements.
</TABLE>
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DOLLAR GENERAL STRYPES TRUST
STATEMENT OF OPERATIONS
For the Period May 28, 1998 (commencement
of operations ) to December 31, 1998
ACCRETION OF ORIGINAL ISSUE DISCOUNT $2,342,316
EXPENSES:
Administrative fees and expenses $23,127
Legal fees 17,094
Accounting fees 17,899
Printing and Mailing expense 9,050
Trustees fees (Note 5) 7,240
Other expenses 12,700
------
Total fees and expenses 87,110
EXPENSE REIMBURSEMENT (Note 7) 87,110 -
-----------
Total expenses - Net -
-----------
Net Investment Income 2,342,316
Net increase in unrealized appreciation of investments $(11,369,383)
-------------
Net increase in net assets resulting from operations $(9,027,067)
============
See Notes to Financial Statements.
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DOLLAR GENERAL STRYPES TRUST
STATEMENT OF CHANGES IN NET ASSETS
For Period May 28, 1998 (commencement of operations) to December 31, 1998
OPERATIONS
Net investment income $2,342,316
Unrealized depreciation of investments (11,369,383)
- -------------------------------------------------------------------------------
Net decrease in net assets from operations (9,027,067)
-----------
DISTRIBUTIONS:
Net investment income (240,302)
Return of capital (12,848,494)
- -------------------------------------------------------------------------------
Net decrease in net assets from dividends (13,088,796)
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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 299,871,422
Net assets, beginning of period 100
- -------------------------------------------------------------------------------
Net assets, end of period $299,871,522
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
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DOLLAR GENERAL STRYPES TRUST
NOTES TO FINANCIAL STATEMENTS
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"), a Kentucky
corporation, from a 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 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.
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 commenced on August 15, 1998.
Note 4. Purchases and Sales of Investments
Purchases and maturities of U.S. Treasury Strips for the period ended December
31, 1998 totaled $76,637,175 and $13,087,000, respectively. There was no sale 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 December 31, 1998, the Trust had expensed $7,240 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 depreciation of investments, based on
amortized cost for Federal income tax purposes, aggregated $11,369,383 which
consists of gross unrealized appreciation of $793,201 and gross unrealized
depreciation of $12,162,584. The amortized cost of investment securities for
Federal income tax purposes was $311,232,290 at December 31, 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. As of December 31, 1998, $188,910 had
been paid by the Administrator for these expenses. 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
December 31, 1998, $126,082 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 between .8319 and 1.00 shares of Dollar General Common
Stock. 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 December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Exchange Cost of Contract Unrealized
Date Contract Value Depreciation
- --------------------------------------------- ----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Dollar General Common Stock
Forward Purchase Agreement 05/15/01 $245,339,799 $233,177,215 $12,162,584
============================================= ================= ================== ================== ==================
</TABLE>
The Contracting Stockholder's obligation under the forward purchase contract is
collateralized by 596,400 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 December 31, 1998, there were 8,417,002 STRYPES issued and outstanding with
an aggregate cost, net of sales commission of $309,138,891.
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DOLLAR GENERAL STRYPES 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 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
December 31,1998
---------------------
<S> <C>
Per share operating performance for a STRYPES
outstanding throughout the period
Investment income $ .28
Expenses - before reimbursement .01
Expenses - net of reimbursement .00
---------------------
Investment income - net .28
Distributions from income (.03)
Return of capital (1.52)
Unrealized loss on investments (1.35)
---------------------
Net decrease in net asset value (2.62)
Net asset value, beginning of period 38.25
---------------------
Net asset value, end of period $ 35.63
---------------------
Market value, end of period $ 35.63
=====================
Total investment return based on market value (5.73)%
Ratios/Supplemental data Ratio of expenses to average net assets:
Before waiver 0.03%
After waiver 0.00%
Ratio of net investment income to average net assets:
Before waiver 0.71%
After waiver 0.74%
Net assets, end of period (in thousands) $ 299,872
(1) Annualized
</TABLE>
