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NAB Exchangeable Preferred Trust
Financial Statements for the
Period September 29, 1998
(Commencement of Operations) to
December 31, 1998 and
Independent Auditors' Report
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NAB EXCHANGEABLE PREFERRED TRUST
TABLE OF CONTENTS
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Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE PERIOD SEPTEMBER 29, 1998
(COMMENCEMENT OF OPERATIONS) 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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INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders,
NAB Exchangeable Preferred Trust:
We have audited the accompanying statement of net assets, including the
schedule of investments, of NAB Exchangeable Preferred Trust as of December
31, 1998, the related statements of operations, changes in net assets, and the
financial highlights for the period September 29, 1998 (commencement of
operations) to December 31, 1998. 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 audit.
We conducted our audit 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 audit provides 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 NAB Exchangeable
Preferred Trust as of December 31, 1998, the results of its operations, the
changes in its net assets, and the financial highlights for the period
September 29, 1998 (commencement of operations) to December 31, 1998, in
conformity with generally accepted accounting principles.
August 27, 1999
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NAB EXCHANGEABLE PREFERRED TRUST
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
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<S> <C>
ASSETS:
Investments - at value (amortized cost $435,480,287) $ 435,480,287
(Notes 2, 4 and 8)
Cash
4,708
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Total assets 435,484,995
LIABILITIES:
Accounts payable and accrued expenses
4,466
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NET ASSETS $ 435,480,529
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COMPOSITION OF NET ASSETS:
Trust Units Exchangeable for Preference Shares ("TrUEPrS") -
no par value; 18,004,000 shares issued and outstanding (Note 9) $ 435,473,135
Undistributed net investment income
7,394
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NET ASSETS $ 435,480,529
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NET ASSET VALUE PER TrUEPrS $ 24.19
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See notes to financial statements.
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<CAPTION>
NAB EXCHANGEABLE PREFERRED TRUST
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
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Par Maturity Market Amortized
Securities Description Value Date Value Cost
<S> <C> <C> <C> <C>
DEBT SECURITIES:
Cuzzano (UK) Company, 8%,
Mandatorily Redeemable Debt $ 450,100,000 12/31/47 $ 435,480,287 $ 435,480,287
--------------- ------------- --------------
$ 450,100,000 435,480,287
===============
435,480,287
ADS PURCHASE CONTRACT:
National Australia Bank Limited
Preference Shares
Purchase Contract
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TOTAL $ 435,480,287 $ 435,480,287
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See notes to financial statements.
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<CAPTION>
NAB EXCHANGEABLE PREFERRED TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD SEPTEMBER 29, 1998 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1998
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<S> <C>
INTEREST INCOME $ 9,019,527
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EXPENSES:
Administrative fees and expenses $ 26,250
Legal fees 30,000
Accounting fees 4,000
Printing and mailing expense 3,750
Trustees' fees (Note 5) 3,000
Other expenses 24,260
Organization costs 32,000
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Total fees and expenses 123.260
EXPENSE REIMBURSEMENT (Note 7) -
Total expenses - net
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NET INVESTMENT INCOME 9,019,527
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NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 9,019,527
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See notes to financial statements.
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NAB EXCHANGEABLE PREFERRED TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD SEPTEMBER 29, 1998 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1998
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<S> <C>
OPERATIONS:
Net investment income $ 9,019,527
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Net increase in net assets from operations
9,019,527
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DISTRIBUTIONS:
Net investment income (9,012,133)
Net decrease in net assets from distributions (9,012,133)
INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (Note 9):
Gross proceeds from the sale of 18,000,000 TrUEPrS 450,000,000
Less:
Selling commissions (14,115,000)
Offering costs (511,865)
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Net increase in net assets from capital share transactions 435,373,135
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TOTAL INCREASE IN NET ASSETS FOR THE PERIOD 435,380,529
NET ASSETS, BEGINNING OF PERIOD 100,000
NET ASSETS, END OF PERIOD $ 435,480,529
UNDISTRIBUTED NET INVESTMENT INCOME $ 7,394
=============
See notes to financial statements.
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NAB EXCHANGEABLE PREFERRED TRUST
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD SEPTEMBER 29, 1998 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1998
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1. ORGANIZATION
NAB Exchangeable Preferred Trust (the "Trust") was established on July
28, 1998 and is registered as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940 (the "Act").
In September 1998, the Trust sold Trust Units Exchangeable for
Preference Shares (each, a "TrUEPrS") to the public pursuant to a
Registration Statement on Form N-2 under the Securities Act of 1933 and
the Act. The Trust used the proceeds to purchase 8% Mandatorily
Redeemable Debt Securities due December 31, 2047 issued by Cuzzano (UK)
Company (the "U.K. Company") and entered into a purchase contract with
an affiliate of National Australia Bank Limited ("NAB" or the "Company")
for American Depositary Receipts (ADRs) evidencing, for each TrUEPrS,
one American Depository Share ("ADS") representing two fully-paid
preference shares issued by NAB, an Australian corporation. The U.K.
Company is also an affiliate of NAB. The TrUEPrS will be exchanged for
the ADRs pursuant to the contract on December 31, 2047 ("Exchange Date")
or sooner at the occurrence of an Exchange Event 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 value of the Debt Securities and
the Australian Depository Shares ("ADSs") Purchase Contract held
by the Trust will be determined in good faith by the Board of
Trustees pursuant to procedures adopted by them.
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 disclosures 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.
3. DISTRIBUTIONS
The Trust distributes to holders $2.00 per TrUEPrS per annum from the
interest payments received by the Trust on the Debt Securities.
Distributions of $.50 per TrUEPrS are payable quarterly in arrears on
each Dividend Payment Date to holders of record on the immediately
preceding Record Date, except for the first distribution on December 31,
1998 which was $.5055 per TrUEPrS.
4. PURCHASES AND SALES OF INVESTMENT
Purchase of the U.K. Company Debt Securities for the period ended
December 31, 1998 totaled $435,473,135. There was no sales of
investments during the period.
5. TRUSTEES FEES
Each of the three Trustees is paid a quarterly fee of $1,000 for its
services during the life of the Trust. Such fees and anticipated
out-of-pocket expenses of each Trustee will be paid by the Jersey
Holding Company pursuant to an expense agreement between it and The Bank
of New York.
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.
The amortized cost of investment securities for Federal income tax
purposes was $435,480,287 at December 31, 1998.
7. EXPENSES
The estimated expenses incurred by the Trust in connection with the
offering of the TrUEPrS is $543,865, representing offering expenses
($511,865) and organizational expenses ($32,000). The offering and
organizational expenses were paid to the Administrator by an affiliate
of NAB. As of December 31, 1998, $496,865 had been paid by the
Administrator for these expenses. The annual administrative and other
operating expenses of the Trust are estimated to be $310,000. Such
amounts are estimated quarterly and paid to the Administrator by an
affiliate of NAB. Expenses incurred in excess of this amount will be
paid by an affiliate of NAB.
Cash of $137,795, received by the Administrator from an affiliate of NAB
for the payment of offering expenses and 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, $8,000 had been paid by 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.
8. ADS PURCHASE CONTRACT
On September 29, 1998, the Trust entered into an ADS Purchase Contract
(the "Contract") with an affiliate of NAB. Pursuant to such contract,
each of the TrUEPrS will be exchanged on the Exchange Date, or sooner at
the occurrence of an Exchange Event, for either (1) ADRs evidencing, for
each TrUEPrS, one ADS representing two fully-paid preference shares,
liquidation preference US$12.50 per share issued by NAB or (2) cash in
an amount of US$25 per TrUEPrS, plus the accrued dividend distributions
thereon for the current quarterly dividend period. See the Trust's
original prospectus dated September 23, 1998 for the circumstances under
which each would occur.
NAB's obligations under the Contract are collateralized by ADRs
evidencing 18,004,000 ADS, each representing two fully-paid preference
shares issued by NAB, which are being held in the custody of the Trust's
custodian, The Bank of New York.
As of December 31, 1998, no active market exists for the Contract. The
Contract is valued by determining the market price of one TrUEPrS as of
the close of the New York Stock Exchange (the "NYSE") on December 31,
1998, less the present value of the remaining quarterly payments to be
made on each TrUEPrS as of December 31, 1998. The resulting present
value of the expected future quarterly payments to each TrUEPrS exceeds
the market price of each TrUEPrS at December 31, 1998; accordingly, the
Contract value is negative. For purposes of determining the NAV of each
TrUEPrS, the value of the contract is determined to be $0.00.
9. CAPITAL SHARE TRANSACTIONS
On September 10, 1998, 4,000 TrUEPrS were sold to the underwriters of
the TrUEPrS for $100,000. During the offering period, the Trust sold
18,000,000 TrUEPrS to the public and received net proceeds of
$435,373,135 ($450,000,000 less sales commission of $14,115,000 and
offering cost of $511,865). As of December 31, 1998, there were
18,004,000 TrUEPrS issued and outstanding with an aggregate cost, net of
sales commission and offering costs, of $435,473,135.
******
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NAB EXCHANGEABLE PREFERRED 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.
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September 29,
1998
(Commencement
of Operations) to
December 31,
1998
<S> <C>
PER SHARE OPERATING PERFORMANCE FOR A TrUEPrS
OUTSTANDING THROUGHOUT THE PERIOD:
Investment income $ 0.50
Expenses 0.00
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Investment income - net 0.50
Distributions from income (0.50)
Adjustments to capital (commissions and offering expenses) (0.81)
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Net decrease in net asset value (0.81)
BEGINNING NET ASSET VALUE 25.00
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ENDING NET ASSET VALUE $ 24.19
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ENDING MARKET VALUE $ 25.75
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TOTAL INVESTMENT RETURN BASED ON MARKET VALUE 5.02 %
RATIO/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets:
Before reimbursement (1) 0.11 %
After reimbursement (1) 0.00 %
Ratio of net investment income to average net assets:
Before reimbursement (1) 7.93 %
After reimbursement (1) 8.04 %
NET ASSETS, END OF PERIOD (In thousands) $435,481
(1) Annualized
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