PEAK TrENDS TRUST
Semiannual Report
June 30, 1999
Trustees
Donald J. Puglisi, Managing Trustee
William R. Latham III
James B. O'Neill
Administrator, Custodian, Transfer Agent
and Paying Agent
The Bank of New York
101 Barclay Street
New York, New York 10286
<PAGE>
Peak TrENDS Trust
Summary Information
Each of the Trust Enhanced Dividend Securities ("TrENDS") of the Peak TrENDS
Trust represents the right to receive an annual distribution of $1.418, and will
be exchanged on May 15, 2001 for between 0.8696 and 1.0 ordinary share, $0.01
par value per share ("Common Stock") of Peak International Limited (the
"Company"). The annual distribution of $1.418 per TrENDS is payable quarterly on
each February 15, May 15, August 15 and November 15, commencing August 15, 1998
and ending May 15, 2001. The TrENDS are not subject to redemption.
The Trust was established to purchase and hold a portfolio of stripped U.S.
Treasury securities maturing on a quarterly basis through May 15, 2001, and a
forward purchase contract for Common Stock of the Company (the "Contract") with
Luckygold 18A Limited, a company incorporated in the British Virgin Islands,
which is a shareholder of the Company (the "Seller"). Mr. T. L. Li, the sole
shareholder of the Seller has guaranteed the delivery of the shares of Common
Stock covered by the Contract and the maintenance of collateral for the Seller's
obligations under the Contract. The trustees of the Trust do not have the power
to vary the investments held by the Trust.
The Trust's investment objective is to provide each holder of TrENDS with a
quarterly distribution of $0.354 per TrENDS and, on May 15, 2001 (the "Exchange
Date"), a number of shares of Common Stock per TrENDS computed as follows: (1)
if the average daily closing or last sale price of the Common Stock in the
Nasdaq National Market for the 20 trading days immediately preceding the
Exchange Date (the "Reference Market Price") is less than $18.1125 but equal to
or greater than $15.75, the holder will be entitled to receive a number of
shares of Common Stock per TrENDS the value of which, when multiplied by the
Reference Market Price, is equal to $15.75; (2) if the Reference Market Price
per TrENDS on the Exchange Date is equal to or greater than $18.1125, the holder
will be entitled to receive 0.8696 shares of Common Stock per TrENDS; and (3) if
the Reference Market Price per TrENDS on the Exchange Date is less than $15.75,
the holder will be entitled to receive 1.0 share of Common Stock per TrENDS. The
exchange ratios are subject in each case to adjustment upon the occurrence of
certain events. Holders will receive a cash adjustment in lieu of any fractional
share of Common Stock distributable in respect of their aggregate holdings of
TrENDS. Under the Contract, instead of delivering shares of Common Stock, the
Seller may elect, not later than 20 trading days prior to the Exchange Date, to
pay cash in an amount per TrENDS equal to the Reference Market Price multiplied
by the number of shares of Common Stock determined under the above formula. If
the Seller should make that election, holders of TrENDS will receive cash
instead of shares of Common Stock on the Exchange Date.
<PAGE>
PEAK Trends Trust
Financial Report
JUNE 30, 1999
(Unaudited)
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of net assets 1
Schedule of investments 2
Statement of operations 3
Statements of changes in net assets 4
Notes to financial statements 5-7
Financial highlights 8
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<PAGE>
<TABLE>
<CAPTION>
PEAK TrENDS TRUST
STATEMENT OF NET ASSETS
June 30, 1999
(Unaudited)
- ----------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (amortized cost $74,428,232) (Notes 2, 4, and 8) $ 39,115,155
Cash 4,300
--------------
Total Assets $ 39,119,455
==============
Net Assets $ 39,119,455
==============
COMPOSITION OF NET ASSETS
Trust Enhanced Dividend Securities ("TrENDS") no par value;
5,300,000 shares issued and outstanding (Note 9) $ 73,627,490
Net unrealized depreciation of investments (35,313,077)
Undistributed net investment income 805,042
--------------
Net Assets $ 39,119,455
==============
Net Asset Value per TrENDS $ 7.38
==============
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
<TABLE>
<CAPTION>
PEAK TrENDS TRUST
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
Par Maturity Market Amortized
Securities Description Value Date Value Cost
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES GOVERNMENT
SECURITIES:
United States Treasury Strips $ 1,878,000 08/15/99 $ 1,867,183 $ 1,865,207
United States Treasury Strips 1,878,000 11/15/99 1,844,290 1,840,029
United States Treasury Strips 1,878,000 02/15/00 1,820,759 1,814,969
United States Treasury Strips 1,878,000 05/15/00 1,796,363 1,790,857
United States Treasury Strips 1,879,000 08/15/00 1,770,713 1,767,426
United States Treasury Strips 1,878,000 11/15/00 1,745,113 1,742,780
United States Treasury Strips 1,878,000 02/15/01 1,719,309 1,718,800
United States Treasury Strips 1,878,000 05/15/01 1,694,425 1,695,702
--------------- --------------- --------------
$ 15,025,000 14,258,155 14,235,770
===============
FORWARD PURCHASE CONTRACT:
Peak International Limited
Common Stock
Forward Purchase Agreement 05/15/01 24,857,000 60,192,462
---------------- --------------
Total $ 39,115,155 $ 74,428,232
================ ==============
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
<TABLE>
<CAPTION>
PEAK TrENDS TRUST
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ACCRETION OF ORIGINAL ISSUE DISCOUNT $ 427,444
EXPENSES:
Administrative fees and expenses $ 18,889
Legal fees 2,518
Accounting fees 10,074
Printing and mailing expense 7,220
Trustees' fees (Note 5) 6,044
Other expense 2,518
---------------
Total fees and expenses 47,263
EXPENSE REIMBURSEMENT (Note 7) (47,263)
---------------
Total expenses - Net --
---------------
Net Investment Income 427,444
Net increase in unrealized depreciation
of investments (8,596,208)
---------------
Net decrease in net assets resulting from operations $ (8,168,764)
===============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
PEAK TrENDS TRUST
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999, and the period from June 3, 1998
(commencement of operations) to December 31, 1998
(Unaudited)
Six Months Ended Period Ended
June 30, 1999 December 31, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 427,444 $ 601,132
Unrealized depreciation of investments (8,596,208) (26,716,869)
--------------- ---------------
Net decrease in net assets
from operations (8,168,764) (26,115,737)
--------------- ---------------
DISTRIBUTIONS
Net investment income (163,492) (60,042)
Return of capital (3,588,908) (3,321,358)
--------------- ---------------
Net decrease in net assets from
distributions (3,752,400) (3,381,400)
--------------- ---------------
INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (Note 9)
Gross proceeds from the sale of 5,299,994 TrENDS 83,474,906
Less:
Selling commissions (2,504,250)
Offering expenses (433,000)
---------------
Net increase in net assets from capital
share transactions 80,537,656
--------------- ---------------
Total (decrease) increase in net
assets for the period (11,921,164) 51,040,519
Net assets, beginning of period 51,040,619 100
--------------- ---------------
Net assets, end of period $ 39,119,455 $ 51,040,619
=============== ===============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
PEAK TrENDS TRUST
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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NOTE 1. ORGANIZATION
Peak TrENDS Trust ("Trust") was established on March 24, 1998 and is registered
as a non-diversified, closed-end management investment company under the
Investment Company Act of 1940 (the "Act"). In June 1998, the Trust sold Trust
Enhanced Dividend Securities ("TrENDS") 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 a portfolio comprised of stripped U.S. Treasury
securities and a forward purchase contract for common stock of Peak
International Limited ("PEAK"), a Bermuda corporation, from a shareholder of
PEAK (the "Seller"). 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
a bid price received by the Trust at the end of each period from an
independent broker-dealer firm unaffiliated with the Trust who is 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. 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.
5
<PAGE>
PEAK TrENDS TRUST
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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NOTE 3. DISTRIBUTIONS
TrENDS holders are entitled to receive distributions from the maturity of U.S.
Treasury Strips of $1.418 per annum or $.354 per quarter (except for the first
distribution on August 15, 1998 which was $.284.
NOTE 4. PURCHASES AND SALES OF INVESTMENT
Purchases and maturities of U.S. Treasury Strips for the period ended December
31, 1998 totaled $20,345,194 and $3,381,000, respectively. Maturities for the
six months ended June 30, 1999 totaled $3,757,000. There was no sale of such
investments during either period. Purchase of the forward purchase contract
during the period ended December 31, 1998 totaled $60,192,462.
NOTE 5. TRUSTEES FEES
Each of the three Trustees were paid a one-time, up front fee of $10,800 for the
services during the life of the Trust. In addition, the Managing Trustee was
paid an additional one-time, up front fee of $3,600 for serving in such
capacity. The total fees paid to the Trustees of $36,000 are being expensed over
the life of the Trust. As of June 30, 1999, the Trust had expensed $13,124 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, 1999 net unrealized depreciation of investments based on
amortized cost for Federal income tax purposes, aggregated $35,313,077,
consisting of gross unrealized appreciation of $23,661 and gross unrealized
depreciation of $35,336,738. The amortized cost of investment securities for
Federal income tax purposes was $74,428,232 at June 30, 1999.
NOTE 7. EXPENSES
The estimated expenses to be incurred by the Trust in connection with the
offering of the TrENDS and its ongoing operations is $734,500. Of this amount,
$453,000 represents offering expenses ($433,000) and organizational expenses
($20,000) incurred by the Trust. The organizational expenses are being paid
directly by the sponsor of the Trust and the offering expenses are being paid
directly by the Seller. The remaining amount of $281,500 represents a prepayment
of estimated administrative and other operating expenses. Such amount was paid
to the Administrator by the sponsor of the Trust. Expenses incurred in excess of
this amount will be paid by the Seller.
Cash received by the Administrator from the sponsor of the Trust of $281,500 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, 1999, $116,886 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.
6
<PAGE>
PEAK TrENDS TRUST
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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NOTE 8. FORWARD PURCHASE CONTRACT
On June 3, 1998, the Trust entered into a forward purchase contract with a
shareholder of PEAK (the "Seller") and paid to the Seller $60,192,462 in
connection therewith. Pursuant to such contract, the Seller is obligated to
deliver to the Trust a specified number of common stock on May 15, 2001 (the
"Exchange Date") so as to permit the holders of the TrENDS to exchange on the
Exchange Date each of their TrENDS for between .8696 and 1.00 common stock. See
the Trust's original prospectus dated May 29, 1998 for the formula upon which
such exchange will be determined.
The forward purchase contract held by the Trust at June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Exchange Cost of Contract Unrealized
Date Contract Value Depreciation
-------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Peak International Limited
Common Stock
Forward Purchase Agreement 05/15/01 $ 60,192,462 $ 24,857,000 $ (35,335,462)
=================== ================== ===================
</TABLE>
The Seller's obligations under the forward purchase contract are collateralized
by PEAK Common Stock which are being held in the custody of the Trust's
custodian, The Bank of New York. At June 30, 1999, the custodian held 5,300,000
shares with an aggregate value of $35,940,625.
NOTE 9. CAPITAL SHARE TRANSACTIONS
On May 21, 1998 one TrENDS was sold to the underwriters of the TrENDS for $100.
As a result of a stock split effected immediately prior to the public offering
of the TrENDS, this TrENDS was converted into 6 TrENDS. During the offering
period, the Trust sold 5,299,994 TrENDS to the public and received net proceeds
of 80,537,656 ($83,474,906 less sales commission of $2,504,250 and offering
expenses of $433,000). As of June 30, 1999, there were 5,300,000 TrENDS issued
and outstanding with an aggregate cost, net of sales commission and offering
expenses, and return of capital, of $73,627,490.
7
<PAGE>
PEAK TrENDS 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>
June 3, 1998
(Commencement
Six Months of Operations) to
Ended December 31,
June 30, 1999 1998
------------- ------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE FOR A TRENDS
OUTSTANDING THROUGHOUT THE PERIOD
Investment income $ 0.08 $ 0.11
Expenses 0.00 0.00
------------- -------------
Investment income - net 0.08 0.11
Adjustments to capital (sales commissions) 0.00 (0.47)
Adjustments to capital (offering expenses) 0.00 (0.08)
Distribution of income (0.03) (0.01)
Return of capital (0.68) (0.63)
Unrealized loss on investments (1.62) (5.04)
------------- -------------
Net decrease in net asset value (2.25) (6.12)
Beginning net asset value 9.63 15.75
------------- -------------
Ending net asset value $ 7.38 9.63
============= =============
Ending market value $ 7.38 9.63
============= =============
TOTAL INVESTMENT RETURN BASED ON MARKET VALUE (16.30)% (35.63)%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets:
Before reimbursement (1) 0.21 % 0.13 %
After reimbursement (1) 0.00 % 0.00 %
Ratio of net investments income to average net assets:
Before reimbursement (1) 1.70 % 1.28 %
After reimbursement (1) 1.91 % 1.41 %
Net assets, end of period (in thousands) $ 39,119 $ 51,041
</TABLE>
(1) Annualized
8
