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[DELOITTE & TOUCHE LLP LOGO]
AJL PEPS TRUST
Financial Statements as of
December 31, 1995 and for the
Period November 9, 1995
(Commencement of Operations) to
December 31, 1995,
Financial Highlights and
Independent Auditors' Report
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DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
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AJL PEPS TRUST
TABLE OF CONTENTS
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Page
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INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE PERIOD NOVEMBER 9, 1995 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1995:
Statement of Assets and Liabilities 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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[DELOITTE & TOUCHE LLP LOGO]
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of AJL PEPS Trust (the "Trust") as of December 31,
1995, the related statements of operations and changes in net assets and the
financial highlights for the period November 9, 1995 (commencement of
operations) to December 31, 1995. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and 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 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 the securities owned at December 31, 1995 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 AJL PEPS Trust at
December 31, 1995, the results of its operations, the changes in its net assets,
and its financial highlights for the above-stated period in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
September 11, 1996
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DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
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AJL PEPS TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
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ASSETS:
Investments, at value (amortized cost $290,727,055) - Notes 2, 4 and 8 $305,439,656
Cash 504,563
Deferred organizational costs, net of accumulated amortization of
$523 - Note 2 11,477
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Total Assets 305,955,696
LIABILITIES - Accounts payable and accrued expenses 504,534
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Net Assets $305,451,162
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COMPOSITION OF NET ASSETS:
Premium Exchangeable Participating Shares, no par value; 15,663,002
shares issued and outstanding - Note 9 $290,441,869
Unrealized appreciation of investments 14,712,601
Undistributed net investment income 296,692
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NET ASSETS $305,451,162
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NET ASSET VALUE PER PEPS $ 19.50
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See accompanying notes to financial statements
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AJL PEPS TRUST
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
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Par Maturity Market Amortized
Securities Description Value Date Value Cost
<S> <C> <C> <C> <C>
UNITED STATES GOVERNMENT
SECURITIES:
United States Treasury Strips $ 5,639,000 8/15/97 $ 5,190,756 $ 5,157,986
United States Treasury Strips 5,326,000 2/15/96 5,293,405 5,280,240
United States Treasury Strips 5,639,000 5/15/96 5,535,073 5,515,657
United States Treasury Strips 5,639,000 11/15/97 5,122,862 5,087,550
United States Treasury Strips 5,639,000 11/15/96 5,392,519 5,370,029
United States Treasury Strips 5,639,000 8/15/98 4,922,565 4,875,930
United States Treasury Strips 5,639,000 2/15/98 5,055,533 5,015,547
United States Treasury Strips 5,639,000 5/15/97 5,257,578 5,229,034
United States Treasury Strips 5,639,000 11/15/98 4,859,465 4,806,246
United States Treasury Strips 5,639,000 5/15/98 4,990,064 4,946,718
United States Treasury Strips 5,639,000 8/15/96 5,463,289 5,445,350
United States Treasury Strips 5,639,000 2/15/97 5,330,152 5,303,331
United States Treasury Strips 5,639,000 2/15/99 4,792,135 4,734,029
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$72,994,000 67,205,396 66,767,647
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FORWARD PURCHASE CONTRACTS:
GRIT/AJL PEPS Trust Purchase Agreement 2/15/99 119,117,130 111,979,704
JVA/AJL PEPS Trust Purchase Agreement 2/15/99 119,117,130 111,979,704
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238,234,260 223,959,408
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Total $305,439,656 $290,727,055
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See accompanying notes to financial statements.
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AJL PEPS TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM NOVEMBER 9, 1995
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
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ACCRETION OF ORIGINAL ISSUE DISCOUNT $ 297,215
EXPENSES:
Administrative fees and expenses $ 54,414
Legal fees 34,000
Accounting fees 51,753
Insurance expense 5,889
Trustees fees 1,385
Amortization of deferred organizational costs 523
Other expenses 1,400
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Total fees and expenses 149,364
EXPENSE REIMBURSEMENT (Note 7) 148,841
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TOTAL EXPENSES - Net 523
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NET INVESTMENT INCOME 296,692
UNREALIZED APPRECIATION OF INVESTMENTS 14,712,601
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NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 15,009,293
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See accompanying notes to financial statements.
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AJL PEPS TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM NOVEMBER 9, 1995
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
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OPERATIONS:
Net investment income $ 296,692
Unrealized appreciation of investments 14,712,601
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Net increase in net assets from operations 15,009,293
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INCREASE IN NET ASSETS FROM CAPITAL SHARES TRANSACTIONS:
Gross proceeds from the sale of Premium Exchangeable Participating Shares 300,000,000
Less:
Selling commissions (9,003,131)
Offering expenses (655,000)
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Net increase in net assets from capital shares transactions 290,341,869
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TOTAL INCREASE IN NET ASSETS FOR THE PERIOD 305,351,162
NET ASSETS, BEGINNING OF PERIOD 100,000
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NET ASSETS, END OF PERIOD $ 305,451,162
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See accompanying notes to financial statements.
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AJL PEPS TRUST
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM NOVEMBER 9, 1995 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1995
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1. ORGANIZATION
AJL PEPS Trust ("Trust") was established on August 17, 1995 and is
registered as a non-diversified, closed-end management investment company
under the Investment Company Act of 1940 (the "Act"), as amended. In
November 1995, the Trust sold Premium Exchangeable Participating Shares
("PEPS") 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 to pay the purchase price for two forward purchase
contracts for American Depository Shares ("ADS") representing shares of
common stock of Amway Japan Limited ("AJL"), a Japanese corporation, with
two existing shareholders of AJL. Each ADS represents one-half of one
share of common stock. The ADS are deliverable pursuant to the contracts
on February 15, 1999 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 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 straight-line method. The forward purchase contracts are
valued at the mean of the bid prices received by the Trust at the end of
each period from three independent broker-dealer firms unaffiliated with
the Trust who are in the business of making bids on financial instruments
similar to the contracts 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.
ORGANIZATIONAL EXPENSES - Organizational expenses of $12,000 are being
amortized on a straight-line basis over the life of the Trust beginning at
the commencement of operations of the Trust.
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3. DISTRIBUTIONS
PEPS holders are entitled to receive distributions from the maturity of
U.S. Treasury Strips of $1.44 per annum or $0.36 per quarter (except for
the first distribution on February 15, 1996 which will be $0.34), payable
quarterly commencing February 15, 1996.
4. PURCHASES AND SALES OF INVESTMENTS
Purchases of U.S. Treasury Strips and forward purchase contracts were
$66,470,431 and $223,959,408, respectively. There were no sales or
maturities of investments during the period.
5. TRUSTEES FEES
Each of the three Trustees will be paid a one-time, upfront fee of $10,800
for their services during the life of the Trust. In addition, the Managing
Trustee will be paid a one-time, upfront fee of $3,600 for serving in such
capacity. The total Trustees fees payable of $36,000 will be accrued over
the life of the Trust. At December 31, 1995, the Trust had accrued $1,385
of such fees.
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, 1995, unrealized appreciation of investments, based on
amortized cost for Federal income tax purposes, aggregated $14,712,601,
all of which related to appreciated securities. The amortized cost of
investment securities for Federal income tax purposes was $290,727,055 at
December 31, 1995.
7. EXPENSES
The estimated expenses to be incurred by the Trust in connection with the
offering of the PEPS and its ongoing operations is $1,261,471. Of this
amount, $667,000 represents offering expenses ($655,000) and
organizational expenses ($12,000) incurred by the Trust. The offering and
organizational expenses are being paid from the proceeds received from the
offering of the PEPS. At December 31, 1995, the Trust had paid $150,466
relating to such expenses. The remaining amount of $594,471 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 sponsor or, if not,
by the Trust.
Cash received by the Administrator from the sponsor of $594,471 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, 1995, $229,685 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.
8. FORWARD PURCHASE CONTRACTS
On November 15, 1995, the Trust entered into two forward purchase
contracts with two principal shareholders of AJL (the "Sellers") and paid
to the Sellers $223,959,408 in connection therewith. Pursuant to such
contracts, the Sellers are obligated to deliver to the Trust a specified
number of ADS on
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February 15, 1999 (the "Exchange Date) so as to permit the holders of
the PEPS to exchange on the Exchange Date each of their PEPS for between
0.8475 and 1.25 ADS. See the Trust's original prospectus dated
November 15, 1995 for the formula upon which such exchange will be
determined.
The forward purchase contracts held by the Trust at December 31, 1995 are
as follows:
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Exchange Cost of Contract Unrealized
Forward Contracts Date Contract Value Appreciation
<S> <C> <C> <C> <C>
Jay Van Andel Trust 2/15/99 $111,979,704 $119,117,130 $ 7,137,426
HDV GRIT Holdings, Inc. 2/15/99 111,979,704 119,117,130 7,137,426
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$223,959,408 $238,234,260 $14,274,852
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The Sellers' obligations under the forward purchase contracts are
collateralized by ADS which are being held in the custody of the Trust's
Custodian, The Bank of New York. At December 31, 1995, the Custodian held
19,578,756 ADS with an aggregate value of $408,706,531.
9. CAPITAL SHARE TRANSACTIONS
On November 8, 1995, two PEPS were sold to two of the underwriters of the
PEPS for $100,000 ($50,000 per PEPS). As a result of a stock split
effected immediately prior to the public offering of the PEPS, these two
PEPS were converted into 5,382 PEPS. During the period ended December 31,
1995, the Trust sold 15,657,620 PEPS to the public and received net
proceeds of $290,996,869 ($300,000,000 net of sales commission of
$9,003,131). As of December 31, 1995, there were 15,663,002 PEPS issued
and outstanding with an aggregate cost, net of sales commission and
offering costs, of $290,441,869.
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AJL PEPS 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,
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 returns for
periods of less than one year are not annualized.
The ratio of expenses and net investment income to average net assets is
expressed with and without the application of the expense reimbursement waiver.
Average net assets are calculated taking the average of the net assets on the
seed audit date (November 8, 1995) and the net assets as of December 31, 1995.
<TABLE>
<CAPTION>
November 9, 1995
(Commencement
of Operations)
to December 31, 1995
<S> <C>
Investment income $ .02
Expenses .00
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Investment income - Net .02
Adjustment to capital (offering expenses) (.04)
Unrealized gain on investments .94
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Net increase in net asset value .92
Beginning net asset value 18.58
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Ending net asset value $ 19.50
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Ending market value $ 19.50
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Total investment return based on market value 4.95 %
Ratio of expenses to average net assets:
Before waiver .10 %
After waiver .00 %
Ratio of net investment income to average net assets:
Before waiver .09 %
After waiver .19 %
Net assets, end of period
(in thousands) $ 305,451
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