<PAGE> 1
AJL PEPS TRUST
FINANCIAL STATEMENTS (UNAUDITED)
Including
STATEMENT OF INVESTMENTS
June 30, 1996
<PAGE> 2
AJL PEPS TRUST
TABLE OF CONTENTS TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
Page
<S> <C>
Statement of Assets and Liabilities 1
Schedule of Investments 2
Statement of Operations 3
Statement of Changes in Net Assets 4
Notes to Financial Statements 5-7
Financial Highlights 8
</TABLE>
<PAGE> 3
AJL PEPS TRUST
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (amortized cost $281,455,770) - Notes 2, 4 and 8 $331,009,447
Cash 305,595
Deferred organizational costs, net of accumulated amortization of
$2,390 - Note 2 9,610
------------
Total Assets 331,324,652
LIABILITIES - Accounts payable and accrued expenses 305,566
------------
NET ASSETS $331,019,086
============
COMPOSITION OF NET ASSETS:
Premium Exchangeable Participating Shares, no par value; 15,663,002
shares issued and outstanding - Note 9 $279,693,046
Unrealized appreciation of investments 49,553,677
Undistributed net investment income 1,772,363
------------
NET ASSETS $331,019,086
============
NET ASSET VALUE PER PEPS $ 21.13
============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 4
AJL PEPS TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Maturity Market Amortized
Securities Description Value Date Value Cost
UNITED STATES GOVERNMENT
SECURITIES:
<S> <C> <C> <C> <C>
United States Treasury Strips $ 5,639,000 8/15/97 $ 5,285,264 $ 5,297,814
United States Treasury Strips 5,639,000 11/15/97 5,202,372 5,225,981
United States Treasury Strips 5,639,000 11/15/96 5,529,096 5,515,110
United States Treasury Strips 5,639,000 8/15/98 4,955,271 5,010,685
United States Treasury Strips 5,639,000 2/15/98 5,116,434 5,153,007
United States Treasury Strips 5,639,000 5/15/97 5,369,005 5,370,208
United States Treasury Strips 5,639,000 11/15/98 4,875,818 4,939,721
United States Treasury Strips 5,639,000 5/15/98 5,039,462 5,082,606
United States Treasury Strips 5,639,000 8/15/96 5,604,828 5,589,951
United States Treasury Strips 5,639,000 2/15/97 5,448,063 5,444,671
United States Treasury Strips 5,639,000 2/15/99 4,794,560 4,866,608
----------- ---------- ----------
$62,029,000 57,220,173 57,496,362
=========== ---------- ----------
FORWARD PURCHASE CONTRACTS:
GRIT/AJL PEPS Trust Purchase Agreement 2/15/99 136,894,637 111,979,704
JVA/AJL PEPS Trust Purchase Agreement 2/15/99 136,894,637 111,979,704
----------- -----------
273,789,274 223,959,408
----------- -----------
Total $331,009,447 $281,455,770
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 5
AJL PEPS TRUST
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1996 TO JUNE 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
ACCRETION OF ORIGINAL ISSUE DISCOUNT $ 1,693,715
EXPENSES:
Administrative fees and expenses $21,895
Legal fees 15,000
Accounting fees 12,876
Insurance expense 23,558
Trustees fees 5,538
Amortization of deferred organizational costs 1,867
Other expenses 5,598
-------
Total fees and expenses 86,332
EXPENSE REIMBURSEMENT (Note 7) 84,465
-------
TOTAL EXPENSES - Net 1,867
-------------
NET INVESTMENT INCOME 1,691,848
NET UNREALIZED APPRECIATION OF INVESTMENTS 34,841,076
-------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 36,532,924
=============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 6
AJL PEPS TRUST
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period
For the November 9,
Period 1995
January 1, (Commencement
1996 of Operations) to
to June 30, December 31,
1996 1995
(Unaudited)
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,691,848 $ 296,692
Net unrealized appreciation of investments 34,841,076 14,712,601
------------ -------------
Net increase in net assets from operations 36,532,924 15,009,293
------------ -------------
DISTRIBUTIONS:
Net investment income 216,177 --
Return of capital 10,748,823 --
------------ -------------
Net decrease in net assets from distributions 10,965,000 --
------------ -------------
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)
------------ -------------
Net increase in net assets from capital
shares transactions -- 290,341,869
------------ -------------
TOTAL INCREASE IN NET ASSETS FOR THE PERIOD 25,567,924 305,351,162
------------ -------------
NET ASSETS, BEGINNING OF PERIOD 305,451,162 100,000
------------ -------------
NET ASSETS, END OF PERIOD $331,019,086 $ 305,451,162
============ =============
</TABLE>
See accompanying notes to financial statements
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<PAGE> 7
AJL PEPS TRUST
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
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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<PAGE> 8
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 was $0.34), payable
quarterly commencing February 15, 1996.
4. PURCHASES AND SALES OF INVESTMENTS
Maturities of U.S. Treasury Strips totaled $10,965,000; there were no
sales of such investments during the period. There were no purchases or
sales of forward purchase contracts 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 which were paid as of June 30, 1996 of
$36,000 will be expensed over the life of the Trust. As of June 30, 1996,
the Trust had expensed $6,923 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.
At June 30, 1996, net unrealized appreciation of portfolio investments was
$49,553,677, consisting of gross unrealized appreciation of $49,862,121
and gross unrealized depreciation of $308,444. The amortized cost of
investment securities for Federal income tax purposes was $281,455,770 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 June 30, 1996, the Trust had paid $349,434
relating to such expenses. The remaining amount of $594,471 represents a
prepayment of estimated administrative and other operating expenses of the
Trust. 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 June 30, 1996, $284,306 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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<PAGE> 9
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 June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
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 $ 136,894,637 $ 24,914,933
HDV GRIT Holdings, Inc. 2/15/99 111,979,704 136,894,637 24,914,933
--------------- --------------- --------------
$ 223,959,408 $ 273,789,274 $ 49,829,866
=============== =============== ==============
</TABLE>
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 June 30, 1996, the Custodian held
19,578,756 ADS with an aggregate value of $487,021,555.
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 offering period, 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
June 30, 1996, there were 15,663,002 PEPS issued and outstanding with an
aggregate cost, net of sales commission, offering costs and return of
capital, of $279,693,046.
-7-
<PAGE> 10
AJL PEPS TRUST
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
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 at the
beginning and end of each period.
<TABLE>
<CAPTION>
For the period
November 9, 1995
For the period (Commencement
January 1, 1996 of Operations)
to to
to June 30, 1996 December 31, 1995
<S> <C> <C>
Investment income $ .11 $ .02
Expenses .00 .00
----------- -----------
Investment income - Net .11 .02
Adjustment to capital (offering expenses) -- (.04)
Distribution from income (.01) --
Return of capital (.69) --
Unrealized gain on investments 2.22 .94
----------- -----------
Net increase in net asset value 1.63 .92
Beginning net asset value 19.50 18.58
----------- -----------
Ending net asset value $ 21.13 $ 19.50
=========== ===========
Ending market value $ 21.13 $ 19.50
=========== ===========
Total investment return based on market value 10.15 % 4.95 %
Ratio of expenses to average net assets:
Before waiver .03 % .10 %
After waiver .00 % .00 %
Ratio of net investment income to average net assets:
Before waiver .50 % .09 %
After waiver .53 % .19 %
Net assets, end of period (in thousands) $ 331,019 $ 305,451
- -----------------------------------------------------
</TABLE>
-8-
