<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
- --------------------------------
SEMI-ANNUAL REPORT
DECEMBER 31, 1995
(UNAUDITED)
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
January 31, 1996
Dear Shareholder:
We are pleased to provide the semi-annual report to shareholders of the BFM
Institutional Trust Inc. ("BIT") for the fiscal period ended December 31, 1995.
BIT is an open-end management investment company whose investment adviser,
BlackRock Financial Management, Inc. (the "Adviser"), has day-to-day investment
responsibility for the BIT Portfolios.
The BFM Institutional Trust is a series of no-load, open-end mutual funds
("Portfolios") that seek to maximize total return consistent with the
preservation of capital using a controlled duration investment philosophy. Each
Portfolio is managed so that its duration falls within a narrow band around a
specified benchmark market index, such as the Lehman Aggregate Index or the
Merrill Lynch 1-3 Year Treasury Index, while its Portfolio is actively managed
across multiple fixed income sectors. The Adviser adds value primarily through
sector rotation, a disciplined quantitative approach to the valuation of
securities and the expertise of its portfolio management team. Throughout the
investment cycle, the composition of the Portfolios will vary as the percentage
of securities included from each of the fixed income sectors are increased or
decreased to reflect the Adviser's relative value perspective. In addition,
while all Portfolios are restricted to securities which are investment grade or
better, the credit quality within each Portfolio will also vary. Currently, two
of the BIT Portfolios are available for investors: The Core Fixed Income
Portfolio and The Short Duration Portfolio.
Effective January 12, 1996, the BFM Institutional Trust Short Duration and Core
Fixed Income Portfolios merged into a newly created mutual fund family: The
Compass Capital Funds. The Compass funds represent the consolidation of the PNC
funds, Compass funds affiliated with Midlantic Bank and the open-end
institutional funds of BlackRock Financial Management, Inc.. Concurrent with the
merger, each Portfolio will undergo a name change: Short Duration Portfolio to
Compass Capital Short Government Portfolio and Core Fixed Income Portfolio to
Compass Capital Core Bond Portfolio. BlackRock Financial Management, Inc., a
subsidiary of PNC Asset Management Group, will continue to manage the
Portfolios. Additionally, the performance history of the BFM Institutional Trust
will survive.
INVESTMENT COMMENTARY
- ---------------------
The dramatic rally in the fixed income markets, which caused interest rates to
fall and prices of fixed income securities to rise since late 1994 has changed
the market landscape for fixed income investors. A deceleration in economic
growth from the torrid pace of 1994 as well as continued signs of subdued
inflation led to a substantial decrease in interest rates across the Treasury
yield curve. At the end of December, the yield of the 30-year Treasury fell
below 6.00% for the first time since October 1993, closing the year at 5.95%,
while the yield of the 5-year Treasury fell approximately 2.50% to end 1995 at
5.37%.
1
<PAGE>
The Federal Reserve reversed its policy of "tight" monetary control for the
first time in almost two years by lowering the Fed funds target rate by 25 basis
points (0.25%) on July 7, in response to economic reports expressing moderate
but sustainable economic growth in the first half of the year. During July and
early August, the bond market rally temporarily halted as stronger economic data
dampened expectations for a follow-up reduction in short-term rates. However, as
the fourth quarter began, the economy again showed signs of sluggish growth and
interest rates returned to their 1995 lows in anticipation of another Fed ease
by year-end. Indeed, the Fed made two quarter-point reductions in the Fed funds
rate on December 19 and January 31.
Mortgage-backed securities (MBS) outperformed their Treasury counterparts in the
third quarter as interest rate volatility declined from its highs of the late
second quarter. At the beginning of the third quarter, higher coupon MBS offered
significant value because they were priced on excessive prepayment assumptions.
As interest rates rose and prepayment concerns abated, premium MBS appreciated
in value. However, the mortgage-backed securities (MBS) market didn't keep pace
with the Treasury market during the fourth quarter of 1995. This was due in part
to increased prepayments, as homeowners opted to take advantage of lower
interest rates by refinancing their mortgages. Within the mortgage sector, lower
coupon securities (such as 6.5%) outperformed higher coupon mortgages (8.0%)
because the owner of a lower coupon mortgage has less incentive to prepay.
Adjustable-rate mortgages (ARMs) posted net underperformance due to both
increased prepayment speeds and a narrowed spread between fixed and adjustable
rates, which provided ARM holders with an attractive opportunity to refinance
into a fixed rate mortgage at significant savings.
Corporate debt securities outperformed other fixed income sectors during the
second half of 1995 as their longer duration, a measure of interest rate
sensitivity, allowed their prices to appreciate more as interest rates fell. At
the end of June, corporates had been trading at relatively low levels due to
strong supply. However, demand for corporate debt securities strengthened over
the past six months despite the heavy new issuance calendar, as investors sought
securities with higher yields than Treasuries and more predictable cash flows
than mortgage-backed securities. Also aiding the performance of the corporate
market were highly publicized mergers and restructurings in the bank and
industrial sectors, which resulted in cost-cutting and improving profits.
Market participants remain attentive to the politically-charged debate
surrounding Federal budget proposals. Congressional and White House leaders have
been unable to fashion a credible 7-year balanced budget agreement, and appear
resigned to let the debate linger as we move into an election year. An agreement
was reached in January 1996 on extending the Federal debt-ceiling, alleviating
concerns over a potential credit downgrade or technical default on certain U.S.
Treasury issues. BlackRock Financial Management is attuned to these continuing
political issues, but we remain positive on the fixed income markets in early
1996 as moderate economic and inflationary data have set the stage for continued
strong performance for fixed income securities.
2
<PAGE>
THE CORE FIXED INCOME PORTFOLIO
- -------------------------------
The Core Fixed Income Portfolio commenced operations on December 9, 1992. During
the six-month period ended December 31, 1995 the Portfolio's net asset value
increased from $9.85 to $10.08 per share, an increase of $0.23 or 2.3%. The NAV
ranged between $9.72 and $10.12 during the past six months. The Portfolio
declares dividends on a daily basis, with distributions for this six-month
period totaling $0.32592 per share. The $0.05432 monthly dividend paid on
December 31, 1995 is equivalent to an annualized distribution rate of 6.47% on
the portfolio's $10.08 net asset value as of that same date. As of December 31,
1995, the SEC yield of the Portfolio was 5.88%. The change in net asset value,
combined with the monthly Portfolio distribution, resulted in a total rate of
return over the period of 6.56% and 8.17% annualized since the Portfolio's
inception. THE FIGURE BELOW GRAPHS THE CURRENT VALUE OF $10,000 INVESTED IN THE
PORTFOLIO FROM INCEPTION THROUGH DECEMBER 31, 1995.
[GRAPH APPEARS HERE]
The Core Fixed Income Portfolio is a diversified portfolio of investment grade
fixed income securities, including U.S. Government, mortgage-backed, asset-
backed and corporate debt securities, rated at the time of investment at least
BBB- or better by Standard & Poor's or Baa3 or better by Moody's, or determined
by the Advisor to be of comparable quality at the time of investment. The asset
allocation of The Core Fixed Income Portfolio as of June 30, 1995 and December
31, 1995 is shown below:
12/31/95 6/30/95
-------- -------
Treasuries 47% 45%
MBS 25% 28%
Corporates 19% 15%
ABS 9% 12%
3
<PAGE>
The Portfolio ended 1995 slightly overweighted versus the Lehman Aggregate Index
in corporates and asset-backed securities (ABS), both of which offer more cash
flow stability than other spread product without sacrificing yield. The
corporate bond market rebounded from a relatively weak June to post excellent
performance during the past six months. BlackRock took advantage of the
temporary yield spread widening in this market to selectively add positions.
Within the corporate market, the Portfolio was most heavily concentrated in the
finance sector, which received increased investor interest from its yield
advantage over Treasuries in addition to improving profit margins. The ABS
market, which saw a substantial increase in issuance in 1995 over 1994, posted
strong performance as investors favored bullet oriented ABS over mortgage-backed
securities (MBS) alternatives, which experienced accelerated prepayments as
interest rates fell.
The Portfolio has focused on more seasoned MBS issues, which are older mortgages
owned by mortgage holders who have neglected to refinance into lower rate
mortgages despite experiencing several declining interest rate environments. As
such, seasoned mortgage bonds are less likely to prepay and are expected to
provide more predictable cash flows compared to newly issued mortgages. The
Portfolio has also allocated a significant portion of its mortgage pass-through
allocation to lower coupon issues, particularly 6.5%, which are less likely to
prepay than higher coupon MBS.
The chart below provides additional performance information for the Core Fixed
Income Portfolio:
<TABLE>
<CAPTION>
TOTAL RETURNS- PERIOD ENDING THE CORE FIXED INCOME LEHMAN AGGREGATE
DECEMBER 31, 1995 PORTFOLIO (1) INDEX
- ------------------------------------------------------------------------
<S> <C> <C>
1 Month 1.62% 1.40%
- ------------------------------------------------------------------------
3 Month 4.41% 4.26%
- ------------------------------------------------------------------------
6 Month 6.54% 6.31%
- ------------------------------------------------------------------------
12 Month 18.28% 18.48%
- ------------------------------------------------------------------------
Since Inception 27.19% 26.62%
- ------------------------------------------------------------------------
</TABLE>
THE SHORT DURATION PORTFOLIO
- ----------------------------
The Short Duration Portfolio commenced operations on July 17, 1992. During the
six-month period ended December 31, 1995 the Portfolio's net asset value
increased from $9.83 to $9.92 per share, an increase of $0.09 or 0.9%. The NAV
ranged between $9.79 and $9.92 during the past six months. The portfolio
declares dividends on a daily basis, with distributions for this six-month
period totaling $0.31406 per share. The $0.05149 monthly dividend paid on
December 31, 1995 is equivalent to an annualized distribution rate of 6.23% on
the portfolio's $9.92 net asset value. As of December 31, 1995, the SEC yield of
the Portfolio was 5.34%. The change in net asset value, combined with the
monthly Portfolio distribution, resulted in a total rate of return over the
period of 3.61% and 5.40% annualized since inception. THE FIGURE BELOW GRAPHS
THE CURRENT VALUE OF $10,000 INVESTED IN THE PORTFOLIO FROM INCEPTION THROUGH
DECEMBER 31, 1995.
(1) Past performance is not necessarily indicative of future results. The
performance figure above reflect the deduction of investment advisory fees and
other expenses.
4
<PAGE>
[GRAPH APPEARS HERE]
The Short Duration Portfolio is a diversified portfolio of fixed income
securities, including U.S. Government, mortgage-backed, asset-backed and, to a
lesser extent, corporate debt securities, rated at the time of investment at
least AAA by Standard & Poor's or Aaa by Moody's or determined by the Advisor to
be of comparable quality at the time of investment. The asset allocation of The
Short Duration Portfolio as of June 30, 1995 and December 31, 1995 is shown
below:
12/31/95 6/30/95
-------- -------
Treasuries 36% 18%
Adjustable Rate 26% 36%
ABS 18% 7%
Fixed Rate Agency 16% 20%
CMOs 4% 19%
Despite the MBS sector underperfroming Treasuries during the past six months,
the Portfolio sold a significant portion of its overall mortgage exposure upon
spread tightening opportunities. In particular, the Portfolio reduced both its
adjustable-rate mortgage (ARM) and collateralized mortgage-backed obligation
(CMO) positions upon spread tightening. The month of December provided an
opportunity for most MBS to recover some lost ground; however, BlackRock
believes that with spreads recently tighter and refinancings poised to
accelerate, the mortgage market could experience near-term weakness.
The Portfolio more than doubled its allocation to asset-backed securities, which
posted excellent performance despite a record-breaking new supply in 1995. The
Portfolio's ABS holdings are concentrated in auto paper, which provided yield
spreads as wide as 50 basis points above comparable maturity Treasuries without
the prepayment concerns associated with home equity ABS. A growing investor base
indicates that the expected heavy supply should be met with adequate demand to
produce another year of strong ABS performance.
5
<PAGE>
The chart below provides additional performance information for the Short
Duration Portfolio:
<TABLE>
<CAPTION>
TOTAL RETURNS- PERIOD ENDING THE SHORT DURATION MERRILL LYNCH 1-3 YEAR
DECEMBER 31, 1995 PORTFOLIO (1) TREASURY INDEX
- --------------------------------------------------------------------------------------
<S> <C> <C>
1 Month 0.62% 0.77%
- --------------------------------------------------------------------------------------
3 Month 2.29% 2.52%
- --------------------------------------------------------------------------------------
6 Month 4.12% 4.06%
- --------------------------------------------------------------------------------------
12 Month 10.48% 11.00%
- --------------------------------------------------------------------------------------
Since Inception 19.91% 19.95%
- --------------------------------------------------------------------------------------
</TABLE>
We appreciate your investment in the BlackRock Financial Management
Institutional Trust and look forward to continuing to serve your financial needs
through the Compass Funds.
Sincerely,
Laurence D. Fink Ralph L. Schlosstein
Chairman President
BlackRock Financial BlackRock Financial
Management, Inc. Management, Inc.
(1) Past performance is not necessarily indicative of future results. The
performance figure above reflect the deduction of investment advisory fees and
other expenses.
6
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE SHORT DURATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31,1996
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
LONG-TERM INVESTMENTS - 95.3%
MORTGAGE PASS-THROUGHS - 38.0%
FEDERAL HOME LOAN MORTGAGE CORPORATION
$11 6.17%, 04/01/24 $11,737
1,161 6.67%,, 10/01/25, 6 month LIBOR (ARM) 1,191,222
838 7.25%,, 04/01/29, 1 year CMT(ARM) 857,880
362 7.25%,, 10/01/03 - 06/01/08 366,558
295 7.38%,, 03/01/06, Multi-family 302,459
1,048 8.00%,, 11/01/03 - 10/01/17 1,088,685
204 8.25%,, 06/01/03 -02/01/08 213,842
1,233 8 50%,, 06/01/24 1,297,121
1,580 8.50%,, 12/01/99 - 04/01/00, 5 year 1,629,821
337 8.75%,, 01/01/13 355,765
FEDERAL NATIONAL MORTGAGE ASSOCIATION
1,958 6.50%,, 10/01/05 1,980,671
955 6.70%,, 10/01/24, 1 year CMT (ARM) 979,406
983 7.05%,, 01/01/21, 1 year CMT (ARM) 980,131
939 7.14%,, 01/01/21, 1 year CMT (ARM) 942,268
694 7.48%,, 07/01/24, 1 year CMT (ARM) 711,542
230 7.85%,, 05/01/18, 1 year CMT (ARM) 234,521
369 10.00%,, 04/01/20 405,863
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
692 6.00%,, 06/20/25, 1 year CMT (ARM) 699,147
1,657 6.50%,, 04/20/25, 1 year CMT (ARM) 1,683,303
1,547 6.75%,, 01/20/18, 1 year CMT (ARM) 1,581,459
1,779 7.50%,, 04/20/25 -06/20/25, 1 year CMT (ARM) 1,819,990
-----------
19,333,391
-----------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS - 6.0%
258 Collateralized Mortgage Securities Corporation,
Collateralized Mortgage Obligation, Series 1, Class 2, 05/01/13 261,712
Federal Home Loan Mortgage Corporation,
REMIC Multiclass Mortgage Participation Certificate,
640 Series 1357, Class 1357-E, 08/15/97 629,551
543 Series 1442, Class 1442-S, 12/15197 538,348
660 Federal National Mortgage Association,
REMIC Pass-Through Certificates,
Trust 1990-60, Class 60-J, 06/25/17 662,800
307 KP Mortgage Assets Trust,
Collateralized Mortgage Obligation, Series 14, Class 14B, 09/01/14 311,200
626 Security Mortgage Acceptance Corporation,
Collateralized Mortgage Obligation, Series B, Class 3, 11/01/06 640,882
-----------
3,044,493
-----------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE SHORT DURATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31,1995
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (Note 1)
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES - 17.6%
$774 Chase Manhattan Grantor Trust
Series 1995-B, Class A, 5.90%, 11/15/01 $776,182
865 Daimler-Benz Auto Grantor Trust,
Series 1995-A, Class A, 5.85%, 05/15/02 867,113
Ford Credit Grantor Trust
832 Series 1995-A, Class A, 5.90%, 05115100 834,690
1,459 Series 1995-B, Class A, 5.90%, 10115100 1,465,200
703 Series 1994-B, Class A, 7.30%, 10/15/99 717,304
1,929 NationsBank Grantor Trust,
Series 1995-A, Class A, 5.85%, 06/15/02 1,941,909
2,340 Nissan Auto Receivables Grantor Trust,
Series 1995-A, Class A, 6.10%, 08/15/01 2,352,113
------------
8,954,411
------------
TAXABLE ZERO COUPON BONDS - 1.6%
950 Resolution Funding Corporation, 10/15/98 820,800
------------
U.S. GOVERNMENT SECURITIES - 32.1 %
U.S. Treasury Notes - 32.1 %
6,540 (a) 5.38%, 11/3 , 6,561,451
700 6.13%,09/3 , 721,000
555 6.25%,08/3 , 574,164
7,300 7.25%, 02/1 , 7,590,832
800 7.75%, 12/3 , 868,128
------------
16,315,575
------------
TOTAL LONG-TERM INVESTMENTS (COST $48,336,182) 48,468,670
------------
SHORT-TERM INVESTMENTS - 10.5%
CALL OPTIONS - 0.1%
460 U S. Treasury Note Future, expiring February 1996 26,082
------------
DISCOUNT NOTE (b) - 10.4%
5,280 Federal Home Loan Bank, 5.75% 01/02/96 5,280,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST $5,291,859) 5,306,082
------------
TOTAL INVESTMENTS (COST $53,628,041) - 105.8% 53,774,752
LIABILITIES IN EXCESS OF OTHER ASSETS - (5.8%) (2,934,764)
------------
NET ASSETS - 100% $50,839,988
============
</TABLE>
- ----------
(a) Partial principal amount pledged as collateral for reverse repurchase
agreement.
(b) Security was purchased on a discount basis, the interest rate shown has been
adjusted to reflect a money market equivalent.
Key to Abbreviations
ARM: Adjustable Rate Mortgage.
CMT: Constant Maturity Treasury.
LIBOR: London International Bank Offering Rate.
REMIC: Real Estate Real Estate Mortgage Investment Conduit.
See Notes to Financial Statements.
8
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Rating* (000) DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
LONG -TERM INVESTMENTS - 89.2%
MORTGAGE PASS-THROUGHS - 18.2%
FEDERAL HOME LOAN MORTGAGE CORPORATION,
$1,450 7.00%, 09/01/25-11/01/25 $1,463,169
490 7.50%, 10/01/10, 15 year 504,547
473 7.90%, 09/01/23, 1 year CMT(ARM) 484,489
167 8.00%, 11/01/15 175,711
Federal Housing Administration,
99 East Point Chelsea, 10.25%, 05/01/33 105,558
Federal National Mortgage Association,
434 7.49%, 07/01/24, 1 year CMT (ARM) 444,714
303 7.50%, 02/01/09 314,821
235 8.00%, 9/01/09-6/01/17 245,872
643 9.00%,6/l/24 683,235
Government National Mortgage Association,
1,246 6.000/%, 02/20/24-06/20/25, 1 year CMT 1,258,964
474 6.50%, 04/20/25-05/20/25, 1 year CMT 483,087
222 7.00%, 02/20/25, 1 year CMT 226,408
564 8.50%, 01/15/10-04/15/17 597,778
132 9.00%, 11/15/17 140,562
484 9.00%, Project Pool 275130, 10/15/24 507,402
620 9.50%, Project Pool 302733, 11/15/26 658,943
38 10.50%,01/15/16 42,084
21 11.00%, 05/15/16-09/20/19 24,114
10 11.50%,07/15/13 10,885
10 12.00%, 01/15/13-03/15/15 11,341
1 12.50%, 04/15/13 1,765
-----------
8,385,449
-----------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS - 3.9%
AAA 800 Community Program Loan Trust,
Series 1987-A, Class A4, 4.50%,10/01/18 708,000
Federal National Mortgage Association, REMIC
Pass-Through Certificates,
4 Trust 1991-01, Class 1-L, 01/25/21, (I) 112,518
100 Trust 1994-M1, Class MI-B, 01/25/21 102,063
AAA 88 First Boston Corporation Mortgage Securities Trust,
Collateralized Mortgage Obligation, Series 2, Class A3, 08/20/17 89,914
Aaa 104 Salomon Brothers Mortgage Securities Inc. VII,
Series 1994-9, Class A6, 07/25/24 101,278
Aaa 171 Salomon Brothers Mortgage Securities Inc. VI,
Series 1987-3, Class A, 10/23/17(P) 128,405
AAA 505 Smith Barney Mortgage Capital Trust IV
Collateralized Mortgage Obligation, Series 1
Class 1Z, 09/01/18 540,199
-----------
1,782,377
-----------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Rating* (000) DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
COMMERCIAL MORTGAGE-BACKED SECURITIES - 2.0%
AAA $ 118 First Boston Mortgage Securities Corporation,
6.75%, Series 1993-M1, Class 1A, 09/25/06 $ 120,765
AAA 800 Paine Webber Mortgage Acceptance Corp,
Series 1995-A, Class A, 6.70%, 12/15/02 821,799
-----------
942,564
-----------
CORPORATE BONDS - 16.9%
FINANCE - 6.8%
AA- 60 Associates Corp. of North America, 6,75%, 07/15/97 61,036
BBB+ 400 Crestar Financial Corporation, 8.25%, 07/15/02 445,318
A- 300 Donaldson, Lufkin & Jenrette Corporation, 6.88%, 11/01/05 307,018
A 250 Equitable Life Assurance Company, 7.70%, 12/01/15 253,576
BBB 300 First Security Corporation, 7.00%, 07/15/05 312,979
A+ 300 Liberty Mutual Capital Corporation, 8.50%, 05/15/25 333,580
BBB- 350 Meditrust, 7.381/%, 07/15/00 361,065
AA 400 Metropolitan Life Insurance Company, 6.30%, 11/01/03 394,693
BBB 450 Salomon Brothers, 6.700/%, 12/01/98 454,057
A- 100 Smith Barney Holdings, Incorporated, 5.38%, 06/01/96 99,818
A- 100 Southtrust Bank Atlanta Georgia NA, Tranche SB 00001,
7.74%, 05/15/25 110,000
-----------
3,133,140
-----------
INDUSTRIALS - 8.0%
BBB 500 Burlington Northern Santa Fe Corporation, 7.00%, 12/15/25 500,216
A 100 Caterpillar Financial Services, 8.72%, 07/21/97 104,609
BBB- 250 Centex Corporation, 7.38%, 06/01/05 256,803
A 100 Ford Capital Bv., 9.13%, 04/08/96 100,955
A- 650 General Motors Acceptance Corporation, 6.45%, 11/13/02 662,623
BBB 250 ITT Corporation, 6.25%, 11/15/00 251,563
BBB 275 Nabisco Incorporated, 7.55%, 06/15/15 285,685
BBB 450 News America Holdings, 7.75%, 12/01/45 455,352
BBB- 350 RJR Nabisco Industrial, 8.75%, 07/15/07 355,383
BBB 700 Sears Roebuck Acceptance Corporation, 6.19%, 11/30/00 706,244
-----------
3,679,433
-----------
SOVEREIGN & PROVINCIAL - 1.2%
BBB+ 200 Newfoundland and Labrador Province, 8.65%, 10/22/22 238,384
AA 350 Republic OF Italy, 6.88%, 09/27/23 340,622
-----------
579,006
-----------
UTILITY - 0.9%
Niagara Mohawk Power,
BB 150 7.750/%, 5/15/06 144,201
BB 300 8.000/%, 6/01/04 291,301
-----------
435,502
-----------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
The BFM Institutional TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Rating* (000) DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
ASSET-BACKED SECURITIES - 6.6%
BBB- $ 300 CIT Group Securitization Corporation,
Series 1995-2, Class B, 7.65%, 05/15/26 $ 303,047
Green Tree Financial Corporation,
AA 400 Series 1993-1, Class A3, 6.90%, 04/15/18 415,000
AA 600 Series 1993-4, Class A4, 6.60%, 01/15/19 612,375
AA 400 Series 1994-5, Class A4, 7.95%, 11/15/19 430,500
BBB+ 600 Series 1995-7, Class B1, 7.35%, 11/15/26 614,250
Aaa 300 Merrill Lynch Mortgage Investors Incorporated,
Series 1992-D, Class A3, 7.75%, 07/15/17 312,000
AAA 350 National Credit Card Trust,
Series 1989-4, Class A, 9.45%, 12/31/97 355,688
-----------
3,042,860
-----------
U.S. GOVERNMENT SECURITIES - 41.6%
U.S. Treasury Bonds,
6,065 6.88%, 08/15/25 6,840,168
695 7.63%, 02/15/25 849,853
U.S. Treasury Notes,
1,800 5.38%, 11/30/97 1,805,904
6,650 5.63%, 06/30/97 6,691,562
300 5.63%, 11/30/00 302,718
700 5.88%, 11/15/05 715,750
350 7.25%, 02/15/98 363,944
850 7.50%, 02/15/05 963,424
400 7.75%, 12/31/99 434,064
200 7.75%, 02/15/01 220,844
-----------
19,188,231
-----------
TOTAL LONG-TERM INVESTMENTS(COST $40,415,967) 41,168,562
-----------
SHORT-TERM INVESTMENT - 5.6%
DISCOUNT NOTE(A) - 5.6%
2,600 Federal Home Loan Bank, 5.75%, 01/02/96 (Cost $2,600,000) 2,600,000
-----------
TOTAL INVESTMENTS (COST $43,015,967) - 94.8% 43,768,562
OTHER ASSETS IN EXCESS OF LIABILITIES - 5.2% 2,392,332
-----------
NET ASSETS - 100% $46,160,894
===========
</TABLE>
- --------------------------------------------------------------------------------
* Using the higher of Standard & Poor's or Moody's rating.
(a) Security was purchased on a discount basis, the interest rate shown has
been adjusted to reflect a money market equivalent.
Key to Abbreviations
ARM: Adjustable Rate Mortgage.
CMT: Constant Maturity Treasury.
I: Denotes a CMO with interest only characteristics.
P: Denotes a CMO with principal only characteristics.
REMIC: Real Estate Mortgage Investment Conduit.
See Notes to Financial Statements.
11
<PAGE>
The BFM Institutional Trust Inc.
Statements of Assets and Liabilities
December 31,1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Short The Core Fixed
Duration Portfolio Income Portfolio
------------ ------------
<S> <C> <C>
Assets
Investments, at value (cost $53,628,041 and
$43,015,967, respectively)(Note 1) $53,774,752 $43,768,562
Cash 147,788 17,884
Receivable for investments sold 3,373 2,512,941
Receivable for principal paydowns 132,426 23,089
Interest receivable 518,749 625,809
Receivable due from Adviser 10,829 19,357
Receivable for Fund share sold 1,005,000 8,950
Deferred organization expenses and
other assets(Note 1) 35,553 21,856
------------ ------------
55,628,470 46,998,448
------------ ------------
Liabilities
Reverse repurchase agreement payable(Note 4) 4,522,500 --
Payable for investments purchased -- 719,430
Dividends payable 140,024 29,460
Interest payable 3,674 --
Advisory fee payable 61,442 67,651
Administration fee payable 26,239 10,894
Other accrued expenses and liabilities 34,603 10,119
------------ ------------
4,788,482 837,554
------------ ------------
Net Assets $50,839,988 $46,160,894
============ ============
Net assets were comprised of :
Common stock, at par(Note 5) $513 $458
Paid-in capital in excess of par 50,672,882 44,978,412
------------ ------------
50,673,395 44,978,870
Accumulated(distributions in excess of) net inv 8,247 (514)
Accumulated net realized gain 11,635 429,943
Net unrealized appreciation on investments 146,711 752,595
------------ ------------
Net assets, December 31,1995 $50,839,988 $46,160,894
============ ============
Net asset value per share $9.92 $10.08
============ ============
Total shares outstanding at end of period 5,126,103 4,577,654
============ ============
- ------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
The BFM Institutional Trust Inc.
Statements of Operations
For the Six Months Ended December 31,1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Short The Core Fixed
Duration Portfolio Income Portfolio
------------------ --------------
<S> <C> <C>
Net Investment Income
Income
Interest(net of premium amortization of $20,340 and $8,792
and interest expense of $90,383 and $26,115,
respectively) $1,270,505 $1,303,356
------------ --------------
Expenses
Investment advisory 61,444 67,763
Administration 19,498 18,432
Custodian 2,294 2,169
Transfer Agent 6,882 6,505
Audit 4,364 3,872
Legal 3,016 1,936
Amortization of deferred organization expenses 11,620 7,744
Printing 5,279 3,872
Directors 1,257 1,936
Registration 8,295 7,744
Miscellaneous 3,624 3,891
------------ --------------
Total expenses 127,573 125,864
Expenses waived by the adviser(Note 2) (10,829) (19,357)
------------ --------------
Net expenses 116,744 106,507
------------ --------------
Net investment income 1,153,761 1,196,849
------------ --------------
Realized and Unrealized Gain(Loss)
on Investments(Note 3)
Net realized gains on investments 507,901 1,043,149
Net change in unrealized appreciation(depreciation) (37,191) 347,218
------------ --------------
Net gain on investments 470,710 1,390,367
------------ --------------
Net Increase In Net Assets Resulting from Operations $1,624,471 $2,587,216
============ ==============
- -------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
The BFM Institutional Trust Inc.
Statements of Cash Flows
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Short The Core Fixed
Duration Portfolio Income Portfolio
------------------ ----------------
For the Six For the Six
Months Ended Months Ended
December 31, 1995 December 31, 1995
(unaudited) (unaudited)
------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows used for operating activities
Interest received $1,237,911 $1,088,951
Expenses paid (46,676) (62,208)
Interest expense (90,383) (26,115)
Proceeds (purchase of) from disposition of
short-term portfolio investments, net (5,291,859) 1,830,000
Purchase of long-term portfolio investments (167,927,373) (149,049,751)
Proceeds from disposition of long-term
portfolio investments 174,464,350 134,854,523
----------- ------------
Net cash flows used for operating activities 2,345,970 (11,364,600)
----------- ------------
Cash flows provided by financing activities:
Decrease in reverse repurchase agreements (6,691,275) ---
Dividends paid(excluding reinvestment of
dividends of $783,339 and $1,412,190,
respectively) (397,482) (193,734)
Proceeds from Trust shares sold 27,925,299 14,171,623
Cost of Trust shares redeemed (23,672,409) (2,598,100)
----------- ------------
Net cash flows provided by financing activities (2,835,867) 11,379,789
----------- ------------
Net increase (decrease) in cash (489,897) 15,189
Cash at beginning of year 637,685 2,695
----------- ------------
Cash at end of period $147,788 $17,884
=========== ============
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH FLOWS
PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net increase in net assets resulting from operations $1,624,471 $2,587,216
----------- ------------
Increase in investments (9,458,723) (6,814,214)
Net realized gain (507,901) (1,043,149)
Increase in unrealized (appreciation) depreciation 37,191 (347,218)
(Increase) decrease in receivable for investments
sold 13,225,759 (2,536,030)
Increase in interest receivable (122,977) (240,520)
Decrease in deferred organization expenses and other
assets 12,057 6,305
Increase in payable for investments purchased (2,521,918) (3,014,984)
Increase in accrued expenses and other liabilities 58,011 37,994
----------- ------------
Total adjustments 721,499 (13,951,816)
----------- ------------
Net cash flows used for operating activities $2,345,970 ($11,364,600)
=========== ============
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
The BFM Institutional Trust Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Short Duration Portfolio
----------------------------
Six Months
Ended Year
December 31,1995 Ended
(Unaudited) June 30,1995
-------------------------------------- -----------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 1,153,761 $ 2,082,671
Net realized gain 507,901 163,516
Net change in unrealized appreciation(depreciation) (37,191) 745,207
------------ ------------
Net increase in net assets resulting from operations 1,624,471 2,991,394
------------ ------------
Dividends and distributions from:
Net investment income (1,147,415) (2,092,080)
Paid-in capital (164,529) --
Net realized gain -- (27,706)
------------ -------------
(1,311,944) (2,119,786)
------------ -------------
Capital share transactions:
Proceeds from shares subscribed 28,930,299 35,832,684
Cost of Shares redeemed (23,672,409) (25,455,008)
Net asset value of shares issued from reinvestment of dividends 783,339 1,972,138
------------ ------------
Increase in net assets from capital share transactions 6,041,229 12,349,814
------------ ------------
Total increase 6,353,756 13,221,422
Net Assets
Beginning of period 44,486,232 31,264,810
------------ ------------
End of period $ 50,839,988 $ 44,486,232
============ ============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
The BFM Institutional Trust Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Core Fixed Income Portfolio
-------------------------------
Six Months
Ended Year
December 31,1995 Ended
(Unaudited) June 30,1995
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $1,196,849 $1,075,779
Net realized gain 1,043,149 234,212
Net change in unrealized appreciation 347,218 840,392
----------- -----------
Net increase in net assets resulting from operations 2,587,216 2,150,383
----------- -----------
Dividends and distributions from:
Net investment income (1,197,363) (1,083,760)
Net realized gain (414,426) (9,414)
----------- -----------
(1,611,789) (1,093,174)
----------- -----------
Capital share transactions:
Proceeds from shares subscribed 14,180,573 18,993,483
Cost of shares redeemed (2,598,100) (1,362,388)
Net asset value of shares issued from reinvestment of dividends 1,412,190 995,146
----------- -----------
Increase in net assets from capital share transactions 12,994,663 18,626,241
----------- -----------
Total increase 13,970,090 19,683,450
Net Assets
Beginning of period 32,190,804 12,507,354
----------- -----------
End of period $46,160,894 $32,190,804
=========== ===========
- -------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
The BFM Institutional Trust Inc.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Short Duration Portfolio
-------------------------------------------------------------
Six Months
Ended Year Year July 17,1992(a)
December 31, 1995 Ended Ended Through
(Unaudited) June 30,1995 June 30,1994 June 30,1993
--------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $ 9.83 $ 9.71 $ 9.96 $ 10.00
Net investment income(net of $.020,
$.014, $.0ll and $.005 respectively, of
interest expense)(b) 0.25 0.58 0.48 0.51
Net realized and unrealized gain
(loss) on investments 0.16 0.13 (0.25) (0.06)
Net increase from investment operations 0.41 0.71 0.23 0.45
Dividends from net investment income (0.28) (0.58) (0.48) (0.49)
Distributions from net realized capital gains (0.01)
Return of capital (0.04) -
Total dividends and distributions (0.32) (0.59) (0.48) (0.49)
Net asset value, end of period $ 9.92 $ 9.83 $ 9.71 $ 9.96
TOTAL INVESTMENT RETURN(C) 4.19% 6.99% 2.33% 4.63%
RATIOS TO AVERAGE NET ASSETS:
Expenses(b) 0.57% (d) 0.57% 0.57% 0.56% (d)
Net investment income(b) 5.62% (d) 6.08% 4.70% 5.32% (d)
SUPPLEMENTAL DATA:
Average net assets (in thousands) $40,740 $34,236 $36,686 $67,540
Portfolio turnover 355% 586% 455% 513%
Net assets, end of period (in thousands) $50,840 $44,486 $31,265 $51,611
</TABLE>
(a) Commencement of investment operations.
(b) The Adviser waived fees amounting to $10,829, $102,707 and $110,232 and
reimbursed expenses amounting $0, $61,195 and $55,582 for the periods ended
December 31,1995, June 30, 1995 and June 30, 1994 , respectively. For the
period July 17, 1992 through June 30,1993, the Administrator waived fees
amounting to $64,580. If the Fund had borne all expenses, the expense
ratios would have been 0.62%, 1.05%, 1.02% and 0.66% for the periods ended
December 31,1995, June 30,1995, June 30, 1994 and June 30, 1993,
respectively. The net investment ratios would have been 5.57%, 5.60%,
4.25% and 5.22% for the periods ended December 31, 1995, June 30, 1995,
June 30, 1994 and June 30, 1993, respectively. The net investment on a per
share basis would have been $0.25, $0.53, $0.43 and $0.49 for the periods
ended December 31,1995, June 30, 1995, June 30, 1994 and June 30, 1993,
respectively.
(c) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset
value per share on the last day of the period reported. Dividends are
assumed, for purposes of this calculation, to be reinvested at the net
asset value per share on the payment date.
(d) Annualized
The information above represents unaudited operating performance based on an
average share of common stock outstanding, total investment return, ratios to
average net assets and other supplemental data, for each of the periods
indicated. This information has been determined based upon financial
information provided in the financial statements.
See Notes to Financial Statements.
17
<PAGE>
The BFM Institutional Trust Inc.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Core Fixed Income Portfolio
-------------------------------------------------------------
Six Months
Ended Year Year December 9,1992(a)
December 31, 1995 Ended Ended Through
(Unaudited) June 30,1995 June 30,1994 June 30,1993
--------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $ 9.85 $ 9.36 $ 10.37 $ 10.00
Net investment income(net of $.007,
$.004, $.003 and $.001 respectively, of
interest expense)(b) 0.29 0.62 0.55 0.32
Net realized and unrealized gain
(loss) on investments 0.34 0.50 (0.60) 0.37
Net increase(decrease) from investment operations 0.63 1.12 (0.05) 0.69
Dividends from net investment income (0.31) (0.62) (0.55) (0.32)
Distributions from net realized capital gains (0.09) (0.01) (0.41) -
Total dividends and distributions (0.40) (0.63) (0.96) (0.32)
Net asset value, end of period $ 10.08 $ 9.85 $ 9.36 $ 10.37
TOTAL INVESTMENT RETURN(C) 6.54% 11.79% (0.69%) 6.88%
RATIOS TO AVERAGE NET ASSETS:
Expenses(b) 0.55% (d) 0.55% 0.55% 0.55% (d)
Net investment income(b) 6.16% (d) 6.62% 5.61% 5.57% (d)
SUPPLEMENTAL DATA:
Average net assets (in thousands) $38,511 $16,247 $ 9,702 $ 6,622
Portfolio turnover 359% 435% 722% 354%
Net assets, end of period (in thousands) $46,161 $32,191 $ 12,507 $ 7,803
</TABLE>
(a) Commencement of investment operations.
(b) The Adviser waived fees amounting to $19,357, $56,894, $34,010 and $24,761
and reimbursed expenses amounting $0, $137,364, $137,179 and $0 for the
periods ended December 31,1995, June 30, 1995, June 30, 1994 and June 30,
1993, respectively. The Administrator waived fees amounting to $32,500 and
$3,701 for the periods ended June 30,1994 and June 30, 1993, respectively
For the period ended June 30, 1993, the Custodian and the Transfer Agent
waived fees amounting to $24,272 and $17,283, respectively. If the Fund
had borne all expenses, the expense ratios would have been 0.65%, 1.75%,
2.65% and 2.44% for the periods ended December 31,1995, June 30,1995, June
30, 1994 and June 30, 1993, respectively. The net investment ratios would
have been 6.06%, 5.43%, 3.51 % and 3.68% for the periods ended December 31,
1995, June 30, 1995, June 30, 1994 and June 30, 1993, respectively. The
net investment on a per share basis would have been $0.28, $0.51, $0.34 and
$0.22 for the periods ended December 31,1995, June 30, 1995, June 30, 1994
and June 30, 1993, respectively.
(c) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset value
per share on the last day of the period reported. Dividends are assumed,
for purposes of this calculation, to be reinvested at the net asset value
per share on the payment date.
(d) Annualized
The information above represents unaudited operating performance based on an
average share of common stock outstanding, total investment return, ratios to
average net assets and other supplemental data, for each of the periods
indicated. This information has been determined based upon financial information
provided in the financial statements.
See Notes to Financial Statements.
18
<PAGE>
THE BFM INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
__________________________________________________________________________
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
The BFM Institutional Trust Inc. (the "Trust") is a no-load, open-end
management investment company organized as a Maryland corporation. The Articles
of Incorporation permit the Board of Directors to create an unlimited number of
series (or "Portfolios"), each of which issues a separate class of shares and
has its own investment objective and policies. The Trust was formed on November
27, 1991 and had no operations through June 18, 1992 other than those related to
organizational matters and the sale and issuance of 10,000 shares of The Short
Duration Portfolio to BlackRock Financial Management Inc. (the "Advisor") for
$100,000 on June 18, 1992. The Short Duration Portfolio and The Core Fixed
Income Portfolio commenced investment operations on July 17, 1992 and December
9, 1992, respectively. On October 6, 1994, The BFM Institutional Trust Inc.,
Multi-Sector Mortgage Securities Portfolio III commenced investment operations
and is being shown in a separate report.
The Adviser has advanced certain organizational and offering expenses of
the Trust and is to be reimbursed by the Trust. Organizational costs estimated
at $282,000 have been deferred. $115,250 and $57,500 have been allocated to The
Short Duration Portfolio and to The Core Fixed Income Portfolio, respectively,
and are being amortized over a period not to exceed 60 months from the date each
Portfolio commenced investment operations. In the event that any of the original
shares owned by the Adviser (or any subsequent holder) are repurchased by the
Trust prior to the end of the 60-month period, the proceeds from the repurchase
payable in respect of such shares shall be reduced by the pro rata share (based
on the proportionate share of the original shares repurchased to the total
number of original shares outstanding at the time of repurchase) of the
unamortized deferred organization expenses as of the date of such repurchase. In
the event that a Portfolio is liquidated prior to the end of the 60-month
period, the Adviser (or any subsequent holder) shall bear the remaining
unamortized deferred organization expenses.
The following is a summary of significant accounting policies followed by
the Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships observed in the
market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business.
A futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determine that such price does not reflect its fair value, in which case it will
be valued at its fair value as determined by the Trust's Board of Directors.
Any securities or other assets for which such current market quotations are not
readily available are valued at fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the
19
<PAGE>
Trust's Board of Directors.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or
less are valued at amortized cost, if their term to maturity from date of
purchase was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original term to maturity from date of purchase exceeded
60 days.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults
and the value of the collateral declines or if bankruptcy proceedings are
commenced with respect to the seller of the security, realization of the
collateral by the Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to
the proceeds from the sale or cost of the purchase in determining whether the
Trust has realized a gain or a loss on investment transactions. The Trust, as
writer of an option, may have no control over whether the underlying securities
may be sold (call) or purchased (put) and as a result bears the market risk of
an unfavorable change in the price of the security underlying the written
option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
"five" would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively hedge
more volatile positions so that changes in interest rates do not change the
duration of the portfolio unexpectedly. In general, the Trust uses options to
hedge a long or short position or an overall portfolio that is longer or shorter
than the benchmark security. A call option gives the purchaser of the option the
right (but not obligation) to buy, and obligates the seller to sell (when the
option is exercised), the underlying position at the exercise price at any time
or at a specified time during the option period. A put option gives the holder
the right to sell and obligates the writer to buy the underlying position at the
exercise price at any time or at a specified time during the option period. Put
options can be purchased to effectively hedge a position or a portfolio against
price declines if a portfolio is long. In the same sense, call options can be
purchased to hedge a portfolio that is shorter than its benchmark against price
changes. The Trust can also sell (or write) covered call options and put options
to hedge portfolio positions.
The main risk that is associated with purchasing options is that the option
expires without being exercised. In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego
20
<PAGE>
the opportunity for a profit if the market value of the underlying position
increases and the option is exercised. The risk in writing put options is that
the Trust may incur a loss if the
market value of the underlying position decreases and the option is exercised.
In addition, as with futures contracts, the Trust risks not being able to enter
into a closing transaction for the written option as the result of an illiquid
market.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy or sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period that the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. Duration is a measure of the price
sensitivity of a security or a portfolio to relative changes in interest rates.
For instance, a duration of "one" means that a portfolio's or a security's price
would be expected to change by approximately one percent with a one percent
change in interest rates, while a duration of "five" would imply that the price
would move approximately five percent in relation to a one percent change in
interest rates. In the same sense, futures contracts can be purchased to
lengthen a portfolio that is shorter than its duration target. Thus, by buying
or selling futures contracts, the Trust can effectively "hedge" more volatile
positions so that changes in interest do not change the duration of the
portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities or securities the Trust
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates, or for risk management, duration management or
other portfolio management purposes. Should interest rates move unexpectedly,
the Trust may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss. The use of futures transactions involves the
risk of imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets. The Trust is also at risk of
not being able to enter into a closing transaction for the futures contract
because of an illiquid secondary market. In addition, since futures are used to
shorten or lengthen a portfolio's duration, there is a risk that the portfolio
may have temporarily performed better without the hedge or that the Trust may
lose the opportunity to realize appreciation in the market price of the
underlying positions.
SHORT SALES: The Trust may make short sales of securities as a method of hedging
to offset potential price declines in similar securities owned. The Trust may
only make short sales "against-the-box". In this type of short sale, at the time
of the sale, the Trust owns or has the immediate and unconditional right to
acquire the identical security at no additional cost. When selling short
"against-the-box", the Trust foregoes an opportunity for capital appreciation in
the security.
SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned.
21
<PAGE>
The Trust may bear the risk of delay in recovery of, or even loss of rights in,
the securities loaned should the borrower of the securities fail financially.
The Trust also receives compensation for lending its securities in the form of
interest on the loan. The Trust continues to receive interest on the securities
loaned, and any gain or loss in the market price of the securities loaned that
may occur during the term of the loan will be for the account of the Trust. The
Trust did not engage in securities lending during the six months ended December
31, 1995.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains or losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and Trust accretes premium or amortizes discount on securities
purchased using the interest method.
TAXES: It is the Trust's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of it taxable income to shareholders. Therefore,
no federal income or excise tax provision is required.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares dividends daily and pays
dividends and distributions monthly first from net investment income, then from
net realized short-term capital gains and other sources, if necessary. Net
long-term capital gains, if any, in excess of loss carryforwards are distributed
at least annually. Dividends and distributions are recorded on the ex-dividend
date. Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for mortgage-backed securities.
DEFERRED ORGANIZATION EXPENSE: A total of $115,250 and $57,500 were incurred in
connection with the organization of The Short Duration Portfolio and The Core
Fixed Income Portfolio, respectively. These costs have been deferred and are
being amortized ratably over a period of 60 months from the date each Portfolio
commenced investment operations.
NOTE 2. AGREEMENTS
The Trust has an Investment Advisory Agreement with the Adviser which
provides that The Short Duration Portfolio and The Core Fixed Income Portfolio
will pay to the Advisor for its services a monthly fee in an amount equal to
.30% and .35%, respectively, of average daily net assets on an annualized basis.
The Adviser has agreed to waive a portion of its advisory fee from The Short
Duration Portfolio to the extent that the expenses of the Portfolio exceed .57%
of average daily net assets. For the six months ended December 31, 1995, the
Advisor waived fees of $10,829 from The Short Duration Portfolio. The Advisor
has agreed to waive a portion of its advisory fee from The Core Fixed Income
Portfolio to the extent that the expenses of the Portfolio exceed .55% of
average daily net assets. For the six months ended December 31, 1995, the
Advisor waived fees of $19,357 from The Core Fixed Income Portfolio. The Trust
has also entered into an Administration, Transfer Agent and Custodian Agreement
with PFPC Inc. (A wholly owned corporate subsidiary of PNC Bank, N.A.) and PNC
Bank N.A. PFPC and PNC Bank N.A. will receive an annual fee of .14% of each
Portfolio's average daily net asset value.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust, who
are affiliated persons of the
22
<PAGE>
Adviser. The Trust bears all other costs and expenses. The Advisor has agreed
that, in any fiscal year, it will reimburse the Trust for expenses (including
the fees of the Adviser and amortization of organization expenses but excluding
taxes, interest, brokerage fees, commissions, litigation and indemnification
expenses and other extraordinary expenses) that exceed the most restrictive
expense limitation imposed by state securities commissions. The most
restrictive expense limitation is 2 1/2% of the average value of the Trust's
net assets during the year up to $30 million, 2% of the next $70 million of
average net assets and 1 1/2% thereafter. Such expense reimbursement, if any,
will be estimated and accrued daily. No expense reimbursement was required due
to such limitation for the six months ended December 31, 1995.
The Trust has entered into a Distribution Agreement with Provident
Distributors, Inc. (the "Distributor"). Pursuant to the terms of the
Distribution Agreement, the Distributor serves as the principal underwriter and
distributor of the Trust's shares, and in that capacity makes a continuous
offering of the Trust's shares and bears the costs and expenses of printing and
distributing any copies of any prospectuses and annual and interim reports for
the Trust (after such items have been prepared and set in type) which are used
in connection with the offering of shares to securities dealers or investors,
and the cost and expenses of preparing, printing and distributing any other
literature used by the Distributor or furnished by it for use by securities
dealers in connection with the offering of the shares for sale to the public.
There is no fee payable by the Trust pursuant to the Distribution Agreement, and
there is no sales or redemption charge. The Distribution Agreement provides for
indemnification by the Trust of the Distributor, its partners, employees, agents
and affiliates for liabilities incurred by them in connection with their
services to the Trust, subject to certain limitations and conditions. The
continuance of the Distribution Agreement must be approved in the same manner as
the Investment Advisory Agreement, and the Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable with respect
to any Portfolio at any time without penalty by the Rule 12b-1 Directors (as
defined below) or by vote of a majority of the outstanding shares of the
Portfolio (as such term is defined in the Investment Company Act) on not more
than 60 days' nor less than 30 days' written notice to the Distributor and by
the Distributor on like notice to the Trust.
The Trust has adopted a Distribution and Stockholder Servicing Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act pursuant to
which the Adviser is permitted to use a portion of the advisory fee it receives
from the Trust to promote the distribution of the Trust's shares and to enhance
the provision of stockholder services. The Plan was approved by a majority of
(I) the directors of the Trust and (ii) the directors of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan
(Rule 12b-1 Directors). The Plan permits the Adviser to pay fees to the
Distributor. The Trust is not required or permitted under the Plan to make
payments over and above the amount of the advisory fee to promote the sale of
its shares; the Plan merely permits the reallocation of a portion of the
advisory fee the Adviser receives to pay for distribution-related activities.
From amounts received by it under the Plan, the Distributor is authorized
to make payments to securities dealers with which the Distributor has entered
into solicitation fee agreements. The Distributor may also use a portion of the
fee it receives under the Plan to cover the Distributor's cost of marketing
services and advertising on behalf of the Portfolios and to compensate
institutions who perform support services that would otherwise be performed by
the Trust or its agent. These support services may include providing such
office space, equipment, telephone facilities and various personnel as may be
necessary or beneficial to establish and maintain
23
<PAGE>
stockholders' accounts and records, process purchase and redemption
transactions, answer routine client inquiries and provide such other services to
the Trust as may reasonably be requested.
The Plan will continue from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority vote of the Rule 12b-1 Directors, cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated with respect to any Portfolio at any time, without penalty, by the
vote of a majority of the Rule 12b-1 Directors or by the vote of the holders of
a majority of the outstanding shares of the Portfolio. The Plan may not be
amended materially without the approval of the Board of Directors, including a
majority of the Rule 12b-1 Directors, cast in person at a meeting called for
that purpose. Any modification to the Plan which would materially increase the
amount of money to be spent by a Portfolio must also be submitted to the
stockholders of the Portfolio for approval.
Certain directors of the Trust who are not interested parties are paid a
fee for their services in the amount of $2,500 on an annual basis.
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments and dollar rolls, for each Portfolio for the six months ended
December 31, 1995 were as follows:
PURCHASES SALES
---------- -----
The Short Duration Portfolio.......$165,414,629 $157,718,667
The Core Fixed Income Portfolio....$146,079,993 $136,625,990
The federal income tax basis of the investments of The Short Duration
Portfolio at December 31, 1995 was substantially the same as the basis for
financial reporting. The federal income tax basis of the investments of The Core
Fixed Income Portfolio at December 31, 1995 was $43,016,687. Accordingly, net
unrealized appreciation (depreciation) for federal income tax purposes were as
follows:
<TABLE>
<CAPTION>
Net unrealized
Gross Unrealized Appreciation
Appreciation Depreciation (Depreciation)
---------------- ------------- --------------
<S> <C> <C> <C>
The Short Duration Portfolio..... $191,096 $(44,385) $146,711
The Core Fixed Income Portfolio.. 827,372 (75,497) 751,875
</TABLE>
For federal income tax purposes, The Short Duration Portfolio had a capital
loss carryforward at June 30, 1995 of $258,570 which will expire in 2002. The
Core Fixed Income Portfolio had a capital loss carryforward at June 30, 1995 of
$181,115 which will expire in 2003. A tax election is available to defer part or
all of these losses to the fiscal year ending June 30, 1996. Accordingly, no
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of such amounts.
NOTE 4. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
Reverse Repurchase Agreements: The Trust may enter into reverse repurchase
agreements with
24
<PAGE>
qualified, third party broker-dealers as determined by and under the direction
of the Trust's Board of Directors. Interest on the value of reverse repurchase
agreements issued and outstanding will be based upon competitive market rates at
the time of issuance. At the time the Trust enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with the lender
containing the value of which at least equals the principal amount of the
reverse repurchase transaction, including accrued interest.
The average daily balance of reverse repurchase agreements outstanding in
The Short Duration Portfolio during the six months ended December 31, 1995 was
approximately $3,030,000 at a weighted average interest rate of approximately
5.79%. The maximum amount of reverse repurchase agreements outstanding at any
month-end during the period was $4,970,000 as of October 31, 1995 which was
10.66% of total assets. There was $4,522,500 of reverse repurchase agreements
outstanding at December 31, 1995. The average daily balance of reverse
repurchase agreements outstanding in The Core Fixed Income Portfolio during the
six months ended December 31, 1995 was approximately $888,000 at a weighted
average interest rate of approximately 5.68%. The maximum amount of reverse
repurchase agreements outstanding at any month-end during the period was
$1,299,500 as of October 31, 1995 which was 2.98% of total assets. There was no
reverse repurchase agreements outstanding at December 31, 1995.
Dollar Rolls: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date.
The average monthly balance of dollar rolls outstanding in The Core Fixed
Income Portfolio during the six months ended December 31, 1995 was $1,166,667.
The maximum amount of dollar rolls outstanding at any month-end during the
period was $2,500,000 as of September 30, 1995 which was 6.74% of total assets.
There were no dollar rolls outstanding at December 31, 1995. There were no
dollar rolls for the six months ended December 31, 1995 for The Short Duration
Portfolio.
NOTE 5. CAPITAL
The Trust is authorized to issue 2 billion shares of $.0001 par value
capital stock in one or more classes or series. The Short Duration Portfolio
and The Core Fixed Income Portfolio are each authorized to issue 100 million
shares. Of the 5,126,103 shares of The Short Duration Portfolio outstanding at
December 31, 1995, the Advisor owned 12,098 shares. Of the 4,577,654 shares of
The Core Fixed Income Portfolio outstanding at December 31, 1995, the Advisor
owned 2 shares. Transactions in shares were as follows:
25
<PAGE>
<TABLE>
<CAPTION>
The Short Duration Portfolio
----------------------------
Six Months Year
Ended Ended
December 31, 1995 June 30, 1995
----------------- -------------
<S> <C> <C>
Shares subscribed.................................. 2,930,229 3,732,764
Shares issued in connection with the reinvestment
of dividends....................................... 79,392 202,717
---------- ----------
3,009,621 3,935,481
Shares redeemed.................................... (2,408,003) (2,629,898)
---------- ----------
Net Increase....................................... 601,618 1,305,583
========== ==========
<CAPTION>
The Core Fixed Income Portfolio
-------------------------------
Six Months Year
Ended Ended
December 31, 1995 June 30, 1995
----------------- -------------
<S> <C> <C>
Shares subscribed.................................. 1,428,155 1,971,644
Shares issued in connection with the reinvestment
of dividends and distributions..................... 141,649 104,932
---------- ----------
1,569,804 2,076,576
Shares redeemed.................................... ( 259,602) ( 145,220)
---------- ----------
Net Increase....................................... 1,310,202 1,931,356
========== ==========
</TABLE>
NOTE 6. DIVIDENDS AND DISTRIBUTIONS
Subsequent to December 31,1995 the Board of Directors of the Trust
declared a dividend from undistributed earnings of $0.01581 and $0.01750 per
share for The Short Duration Portfolio and The Core Fixed Income Portfolio,
respectively, payable January 12, 1996 to shareholders of record on January 12,
1996. The Board of Directors of the Trust also declared a distribution from
undistributed short-term capital gains of $0.0114 and $0.1003 per share for The
Short Duration Portfolio and The Core Fixed Income Portfolio, respectively,
payable January 12, 1996 to shareholders of record on January 12, 1996.
NOTE 7. SUBSEQUENT EVENT
On September 28, 1995 and September 29, 1995, respectively, the Board
of Directors of the Trust and the Board of Directors of the PNC Fund ("PNC"),
including all of the non-interested members of each Board, approved an asset
purchase agreement between two investment portfolios, PNC and The Short Duration
Portfolio and The Core Fixed Income Portfolio. The agreement, which was approved
by Trust shareholders on December 20, 1995, provides for acquisition by PNC of
all the assets and liabilities of The Short Duration Portfolio and The Core
Fixed Income Portfolio in exchange for Institutional Shares of the PNC Short-
Term Bond Portfolio and PNC Core Bond Portfolio, respectively, and the
distribution of these PNC Shares to the shareholders of The Short Duration
Portfolio and The Core Fixed Income Portfolio in liquidation of the Portfolios.
The acquisition occurred on January 12, 1996, at which
26
<PAGE>
time the PNC Short-Term Bond and PNC Core Bond Portfolios acquired the assets of
The Short Duration Portfolio and The Core Fixed Income Portfolio, respectively,
at which time PNC was renamed Compass Capital Fund and the PNC Short-Term Bond
and PNC Core Bond Portfolios were renamed Compass Capital Funds Short Government
Portfolio and Core Bond Portfolios, respectively.
27
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
<TABLE>
<S> <C>
ADJUSTABLE RATE Mortgage instruments with interest rates that adjust at
MORTGAGE-BACKED periodic intervals at a fixed amount relative to the market
SECURITIES (ARMS): levels of interest rates as reflected in specified indexes.
ARMS are backed by mortgage loans secured by real property.
ASSET-BACKED Securities backed by various types of receivables such
SECURITIES: as automobile and credit card receivables.
COLLATERALIZED Mortgage-backed securities which separate mortgage
MORTGAGE pools into short-medium-, and long-term securities with
OBLIGATIONS (CMOS): different priorities for receipt of principal and interest.
Each class is paid a fixed or floating rate of interest at
regular intervals. Also known as multiple-class mortgage
pass-throughs.
DIVIDEND: This is income generated by securities in a portfolio and distributed
to shareholders after the deduction of expenses. This Trust declares
dividends daily and pays dividends on a monthly basis.
DIVIDEND
REINVESTMENT: Shareholders may elect to have all distributions of
dividends and capital gains automatically reinvested into additional
shares of the Trust.
FHA: Federal Housing Administration, a government agency that facilitates a
secondary mortgage market by providing an agency that guarantees timely
payment of interest and principal on mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a publicly owned, federally
chartered corporation that facilitates a secondary mortgage market by
purchasing mortgages from lenders such as savings institutions and reselling
them to investors by means of mortgage-backed securities. Obligations of FHLMC
are not guaranteed by the U.S. government, however; they are backed by FHLMC's
authority to borrow from the U.S. government. Also known as Freddie Mac.
FNMA: Federal National Mortgage Association, a publicly owned, federally
chartered corporation that facilitates a secondary mortgage market by
purchasing mortgages from lenders such as savings institutions and reselling
them to investors by means of mortgage-backed securities. Obligations of FNMA
are not guaranteed by the U.S. government, however; they are backed by FNMA's
authority to borrow from the U.S. government. Also known as Fannie Mae.
GNMA: Government National Mortgage Association, a government agency that
facilitates a secondary mortgage market by providing an agency that guarantees
timely payment of interest and principal on mortgages. GNMA's obligations are
supported by the full faith and credit of the U.S. Treasury. Also known as
Ginnie Mae.
</TABLE>
28
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
<TABLE>
<S> <C>
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S. government,
or one of its agencies or instrumentalities, such as GNMA (Government National
Mortgage Association), FNMA (Federal National Mortgage Association) and FHLMC
(Federal Home Loan Mortgage Corporation).
INTEREST-ONLY SECURITIES Mortgage securities that receive only the interest
(I/O): cash flows from an underlying pool of mortgage loans or underlying pass-through
securities. Also known as a Strip.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in which the Trust sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (although not the same) securities on a specified
future date. During the "roll" period, the Trust does not receive principal and
interest payments on the securities, but is compensated for giving up these payments
by the difference in the current sales price (for which the security is sold) and
lower price that the Trust pays for the similar security at end date as well as the
interest earned on the cash proceeds of the initial sale.
MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by Fannie Mae, Freddie Mac or Ginnie Mae.
MULTIPLE-CLASS
PASS-THROUGHS: See Collateralized Mortgage Obligations.
NET ASSET VALUE (NAV): Net asset value is the total market value of all securities and other assets held by
the Trust, plus income accrued on its investments, minus any liabilities including
accrued expenses, divided by the total number of outstanding shares. It is the
underlying value of a single share on a given day. Net asset value for the Trust
is calculated daily and published in The New York Times and The Wall Street Journal.
OPEN-END FUND: Investment vehicle which continually offers its shares to the public at net asset
value and redeems its shares anytime at the prevailing net asset value. The fund
invests in a portfolio of securities in accordance with its stated investment objectives
and policies.
PRINCIPAL-ONLY Mortgage securities that receive only the principal cash flows from an underlying
SECURITIES (P/O): pool of mortgage loans of underlying pass-through securities, also known as a strip.
PROJECT LOANS: Mortgages for multi-family, low to middle income housing.
REMIC: Real Estate Mortgage Investment Conduit, a multiple-class security
backed by mortgage-backed securities or whole mortgage loans and formed as a
trust, corporation, partnership, or segregated pool of assets that elects to be
treated as a REMIC for federal tax purposes. Generally, Fannie Mae REMICs are
formed as trusts and are backed by mortgage-backed securities.
</TABLE>
29
<PAGE>
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
<TABLE>
<S> <C>
REVERSE REPURCHASE In a reverse repurchase agreement, the Trust sells securities and agrees to
AGREEMENTS: repurchase them at a mutually agreed date and price. During this time, the Trust
continues to receive the principal and interest payments from that security. At
the end of the term, the Trust receives the same securities that were sold for the
same initial dollar amount plus interest on the cash proceeds of the initial sale.
RESIDUALS: Securities issued in connection with collateralized mortgage obligations that
generally represent the excess cash flow from the mortgage assets underlying the CMO
after payment of principal and interest on the other CMO securities and related
administrative expenses.
STRIP MORTGAGE- Arrangements in which a pool of assets is separated into two classes that receive
BACKED SECURITIES: different proportions of the interest and principal distribution from underlying
mortgage-backed securities. IO's and PO's are examples of strips.
</TABLE>
30
<PAGE>
BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
<TABLE>
<CAPTION>
TAXABLE TRUSTS
- ------------------------------------------------------------------------------------------
MATURITY
STOCK SYMBOL DATE
----------- --------
<S> <C> <C>
PERPETUAL TRUSTS
The BlackRock Income Trust Inc.................................... BKT N/A
The BlackRock North American Government Income Trust Inc.......... BNA N/A
TERM TRUSTS
The BlackRock 1998 Term Trust Inc................................. BBT 12/98
The BlackRock 1999 Term Trust Inc................................. BNN 12/99
The BlackRock Target Term Trust Inc............................... BTT 12/00
The BlackRock 2001 Term Trust Inc................................. BLK 06/01
The BlackRock Strategic Term Trust Inc............................ BGT 12/02
The BlackRock Investment Quality Term Trust Inc................... BQT 12/04
The BlackRock Advantage Term Trust Inc............................ BAT 12/05
The BlackRock Broad Investment Grade 2009 Term Trust Inc.......... BCT 12/09
<CAPTION>
TAX-EXEMPT TRUSTS
- -----------------------------------------------------------------------------------------
MATURITY
STOCK SYMBOL DATE
------------ --------
<S> <C> <C>
PERPETUAL TRUSTS
The BlackRock Investment Quality Municipal Trust Inc.............. BKN N/A
The BlackRock California Investment Quality Municipal Trust Inc. RAA N/A
The BlackRock Florida Investment Quality Municipal Trust.......... RFA N/A
The BlackRock New Jersey Investment Quality Municipal Trust Inc. RNJ N/A
The BlackRock New York Investment Quality Municipal Trust Inc. RNY N/A
TERM TRUSTS
The BlackRock Municipal Target Term Trust Inc..................... BMN 12/06
The BlackRock Insured Municipal 2008 Term Trust Inc............... BRM 12/08
The BlackRock California Insured Municipal 2008 Term Trust Inc. BFC 12/08
The BlackRock Florida Insured Municipal 2008 Term Trust........... BRF 12/08
The BlackRock New York Insured Municipal 2008 Term Trust Inc. BLN 12/08
The BlackRock Insured Municipal Term Trust Inc.................... BMT 12/10
</TABLE>
If would like further information
please call BlackRock
at (800) 227-7BFM (7236) or
consult with your financial advisor.
31
<PAGE>
BLACKROCK FINANCIAL MANAGEMENT, INC.
AN OVERVIEW
- --------------------------------------------------------------------------------
BlackRock Financial Management, Inc. (BlackRock), is a registered
investment adviser which specializes in managing high quality fixed income
securities, both taxable and tax-exempt. BlackRock currently manages
approximately $34 billion of assets across the government, mortgage, corporate
and municipal sectors. These assets are managed on behalf of institutional and
individual investors in twenty-one closed-end funds traded on either the New
York Stock Exchange or the American Stock Exchange, and several open-end funds
and over 80 institutional clients in the United States and overseas.
BlackRock's institutional investor base includes Chrysler Corporation Master
Retirement Trust, General Retirement System of the City of Detroit, State
Treasurer of Florida, Ford Motor Company Pension Plan, General Electric Pension
Trust and Unisys Corporation Master Trust.
BlackRock was formed in April 1988 by fixed income professionals who
sought to create an asset management firm specializing in managing fixed income
securities for individual and institutional investors. The professionals at
BlackRock have extensive experience creating, analyzing and trading a variety of
fixed income instruments, including the most complex structured securities. In
fact, individuals at BlackRock are responsible for many of the major innovations
in the mortgage-backed and asset-backed securities markets, including the
creation of the CMO, the floating rate CMO, the senior/subordinated pass-through
and the multi-class asset-backed security.
BlackRock is unique among asset management and advisory firms in the
significant emphasis it places on the development of proprietary analytical
capabilities. A quarter of the professionals at BlackRock work full-time in the
design, maintenance and use of such systems which are otherwise not generally
available to investors. BlackRock's proprietary analytical tools are used for
evaluating, investing in and designing investment strategies and portfolios of
fixed income securities, including mortgage securities, corporate debt
securities or tax-exempt securities and a variety of hedging instruments.
BlackRock has developed investment products which respond to
investors' needs and has been responsible for several major innovations in
closed-end funds. BlackRock introduced the first closed-end mortgage fund, the
first taxable and tax-exempt closed-end funds to offer a finite term, the first
closed-end fund to achieve a AAA rating by Standard & Poor's, and the first
closed-end fund to invest primarily in North American Government securities.
BlackRock's closed-end funds currently have dividend reinvestment plans which
are designed to provide an ongoing source of demand for the stock in the
secondary market. BlackRock manages a ladder of alternative investment
vehicles, with each fund having specific investment objectives and policies.
In view of our continued desire to provide a high level of service to
all our shareholders, BlackRock maintains a toll-free number for your questions.
The number is (800) 227-7BFM (7236). We encourage you to call us with any
questions you may have about your BlackRock funds and thank you for your
continued trust you place in our abilities.
32
<PAGE>
DIRECTORS
Kent Dixon
Frank J. Fabozzi
James Grosfeld, Chairman
OFFICER
Richard E. Cavanagh, President,
Treasurer and Secretary
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
THE BFM INSTITUTIONAL TRUST INC.
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
(800)227-7BFM
