BlackRock Asset Investors
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Semi-Annual Report
June 30, 1996
<PAGE>
BlackRock Asset Investors
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Statement of Assets and Liabilities
June 30, 1996 (Unaudited)
Assets
Investment in BlackRock Capital Finance L.P., at estimated
fair value (cost $187,308,825) (Notes 1 and 4) $201,087,327
Investment in Asset Investors Inc., at estimated fair
value (cost $1,892,008) (Notes 1 and 4) 2,031,185
------------
Investment in affiliates (cost $189,200,833) 203,118,512
Cash 1,477
Due from BlackRock Fund Investors I, II, and III 137,821
Deferred organization expenses and other assets (Note 1) 231,339
------------
203,489,149
------------
Liabilities
Investment advisory fee payable (Note 2) 2,089,523
Notes payable (Note 7) 202,500
Directors' fee payable 13,565
Other accrued expenses 91,697
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2,397,285
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Net Assets $201,091,864
============
Net assets were comprised of:
Shares of beneficial interest, at par (Note 8) $ 2,394
Paid-in capital in excess of par 193,412,494
193,414,888
Accumulated net investment loss (6,240,703)
Net unrealized appreciation on investments 13,917,679
------------
Net assets, June 30, 1996 $201,091,864
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Net asset value per share $ 840.01
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Total shares outstanding at end of period 239,391.06
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See Notes to Financial Statements.
<PAGE>
BlackRock Asset Investors
Statement of Operations
For the Six Months Ended June 30, 1996 (Unaudited)
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Net Investment Loss
Income
Interest (net of interest expense of $204,261) .............. $ (161,410)
-----------
Expenses
Investment advisory (Note 2) ................................ 2,089,523
Amortization of deferred facility expenses .................. 51,926
Directors ................................................... 31,328
Custodian ................................................... 29,836
Amortization of deferred organization expenses .............. 18,648
Administration (Note 2) ..................................... 13,754
Legal ....................................................... 12,432
Audit ....................................................... 10,318
Transfer agent .............................................. 2,611
Miscellaneous ............................................... 812
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Total expenses .............................................. 2,261,188
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Net investment loss ......................................... (2,422,598)
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Unrealized Gain
on Investments (Note 4)
Net change in unrealized depreciation on investments ............. 17,612,706
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Net Increase In Net Assets
Resulting from Operations ................................... $15,190,108
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See Notes to Financial Statements.
<PAGE>
BlackRock Asset Investors
Statement of Cash Flows
For the Six Months Ended June 30, 1996 (Unaudited)
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<TABLE>
<S> <C>
Increase (Decrease) in Cash Cash flows used for operating activities:
Interest received $ 6,976
Expenses paid (1,206,701)
Reimbursement received for expenses paid
on behalf of affiliates 836,078
Proceeds from disposition of short-term portfolio
investments, net 2,199,649
Proceeds from disposition of long-term portfolio
investments 2,358,643
Purchase of long-term portfolio investments (83,185,721)
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Net cash flows used for operating activities (78,991,076)
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Cash flows provided by financing activities:
Repayment of line of credit (6,000,000)
Proceeds from Trust shares sold 84,911,135
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Net cash flows provided by financing activities 78,911,135
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Net decrease in cash (79,941)
Cash, beginning of period 81,418
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Cash, end of period $ 1,477
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Reconciliation of Net Increase in Net
Assets Resulting from Operations
to Net Cash Flows Used for
Operating Activities
Net increase in net assets resulting from operations $ 15,190,108
------------
Increase in investments (78,627,429)
Decrease in unrealized depreciation (17,612,706)
Decrease in receivable due from BlackRock Fund Investors I, II and III 836,078
Decrease in deferred organization expenses and other assets 34,700
Increase in accrued expenses and other liabilities 1,188,173
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Total adjustments (94,181,184)
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Net cash flows used for operating activities $(78,991,076)
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See Notes to Financial Statements.
</TABLE>
<PAGE>
BlackRock Asset Investors
Statements of Changes in Net Assets
(Unaudited)
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<TABLE>
<CAPTION>
March 29, 1995*
For the Six Months through
Ended June 30, 1996 December 31, 1995
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<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss $ (2,422,598) $ (3,818,106)
Net change in unrealized depreciation
on investments 17,612,706 (3,695,026)
------------ ------------
Net increase (decrease) in net assets resulting
from operations 15,190,108 (7,513,132)
Transactions in shares of beneficial interest:
Proceeds from shares issued 84,911,135 108,503,753
------------ ------------
Net increase 100,101,243 100,990,621
Net Assets
Beginning of period 100,990,621 --
------------ ------------
End of period $201,091,864 $100,990,621
============ ============
</TABLE>
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* Commencement of investment operations.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
BlackRock Asset Investors
Financial Highlights
(Unaudited)
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March 29, 1995*
For the Six Months through
Ended June 30, 1996 December 31, 1995
------------------- -----------------
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $765.99 $1000.00
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Net investment loss (12.44)(a) (121.07)(a)
Net unrealized gain (loss) on
investments 86.46(a) (112.94)(a)
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Net increase (decrease) from investment operations 74.02 (234.01)
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Net asset value, end of period $840.01 $765.99
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TOTAL INVESTMENT RETURN (b) 9.66% (23.40)%
RATIOS TO AVERAGE NET ASSETS:
Expenses 3.10%(c)(d) 10.78%(c)(d)
Net investment loss (3.32)%(c)(d) (10.64)%(c)(d)
SUPPLEMENTAL DATA:
Average net assets (in thousands) $147,077 $47,282
Portfolio turnover 2% 27%
Net assets, end of period (in thousands) $201,092 $100,991
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<FN>
* Commencement of investment operations.
(a) Calculated based on average shares.
(b) Total investment return is calculated assuming a purchase of a share of
beneficial interest 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. Total investment
return for periods of less than one full year are not annualized.
(c) Annualized.
(d) The ratio of expenses and net investment loss to total investor capital
commitments of $560,267,692 on an annualized basis is 0.90% and 0.90%,
respectively, for the period ended December 31, 1995. The ratio of expenses
and net investment loss to total investor capital commitments of
$560,267,692 on an annualized basis is 0.81% and 0.86%, respectively, for
the six months ended June 30, 1996.
(e) Averages computed on a weighted average daily basis.
Contained above is the unaudited operating performance based on an average
share of beneficial interest outstanding, total investment return, ratios
to average net assets and other supplemental data, for the period
indicated. This information has been determined based upon financial
information provided in the financial statements.
</FN>
</TABLE>
See Notes to Financial Statements.
<PAGE>
BlackRock Asset Investors
Notes to Financial Statements
(Unaudited)
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Note 1. Organization and Accounting Policies
BlackRock Asset Investors ("BAI" or the "Trust") is a non-diversified
closed-end investment company organized as a Delaware business trust registered
under the Investment Company Act of 1940. The Declaration of Trust permits the
Trustees to create a limited number of series (or "Funds"), each of which issues
a separate class of shares. As of June 30, 1996 the Trustees have established
BlackRock Fund Investors I, BlackRock Fund Investors II, and BlackRock Fund
Investors III. The Trust was formed on December 21, 1994 and had no operations
through March 29, 1995 other than those related to organizational matters and
the sale and issuance of 274.108 shares of beneficial interest to BlackRock Fund
Investors III. The Trust will seek to achieve high total returns primarily from
its investments in subordinated commercial mortgage-backed securities and other
investment securities and from its investment in its wholly-owned affiliate,
BlackRock Capital Finance L.P. ("BCF"), and other mortgage affiliates, which
will engage primarily in the business of acquiring, pooling and repackaging
performing commercial mortgage loans as commercial mortgage-backed securities
for distribution to the Trust and its strategic coinvestors (Note 3) and for
sale in capital markets. In addition, BCF will acquire and work out distressed
commercial and residential mortgage loans. BCF is a Delaware limited
partnership, with BAI as the 99% General Partner, and Asset Investors Inc.
("AII") as the 1% Limited Partner. BAI owns 100% of the outstanding shares of
AII.
The Trust and BCF invest in debt securities and the ability of issuers of
such debt securities held by the Trust and BCF to meet their obligations may be
affected by economic developments in a specific industry or region. No assurance
can be given that the Trust's investment objective will be achieved.
The following is a summary of significant accounting policies followed by
the Trust.
Investment 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 Trustees. 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. The Trust's investment in BCF and other
mortgage affiliates is valued at the net asset value of each such entity.
Mortgage loans acquired as distressed or nonperforming loans are valued
at cost from the date of acquisition to the date on which a significant event
occurs, such as revaluation of the collateral, resolution of legal impediments,
bankruptcy of the borrower or restructuring of the loan. When a significant
event affecting valuation occurs, the mortgage loan shall be revalued on the
basis of such event and, if possible, shall thereafter, be valued on an
analytical basis rather than at cost basis. Any securities or other assets, held
by the Trust or BCF, for which current market quotations are not readily
available are valued at fair value as determined in
<PAGE>
good faith under the Valuation Policy and Guidelines established by and under
the general supervision and responsibility of the Trust's Valuation Committee.
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.
Option selling and purchasing is used by the Trust to effectively hedge more
volatile positions. 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 the
obligation) to buy, and obligates the seller to sell (when the option is
exercised), the underlying position 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 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
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
<PAGE>
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.
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.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust amortizes premium or accretes discount on securities
purchased using the interest method.
Taxes: It is the Trust's intention to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders. Therefore, no federal
income or excise tax provision is required.
Dividends and Distributions: The Trust declares and distributes dividends at
least annually first from net investment income, then from realized short-term
capital gains and other sources, and lastly from paid-in capital. 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.
Investment Advisory, Administration and Other Expenses: Investment advisory,
administration and other expenses are recorded on the accrual basis. Performance
fees, if any, are determined and recorded annually. Deferred Organization
Expenses: A total of $187,500 was incurred in connection with the organization
of the Trust. These costs have been deferred and are being amortized ratably
over a period of 60 months from the date the Trust commenced investment
operations.
Note 2. Agreements
The Trust has an Investment Advisory Agreement with BlackRock Financial
Management, Inc. (the "Advisor") which provides that during the Commitment
Period the Trust will pay to the Advisor for its services a semi-annual fee, in
arrears, in an amount equal to .75% of the aggregate Capital Commitments, on an
annualized basis. Subsequent to the Commitment Period, the semi-annual fee
payable in arrears to the Advisor is reduced to .50% of the weighted average
capital invested during the relevant period on an annualized basis. In addition
to its management fee, the Trust will pay to the Advisor as of the first
anniversary of the commencement of the Trust's operations, as of each December
31 thereafter and as of the
<PAGE>
Trust's termination date a performance fee payable only if certain criteria, as
described in the Trust's Investment Advisory Agreement, are met.
The Trust has also entered into an Administration Agreement with State
Street Bank and Trust Company ("State Street") which provides that State Street
will receive an annual fee equal to .08% of Trust's average net asset value up
to $225 million, .06% of the next $225 million and .04% thereafter. Effective
May 1, 1996 the Administration Agreement was amended to provide that State
Street will receive an annual fee equal to .06% of Trust's average net asset
value up to $225 million, .04% of the next $225 million and .02% thereafter,
subject to certain minimum requirements.
Pursuant to the agreements, the Advisor provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust, who
are affiliated persons of the Advisor. State Street pays occupancy and certain
clerical and accounting costs of the Trust. The Trust bears all other costs and
expenses.
Certain trustees of the Trust and the Funds, who are not interested parties,
are paid a fee for their services in the amount of $40,000 each on an annual
basis plus telephonic meeting fees not to exceed $500 annually and certain
out-of-pocket expenses.
Note 3. Strategic Coinvestor
Brazos GenPar, Inc. and affiliates ("BGI") is the Trust's and BCF's
strategic coinvestor in certain commercial real estate debt investment
activities described herein. In connection with its strategic relationship, BGI
will commit professional resources to its efforts with the Trust and BCF,
including loan underwriting, work-out and information processing. In addition,
Brazos Advisors, L.L.C., a BGI affiliate in which the Advisor acquired a
minority interest and will grant to each shareholder of the Funds a warrant or
similar instrument to share in a portion of the appreciation of such minority
interest, will be retained to provide certain servicing functions with respect
to commercial mortgage loans acquired by BCF and the Trust. Finally, pursuant to
a coinvestment agreement, BCF and BAI will offer coinvestments to BGI with
respect to each commercial real estate asset proposed for investment. BGI's
coinvestments for commercial real estate assets will not be less than 10% and,
under certain circumstances, the coinvestment agreement may be terminated by
either party.
In connection with BCF's acquisition of a distressed residential mortgage
portfolio, BCF entered into coinvestment and special servicing arrangements with
companies specializing in the resolution of distressed residential mortgage
loans. The majority of BAI's Trustees and all of BAI's Investor Trustees
approved the terms of the arrangements as it relates solely to the acquisition
of this residential portfolios.
Neither the Trust nor BCF will be permitted to acquire any commercial or
residential mortgage asset unless a strategic coinvestor in the relevant asset
class coinvests in such asset. Accordingly, the Trust and BCF will be prohibited
from investing in any asset with respect to which its strategic partner in the
relevant asset class has declined to coinvest, unless the Trust and BCF have
received the approval of a majority of the BAI Trustees and all of the BAI
Investor Trustees with respect to the identity of and arrangements with an
alternative strategic coinvestor with respect to such asset. In addition, if the
coinvestment agreement with a strategic coinvestor is terminated, prior to
acquiring any additional assets in the relevant asset class, the Trust and BCF
will be required to obtain the approval of a majority of the BAI Trustees and
all of the BAI Investor Trustees with respect to the identity of and
arrangements with an alternative strategic coinvestor. Any strategic coinvestor
must, with respect to the relevant asset class, (i) possess the requisite real
estate and servicing capabilities, (ii) commit professional resources to its
efforts with the Trust and BCF, including loan underwriting, work-out and
servicing, and (iii) agree to make coinvestments of at least 10% with the Trust
or BCF, pursuant to the terms of a coinvestment agreement with such strategic
coinvestor, and agree to provide requested servicing functions with respect to
the
<PAGE>
related assets. All coinvestments will be concurrently with and on the same
terms as the Trust and BCF.
Note 4. Portfolio Securities
Purchases and proceeds from sales of investment securities, other than
short-term investments, for the six months ended June 30, 1996 aggregated
$83,185,721 and $2,358,643, respectively. The federal income tax basis of the
investments at June 30, 1996 was substantially the same as the basis for
financial reporting.
The Trust may invest without limit in securities which are not readily
marketable, including those which are restricted as to disposition under
securities law. At June 30, 1996 the Trust's direct and indirect investment in
BCF is illiquid.
BCF's summary financial information as of June 30, 1996 and for the six
months then ended is as follows:
ASSETS:
Performing and distressed real estate
and related assets $195,062,020
Cash, deposits and other real estate
related assets 12,048,513
Other assets 409,548
------------
Total assets 207,520,081
LIABILITIES:
Accounts payable and accrued expenses 4,401,570
============
PARTNERS' CAPITAL $203,118,511
============
REVENUE:
Interest and amortization, net $ 15,806,049
Unrealized depreciation on futures and options (2,904,143)
Realized gain on futures and options 7,353,982
------------
Total revenue $ 20,255,888
------------
EXPENSES:
Expenses 2,643,183
------------
NET INCOME $ 17,612,705
============
Note 5. Reverse Repurchase Agreements
The Trust may enter into reverse repurchase agreements with qualified, third
party broker-dealers as determined by and under the direction of the Trust's
Board of Trustees. Interest on the value of reverse repurchase agreements issued
and outstanding is based upon competitive market rates at the time of issuance.
At the time the Trust enters into a reverse repurchase agreement, it establishes
and maintains a segregated account with the lender containing liquid high grade
securities having a value not less than the repurchase price, including accrued
interest, of the reverse repurchase agreement. No reverse repurchase agreements
were held during the six months ended June 30, 1996.
Note 6. Line of Credit
The Trust has available an unsecured line of credit agreement with
NationsBank N.A. under which funds may be borrowed at either the prime rate or
the one-month Eurodollar rate plus 1 3/8%. The average daily loan balance was
$23,400,000, at a weighted average interest rate of 7.24%. The maximum loan
outstanding during the six months ended June 30, 1996 was $35,000,000.
<PAGE>
Note 7. Notes
The Trust has issued notes in the aggregate principal amount of $202,500 to
the Funds. The Notes pay interest at a per annum rate of 2.50% over the yield of
the one-year constant maturity Treasury, redeemable annually by the holder and
due on dissolution of the Trust.
Note 8. Capital
The Trust has obtained capital commitments from the Funds in the form of
subscription agreements to engage in the real estate debt investment activities
described herein. When notified by the Trust, in accordance with the Declaration
of Trust, the Funds shall make capital contributions as are required to satisfy
their outstanding capital commitments. The Trust must give fourteen days advance
notice before contributions are due. As of June 30, 1996, the total capital
commitments from the Funds was $560,267,692 of which $193,414,888 had been
called and received. On July 3, 1996, the Trust made an additional capital call,
received on July 17, 1996, totalling $24,000,000.
Note 9. Subsequent Event
Subsequent to June 30, 1996 the Board of Trustees of the Trust declared a
distribution of $14.48657 from undistributed earnings and $145.62815 from
capital per share payable August 20, 1996 to shareholders of record on August
19, 1996.
<PAGE>
Trustees
Laurence D. Fink, Chairman
John C. Deterding
Donald G. Drapkin
Wesley R. Edens
Charles Froland
James Grosfeld
Philip Halpern
Laurence E. Hirsch
Kendrick R. Wilson, III
Officers
Ralph L. Schlosstein, President
Wesley R. Edens, Chief Operating Officer
John R. Herbert, Managing Director
Robert I. Kauffman, Managing Director
Randal A. Nardone, Managing Director
Erik P. Nygaard, Managing Director
Henry Gabbay, Treasurer
Susan L. Wagner, Secretary
James Kong, Assistant Treasurer
Master Administrator
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
Administrator, Custodian and Transfer Agent
State Street Bank and Trust Company
Two Heritage Drive
North Quincy, MA 02171
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1431
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
The accompanying financial statements as of June 30, 1996 were not audited and,
accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
BlackRock Asset Investors
Two Heritage Drive
North Quincy, MA 02171
