BLACKROCK ASSET INVESTORS
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1997 (UNAUDITED)
<PAGE>
BLACKROCK ASSET INVESTORS
SCHEDULE OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE PAR (000) VALUE
------------------ --------- -----
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES - 3.2%
<S> <C> <C> <C>
BCF L.L.C. Series 1996 A - Interest Only $ 39,814 $ 590,532
BCF L.L.C. Series 1996 B - Interest Only 7,646 170,780
BCF L.L.C. Series 1996 C - Interest Only 5,735 130,816
BCF L.L.C. Series 1996 D - Interest Only 6,691 135,591
BCF L.L.C. Series 1996 E 9,079 8,555,168
BCF L.L.C. Series 1996 F 2,390 2,060,819
BCF L.L.C. Series 1996 G 6,690 3,012,493
BCF L.L.C. Series 1997 R1 B4 8,040 2,880,661
-------------
Total Commercial Mortgage Pass-Through Certificates
(Cost $16,103,859) 17,536,860
-------------
WARRANTS - 0.5%
Annington Finance 16,065 2,675,306
-------------
Total Warrants (Cost $2,631,447) 2,675,306
-------------
FIXED INCOME SECURITIES - 19.7%
Annington Finance, 11%, 10/21/2002 65,540 109,143,828
-------------
Total Fixed Income Securities (Cost $108,084,230) 109,143,828
-------------
PARTNERSHIP INVESTMENTS - 77.2%
BlackRock Capital Finance 427,127,762
-------------
Total Partnership Investments (Cost $429,604,415) 427,127,762
-------------
TOTAL LONG TERM INVESTMENTS - (COST $556,423,951) 556,483,756
SHORT TERM INVESTMENT - 0.3%
Repurchase agreement dated 6/30/97
with State Street Bank and Trust, Co. 5.60% due 7/01/97,
collateralized by $1,710,000 United States Treasury
Note 4.75% due 10/31/98 (market value $1,698,035)
(repurchase proceeds $1,660,258) (cost $1,660,000) 1,660 1,660,000
-------------
TOTAL INVESTMENTS - (COST $558,083,951) - 100.9% 558,143,756
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.7)% (3,941,324)
LIQUIDATION VALUE OF PREFERRED STOCK - (0.2)% (1,020,000)
-------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS - 100.0% $ 553,182,432
=============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BLACKROCK ASSET INVESTORS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments, at estimated fair value (cost $556,423,951) $ 556,483,756
Repurchase agreement (cost $1,660,000) 1,660,000
-------------
Total investments ($558,083,951) 558,143,756
Interest receivable 2,970,048
Market value of interest rate caps (Note 4) 57,340
Deferred organization expenses and other assets (Note 1) 186,399
-------------
Total assets 561,357,543
-------------
LIABILITIES
Unrealized loss on forward currency contracts 5,791,427
Investment advisory fee payable (Note 2) 1,041,868
Notes payable (Note 6) 192,500
Administration fee payable 25,286
Other accrued expenses 104,030
-------------
Total liabilities 7,155,111
-------------
NET INVESTMENT ASSETS $ 554,202,432
=============
Net assets were comprised of:
Common shares of beneficial interest, at par (Note 7) $ 7,299
Paid in capital in excess of par 547,868,743
Preferred stock, at par (Note 7) 1,020,000
-------------
548,896,042
Accumulated net investment income 13,124,189
Distributions in excess of net realized gains (1,688,847)
Net unrealized depreciation on investments, forward currency
contracts, foreign currency and interest rate caps (6,128,952)
--------------
Total Net Investment Assets $ 554,202,432
==============
Net assets applicable to common shareholders $ 553,182,432
==============
Net asset value per common share ($553,182,432 divided by 729,898
common shares issued and outstanding) $ 757.89
==============
Total common shares outstanding at end of period 729,898.17
==============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BLACKROCK ASSET INVESTORS
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Net investment income earned from BCF $ 29,236,007
Interest (net of interest expense of $224,094) 7,172,957
------------
Total income 36,408,964
------------
Expenses
Investment advisory 1,041,868
Directors 31,241
Administration 29,119
Audit 24,795
Custodian 22,987
Amortization of deferred organization expenses 18,596
Legal 12,397
Transfer agent 2,603
Miscellaneous 27,280
------------
Total operating expenses 1,210,886
------------
Net investment income 35,198,078
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FORWARD CURRENCY CONTRACTS, FOREIGN CURRENCY
TRANSACTIONS AND INTEREST RATE CAPS (NOTE 4)
Net realized gain on:
Foreign Currency and Forward Currency Contracts 1,010,466
BCF investments 2,539,219
------------
Net realized gain 3,549,685
------------
Net change in unrealized appreciation (depreciation) on:
Foreign Currency and Forward Currency Contracts 2,277,172
BCF investments (3,164,254)
Other investments (3,465,307)
Interest rate caps (448,987)
------------
Net change in unrealized depreciation (4,801,376)
------------
Net realized and unrealized loss (1,251,691)
------------
NET INCREASE IN NET INVESTMENT ASSETS
RESULTING FROM OPERATIONS $ 33,946,387
============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BLACKROCK ASSET INVESTORS
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
Cash flows provided by operating activities:
Net investment income $ 6,357,670
BCF net income 29,236,007
Expenses paid (2,801,894)
Reimbursement received for expenses paid
on behalf of affiliates 137,269
Reimbursement made for expenses paid by affiliates (260,682)
Net gain from forward currency contracts and
foreign currency transactions 1,010,466
--------------
Net cash flows provided by operating activities 33,678,836
--------------
Cash flows used for investing activities:
Purchases of repurchase agreements, net (1,310,000)
Net purchase of investments* (163,731,948)
--------------
Net cash flows used for investing activities (165,041,948)
--------------
Cash flows provided by financing activities:
Payment of distributions (22,999,993)
Line of credit borrowing (29,000,000)
Share subscriptions 183,000,000
--------------
Net cash flows provided by financing activities 131,000,007
--------------
Net decrease in cash (363,105)
Cash, beginning of period 363,105
--------------
Cash and foreign currency, end of period $ -
==============
RECONCILIATION OF NET INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES
Net increase in net assets resulting from operations $ 33,946,387
--------------
Increase in unrealized depreciation 4,801,376
Net realized gain (2,539,219)
Increase in accrued expenses and other liabilities (1,737,542)
Decrease in due from affiliates 137,269
Increase in interest receivable (1,048,750)
Decrease in other assets 119,315
--------------
Total adjustments (267,551)
--------------
Net cash flows provided by operating activities $ 33,678,836
==============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
* Excludes non cash items in the amount of $2,910,863.
<PAGE>
<TABLE>
<CAPTION>
BLACKROCK ASSET INVESTORS
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS YEAR ENDED
ENDED JUNE 30, 1997 DECEMBER 31, 1996
------------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
<S> <C> <C>
Net investment income $ 35,198,078 $ 68,476,743
Net realized gain on BCF investments, futures
contracts, forward currency contracts and foreign
currency transactions 3,549,685 4,497,857
Net change in unrealized depreciation on BCF
investments, forward currency contracts, foreign
currency transactions and interest rate caps (4,801,376) (827,313)
--------------- ---------------
Net increase in net assets resulting
from operations 33,946,387 72,147,287
--------------- ---------------
Dividends and distributions to common shareholders from:
Net investment income (23,000,000) (63,077,204)
Return of capital -- (42,277,782)
Net realized gains -- (2,219,482)
In excess of net realized gains -- (5,238,532)
--------------- ---------------
Total dividends & distributions to
common shareholders (23,000,000) (112,813,000)
--------------- ---------------
Fund share transactions:
Proceeds from common shares issued 183,000,000 298,911,137
Proceeds from preferred shares issued -- 1,020,000
--------------- ---------------
Total fund share transactions 183,000,000 299,931,137
--------------- ---------------
Net increase 193,946,387 259,265,424
NET INVESTMENT ASSETS
Beginning of period 360,256,045 100,990,621
--------------- ---------------
End of period $ 554,202,432 $ 360,256,045
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BLACKROCK ASSET INVESTORS
FINANCIAL HIGHLIGHTS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 29, 1995*
FOR THE SIX MONTHS FOR THE YEAR ENDED THROUGH
ENDED JUNE 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- ----------------- -----------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value per common share,
<S> <C> <C> <C>
beginning of period $ 741.42 $ 765.99 $ 1,000.00
---------- ---------- ----------
Net investment income (loss) (a) 54.02 262.06 (150.13)**
Net realized and unrealized gain (loss) on
investments, futures contracts, forward
currency contracts, foreign currency
transactions and interest rate caps (a) (6.04) 14.05 (83.88)**
---------- ---------- ----------
Net increase (decrease) from investment operations 47.98 276.11 (234.01)
---------- ---------- ----------
Less dividends & distributions to common shareholders:
Net investment income (31.51) (168.12) --
Net realized gains -- (5.92) --
In excess of net realized gain -- (13.96) --
Return of capital -- (112.68) --
---------- ---------- ---------
(31.51) (300.68) --
---------- ---------- ---------
Net asset value per common share, end of period $ 757.89 $ 741.42 $ 765.99
---------- ---------- ---------
TOTAL INVESTMENT RETURN (B) 6.49% 50.00% (23.40)%
RATIOS TO AVERAGE NET ASSETS
OF COMMON SHAREHOLDERS:
Operating expenses (d) 0.49(c) 1.15% 10.78%(c)**
Net investment income (loss) (d) 14.38(c) 33.17% (13.15)%(c)**
SUPPLEMENTAL DATA:
Average net assets of
common shareholders (in thousands) $493,736 $206,466 $ 47,282
Portfolio turnover -- -- 27%
Net assets of common shareholders,
end of period (in thousands) $553,182 $359,236 $100,991
Asset coverage per share of preferred stock,
end of period (in thousands) $271 $176 --
</TABLE>
- -------------------------------------------------------------------------------
* Commencement of investment operations.
** Restated to conform to 1996 presentation.
(a) Calculated based on average shares.
(b) Total investment return is calculated assuming a purchase of a common 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 income to total investor capital
commitments of $560,267,692 is 0.52% and 12.67%, respectively, for the six
months ended June 30, 1997. The ratio of expenses and net investment income
to total investor capital commitments of $560,267,692 is 0.90% and 12.22%,
respectively, for the year ended December 31, 1996. The ratio of expenses
and net investment income to total investor capital commitments of
$560,267,692 on an annualized basis is 0.90% and (1.11)%, respectively, for
the year ended December 31, 1995.
Contained above is the unaudited operating performance based on an average
common 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.
See Notes to Financial Statements.
<PAGE>
BLACKROCK ASSET INVESTORS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
BACKGROUND: 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, 1997 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 as of
December 31, 1996. On January 1, 1997 BAI purchased 80% of AII's BCF ownership.
As of June 30, 1997 BAI owns a 99.8% general partnership interest in BCF and AII
owns a 0.2% limited partnership interest in BCF. 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: In valuing the Trust's assets, quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
then current currency value. The Trust values mortgage-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, unless the Trust's Board of Directors
determines 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.
The Trust's investment in BCF is valued based on the equity of such entity
which entity reports on a fair value basis (see Note 4). BCF generally invests
in mortgage loans acquired as distressed or nonperforming loans which 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,
<PAGE>
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, for which current market
quotations are not readily available are valued at fair value as determined in
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. As writer of an
option, the Trust 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
positions. In general, the Trust uses options to hedge a long or short position
or an overall portfolio. 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 long position or a portfolio against price
declines. In the same sense, call options can be purchased to hedge short
positions or a portfolio against price declines. 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, the Trust risks not being able to enter into a closing transaction
for the written option as the result of an illiquid market.
<PAGE>
FINANCIAL FUTURES CONTRACTS: A financial 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.
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, or other portfolio
management purposes. 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 may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
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.
FORWARD CURRENCY CONTRACTS: The Trust enters into forward currency contracts
primarily to hedge foreign currency risk. A forward contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Risks may arise as a result of the potential inability of the counterparts
to meet the terms of their contract.
Forward currency contracts, when used by the Trust, help to manage the
overall exposure to the foreign currency backing many of the investments held by
the Trust. Forward currency contracts are not meant to be used to eliminate all
of the exposure to foreign currency, rather they allow the Trust to limit its
exposure to foreign currency.
Details of open forward currency sell contracts at June 30, 1997 are as
follows:
<TABLE>
<CAPTION>
VALUE AT VALUE AT UNREALIZED SETTLEMENT CONTRACT SETTLEMENT JUNE 30,
APPRECIATION/ DATE TO SELL (000) DATE 1997 (DEPRECIATION) ----------------
- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Aug. 6, 1997 C$ 2,915 $ 2,097,349 $ 2,116,079 $ (18,730)
Dec. 23, 1997 C$ 6,500 $ 4,841,713 $ 4,753,988 $ 87,725
Sep. 16, 1997 FRF 217,000 $ 37,421,535 $ 37,114,408 $ 307,128
Dec. 13, 1999 GBP 78,622 $ 121,000,000 $ 127,167,550 $ (6,167,550)
---------------- ---------------- ----------------
$ 165,360,597 $ 171,152,025 $ (5,791,427)
================ ================ ================
</TABLE>
FOREIGN CURRENCY TRANSLATION: The books and records of the Trust are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(I) market value of investment securities, assets and liabilities at
the current rate of exchange; and
(II) purchases and sales of Investment securities, income and expenses
at the relevant rates of exchange prevailing on the respective dates of such
transactions
The Trust isolates that portion of gains and losses on investment
securities which is due to changes in the foreign exchange rates from that which
is due to changes in market prices of such securities.
The Trust reports certain foreign currency related transactions as
components of realized and unrealized gains for financial reporting purposes,
whereas such components are treated as ordinary income for federal income tax
purposes.
INTEREST RATE CAPS: The purchase of an interest rate cap entitles the purchaser,
to the extend that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate cap. Interest rate caps are intended to manage the
Trust's exposure to changes in short term interest rates. The effect on income
<PAGE>
involves protection from rising short interest rates, which the Trust
experiences primarily in the form of leverage. The Trust is exposed to credit
loss in the event of non-performance by the counterparty. The Trust does not
anticipate non-performance by any counterparty.
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. Net investment income and loss and net
realized gain and loss realized by BCF are recorded on a flow through basis by
the Trust.
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 its taxable income to shareholders.
Therefore, no federal income or excise tax provision is required for the Trust.
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 Trust's termination date a performance fee payable
only if certain criteria, as described in the Trust's Investment Advisory
Agreement, are met.
On December 6, 1996, the Board of Directors approved an amendment
(approved retroactive to January 1, 1996) to the Investment Advisory Agreement
which provided 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
.375% of the aggregate Capital Commitments on an annualized basis and that
subsequent to the Commitment Period, the semi-annual fee payable in arrears to
the Advisor is reduced to .25% of the weighted average capital invested during
the relevant period on an annualized basis and the performance fee will be
allocated between BCF and the Trust as determined by the Trust. On December 6,
<PAGE>
1996 BAI approved an Investment Advisory Agreement with the Advisor which
provides that during the Commitment Period BCF will pay to the Advisor for its
services a semi-annual fee, in arrears, in an amount equal to .375% of the
aggregate Capital Commitments, an annualized basis and that subsequent to the
Commitment Period, the semi-annual fee payable in arrears to the Advisor is
reduced to .25% of the weighted average capital invested during the relevant
period on an annualized basis and the performance fee will be allocated between
BCF and BAI as determined by BAI.
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, which is split ratably between BAI and the Funds, 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
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 related assets. All coinvestments will be concurrently with and on the same
terms as the Trust and BCF.
NOTE 4. INVESTMENTS
Purchases and proceeds from sales of investment securities, other than
short-term investments, for the six months ended June 30, 1997 aggregated
$163,731,948 and $0 , respectively. The federal income tax basis of the
investments at June 30, 1997 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, 1997 the Trust's direct and indirect investment in
BCF of $427,127,762 is illiquid.
<PAGE>
BCF's summary financial information as of June 30, 1997 and for the six
months then ended is as follows:
ASSETS:
Performing and distressed real estate
and related assets $ 351,534,911
Cash, deposits and other real estate
related assets 87,610,202
Other assets 1,136,299
Total assets 440,281,412
LIABILITIES:
Accounts payable and accrued expenses 13,153,650
PARTNERS' CAPITAL $ 427,127,762
==============
REVENUE:
Investment income $ 33,704,113
EXPENSES:
Expenses 4,468,106
--------------
NET INVESTMENT INCOME 29,236,007
NET REALIZED GAIN 2,539,219
NET CHANGE IN UNREALIZED LOSS (3,164,254)
--------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 28,610,972
===============
During the six months ended June 30, 1997, the Trust entered into interest rate
cap agreements. Details of open agreements at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
NOTIONAL MATURITY INTEREST VALUE AT VALUE AT UNREALIZED
AMOUNT DESCRIPTION DATE RATE TRADE DATE JUNE 30, 1997 APPR./DEPR.
- ------ ----------- ---- ---- ---------- ------------- -----------
<C> <C> <C> <C> <C> <C> <C>
165,000,000 3M Libor Cap 12/17/97 6.50% $ 64,468 $ 165 $ (64,303)
175,000,000 3M Libor Cap 06/17/98 7.00% 161,864 7,175 (154,689)
100,000,000 3M Libor Cap 12/23/98 7.50% 279,995 50,000 (229,995)
--------- --------- -----------
$ 506,327 $ 57,340 $ (448,987)
========= ========= ===========
</TABLE>
NOTE 5. 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 $
3,364,641, at a weighted average interest rate of 5.32%. The maximum loan
outstanding during the six months ended June 30, 1997 was $29,000,000. There was
no balance outstanding at June 30, 1997.
<PAGE>
NOTE 6. 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.
During the year ended December 31, 1996, $10,000 principal was redeemed,
leaving an aggregate principal amount of $192,500.
NOTE 7. 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, 1997, the total capital
commitments from the Funds was $560,267,692 of which $548,137,106 had been
called and received.
There are 200 million shares of $.01 par value common stock authorized. The
Trust may classify or reclassify any unissued shares of common stock into one or
more series of preferred stock. On December 26, 1996 the Trust reclassified and
issued 2,040 shares of preferred stock. The preferred stock has a liquidation
value of $500 per share plus any accumulated but unpaid dividends. Dividends are
cumulative and are paid annually on November 30 of each year at a rate which is
equal to the treasury bill rate as of the preceding December 1 plus 2.5%.
The Trust may not declare dividends or make other distributions on shares
of common stock or purchase any such shares if, at the time of the declaration,
distribution, or purchase, asset coverage with respect to the outstanding
Preferred Stock would be less than 200%.
The Preferred Stock is redeemable at the option of the Trust, in whole or
in part, at any time, for $500 per share plus any accumulated or unpaid
dividends whether or not declared.
The holders of Preferred Stock have voting rights equal to the holder of
common stock (one vote per share) and will vote together with holders of shares
of common stock as a single class. However, holders of Preferred Stock are also
entitled to elect two of the Trust's directors. In addition, the Investment
Company Act of 1940 requires that, along with approval by stockholders that
might otherwise be required, the approval of the holders of a majority of any
outstanding preferred shares, voting separately as a class would be required to
(a) adopt any plan of reorganization that would adversely affect the preferred
shares, and (b) take any action requiring a vote of security holders, including,
among other things, changes in the Trust's subclassification as a closed-end
investment company or changes in its fundamental investment restrictions.
<PAGE>
TRUSTEES
Laurence D. Fink, CHAIRMAN
Terry Blaney
John C. Deterding
Donald G. Drapkin
Wesley R. Edens
Charles Froland
James Grosfeld
Laurence E. Hirsch
Kendrick R. Wilson, III
OFFICERS
Ralph L. Schlosstein, PRESIDENT
Wesley R. Edens, CHIEF OPERATING OFFICER
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 LLP
919 Third Avenue
New York, NY 10022
The accompanying financial statements as of June 30, 1997 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
