DRAFT
BlackRock Asset Investors
(In Liquidation)
- --------------------------------------------------------------------------------
Annual Report
December 31, 1997
<PAGE>
BlackRock Asset Investors (In Liquidation)
Consolidated Schedule of Investments
December 31, 1997
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<TABLE>
<CAPTION>
Name of Issuer
and Title of Issue Par (000) Value
------------------ --------- -----
<S> <C> <C>
Residential and Commercial Mortgage Pass-Through
Certificates - 9.0%
BCF L.L.C. Series 1996 - C2 Class A - Interest Only 23,338 $ 198,712
BCF L.L.C. Series 1996 - C2 Class B - Interest Only 7,646 108,477
BCF L.L.C. Series 1996 - C2 Class C - Interest Only 5,735 90,078
BCF L.L.C. Series 1996 - C2 Class D - Interest Only 6,691 100,773
BCF L.L.C. Series 1996 - C2 Class E 9,079 9,242,393
BCF L.L.C. Series 1996 - C2 Class F 2,390 1,872,724
BCF L.L.C. Series 1996 - C2 Class G 6,690 2,612,287
BCF L.L.C. Series 1997 - R2 Class B4 1,018 714,185
BCF L.L.C. Series 1997 - R2 Class B5 1,003 556,821
BCF L.L.C. Series 1997 - R2 Class B6 2,224 610,934
BCF L.L.C. Series 1997 - C1 Class X1-Interest Only 30,967 933,003
BCF L.L.C. Series 1997 - C1 Class X2-Interest Only 15,461 494,883
BCF L.L.C. Series 1997 - C1 Class E-Interest Only 5,012 182,769
BCF L.L.C. Series 1997 - C1 Class F 1,566 1,411,986
BCF L.L.C. Series 1997 - C1 Class G 5,952 2,703,530
-------------
Total Residential and Commercial Mortgage Pass-Through Certificates 21,833,555
(cost $20,400,554) -------------
L.L.C. Investments - 8.9%
BCC Investors, L.L.C. (cost $21,726,811) 21,726,811
-------------
Partnership Investments - 83.0%
BlackRock Capital Finance (cost $201,292,694) 201,801,370
-------------
Total Investments - (cost $243,420,059) - 100.9% 245,361,736
Liabilities in Excess of Other Assets - (0.5)% (1,217,721)
Liquidation Value of Preferred Stock - (0.4)% (1,020,000)
-------------
Net Assets Applicable to Common Shareholders - 100% $ 243,124,015
=============
</TABLE>
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See Notes to Consolidated Financial Statements.
<PAGE>
BlackRock Asset Investors (In Liquidation)
Consolidated Statement of Assets and Liabilities
December 31, 1997
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Assets
Investments, at estimated fair value (cost $243,420,059) $ 245,361,736
Cash including cash held in foreign banks of $44,094 68,124
Interest rate caps, at value (cost $412,705) (Note 3) 2,418
Unrealized gain on foreign currency contracts (Note 1) 214,220
Deferred organization expenses and other assets (Note 1) 86,627
-------------
Total assets 245,733,125
-------------
Liabilities
Investment advisory fee payable (Note 2) 1,050,502
Notes payable (Note 5) 192,500
Taxes Payable 100,000
Administration fee payable 22,271
Other accrued expenses 223,837
-------------
Total liabilities 1,589,110
-------------
Net Investment Assets $ 244,144,015
=============
Net assets were comprised of:
Common shares of beneficial interest, at par (Note 6) $ 7,220
Paid in capital in excess of par 255,055,202
Preferred stock, at par (Note 6) 1,020,000
-------------
256,082,422
Accumulated net realized loss on investments,
forward currency contracts and foreign currency (13,679,737)
Net unrealized appreciation on investments, forward
currency contracts, foreign currency and interest
rate caps 1,741,330
-------------
Total Net Investment Assets $ 244,144,015
=============
Net assets applicable to common shareholders $ 243,124,015
=============
Net asset value per common share ($243,124,015 divided
by 729,898 common shares issued and outstanding) $ 333.09
=============
Total common shares outstanding at end of year 729,898.17
=============
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See Notes to Consolidated Financial Statements.
<PAGE>
BlackRock Asset Investors (In Liquidation)
Consolidated Statement of Operations
For the Year Ended December 31, 1997
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Net Investment Income
Income
Net investment income earned from BCF $ 85,454,162
Interest (net of interest expense of $144,021) 15,019,898
Other income (Note 3) 57,669,690
-------------
Total income 158,143,750
-------------
Expenses
Investment advisory 2,101,000
Amortization of facility fee 175,205
Audit 127,500
Directors 63,000
Administration 58,000
Legal 50,000
Custodian 46,000
Amortization of deferred organization expenses 37,500
Amortization of prepaid insurance 22,306
Transfer agent 5,000
Miscellaneous 21,716
-------------
Total operating expenses 2,707,227
-------------
Net investment income before taxes 155,436,523
Income tax provision (Note 1) (100,000)
-------------
Net investment income 155,336,523
-------------
Realized and Unrealized Gain (Loss) on Investments,
Forward Currency Contracts, Foreign Currency
Transactions and Interest Rate Caps (Note 3)
Net realized loss on:
Foreign Currency and Forward Currency Contracts (3,297,653)
BCF investments (5,143,552)
-------------
Net realized loss (8,441,205)
-------------
Net change in unrealized appreciation (depreciation) on:
Foreign Currency and Forward Currency Contracts 8,226,882
BCF investments (178,916)
Other investments (4,568,773)
Interest rate caps (410,287)
-------------
Net change in unrealized appreciation 3,068,906
-------------
Net realized and unrealized loss (5,372,299)
-------------
Net Increase In Net Investment Assets
Resulting from Operations $ 149,964,224
=============
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See Notes to Consolidated Financial Statements.
<PAGE>
BlackRock Asset Investors (In Liquidation)
Consolidated Statement of Cash Flows
For the Year Ended December 31, 1997
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Increase (Decrease) in Cash
Cash flows provided by operating activities:
Net investment income $ 74,555,836
BCF net income 85,454,162
Expenses paid (4,003,520)
Reimbursement received for expenses paid
on behalf of affiliates 137,269
Reimbursement made for expenses paid by affiliates (260,682)
Net loss from forward currency contracts and
foreign currency transactions (3,297,653)
Net unrealized gain from foreign currency transactions 214,220
-------------
Net cash flows provided by operating activities 152,799,632
-------------
Cash flows provided by investing activities:
Sales of repurchase agreements, net 350,000
Net sale of investments 141,631,641
-------------
Net cash flows provided by investing activities 141,981,641
-------------
Cash flows used for financing activities:
Payment of distributions (449,076,254)
Repayment of line of credit (29,000,000)
Share subscriptions 183,000,000
-------------
Net cash flows used for financing activities (295,076,254)
-------------
Net decrease in cash (294,981)
Cash and foreign currency, beginning of year 363,105
-------------
Cash and foreign currency, end of year $ 68,124
=============
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 $ 149,964,224
-------------
Increase in unrealized appreciation (3,068,906)
Net realized loss on BCF investments 5,143,552
Decrease in accrued expenses and other liabilities (1,457,067)
Decrease in due from affiliates 137,269
Decrease in interest receivable 1,866,248
Decrease in other assets 214,312
-------------
Total adjustments 2,835,408
-------------
Net cash flows provided by operating activities $ 152,799,632
=============
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
<PAGE>
BlackRock Asset Investors (In Liquidation)
Consolidated Statements of Changes in Net Assets
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<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 155,336,523 $ 68,476,743
Net realized gain (loss) (8,441,205) 4,497,857
Net change in unrealized appreciation (depreciation) 3,068,906 (827,313)
------------- -------------
Net increase in net assets resulting
from operations 149,964,224 72,147,287
------------- -------------
Dividends and distributions:
To common shareholders from:
Net investment income (156,186,380) (63,077,204)
Return of capital (292,813,620) (42,277,782)
Net realized gains (2,219,482)
In excess of net realized gains -- (5,238,532)
To preferred shareholders from:
Net investment income (76,254) --
------------- -------------
Total dividends & distributions to
common and preferred shareholders (449,076,254) (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 (decrease) (116,112,030) 259,265,424
Net Investment Assets
Beginning of year 360,256,045 100,990,621
------------- -------------
End of year $ 244,144,015 $ 360,256,045
============= =============
</TABLE>
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See Notes to Consolidated Financial Statements.
<PAGE>
BlackRock Asset Investors (In Liquidation)
Consolidated Statements of Financial Highlights
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<TABLE>
<CAPTION>
March 29, 1995*
For the Year Ended For the Year Ended through
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value per common share,
Beginning of period $ 741.42 $ 765.99 $1,000.00
-------- -------- ---------
Net investment income (loss) (a) 224.83 262.06 (150.13)**
Net realized and unrealized gain (loss) (a) (17.90) 14.05 (83.88)**
-------- -------- ---------
Net increase (decrease) from investment operations 206.93 276.11 (234.01)
-------- -------- ---------
Less dividends & distributions:
To common shareholders from:
Net investment income (213.98) (168.12) --
Net realized gains -- (5.92) --
In excess of net realized gain -- (13.96) --
Return of capital (401.18) (112.68) --
To preferred shareholders from net investment income (0.10) -- --
-------- -------- ---------
(615.26) (300.68) --
-------- -------- ---------
Net asset value per common share, end of period $ 333.09 $ 741.42 $ 765.99
======== ======== =========
TOTAL INVESTMENT RETURN 27.91% 50.00% (23.40)%
RATIOS TO AVERAGE NET ASSETS
OF COMMON SHAREHOLDERS:
Operating expenses (c) 0.54% 1.15% 10.78%(b)**
Net investment income (loss) (c) 31.04% 33.17% (13.15)%(b)**
SUPPLEMENTAL DATA:
Average net assets of
common shareholders (in thousands) $500,489 $206,466 $ 47,282
Portfolio turnover 71% -- 27%
Net assets of common shareholders,
end of period (in thousands) $243,124 $359,236 $ 100,991
Asset coverage per share of preferred stock,
end of period (in thousands) $ 119 $ 176 --
</TABLE>
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* Commencement of investment operations.
** Restated to conform to 1996 presentation.
(a) Calculated based on average shares.
(b) Annualized.
(c) The ratio of expenses and net investment income to total investor capital
commitments of $560,267,692 is 0.48% and 27.73%, respectively, for the
year ended December 31, 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 audited 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 Consolidated Financial Statements.
<PAGE>
BlackRock Asset Investors (In Liquidation)
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1997
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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. The Trustees have established
BlackRock Fund Investors I, BlackRock Fund Investors II, and 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 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 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 December 31, 1997, BAI owns a 99.8% general partnership
interest in BCF and AII owns a 0.2% limited partnership interest in BCF. BAI
consolidates AII under generally accepted accounting principals as it owns 100%
of AII outstanding shares.
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.
Plan of Liquidation: On September 18, 1997 the Board of Trustees of BAI
("Trustees") approved a plan of liquidation ("Plan") and a technical amendment
to the terms of BAI's Preferred Shares to facilitate the Plan which was adopted
by the Shareholders on October 6, 1997 (Adoption Date). The Plan term runs two
years from the Adoption Date. The Plan requires the Trustees to oversee the
complete and orderly liquidation of BAI and wind-up the Trust. Any remaining
assets and liabilities may be deposited in a voting trust at any time before the
end of the Plan term. The liquidation of BAI in accordance with the Plan, will
result in distributions paid subsequent to the adoption date being characterized
for tax purposes first as a return of capital until a shareholder's basis is
reduced to zero, and then as capital gain. The character of distributions paid
prior to the adoption date are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
<PAGE>
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 3). BCF generally invests
in mortgage loans acquired as distressed or nonperforming loans which are valued
at current 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, 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 60 days or less are valued at
amortized cost, if their term to maturity from date of purchase was 60 days or
less. Short-term securities with a term to maturity greater than 60 days from
the date of purchase are valued at current market quotations until maturity.
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.
<PAGE>
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.
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 December 31, 1997 are
as follows:
Value at Value at
Settlement Contract Settlement December 31, Unrealized
Date to sell (000) Date 1997 Appreciation
- ---------- ------------- ------------ ------------ ------------
01/06/98 CAD$ 2,814 $ 2,062,747 $ 1,969,566 $ 93,181
02/17/98 FRF 51,300 8,668,762 8,547,723 121,039
------------ ------------ ------------
$ 10,731,509 $ 10,517,289 $ 214,220
============ ============ ============
<PAGE>
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
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. A provision
for estimated income taxes of $100,000 has been accrued for AII.
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.
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
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,
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. For the year ended December 31, 1997, BAI
allocated 100% of the performance fee of $4,486,340 to BCF.
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 .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.
<PAGE>
Note 3. Investments
Purchases and proceeds from sales of investment securities, other than
short-term investments, for the year ended December 31, 1997 aggregated
$348,644,888 and $490,276,529, respectively. The federal income tax basis of the
investments at December 31, 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 December 31, 1997, the Trust's direct and indirect investment
in BCF of $201,801,370 is illiquid.
BCF's summary financial information as of December 31, 1997 and for the
year then ended is as follows:
ASSETS:
Performing and distressed real estate
and related assets $ 177,053,762
Cash, deposits and other real estate
related assets 57,015,149
Other assets 1,786,399
Total assets 235,855,310
LIABILITIES:
Accounts payable and accrued expenses 34,053,940
PARTNERS' CAPITAL $ 201,801,370
=============
REVENUE:
Investment income $ 99,853,665
EXPENSES:
Expenses 14,399,503
NET INVESTMENT INCOME 85,454,162
NET REALIZED LOSS (5,143,552)
NET CHANGE IN UNREALIZED LOSS (178,916)
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 80,131,694
=============
During the year ended December 31, 1997, the Trust entered into interest rate
cap agreements. Details of open agreements at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Value at
Notional Maturity Interest Value at December 31, Unrealized
Amount Description Date Rate Trade Date 1997 Depreciation
- ------------ ------------ -------- ------ -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
175,000,000 3M Libor Cap 06/17/98 7.00% $140,890 $ 18 $(140,872)
100,000,000 3M Libor Cap 12/23/98 7.00% 271,815 2,400 (269,415)
-------- ------ ---------
$412,705 $2,418 $(410,287)
======== ====== =========
</TABLE>
<PAGE>
On November 1, 1996 and November 5, 1996, the Trust purchased Subordinated
Debt and Warrants of Annington Finance and Annington Homes ("AHL") for
$107,354,520 and $2,631,447, respectively. The warrants represent 16.07% of the
total Warrants issued by AHL. Each Warrant is convertible into one share of
common stock. On December 23, 1997 the Subordinated Debt was prepaid by
Annington Finance at par. In addition the Trust earned structuring and related
fees for assisting Annington Finance in the refinancing of the subordinated debt
and providing management services to AHL to the Annington investment
approximating $25.5 million which are included in other income. On December 29,
1997 the Trust received approximately $34,778,642 on the Warrants resulting in
income of approximately $32 million. The payment increased the subscription
price on the Warrants from a nominal amount to approximately $6,350. At December
31, 1997, the Trust's Valuation Committee, in accordance with the Trust's
Valuation Policy and Guidelines regarding investments for which market
quotations are not readily available, have valued the Warrants at $0.
Note 4. Line of Credit
The Trust had 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
$1,668,493, at a weighted average interest rate of 5.32%. The maximum loan
outstanding during the year ended December 31, 1997 was $29,000,000. There was
no balance outstanding at December 31, 1997.
Note 5. 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 6. Capital
As of December 31, 1997, the total capital commitments from the Funds was
$560,267,692 of which a net amount of $255,323,488 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 at a rate which is equal to the
treasury bill rate as of the preceding December 1 plus 3.5%.
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
sub-classification as a closed-end investment company or changes in its
fundamental investment restrictions.
<PAGE>
BlackRock Asset Investors (In Liquidation)
Additional Tax Information
- --------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of dividends and
distributions paid by the Trust during its fiscal year ended December 31, 1997.
During the fiscal year ended December 31, 1997, the Trust paid
distributions to common shareholders of $615.16 per share of which $31.51 is
taxable as long-term capital gain at the 20% rate, and $583.65 is a non-taxable
return of capital. The Trust paid a non-taxable return of capital distribution
to preferred shareholders of $37.38.
For the purpose of preparing your 1997 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which were mailed to you in January 1998.
<PAGE>
BLACKROCK ASSET INVESTORS (In Liquidation)
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Trustees of
BlackRock Asset Investors:
We have audited the accompanying consolidated statement of assets and
liabilities of BlackRock Asset Investors ("BAI") as of December 31, 1997 and the
related consolidated statements of operations and cash flows for the year then
ended and the consolidated statement of changes in net assets for the years
ending December 31, 1997 and 1996 and the consolidated statements of financial
highlights for the years ending December 31, 1997 and 1996 and for the period
March 29, 1995 (commencement of operations) to December 31, 1995. These
consolidated financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of BlackRock Asset Investors as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended, and the changes in its net assets for the years ending December
31, 1997 and 1996 and its financial highlights for the years ended December 31,
1997 and 1996 and for the period March 29, 1995 (commencement of operations) to
December 31, 1995 in conformity with generally accepted accounting principles.
As explained in Note 1, the Board of Trustees of BAI approved a plan of
liquidation ("Plan") and a technical amendment to the terms of BAI's Preferred
Shares to facilitate the Plan, on the Adoption Date, October 6, 1997.
As explained in Note 1, the consolidated financial statements include
investments valued at $245,361,736 (100.5% of net assets), whose value of
underlying investments have been estimated by the Board of Trustees in the
absence of readily ascertainable market values. We have reviewed the procedures
used by the Board of Trustees in arriving at its estimate of value of such
investments and have inspected underlying documentation, and, in the
circumstances, we believe the procedures are reasonable and the documentation
appropriate. However, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have been
used had a ready market for the investments existed, and the differences could
be material.
New York, New York
February 23, 1998
<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
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of BAI shares.
BlackRock Asset Investors
Two Heritage Drive
North Quincy, MA 02171
