BLACKROCK ASSET INVESTORS
(IN LIQUIDATION)
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1998 (UNAUDITED)
<PAGE>
BLACKROCK ASSET INVESTORS (IN LIQUIDATION)
CONSOLIDATED SCHEDULE OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE PAR (000) VALUE
------------------ --------- -----
RESIDENTIAL COMMERCIAL MORTGAGE PASS-THROUGH
CERTIFICATES - 9.4%
<S> <C> <C>
BCF L.L.C. Series 1996 - C2 Class A - Interest Only 4,589 $ 93,816
BCF L.L.C. Series 1996 - C2 Class B - Interest Only 7,645 67,638
BCF L.L.C. Series 1996 - C2 Class C - Interest Only 5,734 66,272
BCF L.L.C. Series 1996 - C2 Class D - Interest Only 6,691 84,019
BCF L.L.C. Series 1996 - C2 Class E 9,079 8,510,023
BCF L.L.C. Series 1996 - C2 Class F 2,109 2,028,830
BCF L.L.C. Series 1996 - C2 Class G 6,690 2,583,275
BCF L.L.C. Series 1997 - R2 Class B4 1,007 678,368
BCF L.L.C. Series 1997 - R2 Class B5 992 524,323
BCF L.L.C. Series 1997 - R2 Class B6 1,954 550,764
BCF L.L.C. Series 1997 - C1 Class X1 - Interest Only 22,126 148,078
BCF L.L.C. Series 1997 - C1 Class X2 - Interest Only 14,394 258,576
BCF L.L.C. Series 1997 - C1 Class E - Interest Only 5,012 116,884
BCF L.L.C. Series 1997 - C1 Class F 1,566 1,307,451
BCF L.L.C. Series 1997 - C1 Class G 5,952 2,576,919
-------------
Total Residential and Commercial Mortgage Pass-Through Certificates
(cost $18,162,238) 19,595,236
-------------
L.L.C. INVESTMENTS - 5.6%
BCC Investors, L.L.C. (cost $11,570,092) 11,570 11,570,092
-------------
PARTNERSHIP INVESTMENTS - 79.5%
BlackRock Capital Finance (cost $165,724,548) 164,832,650
-------------
TOTAL LONG TERM INVESTMENTS - (COST $195,456,878) 195,997,978
-------------
SHORT TERM INVESTMENT - 0.1%
Repurchase agreement dated 06/30/98
with State Street Bank and Trust, Co. 5.25% due 07/01/98,
collateralized by $290,000 United States Treasury
Note 6.50% due 08/31/01 (market value $303,635)
(repurchase proceeds $295,043) (cost $295,000) 295 295,000
-------------
TOTAL INVESTMENTS - (COST $195,751,878) - 94.6% 196,292,978
OTHER ASSETS IN EXCESS OF LIABILITIES - 5.9% 12,177,387
LIQUIDATION VALUE OF PREFERRED STOCK - (0.5)% (1,020,000)
-------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS - 100% $ 207,450,365
=============
- -------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BLACKROCK ASSET INVESTORS (IN LIQUIDATION)
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments, at estimated fair value (cost $195,751,878) $ 196,292,978
Cash, including cash held in foreign banks of $35,941 40,023
Interest rate caps, at value (Amortized Cost $184,113) (Note 3) 10
Unrealized gain on foreign currency contracts (Note 1) 118,652
Receivable due from affiliates 12,785,744
Other assets 44
--------------
Total assets 209,237,451
--------------
LIABILITIES
Investment advisory fee payable (Note 2) 348,000
Notes payable 192,500
Administration fee payable 24,265
Other accrued expenses 202,321
-------------
Total liabilities 767,086
-------------
NET INVESTMENT ASSETS $ 208,470,365
=============
Net assets were comprised of:
Common shares of beneficial interest, at par (Note 5) $ 7,299
Paid in capital in excess of par 221,257,680
Preferred stock, at par (Note 5) 1,020,000
-------------
222,284,979
Accumulated net realized loss on investments, forward currency
contracts and foreign currency (14,290,302)
Net unrealized appreciation on investments, forward currency
contracts, foreign currency and interest rate caps 475,688
-------------
Total Net Investment Assets $ 208,470,365
=============
Net assets applicable to common shareholders $ 207,450,365
=============
Net asset value per common share ($207,450,365 divided by 729,898
common shares issued and outstanding) $ 284.22
=============
Total common shares outstanding at end of period 729,898.17
=============
- ---------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BLACKROCK ASSET INVESTORS (IN LIQUIDATION)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
<S> <C>
Net investment income earned from BCF $ 16,121,949
Interest (net of interest expense of $7,685) 2,642,326
Other income (Note 3) 38,410
-------------
Total income 18,802,685
-------------
Expenses
Investment advisory 348,000
Deferred organization expenses 84,000
Directors 31,000
Administration 29,000
Audit 25,000
Legal 25,000
Accounting 15,000
Custodian 8,000
Miscellaneous 35,128
-------------
Total operating expenses 600,128
-------------
Net investment income 18,202,557
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FORWARD CURRENCY CONTRACTS, FOREIGN CURRENCY
TRANSACTIONS AND INTEREST RATE CAPS (NOTE 3)
Net realized gain (loss) on:
Foreign currency and forward currency contracts 213,797
BCF investments (824,362)
-------------
Net realized loss (610,565)
-------------
Net change in unrealized appreciation (depreciation) on:
Foreign Currency and forward currency contracts (91,251)
BCF investments (1,400,575)
Interest rate caps 226,184
-------------
Net change in unrealized depreciation (1,265,642)
------------
Net realized and unrealized loss (1,876,207)
------------
NET INCREASE IN NET INVESTMENT ASSETS
RESULTING FROM OPERATIONS $ 16,326,350
============
- ----------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BLACKROCK ASSET INVESTORS (IN LIQUIDATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
Cash flows provided by operating activities:
<S> <C>
Net investment income $ 2,735,743
BCF net income 16,121,949
Expenses paid (1,290,688)
Recievable from affiliates (12,785,744)
Net loss from forward currency contracts and transactions 213,797
Net unrealized gain from foreign currency transactions (95,568)
-----------
Net cash flows provided by operating activities 4,899,489
-----------
Cash flows used for investing activities -
purchase of repurchase agreements, net (295,000)
-----------
Cash flows used for financing activities -
payment of distributions (4,632,590)
-----------
Net decrease in cash (28,101)
Cash and foreign currency, beginning of period 68,124
-----------
Cash and foreign currency, end of period $ 40,023
===========
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 $ 16,326,350
------------
Increase in unrealized appreciation 1,265,642
Net realized loss on BCF investments 824,362
Decrease in accrued expenses and other liabilities (877,072)
Increase in due from affiliates (12,785,744)
Decrease in interest receivable 55,007
Decrease in other assets 90,944
-------------
Total adjustments (11,426,861)
-------------
Net cash flows provided by operating activities $ 4,899,489
=============
- ----------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BLACKROCK ASSET INVESTORS (IN LIQUIDATION)
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED JUNE 30,1998 DECEMBER 31, 1997
----------------------- -----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 18,202,557 $ 155,336,523
Net realized loss (610,565) (8,441,205)
Net change in unrealized appreciation (depreciation) (1,265,642) 3,068,906
------------- -------------
Net increase in net assets resulting
from operations 16,326,350 149,964,224
------------- -------------
Dividends and distributions:
To common shareholders from:
Net investment income (18,202,557) (156,186,380)
Return of capital (33,797,443) (292,813,620)
To preferred shareholders from:
Net investment income -- (76,254)
------------- -------------
Total dividends & distributions to
common and preferred shareholders (52,000,000) (449,076,254)
------------- -------------
Fund share transactions:
Proceeds from common shares issued -- 183,000,000
------------- -------------
Net decrease (35,673,650) (116,112,030)
NET INVESTMENT ASSETS
Beginning of period 244,144,015 360,256,045
------------- -------------
End of period $ 208,470,365 $ 244,144,015
============= =============
- --------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BLACKROCK ASSET INVESTORS (IN LIQUIDATION)
CONSOLIDATED STATEMENT OF FINANCIAL HIGHLIGHTS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
MARCH 29, 1995*
FOR THE SIX MONTHS FOR THE YEAR ENDED FOR THE YEAR ENDED THROUGH
ENDED JUNE 30 DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
------------------ ------------------ ------------------ ---------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value per common share,
<S> <C> <C> <C> <C>
Beginning of period $ 333.09 $ 741.42 $ 765.99 $ 1,000.00
-------- -------- -------- ----------
Net investment income (loss) (a) 24.94 224.83 262.06 (150.3)**
Net realized and unrealized gain (loss) (a) (2.57) (17.90) 14.05 (83.8)**
-------- -------- -------- ----------
Net increase (decrease) from investment operations 22.37 206.93 276.11 (234.01)
-------- -------- -------- ----------
Less dividends & distributions:
To common shareholders from:
Net investment income (24.94) (213.98) (168.12) --
Net realized gains -- -- (5.92) --
In excess of net realized gain -- -- (13.96) --
Return of capital (46.30) (401.18) (112.68) --
To preferred shareholders from net investment income -- (0.10) -- --
-------- -------- -------- ----------
(71.24) (615.26) (300.68) --
-------- -------- -------- ----------
Net asset value per common share, end of period $ 284.22 $ 333.09 $ 741.42 $ 765.99
-------- -------- -------- ----------
TOTAL INVESTMENT RETURN 6.72% 27.91% 50.00% (23.40)%
RATIOS TO AVERAGE NET ASSETS
OF COMMON SHAREHOLDERS:
Operating expenses (c) 0.51%(b) 0.54% 1.15% 10.78%(b)**
Net investment income (loss) (c) 15.40%(b) 31.04% 33.17% (13.15)%(b)**
SUPPLEMENTAL DATA:
Average net assets of
common shareholders (in thousands) $238,358 $500,489 $206,466 $47,282
Portfolio turnover 0% 71% -- 27%
Net assets of common shareholders,
end of period (in thousands) $207,450 $243,124 $359,236 $100,991
Asset coverage per share of preferred stock,
end of period (in thousands) $102 $119 $176 --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 0.22% and 6.55%, respectively, for the six
months ended June 30, 1998. 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 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 Consolidated Financial Statements.
<PAGE>
BLACKROCK ASSET INVESTORS (IN LIQUIDATION)
NOTES TO CONSOLIDATED 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. 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 June 30, 1998 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.
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
<PAGE>
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 June 30, 1998 are as
follows:
<TABLE>
<CAPTION>
VALUE AT
SETTLEMENT CONTRACT SETTLEMENT VALUE AT UNREALIZED
DATE TO SELL (000) DATE JUNE 30,1998 APPRECIATION
---------------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
08/18/98 FRF 51,000 $8,595,748 $8,477,096 $118,652
================ ================ ==============
</TABLE>
<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.
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. As of June 30, 1998, the amortization of
these costs have been accelerated, bringing the balance to zero.
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.
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
There were no purchases and proceeds from sales of investment securities,
other than short-term investments, for the six months ended June 30, 1998. The
federal income tax basis of the investments at June 30, 1998 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, 1998 the Trust's direct and indirect investment in
BCF of $168,444,707 is illiquid.
BCF's summary financial information as of June 30, 1998 and for the six
months then ended is as follows:
ASSETS:
Performing and distressed real estate
and related assets $ 149,895,868
Cash, deposits and other real estate
related assets 48,645,814
Other assets 1,315,357
-------------
Total assets 199,857,039
LIABILITIES:
Accounts payable and accrued expenses 35,024,389
-------------
PARTNERS' CAPITAL $ 164,832,650
=============
REVENUE:
Investment income $ 19,684,728
EXPENSES:
Expenses 3,562,779
-------------
NET INVESTMENT INCOME 16,121,949
-------------
NET REALIZED LOSS (824,362)
NET CHANGE IN UNREALIZED LOSS (1,400,575)
--------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 13,897,012
==============
Details of open interest rate cap agreements at June 30, 1998 are as follows:
<TABLE>
<CAPTION>
NOTIONAL MATURITY INTEREST VALUE AT VALUE AT UNREALIZED
AMOUNT DESCRIPTION DATE RATE TRADE DATE JUNE 30, 1998 DEPRECIATION
- ------ ----------- ---- ---- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
100,000,000 3M Libor Cap 12/23/98 7.00% $184,113 $10 $(184,103)
=========== ============= =============
</TABLE>
On November 5, 1996, the Trust purchased warrants of Annington Homes Ltd.
(AHL). The warrants represent 16.07% of the total warrants issued by AHL. Each
warrant is convertible into one share of common stock. 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 June 30, 1998, 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.
<PAGE>
NOTE 4. NOTES
The Trust has issued notes in the aggregate principal amount of $192,500 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 5. CAPITAL
As of June 30, 1998, the total capital commitments from the Funds was
$560,267,692 of which a net amount of $225,138,102 had been called and received.
The commitment period ended on January 17, 1998.
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>
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, 1998 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 BAI shares.
BLACKROCK ASSET INVESTORS
Two Heritage Drive
North Quincy, MA 02171
