BlackRock Asset Investors
(In Liquidation)
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Annual Report
December 31, 1998
<PAGE>
BlackRock Asset Investors (In Liquidation)
Consolidated Schedule of Investments
December 31, 1998
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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 - 12.4%
BCF L.L.C. Series 1996 - C2 Class C - Interest Only 5,734 $ 1,792
BCF L.L.C. Series 1996 - C2 Class D - Interest Only 6,691 5,227
BCF L.L.C. Series 1996 - C2 Class E 9,079 9,050,906
BCF L.L.C. Series 1996 - C2 Class F 2,390 2,278,533
BCF L.L.C. Series 1996 - C2 Class G 6,690 2,876,822
BCF L.L.C. Series 1997 - R2 Class B4 991 637,535
BCF L.L.C. Series 1997 - R2 Class B5 977 411,591
BCF L.L.C. Series 1997 - R2 Class B6 1,546 272,339
BCF L.L.C. Series 1997 - C1 Class X1 - Interest Only 17,021 42,551
BCF L.L.C. Series 1997 - C1 Class X2 - Interest Only 12,882 18,115
BCF L.L.C. Series 1997 - C1 Class E - Interest Only 5,012 7,048
BCF L.L.C. Series 1997 - C1 Class F 1,566 1,158,622
BCF L.L.C. Series 1997 - C1 Class G 5,952 2,667,355
BCF L.L.C. Series 1998 - R3 Class B4 1,238 856,449
BCF L.L.C. Series 1998 - R3 Class B5 963 489,666
BCF L.L.C. Series 1998 - R3 Class B6 2,742 694,610
------------
Total Residential and Commercial Mortgage Pass-Through Certificates
(cost $19,626,694) 21,469,161
------------
L.L.C. Investments - 6.1%
BCC Investors, L.L.C. (cost $10,561,380) 10,561,380
------------
Partnership Investments - 81.7%
BlackRock Capital Finance (cost $138,911,672) 141,429,006
------------
Total Long Term Investments - (cost $169,099,746) 173,459,547
------------
Short Term Investment - 1.2%
Repurchase agreement dated 12/31/98
with State Street Bank and Trust, Co. 4.50% due 01/04/99
collateralized by $2,145,000 United States Treasury
Note 4.00% due 10/31/00 (market value $2,134,275)
(repurchase proceeds $2,092,046) (cost $2,091,000) 2,091 2,091,000
------------
Total Investments - (cost $171,190,746) - 101.4% 175,550,547
Liabilities in Excess of Other Assets - (0.8)% (1,492,794)
Liquidation Value of Preferred Stock - (0.6)% (1,020,000)
------------
Net Assets Applicable to Common Shareholders - 100% $173,037,753
============
</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, 1998
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<TABLE>
<S> <C>
Assets
Investments, at estimated fair value (cost $171,190,746) $ 175,550,547
Cash, including cash held in foreign banks of $564,495 564,967
Interest receivable 436,549
Unrealized appreciation on forward currency contracts (Note 1) 12,187
-------------
Total assets 176,564,250
-------------
Liabilities
Payable due to affiliates 1,564,351
Investment advisory fee payable (Note 2) 282,310
Notes payable 192,500
Interest payable on preferred stock 81,192
Administration fee payable 9,915
Other accrued expenses 376,229
-------------
Total liabilities 2,506,497
-------------
Net Investment Assets $ 174,057,753
=============
Net assets were comprised of:
Common shares of beneficial interest, at par (Note 5) 7,220
Paid in capital in excess of par 186,693,033
Preferred stock, at par (Note 5) 1,020,000
-------------
187,720,253
Accumulated net realized loss on investments, forward currency contracts
and foreign currency and distributions in excess of net realized gains (18,031,786)
Net unrealized appreciation on investments, forward currency
contracts and foreign currency 4,369,286
-------------
Total Net Investment Assets $ 174,057,753
=============
Net assets applicable to common shareholders $ 173,037,753
=============
Net asset value per common share ($173,037,753 divided by 729,898
common shares issued and outstanding) $ 237.07
=============
Total common shares outstanding at end of year 729,898.17
=============
</TABLE>
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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, 1998
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Net Investment Income
Income
Net investment income earned from BCF $ 10,953,868
Interest (net of interest expense of $14,705) 4,380,446
Other income (Note 3) 525,506
------------
Total income 15,859,820
------------
Expenses
Investment advisory 670,787
Professional services 181,000
Directors 100,000
Deferred organization expenses 84,143
Administration 21,000
Accounting 16,000
Miscellaneous 67,867
------------
Total operating expenses 1,140,797
------------
Net investment income 14,719,023
------------
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 (241,567)
BCF investments (4,110,482)
------------
Net realized loss (4,352,049)
------------
Net change in unrealized appreciation (depreciation) on:
Foreign currency and forward currency contracts (200,456)
BCF investments 2,008,815
Other investments 409,310
Interest rate caps 410,287
------------
Net change in unrealized appreciation 2,627,956
------------
Net realized and unrealized loss (1,724,093)
------------
Net Increase In Net Investment Assets
Resulting from Operations $ 12,994,930
============
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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, 1998
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<TABLE>
<S> <C>
Increase (Decrease) in Cash
Cash flows provided by operating activities:
Net investment income $ 4,539,158
BCF net income 10,953,868
Expenses paid 857,223
Recievable from affiliates (1,008,712)
Net loss from forward currency contracts and transactions (241,567)
------------
Net cash flows provided by operating activities 15,099,970
------------
Cash flows provided by investing activities:
Net sale of investments 70,487,873
Purchase of repurchase agreements, net (2,091,000)
------------
Net cash flows provided by investing activities 68,396,873
------------
Cash flows used for financing activities:
Payment of distributions (83,000,000)
------------
Net increase in cash 496,843
Cash, beginning of year 68,124
------------
Cash, end of year $ 564,967
============
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 $ 12,994,930
------------
Increase in unrealized appreciation (2,627,956)
Net realized loss on BCF investments 4,110,482
Increase in accrued expenses and other liabilities 1,926,098
Increase in due from affiliates (1,008,712)
Increase in interest receivable (381,498)
Decrease in other assets 86,626
------------
Total adjustments 2,105,040
------------
Net cash flows provided by operating activities $ 15,099,970
============
</TABLE>
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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, 1998 December 31, 1997
----------------------- -----------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 14,719,023 $ 155,336,523
Net realized loss (4,352,049) (8,441,205)
Net change in unrealized appreciation 2,627,956 3,068,906
------------- -------------
Net increase in net assets resulting
from operations 12,994,930 149,964,224
------------- -------------
Dividends and distributions:
To common shareholders from:
Net investment income (14,637,831) (156,186,380)
Return of capital (68,362,169) (292,813,620)
To preferred shareholders from:
Net investment income (81,192) (76,254)
------------- -------------
Total dividends and distributions to
common and preferred shareholders (83,081,192) (449,076,254)
------------- -------------
Fund share transactions:
Proceeds from common shares issued - 183,000,000
------------- -------------
Net decrease (70,086,262) (116,112,030)
Net Investment Assets
Beginning of year 244,144,015 360,256,045
------------- -------------
End of year $ 174,057,753 $ 244,144,015
============= =============
</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 For the Year Ended through
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value per common share,
Beginning of period $ 333.09 $ 741.42 $ 765.99 $ 1,000.00
----------- ----------- ----------- -----------
Net investment income (loss) (a) 20.16 224.83 262.06 (150.13)**
Net realized and unrealized gain (loss) (a) (2.36) (17.90) 14.05 (83.88)**
----------- ----------- ----------- -----------
Net increase (decrease) from investment operations 17.80 206.93 276.11 (234.01)
----------- ----------- ----------- -----------
Less dividends & distributions:
To common shareholders from:
Net investment income (20.05) (213.98) (168.12) --
Net realized gains -- -- (5.92) --
In excess of net realized gain -- -- (13.96) --
Return of capital (93.66) (401.18) (112.68) --
To preferred shareholders from net
investment income (0.11) (0.10) -- --
----------- ----------- ----------- -----------
(113.82) (615.26) (300.68) --
----------- ----------- ----------- -----------
Net asset value per common share, end of period $ 237.07 $ 333.09 $ 741.42 $ 765.99
=========== =========== =========== ===========
TOTAL INVESTMENT RETURN 5.34% 27.91% 50.00% (23.40)%
RATIOS TO AVERAGE NET ASSETS
OF COMMON SHAREHOLDERS:
Operating expenses (c) 0.51% 0.54% 1.15% 10.78%(b)**
Net investment income (loss) (c) 6.64% 31.04% 33.17% (13.15)%(b)**
SUPPLEMENTAL DATA:
Average net assets of
common shareholders (in thousands) $ 221,827 $ 500,489 $ 206,466 $ 47,282
Portfolio turnover -- 71% -- 27%
Net assets of common shareholders,
end of period (in thousands) $ 173,038 $ 243,124 $ 359,236 $ 100,991
Asset coverage per share of preferred stock,
end of period (in thousands) $ 85 $ 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 0.20% and 2.63%, respectively, for the year
ended December 31, 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 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
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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, 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.
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 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 is revalued on
the basis of such event and, if possible, is thereafter, 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.
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, 1998 are
as follows:
Value at
Settlement Contract Settlement Value at Unrealized
Date to sell (000) Date 12/31/98 Appreciation
- ---------- ------------- ---------- -------- ------------
02/18/99 FRF 25,800 $4,637,785 $4,625,598 $12,187
========== ========== =======
<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 extent 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.
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. The amortization of these costs was
accelerated in 1998, 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 and BCF each 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, each by the Trust and BCF, 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. For the year ended December 31, 1998, the Trust allocated 100% of the
performance fee of $947,530 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 the 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 year ended December 31, 1998. The
federal income tax basis of the investments at December 31, 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 December 31, 1998 the Trust's direct and indirect investment
in BCF is illiquid.
BCF's summary financial information as of December 31, 1998 and for the
year then ended is as follows:
ASSETS:
Performing and distressed real estate
and related assets $ 104,144,144
Cash, deposits and other real estate
related assets 51,658,619
Other assets 2,535,920
-------------
Total assets 158,338,683
LIABILITIES:
Accounts payable and accrued expenses 16,909,677
PARTNERS' CAPITAL $ 141,429,006
=============
REVENUE:
Investment income $ 18,195,068
EXPENSES:
Expenses 7,241,200
NET INVESTMENT INCOME 10,953,868
NET REALIZED LOSS (4,110,482)
NET CHANGE IN UNREALIZED APPRECIATION 2,008,815
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 8,852,201
=============
On November 5, 1996, the Trust purchased warrants of Annington Homes Ltd.
(AHL). Each warrant is convertible into one share of AHL's common stock. On
December 29, 1997 the Trust received approximately $34,778,642 on the warrants
and recorded income of approximately $32 million. The payment increased the
subscription price on the warrants from a nominal amount to approximately $6,350
per warrant. At December 31, 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
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, 1998.
During the fiscal year ended December 31, 1998, the Trust paid
distributions to common shareholders of $113.71 per share, all of which
constituted a liquidating distribution.
For the purpose of preparing your 1998 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which was mailed to you in January of 1999.
<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, including the consolidated schedule of investments, of BlackRock
Asset Investors (In Liquidation) ("Trust") as of December 31, 1998 and the
related consolidated statements of operations and cash flows for the year then
ended, the consolidated statements of changes in net assets for the years ended
December 31, 1998 and 1997, and the consolidated statements of financial
highlights for the years ended December 31, 1998, 1997, and 1996, and for the
period March 29, 1995 (commencement of investment 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 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, 1998 and the results of their operations and their cash flows for
the year then ended, the changes in their net assets for the years ended
December 31, 1998 and 1997 and their financial highlights for the years ended
December 31, 1998, 1997 and 1996, and for the period March 29, 1995
(commencement of investment operations) to December 31, 1995 in conformity with
generally accepted accounting principles.
As explained in Note 1, the consolidated financial statements include
investments valued at $175,550,547 (101.4% of net assets), whose values 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, 1999
<PAGE>
Trustees
Laurence D. Fink, Chairman
John C. Deterding
Donald G. Drapkin
Wesley R. Edens
Charles Froland
James Grosfeld
Laurence E. Hirsch
Thomas Ruggels
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
<PAGE>
BlackRock Fund Investors I
(In Liquidation)
- --------------------------------------------------------------------------------
Annual Report
December 31, 1998
<PAGE>
BlackRock Fund Investors I (In Liquidation)
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
Assets
Investment in BlackRock Asset Investors, at estimated
fair value (cost $65,012,318) (Notes 1 and 3) $ 60,206,866
Repurchase agreement dated 12/31/98
with State Street Bank and Trust, Co. 4.50% due 01/04/99,
collateralized by $465,000 United States Treasury Note
4.00% due 10/31/00 (market value $462,675)
(repurchase proceeds $451,226) (cost $451,000) 451,000
------------
Total investments (cost $65,463,318) 60,657,866
------------
Cash 971
Notes receivable (Note 4) 64,000
Interest receivable from BAI preferred shares 21,191
Other assets 3,506
------------
Total assets 60,747,534
Liabilities
Master administration fee payable (Note 2) 196,367
Notes payable (Note 4) 64,000
Other accrued expenses 135,581
------------
Total liabilities 395,948
Net Assets $ 60,351,586
============
Net assets were comprised of:
Shares of beneficial interest, at par (Note 5) $ 2,783
Paid-in capital in excess of par 65,154,255
------------
65,157,038
Net unrealized depreciation on investments (4,805,452)
Total net assets $ 60,351,586
============
Net asset value per share $ 216.87
============
Total shares outstanding at end of year 278,283.29
============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors I (In Liquidation)
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Net Investment Income
Income
Interest (net of interest expense of $4,889) $ 45,739
Dividend income 5,070,574
-----------
Total income 5,116,313
Expenses
Master administration (Note 2) 433,620
Directors 99,430
Deferred organization expenses 58,560
Professional services 30,980
Transfer Agent 5,750
Miscellaneous 15,750
-----------
Total expenses 644,090
Net investment income 4,472,223
Unrealized Loss on Investments (Note 3)
Net change in unrealized depreciation on investments (597,238)
-----------
Net Increase In Net Assets
Resulting from Operations $ 3,874,985
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors I (In Liquidation)
Statement of Cash Flows
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
Cash flows provided by operating activities:
Dividends and interest received $ 5,117,458
Expenses paid (847,685)
------------
Net cash flows provided by operating activities 4,269,773
------------
Cash flows used for financing activities:
Distributions received 24,819,797
Distributions to shareholders (29,093,073)
------------
Net cash flows used for financing activities (4,273,276)
------------
Net decrease in cash (3,503)
Cash beginning of year 4,474
------------
Cash end of year $ 971
============
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 $ 3,874,985
------------
Increase in unrealized depreciation 597,238
Decrease in deferred organization expenses and other assets 54,814
Decrease in other accrued expenses (257,264)
------------
Total adjustments 394,788
------------
Net cash flows provided by operating activities $ 4,269,773
============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors I (In Liquidation)
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997
------------------ ------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 4,472,223 $ 53,101,750
Net change in unrealized depreciation
on investments (597,238) (2,173,275)
------------ -------------
Net increase in net assets resulting
from operations 3,874,985 50,928,475
------------ -------------
Dividends and distributions to shareholders from:
Net investment income (4,472,223) (52,038,821)
Return of capital (24,620,850) (102,421,276)
------------ -------------
Total dividends and distributions to shareholders (29,093,073) (154,460,097)
------------ -------------
Fund share transactions:
Proceeds from shares issued -- 62,999,109
------------ -------------
Net increase in net assets resulting
from fund share transactions -- 62,999,109
------------ -------------
Net decrease (25,218,088) (40,532,513)
Net Assets
Beginning of year 85,569,674 126,102,187
------------ -------------
End of year $ 60,351,586 $ 85,569,674
============ =============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors I (In Liquidation)
Statements of Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 29, 1995*
For the Year Ended For the Year Ended For the Year Ended through
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $ 307.49 $ 678.38 $ 684.36 $ 1,000.00
----------- ----------- ----------- -----------
Net investment income (loss) (a) 16.07 201.41 207.34 (88.36)
Net realized and unrealized gain
(loss) (a) (2.15) (17.25) 30.04 (227.28)
----------- ----------- ----------- -----------
Net increase (decrease) from
investment operations 13.92 184.16 237.38 (315.64)
----------- ----------- ----------- -----------
Less dividends and distributions:
Net investment income (16.07) (187.00) (131.31) --
In excess of net investment income -- -- (7.16) --
Net realized gain -- -- (17.09) --
Return of capital (88.47) (368.05) (87.80) --
----------- ----------- ----------- -----------
(104.54) (555.05) (243.36) --
----------- ----------- ----------- -----------
Net asset value, end of period $ 216.87 $ 307.49 $ 678.38 $ 684.36
=========== =========== =========== ===========
TOTAL INVESTMENT RETURN 4.53% 27.15% 53.11% (31.56)%
RATIOS TO AVERAGE NET ASSETS:
Expenses (c) 0.83% 0.65% 1.55% 7.73%(b)
Net investment income (loss) (c) 5.78% 30.14% 29.24% (7.73)%(b)
SUPPLEMENTAL DATA:
Average net assets (in thousands) $ 77,424 $ 176,208 $ 71,295 $ 15,573
Portfolio turnover -- -- -- --
Net assets, end of period
(in thousands) $ 60,352 $ 85,570 $ 126,102 $ 34,317
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of investment operations.
(a) Calculated based on average shares.
(b) Annualized.
(c) The ratio of expenses and net investment income to total investor capital
commitments of $194,950,055 on an annualized basis is 0.33% and 2.29%,
respectively, for the year ended December 31, 1998. The ratio of expenses
and net investment income to total investor capital commitments of
$194,950,055 on an annualized basis is 0.58% and 27.24%, respectively, for
the year ended December 31, 1997. The ratio of expenses and net investment
income to total investor capital commitments of $194,950,055 is 0.57% and
10.69%, respectively, for the year ended December 31, 1996. The ratio of
expenses and net investment loss to total investor capital commitments of
$194,950,055 on an annualized basis is 0.62% and (0.62)%, respectively,
for the year ended December 31, 1995.
Contained above is the audited operating performance based on an average
share of beneficial interest outstanding, total investment return, ratios
to average net assets and other supplemental data, for the period
indicated. This information has been determined based upon financial
information provided in the financial statements.
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors I (In Liquidation)
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1. Organization and Accounting Policies
BlackRock Fund Investors I ("Fund I") is a non-diversified closed-end
investment company organized as a Delaware business trust. Fund I invests all of
its investable assets in BlackRock Asset Investors ("BAI" or the "Trust") which
is a Delaware business trust registered under the Investment Company Act of 1940
as a non-diversified closed-end investment company and has the same investment
objective as Fund I. The value of Fund I's investment in BAI reflects Fund I's
proportionate interest in the net assets of BAI. The performance of Fund I is
directly affected by the performance of BAI. The financial statements of BAI are
included in this report and should be read in conjunction with Fund I's
financial statements.
The Board of Trustees of Fund I ("Trustees") approved a plan of
liquidation ("Plan") on September 18, 1997 which was adopted by the shareholders
on October 3, 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 Fund I 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 Fund I 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 subsequent
to the Adoption Date are determined in accordance with income tax regulations
which may differ from Generally Accepted Accounting Principals
The following is a summary of significant accounting policies followed by
Fund I.
Securities Valuation: Fund I's interest in BAI common shares is valued by Fund I
at its proportionate interest in the net asset value of BAI (approximately 35%
at December 31, 1998). Fund I also holds 532.44 BAI preferred shares which are
valued at cost ($266,220). Valuation of securities by BAI is discussed in Note 1
of BAI's Notes to Consolidated Financial Statements which are included elsewhere
in this report.
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 custodian
for Fund I takes possession of the underlying collateral securities, the value
of which at least equals the principal amount of the repurchase transaction,
including 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 Fund I
may be delayed or limited.
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 Fund I amortizes premium or accretes discount on securities
purchased using the interest method. Dividends and distributions received from
BAI are recorded based on the character of the dividend or distribution
received.
<PAGE>
Taxes: It is Fund I'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.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Master Administration, Administration and Other Expenses: Master administration
and other expenses are recorded on the accrual basis.
Deferred Organization Expenses: A total of $130,484 was incurred in connection
with the organization of Fund I. The amortization of these costs was accelerated
in 1998, 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.
Note 2. Agreements
Fund I has a Master Administration Agreement with BlackRock Financial
Management, Inc. (the "Master Administrator ") which provides that during the
Commitment Period the Trust will pay to the Master Administrator for its
services (which are solely administrative in nature) a semi-annual fee, in
arrears, in an amount equal to .50% of the aggregate Capital Commitments, on an
annualized basis. Subsequent to the Commitment Period, the semi-annual fee
payable in arrears to the Master Administrator is .50% of the weighted average
capital invested during the relevant period on an annualized basis.
Fund I has also entered into an Administration Agreement with State Street
Bank and Trust Company ("State Street"). For its services under the
Administration Agreement, State Street receives no fees from Fund I.
Pursuant to the agreements, the Master Administrator provides various
administrative services, provides office space and pays the compensation of
officers of Fund I, who are affiliated persons of the Master Administrator.
State Street pays occupancy and certain clerical and accounting costs of Fund I.
Fund I bears all other costs and expenses.
Certain trustees of BAI and Fund I, who are not interested parties, are
paid a fee, which is split ratably between BAI, Fund I, BlackRock Fund Investors
II and BlackRock Fund Investors III, 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. Portfolio Securities
For the year ended December 31, 1998, there were no purchases or sales of
investment securities, other than short-term investments. The federal income tax
basis of the investments at December 31, 1998 was substantially the same as the
basis for financial reporting.
<PAGE>
Note 4. Notes
Fund I holds a note with a principal amount of $64,000 from BAI. The note
pays interest at a per annum rate of 2.50% over the yield of the one-year
constant maturity Treasury, redeemable annually by Fund I and due on dissolution
of BAI.
Fund I has issued and sold notes in the aggregate principal amount of
$64,000 paying 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 Fund I.
<PAGE>
BlackRock Fund Investors I (In Liquidation)
Additional Tax Information
- --------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of distributions paid
by Fund I during its fiscal year ended December 31, 1998.
During the fiscal year ended December 31, 1998, the Trust paid
distributions to common shareholders of $104.54 per share, all of which
constituted a liquidating distribution.
For the purposes of preparing your 1998 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which was mailed to you in January 1999.
<PAGE>
BlackRock Fund Investors I (In Liquidation)
Report of Independent Auditors
The Shareholders and Board of Trustees of
BlackRock Fund Investors I:
We have audited the accompanying statement of assets and liabilities of
BlackRock Fund Investors I (In Liquidation) as of December 31, 1998 and the
related statements of operations and cash flows for the year then ended, the
statements of changes in net assets for the years ended December 31, 1998 and
1997, and the statements of financial highlights for the years ended December
31, 1998, 1997 and 1996, and for the period March 29, 1995 (commencement of
investment operations) to December 31, 1995. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these 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 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 financial statements present fairly, in all material
respects, the financial position of BlackRock Fund Investors I as of December
31, 1998, and the results of its operations and its cash flows for the year then
ended, the changes in its net assets for the years ended December 31, 1998 and
1997, and its financial highlights for the years ended December 31, 1998, 1997
and 1996, and for the period March 29, 1995 (commencement of investment
operations) to December 31, 1995 in conformity with generally accepted
accounting principles.
As explained in Note 1, the financial statements include investments valued at
$60,206,866 (99.8% of net assets), whose values 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, 1999
<PAGE>
Trustees
Laurence D. Fink, Chairman
John C. Deterding
Donald G. Drapkin
Wesley R. Edens
Charles Froland
James Grosfeld
Laurence E. Hirsch
Thomas Ruggels
Kendrick R. Wilson, I
Officers
Ralph L. Schlosstein, President
Wesley R. Edens, Chief Operating Officer
Robert I. Kauffman, Managing Director
Randal A. Nardone, Managing Director and Assistant Secretary
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 Trust shares.
BlackRock Fund Investors I
Two Heritage Drive
North Quincy, MA 02171
<PAGE>
BlackRock Fund Investors II
(In Liquidation)
- --------------------------------------------------------------------------------
Annual Report
December 31, 1998
<PAGE>
BlackRock Fund Investors II (In Liquidation)
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
Assets
Investment in BlackRock Asset Investors, at estimated
fair value (cost $37,522,117) (Notes 1 and 3) $ 34,740,904
Cash 166,605
Notes receivable (Note 4) 21,000
Interest receivable from BAI preferred shares 12,179
Other assets 1,132
------------
Total assets 34,941,820
------------
Liabilities
Master administration fee payable (Note 2) 56,683
Notes payable (Note 4) 21,000
Other accrued expenses 120,076
------------
Total liabilities 197,759
------------
Net Assets $ 34,744,061
============
Net assets were comprised of:
Shares of beneficial interest, at par (Note 5) $ 1,547
Paid-in capital in excess of par 37,523,727
------------
37,525,274
Net unrealized depreciation on investments (2,781,213)
============
Total net assets $ 34,744,061
============
Net asset value per share $ 224.61
============
Total shares outstanding at end of year 154,683.67
============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors II (In Liquidation)
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Net Investment Income
Income
Interest (net of interest expense of $1,629) $ 19,244
Dividend income 2,925,903
-----------
Total income 2,945,147
Expenses
Master administration (Note 2) 124,400
Directors 99,430
Professional services 36,800
Deferred organization expenses 33,670
Transfer Agent 5,160
Custodian 3,250
Miscellaneous 22,549
-----------
Total expenses 325,259
-----------
Net investment income 2,619,888
-----------
Unrealized Loss on Investments (Note 3)
Net change in unrealized depreciation on investments (344,630)
-----------
Net Increase In Net Assets
Resulting from Operations $ 2,275,258
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors II (In Liquidation)
Statement of Cash Flows
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
Cash flows provided by operating activities:
Dividends and interest received $ 2,945,250
Expenses paid (316,696)
------------
Net cash flows provided by operating activities 2,628,554
------------
Cash flows used for financing activities:
Distributions received 14,199,664
Distributions to shareholders (16,664,317)
------------
Net cash flows used for financing activities (2,464,653)
------------
Net increase in cash 163,901
Cash beginning of year 2,704
Cash end of year $ 166,605
============
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 $ 2,275,258
------------
Increase in unrealized depreciation 344,630
Decrease in deferred organization expenses and other assets 32,141
Decrease in other accrued expenses (23,475)
------------
Total adjustments 353,296
------------
Net cash flows provided by operating activities $ 2,628,554
============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors II (In Liquidation)
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997
------------------ ------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 2,619,888 $ 30,845,730
Net change in unrealized depreciation
on investments (344,630) (1,258,150)
------------ ------------
Net increase in net assets resulting
from operations 2,275,258 29,587,580
------------ ------------
Dividends and distributions to shareholders from:
Net investment income (2,619,888) (30,492,328)
Return of capital (14,044,429) (58,877,661)
------------ ------------
Total dividends and distributions to shareholders (16,664,317) (89,369,989)
------------ ------------
Fund share transactions:
Proceeds from shares issued -- 36,541,941
------------ ------------
Net increase in net assets resulting
from fund share transactions -- 36,541,941
------------ ------------
Net decrease (14,389,059) (23,240,468)
Net Assets
Beginning of year 49,133,120 72,373,588
------------ ------------
End of year $ 34,744,061 $ 49,133,120
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors II (In Liquidation)
Statements of Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 29, 1995*
For the Year Ended For the Year Ended For the Year Ended through
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $ 317.64 $ 702.84 $ 722.26 $ 1,000.00
----------- ----------- ----------- -----------
Net investment income (loss) (a) 16.94 210.60 221.06 (45.98)
Net realized and unrealized gain (loss) (a) (2.23) (18.04) 34.03 (231.76)
----------- ----------- ----------- -----------
Net increase (decrease) from investment
operations 14.71 192.56 255.09 (277.74)
----------- ----------- ----------- -----------
Less dividends and distributions:
Net investment income (16.94) (197.13) (150.60) --
In excess of net investment income -- -- (4.65) --
Net realized gain -- -- (18.89) --
Return of capital (90.80) (380.63) (100.37) --
----------- ----------- ----------- -----------
(107.74) (577.76) (274.51) --
----------- ----------- ----------- -----------
Net asset value, end of period $ 224.61 $ 317.64 $ 702.84 $ 722.26
=========== =========== =========== ===========
TOTAL INVESTMENT RETURN 4.63% 27.40% 51.31% (27.77)%
RATIOS TO AVERAGE NET ASSETS:
Expenses (c) 0.73% 0.40% 0.95% 4.70%(b)
Net investment income (loss) (c) 5.87% 30.69% 29.76% (4.70)%(b)
SUPPLEMENTAL DATA:
Average net assets (in thousands) $ 44,616 $ 100,515 $ 41,100 $ 9,460
Portfolio turnover -- -- -- --
Net assets, end of period (in thousands) $ 34,744 $ 49,133 $ 72,374 $ 19,869
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of investment operations.
(a) Calculated based on average shares.
(b) Annualized.
(c) The ratio of expenses and net investment income to total investor capital
commitments of $112,078,123 on an annualized basis is 0.29% and 2.34%,
respectively, for the year ended December 31, 1998. The ratio of expenses
and net investment income to total investor capital commitments of
$112,078,123 on an annualized basis is 0.36% and 27.52%, respectively, for
the year ended December 31, 1997. The ratio of expenses and net investment
income to total investor capital commitments of $112,078,123 on an
annualized basis is 0.35% and 10.91%, respectively, for the year ended
December 31, 1996. The ratio of expenses and net investment loss to total
investor capital commitments of $112,078,123 on an annualized basis is
0.39% and (0.39)%, respectively, for the year ended December 31, 1995.
Contained above is the audited operating performance based on an average
share of beneficial interest outstanding, total investment return, ratios
to average net assets and other supplemental data, for the period
indicated. This information has been determined based upon financial
information provided in the financial statements.
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors II (In Liquidation)
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1. Organization and Accounting Policies
BlackRock Fund Investors II ("Fund II") is a non-diversified closed-end
investment company organized as a Delaware business trust. Fund II invests all
of its investable assets in BlackRock Asset Investors ("BAI" or the "Trust")
which is a Delaware business trust registered under the Investment Company Act
of 1940 as a non-diversified closed-end investment company and has the same
investment objective as Fund II. The value of Fund II's investment in BAI
reflects Fund II's proportionate interest in the net assets of BAI. The
performance of Fund II is directly affected by the performance of BAI. The
financial statements of BAI are included in this report and should be read in
conjunction with Fund II's financial statements.
The Board of Trustees of Fund II ("Trustees") approved a plan of
liquidation ("Plan") on September 18, 1997 which was adopted by the shareholders
on October 3, 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 Fund II 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 Fund II 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
subsequent to the Adoption Date are determined in accordance with income tax
regulations which may differ from Generally Accepted Accounting Principals
The following is a summary of significant accounting policies followed by
Fund II.
Securities Valuation: Fund II's interest in BAI common shares is valued by Fund
II at its proportionate interest in the net asset value of BAI (approximately
20% at December 31, 1998). Fund II also holds 306 BAI preferred shares which are
valued at cost ($153,000). Valuation of securities by BAI is discussed in Note 1
of BAI's Notes to Consolidated Financial Statements which are included elsewhere
in this report.
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 custodian
for Fund I takes possession of the underlying collateral securities, the value
of which at least equals the principal amount of the repurchase transaction,
including 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 Fund I
may be delayed or limited.
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 Fund II amortizes premium or accretes discount on securities
purchased using the interest method. Dividends and distributions received from
BAI are recorded based on the character of the dividend or distribution
received.
<PAGE>
Taxes: It is Fund II'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.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Master Administration, Administration and Other Expenses: Master administration
and other expenses are recorded on the accrual basis.
Deferred Organization Expenses: A total of $75,016 was incurred in connection
with the organization of Fund II. The amortization of these costs was
accelerated in 1998, 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.
Note 2. Agreements
Fund II has a Master Administration Agreement with BlackRock Financial
Management, Inc. (the "Master Administrator") which provides that during the
Commitment Period the Trust will pay to the Master Administrator for its
services (which are solely administrative in nature) a semi-annual fee, in
arrears, in an amount equal to .25% of the aggregate Capital Commitments, on an
annualized basis. Subsequent to the Commitment Period, the semi-annual fee
payable in arrears to the Master Administrator is .25% of the weighted average
capital invested during the relevant period on an annualized basis.
Fund II has also entered into an Administration Agreement with State
Street Bank and Trust Company ("State Street"). For its services under the
Administration Agreement, State Street receives no fees from Fund II.
Pursuant to the agreements, the Master Administrator provides various
administrative services, provides office space and pays the compensation of
officers of Fund II, who are affiliated persons of the Master Administrator.
State Street pays occupancy and certain clerical and accounting costs of Fund
II. Fund II bears all other costs and expenses.
Certain trustees of BAI and Fund II, who are not interested parties, are
paid a fee, which is split ratably between BAI, Fund II, BlackRock Fund
Investors I and BlackRock Fund Investors III, 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. Portfolio Securities
For the year ended December 31, 1998, there were no purchases or sales of
investment securities, other than short-term investments. The federal income tax
basis of the investments at December 31, 1998 was substantially the same as the
basis for financial reporting.
<PAGE>
Note 4. Notes
Fund II holds a note with a principal amount of $21,000 from BAI. The note
pays interest at a per annum rate of 2.50% over the yield of the one-year
constant maturity Treasury, redeemable annually by Fund II and due on
dissolution of BAI.
Fund II has issued and sold notes in the aggregate amount of $21,000
paying 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 Fund II.
<PAGE>
BlackRock Fund Investors II (In Liquidation)
Additional Tax Information
- --------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of distributions paid
by the Fund II during its fiscal year ended December 31, 1998.
During the fiscal year ended December 31, 1998, the Trust paid
distributions to common shareholders of $107.74 per share, all of which
constituted a liquidating distribution.
For the purpose of preparing your 1998 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which was mailed to you in January of 1999.
<PAGE>
BlackRock Fund Investors II (In Liquidation)
Report of Independent Auditors
The Shareholders and Board of Trustees of
BlackRock Fund Investors II:
We have audited the accompanying statement of assets and liabilities of
BlackRock Fund Investors II (In Liquidation) as of December 31, 1998 and the
related statements of operations and cash flows for the year then ended, the
statements of changes in net assets for the years ended December 31, 1998 and
1997, and the statements of financial highlights for the years ended December
31, 1998, 1997 and 1996, and for the period March 29, 1995 (commencement of
investment operations) to December 31, 1995. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these 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 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 financial statements present fairly, in all material
respects, the financial position of BlackRock Fund Investors II as of December
31, 1998 and the results of its operations and its cash flows for the year then
ended, the changes in its net assets for the years ended December 31, 1998 and
1997, and its financial highlights for the years ended December 31, 1998, 1997
and 1996, and for the period March 29, 1995 (commencement of investment
operations) to December 31, 1995 in conformity with generally accepted
accounting principles.
As explained in Note 1, the financial statements include investments valued at
$34,740,904 (99.9% of net assets), whose values 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, 1999
<PAGE>
Trustees
Laurence D. Fink, Chairman
John C. Deterding
Donald G. Drapkin
Wesley R. Edens
Charles Froland
James Grosfeld
Laurence E. Hirsch
Thomas Ruggels
Kendrick R. Wilson, II
Officers
Ralph L. Schlosstein, President
Wesley R. Edens, Chief Operating Officer
Robert I. Kauffman, Managing Director
Randal A. Nardone, Managing Director and Assistant Secretary
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 Trust shares.
BlackRock Fund Investors II
Two Heritage Drive
North Quincy, MA 02171
<PAGE>
BlackRock Fund Investors III
(In Liquidation)
- --------------------------------------------------------------------------------
Annual Report
December 31, 1998
<PAGE>
BlackRock Fund Investors III (In Liquidation)
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
Assets
Investment in BlackRock Asset Investors, at estimated
fair value (cost $85,191,904) (Notes 1 and 3) $ 78,854,979
Cash 157,459
Notes receivable (Note 4) 107,500
Interest receivable from BAI preferred shares 27,524
Other assets 5,788
------------
Total assets 79,153,250
------------
Liabilities
Notes payable (Note 4) 107,500
Other accrued expenses 155,080
------------
Total liabilities 262,580
------------
Net Assets $ 78,890,670
============
Net assets were comprised of:
Shares of beneficial interest, at par (Note 5) $ 3,354
Paid-in capital in excess of par 85,224,241
------------
85,227,595
Net unrealized depreciation on investments (6,336,925)
------------
Total net assets $ 78,890,670
============
Net asset value per share $ 235.21
============
Total shares outstanding at end of year 335,401.95
============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors III (In Liquidation)
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Net Investment Income
Income
Interest (net of interest expense of $8,338) $ 36,258
Dividend income 6,641,355
-----------
Total income 6,677,613
-----------
Expenses
Directors 99,430
Deferred organization expenses 76,060
Professional services 27,500
Transfer Agent 7,390
Miscellaneous 17,290
-----------
Total expenses 227,670
-----------
Net investment income 6,449,943
-----------
Unrealized Loss on Investments (Note 3)
Net change in unrealized depreciation on investments (782,223)
-----------
Net Increase In Net Assets
Resulting from Operations $ 5,667,720
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors III (In Liquidation)
Statement of Cash Flows
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
Cash flows provided by operating activities:
Dividends and interest received $ 6,679,883
Expenses paid (115,753)
------------
Net cash flows provided by operating activities 6,564,130
------------
Cash flows used for financing activities:
Distributions received 31,286,710
Distributions to shareholders (37,695,563)
------------
Net cash flows used for financing activities (6,408,853)
------------
Net increase in cash 155,277
Cash beginning of year 2,182
-----------
Cash end of year $ 157,459
============
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 $ 5,667,720
------------
Increase in unrealized depreciation 782,223
Decrease in deferred organization expenses and other assets 69,998
Increase in other accrued expenses 44,189
------------
Total adjustments 896,410
-----------
Net cash flows provided by operating activities $ 6,564,130
============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors III (In Liquidation)
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 6,449,943 $ 70,709,954
Net change in unrealized depreciation
on investments (782,223) (2,866,995)
------------- -------------
Net increase in net assets resulting
from operations 5,667,720 67,842,959
------------- -------------
Dividends and distributions to shareholders from:
Net investment income (6,449,943) (70,611,794)
Return of capital (31,245,620) (132,949,565)
------------- -------------
Total dividends and distributions to shareholders (37,695,563) (203,561,359)
------------- -------------
Fund share transactions:
Proceeds from shares issued -- 83,458,947
------------- -------------
Net increase in net assets resulting
from fund share transactions -- 83,458,947
------------- -------------
Net decrease (32,027,843) (52,259,453)
Net Assets
Beginning of year 110,918,513 163,177,966
------------- -------------
End of year $ 78,890,670 $ 110,918,513
============= =============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors III (In Liquidation)
Statements of Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 29, 1995*
For the Year Ended For the Year Ended For the Year Ended through
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $ 330.70 $ 733.89 $ 755.60 $ 1,000.00
----------- ----------- ----------- -----------
Net investment income (loss) (a) 19.23 222.80 236.65 (10.91)
Net realized and unrealized gain (loss) (a) (2.33) (19.07) 34.75 (233.49)
----------- ----------- ----------- -----------
Net increase (decrease) from investment
operations 16.90 203.73 271.40 (244.40)
----------- ----------- ----------- -----------
Less dividends and distributions:
Net investment income (19.23) (210.53) (164.34) --
In excess of net investment income -- (0.75) --
Net realized gain -- -- (19.63) --
Return of capital (93.16) (396.39) (108.39) --
----------- ----------- ----------- -----------
(112.39) (606.92) (293.11) --
----------- ----------- ----------- -----------
Net asset value, end of period $ 235.21 $ 330.70 $ 733.89 $ 755.60
=========== =========== =========== ===========
TOTAL INVESTMENT RETURN 5.11% 27.76% 53.84% (24.44)%
RATIOS TO AVERAGE NET ASSETS:
Expenses (c) 0.23% 0.08% 0.16% 0.85%(b)
Net investment income (loss) (c) 6.38% 31.07% 30.37% (0.85)%(b)
SUPPLEMENTAL DATA:
Average net assets (in thousands) $ 101,109 $ 227,550 $ 93,437 $ 21,529
Portfolio turnover -- -- -- --
Net assets, end of period (in thousands) $ 78,891 $ 110,919 $ 163,178 $ 45,427
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of investment operations.
(a) Calculated based on average shares.
(b) Annualized.
(c) The ratio of expenses and net investment income to total investor capital
commitments of $253,239,514 on an annualized basis is 0.09% and 2.55%,
respectively, for the year ended December 31, 1998. The ratio of expenses
and net investment income to total investor capital commitments of
$253,239,514 on an annualized basis is 0.08% and 27.92%, respectively, for
the year ended December 31, 1997. The ratio of expenses and net investment
income to total investor capital commitments of $253,239,514 on an
annualized basis is 0.06% and 11.21%, respectively, for the year ended
December 31, 1996. The ratio of expenses and net investment loss to total
investor capital commitments of $253,239,514 on an annualized basis is
0.07% and (0.07)%, respectively, for the year ended December 31, 1995.
Contained above is the audited operating performance based on an average
share of beneficial interest outstanding, total investment return, ratios
to average net assets and other supplemental data, for the period
indicated. This information has been determined based upon financial
information provided in the financial statements.
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors III (In Liquidation)
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1. Organization and Accounting Policies
BlackRock Fund Investors III ("Fund III") is a non-diversified closed-end
investment company organized as a Delaware business trust. Fund III invests all
of its investable assets in BlackRock Asset Investors ("BAI" or the "Trust")
which is a Delaware business trust registered under the Investment Company Act
of 1940 as a non-diversified closed-end investment company and has the same
investment objective as Fund III. The value of Fund III's investment in BAI
reflects Fund III's proportionate interest in the net assets of BAI. The
performance of Fund III is directly affected by the performance of BAI. The
financial statements of BAI are included in this report and should be read in
conjunction with Fund III's financial statements.
The Board of Trustees of Fund III ("Trustees") approved a plan of
liquidation ("Plan") on September 18, 1997 which was adopted by the stockholders
on October 3, 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 Fund III 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 Fund III 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
subsequent to the Adoption Date are determined in accordance with income tax
regulations which may differ from Generally Accepted Accounting Principals
The following is a summary of significant accounting policies followed by
Fund III.
Securities Valuation: Fund III's interest in BAI common shares is valued by Fund
III at its proportionate interest in the net asset value of BAI (approximately
45% at December 31, 1998). Fund III also holds 691.56 BAI preferred shares which
are valued at cost ($345,780). Valuation of securities by BAI is discussed in
Note 1 of BAI's Notes to Consolidated Financial Statements which are included
elsewhere in this report.
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 custodian
for Fund III 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
Fund III may be delayed or limited.
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 Fund III amortizes premium or accretes discount on securities
purchased using the interest method. Dividends and distributions received from
BAI are recorded based on the character of the dividend or distribution
received.
<PAGE>
Taxes: It is Fund III'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.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Master Administration, Administration and Other Expenses: Master administration
and other expenses are recorded on the accrual basis.
Deferred Organization Expenses: A total of $169,499 was incurred in connection
with the organization of Fund III. The amortization of these costs was
accelerated in 1998, 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.
Note 2. Agreements
Fund III has a Master Administration Agreement with BlackRock Financial
Management, Inc. (the "Master Administrator "). For its services under the
Master Administration Agreement, the Master Administrator receives no fees from
Fund III.
Fund III has also entered into an Administration Agreement with State
Street Bank and Trust Company ("State Street"). For its services under the
Administration Agreement, State Street receives no fees from Fund III.
Pursuant to the agreements, the Master Administrator provides various
administrative services, provides office space and pays the compensation of
officers of Fund III, who are affiliated persons of the Master Administrator.
State Street pays occupancy and certain clerical and accounting costs of Fund
III. Fund III bear all other costs and expenses.
Certain trustees of Fund III who are not interested parties are paid a
fee, which is split ratably between BAI, Fund III, BlackRock Fund Investors I
and BlackRock Fund Investors II, 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. Portfolio Securities
For the year ended December 31, 1998, there were no purchases or sales of
investment securities, other than short-term investments. The federal income tax
basis of the investments at December 31, 1998 was substantially the same as the
basis for financial reporting.
Note 4. Notes
Fund III holds a note with a principal amount of $107,500 from BAI. The
note pays interest at a per annum rate of 2.50% over the yield of the one-year
constant maturity Treasury, redeemable annually by Fund III and due on
dissolution of BAI.
Fund III has issued and sold notes in the aggregate principal amount of
$107,500 paying 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 Fund III.
<PAGE>
BlackRock Fund Investors III (In Liquidation)
Additional Tax Information
- --------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of distributions paid
by Fund III during its fiscal year ended December 31, 1998.
During the fiscal year ended December 31, 1998, the Trust paid
distributions to common shareholders of $112.39 per share, all of which
constituted a liquidating distribution.
For the purpose of preparing your 1998 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which was mailed to you in January of 1999.
<PAGE>
BlackRock Fund Investors III (In Liquidation)
Report of Independent Auditors
The Shareholders and Board of Trustees of
BlackRock Fund Investors III:
We have audited the accompanying statement of assets and liabilities of
BlackRock Fund Investors III (In Liquidation) as of December 31, 1998 and the
related statements of operations and cash flows for the year then ended,
statements of changes in net assets for the years ended December 31, 1998 and
1997, and the statements of financial highlights for the years ended December
31, 1998, 1997 and 1996, and for the period March 29, 1995 (commencement of
investment operations) to December 31, 1995. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these 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 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 financial statements present fairly, in all material
respects, the financial position of BlackRock Fund Investors III as of December
31, 1998 and the results of its operations and its cash flows for the year then
ended, the changes in its net assets for the years ended December 31, 1998 and
1997, and its financial highlights for the years ended December 31, 1998, 1997
and 1996 and for the period March 29, 1995 (commencement of investment
operations) to December 31, 1995 in conformity with generally accepted
accounting principles.
As explained in Note 1, the financial statements include investments valued at
$78,854,979 (99.9% of net assets), whose values 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, 1999
<PAGE>
Trustees
Laurence D. Fink, Chairman
John C. Deterding
Donald G. Drapkin
Wesley R. Edens
Charles Froland
James Grosfeld
Laurence E. Hirsch
Thomas Ruggels
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 and Assistant Secretary
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 Trust shares.
BlackRock Fund Investors III
Two Heritage Drive
North Quincy, MA 02171
