FUND II
2/27/98
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DRAFT
BlackRock Fund Investors II
(In Liquidation)
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Annual Report
December 31, 1997
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BlackRock Fund Investors II (In Liquidation)
Statement of Assets and Liabilities
December 31, 1997
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Assets
Investment in BlackRock Asset Investors, at estimated
fair value (cost $51,186,781) (Notes 1 and 3) $ 48,750,198
Repurchase agreement dated 12/31/97
with State Street Bank and Trust, Co. 5.50% due 1/2/98,
collateralized by $535,000 United States Treasury Note
6.25% due 03/31/99 (market value $546,879)
(repurchase proceeds $535,163) (cost $535,000) 535,000
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Total investments (cost $51,721,781) 49,285,198
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Cash 2,704
Notes receivable (Note 4) 21,000
Deferred organization expenses and other assets (Note 1) 45,451
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Total assets 49,354,353
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Liabilities
Master administration fee payable (Note 2) 144,381
Notes payable (Note 4) 21,000
Other accrued expenses 55,852
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Total liabilities 221,233
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Net Assets $ 49,133,120
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Net assets were comprised of:
Shares of beneficial interest, at par (Note 5) $ 1,547
Paid-in capital in excess of par 51,568,156
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51,569,703
Net unrealized depreciation on investment companies (2,436,583)
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Total net assets $ 49,133,120
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Net asset value per share $ 317.64
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Total shares outstanding at end of year 154,683.67
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See Notes to Financial Statements.
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BlackRock Fund Investors II (In Liquidation)
Statement of Operations
For the Year Ended December 31, 1997
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Net Investment Income
Income
Interest (net of interest expense of $1,588) $ 33,568
Dividend income 31,219,526
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Total income 31,253,094
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Expenses
Master administration (Note 2) 280,195
Directors 63,000
Amortization of deferred organization expenses 15,003
Audit 10,002
Legal 10,001
Transfer Agent 5,250
Custodian 5,000
Amortization of prepaid insurance 6,411
Miscellaneous 12,502
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Total expenses 407,364
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Net investment income 30,845,730
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Unrealized Loss
on Investments (Note 3)
Net change in unrealized depreciation on investment companies (1,258,150)
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Net Increase In Net Assets
Resulting from Operations $ 29,587,580
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See Notes to Financial Statements.
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BlackRock Fund Investors II (In Liquidation)
Statement of Cash Flows
For the Year Ended December 31, 1997
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Increase (Decrease) in Cash
Cash flows provided by operating activities:
Dividends and interest received $ 31,254,790
Expenses paid (557,298)
Paid to affiliates (45,855)
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Net cash flows provided by operating activities 30,651,637
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Net sale of investments 22,172,503
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Cash flows used for financing activities:
Proceeds from Fund shares issued 36,541,941
Distributions to shareholders (89,369,989)
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Net cash flows used for financing activities (52,828,048)
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Net decrease in cash (3,908)
Cash beginning of year 6,612
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Cash end of year $ 2,704
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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 $ 29,587,580
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Increase in unrealized depreciation 1,258,150
Decrease in deferred organization expenses and other assets 4,930
Decrease in payable to BAI (45,855)
Decrease in other accrued expenses (153,168)
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Total adjustments 1,064,057
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Net cash flows provided by operating activities $ 30,651,637
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See Notes to Financial Statements.
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BlackRock Fund Investors II (In Liquidation)
Statements of Changes in Net Assets
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<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996
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<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 30,845,730 $ 12,231,783
Net realized gain -- 1,491,772
Net change in unrealized appreciation (depreciation)
on investment companies (1,258,150) 391,350
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Net increase in net assets resulting
from operations 29,587,580 14,114,905
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Dividends and distributions to shareholders from:
Net investment income (30,492,328) (11,894,565)
In excess of net investment income -- (367,153)
Net realized gain -- (1,491,772)
Return of capital (58,877,661) (7,928,081)
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Total dividends and distributions to shareholders (89,369,989) (21,681,571)
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Fund share transactions:
Proceeds from shares issued 36,541,941 60,071,623
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Net increase in net assets resulting
from fund share transactions 36,541,941 60,071,623
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Net increase (decrease) (23,240,468) 52,504,957
Net Assets
Beginning of year 72,373,588 19,868,631
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End of year $ 49,133,120 $ 72,373,588
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</TABLE>
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See Notes to Financial Statements.
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BlackRock Fund Investors II (In Liquidation)
Financial Highlights
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<TABLE>
<CAPTION>
March 29, 1995*
For the Year Ended For the Year Ended through
December 31, 1997 December 31, 1996 December 31, 1995
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<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $ 702.84 $ 722.26 $1,000.00
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Net investment income (loss) (a) 210.60 221.06 (45.98)
Net realized and unrealized gain (loss) (a) (18.04) 34.03 (231.76)
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Net increase (decrease) from investment operations 192.56 255.09 (277.74)
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Less dividends and distributions:
Net investment income (197.13) (150.60) --
In excess of net investment income -- (4.65) --
Net realized gain -- (18.89) --
Return of capital (380.63) (100.37) --
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(577.76) (274.51) --
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Net asset value, end of period $ 317.64 $ 702.84 $ 722.26
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TOTAL INVESTMENT RETURN 27.40% 51.31% (27.77)%
RATIOS TO AVERAGE NET ASSETS:
Expenses (c) 0.40% 0.95% 4.70%(b)
Net investment income (loss) (c) 30.69% 29.76% (4.70)%(b)
SUPPLEMENTAL DATA:
Average net assets (in thousands) $100,515 $ 41,100 $ 9,460
Portfolio turnover -- -- --
Net assets, end of period (in thousands) $ 49,133 $ 72,374 $ 19,869
</TABLE>
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* 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 0.36% 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.
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BlackRock Fund Investors II (In Liquidation)
Notes to Financial Statements
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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 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 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, 1997). 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 II 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 II 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.
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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. These costs have been deferred and are being
amortized ratably over a period of 60 months from the date Fund II commenced
investment operations.
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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
Purchases and proceeds from sales of investment securities other than
short-term investments for the period ended December 31, 1997 amounted to
$36,541,941 and $0, respectively.
The federal income tax basis of Fund II's investments at December 31, 1997
was $25,199,585, and accordingly, gross and net unrealized appreciation was
$24,085,613.
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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.
Note 5. Capital
As of December 31, 1997, the total capital commitments from investors was
$112,078,123 of which a net amount of $44,180,531 had been called and received.
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BlackRock Fund Investors II (In Liquidation)
Additional Tax Information
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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, 1997.
On May 6, 1997 Fund II paid a distribution of $29.14 all of which is
taxable as long-term capital gain at the 20% rate. All other distributions are
treated as a non-taxable return of capital. For the purpose of preparing your
1997 annual federal income tax return, however, you should report the amounts as
reflected on the appropriate Form 1099 DIV which was mailed to you in January of
1998.
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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 as of December 31, 1997 and the related statements
of operations and cash flows for the year then ended and the statement of
changes in net assets for the years ending December 31, 1997 and 1996 and the
statements of financial highlights for the years ending December 31, 1997 and
1996 and for the period March 29, 1995 (commencement of operations) to December
31, 1995. These 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, 1997, and the results of its operations and its cash flows for the year then
ended, and the changes in its net assets for the years ending December 31, 1997
and 1996 and its financial highlights for the years ended December 31, 1997 and
1996 and for the period March 29, 1995 (commencement of operations) to December
31, 1995 in conformity with generally accepted accounting principles.
As explained in Note 1, the Board of Trustees of BlackRock Fund Investors II
approved a plan of liquidation ("Plan") and a technical amendment to the terms
of BlackRock Asset Investors' Preferred Shares to facilitate the Plan, on the
Adoption Date, October 6, 1997.
As explained in Note 1, the financial statements include investments valued at
$48,750,198 (99.2% of net assets), whose value of underlying investments have
been estimated by the Board of Trustees in the absence of readily ascertainable
market values. We have reviewed the procedures used by the Board of Trustees in
arriving at its estimate of value of such investments and have inspected
underlying documentation, and, in the circumstances, we believe the procedures
are reasonable and the documentation appropriate. However, because of the
inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the investments existed, and the differences could be material.
New York, New York
February 23, 1998
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Trustees
Laurence D. Fink, Chairman
Terry Blaney
John C. Deterding
Donald G. Drapkin
Wesley R. Edens
Charles Froland
James Grosfeld
Laurence E. Hirsch
Kendrick R. Wilson, 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
