BLACKROCK FUND INVESTORS II
- --------------------------------------------------------------------------------
(IN LIQUIDATION)
FINANCIAL STATEMENTS FOR THE PERIOD
JANUARY 1, 1999 THROUGH
SEPTEMBER 27, 1999 (DATE OF LIQUIDATION)
<PAGE>
DELOITTE & TOUCHE
DELOITTE & TOUCHE LLP Telephone: (212) 436-2000
Two World Financial Center Facsimile: (2'12) 436-5000
New York, New York 10281-1414
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 statements of operations and of cash flows of
BlackRock Fund Investors II (In Liquidation) ("Fund") for the period January 1.
1999 through September 27. 1999 (date of liquidation), the statements of changes
in net assets for the period January 1, 1999 through September 27, 1999 (date of
liquidation) and for the year ended December 31, 1998, and the statements of
financial highlights for the period January 1, 1999 through September 27, 1999
(date of liquidation), 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
Fund'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 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 results of operations and cash flows of BlackRock Fund Investors
II (In Liquidation) for the period January 1, 1999 through September 27, 1999
(date of liquidation). the changes in their net assets for the period January 1,
1999 through September 27, 1999 (date of liquidation) and for the year ended
December 31. 1998 and their financial highlights for the period January 1, 1999
through September 27, 1999 (date of liquidation), 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 Fund was liquidated on September 27, 1999 and
distributed its net assets to its shareholders. The liquidating distribution
included investments valued at $9,194,417, whose values had been estimated by
the Board of Trustees in the absence of readily ascertainable market values. We
reviewed the procedures used by the Board of Trustees in arriving at its
estimate of value of such investments and 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 have differed significantly from the
values that would have been used had a ready market for the investments existed,
and the differences could be material.
/s/Deloitte & Touche LLP
- ------------------------
New York, New York
September 30,1999
- ----------------
DELOITTE TOUCHE
TOHMATSU
- ----------------
<PAGE>
BLACKROCK FUND INVESTORS II (IN LIQUIDATION)
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1999 THROUGH
SEPTEMBER 27, 1999 (DATE OF LIQUIDATION)
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS
Interest income (net of interest expense of $1,242) $ 9,906
-----------
Expenses
Master administration (Note 2) 57,114
Transfer Agent 10,727
Professional services 9,272
Miscellaneous 2,173
-----------
Total expenses 79,286
-----------
Net investment loss (69,380)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 1)
Net realized loss on BAI (6,212,886)
Net change in unrealized depreciation on investments 2,781,213
-----------
Net realized and unrealized loss (3,431,673)
-----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(3,501,053)
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BLACKROCK FUND INVESTORS II (IN LIQUIDATION)
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1999 THROUGH
SEPTEMBER 27, 1999 (DATE OF LIQUIDATION)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
Cash flows used for operating activities:
Dividends and interest received $ 24,458
Expenses paid (257,277)
------------
Net cash flows used for operating activities (232,819)
------------
Cash flows provided by financing activities:
Redemption of preferred stock 153,000
Distributions received * 21,961,805
Distributions to shareholders * (22,048,591)
------------
Net cash flows provided by financing activities 66,214
------------
Net decrease in cash (166,605)
Cash beginning of period 166,605
------------
Cash end of period $ --
============
RECONCILIATION OF NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH
FLOWS USED FOR OPERATING ACTIVITIES
Net decrease in net assets resulting from operations $ (3,501,053)
------------
Decrease in unrealized depreciation (2,781,213)
Net realized loss on BAI 6,212,886
Decrease in other assets 13,319
Decrease in other accrued expenses (176,758)
------------
Total adjustments 3,268,234
------------
Net cash flows used for operating activities $ (232,819)
============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
* Excludes a non-cash liquidating distribution in the amount of $9,194,417.
<PAGE>
BLACKROCK FUND INVESTORS II (IN LIQUIDATION)
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, 1999 THROUGH
SEPTEMBER 27, 1999 FOR THE YEAR ENDED
(DATE OF LIQUIDATION) DECEMBER 31, 1998
----------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
<S> <C> <C>
Net investment income (loss) $ (69,380) $ 2,619,888
Net realized loss (6,212,886) --
Net change in unrealized appreciation (depreciation)
on investments 2,781,213 (344,630)
------------ ------------
Net increase (decrease) in net assets resulting
from operations (3,501,053) 2,275,258
------------ ------------
Dividends and distributions to shareholders from:
Net investment income -- (2,619,888)
Return of capital (31,243,008) (14,044,429)
------------ ------------
Total dividends and distributions to shareholders (31,243,008) (16,664,317)
------------ ------------
Net decrease (34,744,061) (14,389,059)
NET ASSETS
Beginning of period 34,744,061 49,133,120
------------ ------------
End of period $ -- $ 34,744,061
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BLACKROCK FUND INVESTORS II (IN LIQUIDATION)
STATEMENTS OF FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 29,
FOR THE PERIOD FOR THE FOR THE FOR THE 1995*
JANUARY 1, 1999 THROUGH YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
SEPTEMBER 27, 1999 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DATE OF LIQUIDATION) 1998 1997 1997 1995
--------------------- ------------- ------------- ------------- ------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
<S> <C> <C> <C> <C> <C>
beginning of period $ 224.61 $ 317.64 $ 702.84 $ 722.26 $ 1,000.00
--------- --------- --------- --------- ----------
Net investment income (loss) (a) (0.44) 16.94 210.60 221.06 (45.98)
Net realized and
unrealized gain (loss) (a) (22.19) (2.23) (18.04) 34.03 (231.76)
--------- --------- --------- --------- ----------
Net increase (decrease) from
investment operations (22.63) 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 (201.98) (90.80) (380.63) (100.37) --
--------- --------- --------- --------- ----------
(201.98) (107.74) (577.76) (274.51) --
--------- --------- --------- --------- ----------
Net asset value, end of period $ -- $ 224.61 $ 317.64 $ 702.84 $ 722.26
========= ========= ========= ========= ==========
TOTAL INVESTMENT RETURN (B) (10.08)% 4.63% 27.40% 51.31% (27.77)%
RATIOS TO AVERAGE NET ASSETS:
Expenses (d) 0.36%(c) 0.73% 0.40% 0.95% 4.70%(c)
Net investment income (loss) (d) (0.31)(c) 5.87% 30.69% 29.76% (4.70)%(c)
SUPPLEMENTAL DATA:
Average net assets
(in thousands) $ 30,009 $ 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) The Fund is not a publicly traded entity, therefore, total investment
return is calculated assuming a purchase of a common share at net asset
value per share on the first day and a sale at net asset value per share on
tha last day of the period reported. Total investment return for periods of
less than one full year are not annualized.
(c) Annualized.
(d) The ratio of expenses and net investment income to total investor capital
commitments of $112,078,123 on an annualized basis is 0.10% and (0.08)%,
respectively, for the period January 1, 1999 through September 27, 1999
(date of liquidation).
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 period March 29, 1995* through
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
FOR THE PERIOD JANUARY 1, 1999 THROUGH SEPTEMBER 27, 1999
(DATE OF LIQUIDATION)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
BACKGROUND: BlackRock Fund Investors II ("Fund II"), prior to its liquidation as
described below, was a non-diversified closed-end investment company organized
as a Delaware business trust. Fund II invested all of its investable assets in
BlackRock Asset Investors ("BAI" or the "Trust") which, prior to its liquidation
as described below, was a Delaware business trust registered under the
Investment Company Act of 1940 as a non-diversified closed-end investment
company and had 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 was 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.
PLAN OF LIQUIDATION: 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 ran
approximately two years from the Adoption Date. The plan required the Trustees
to oversee the complete and orderly liquidation of Fund II and wind-up the
Trust. The liquidation of Fund II in accordance with the Plan resulted in
distributions paid subsequent to the Adoption Date being characterized for tax
purposes first as a return of capital until a shareholder's basis was reduced to
zero, and then as capital gain. The character of distributions paid subsequent
to the Adoption Date were determined in accordance with income tax regulations
which differed from generally accepted accounting principles.
On September 20, 1999 and September 27, 1999, BAI transferred certain of
its net assets, to BAI Liquidating, LLC ("BAIL") for all of the ownership
interests in BAIL. On September 27, 1999 (date of liquidation), BAI distributed
net assets with a value of $13,965,996 to Fund II, consisting of $4,771,579 of
cash and ownership interests in BAIL valued at $9,194,417. Concurrently, Fund II
distributed all of its net assets, consisting of $4,908,364 in cash and its
ownership interest in BAIL, to its shareholders. As part of the Liquidation,
Fund II's shareholders each had an option to receive cash for their share of
their ownership interest in BAIL, either from other shareholders or from an
affiliate of the Advisor.
The following is a summary of significant accounting policies followed by
Fund II.
SECURITIES VALUATION: Fund II's interest in BAI common shares, prior to its
liquidation, was valued by Fund II at its proportionate interest in the net
asset value of BAI (approximately 20% at September 27, 1999, date of
liquidation). 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 matured in 60 days or less were 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 were valued at current market quotations until maturity.
In connection with transactions in repurchase agreements, the custodian for
Fund II took possession of the underlying collateral securities, the value of
which at least equaled the principal amount of the repurchase transaction,
including interest. To the extent that any repurchase transaction exceeded one
business day, the value of the collateral was marked to market on a daily basis
to ensure the adequacy of the collateral.
<PAGE>
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions were
recorded on the trade date. Realized gains and losses were calculated on the
identified cost basis. Interest income was recorded on the accrual basis and
Fund II amortized premium or accreted discount on securities purchased using the
interest method. Dividends and distributions received from BAI were recorded
based on the character of the dividend or distribution received.
TAXES: Fund II met the requirements of the Internal Revenue Code applicable to
regulated investment companies and distributed substantially all of its taxable
income to shareholders. Therefore, no federal income or excise tax provision was
required.
MASTER ADMINISTRATION, ADMINISTRATION AND OTHER EXPENSES: Master administration
and other expenses were recorded on the accrual basis.
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 and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2. AGREEMENTS
Fund II had a Master Administration Agreement with BlackRock Financial
Management, Inc. (the "Master Administrator"), prior to Fund II's liquidation,
which provided that during the Commitment Period the Trust would pay to the
Master Administrator for its services (which were 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 had also entered into an Administration Agreement with State Street
Bank and Trust Company ("State Street"). For its services under the
Administration Agreement, State Street received no fees from Fund II.
Pursuant to the agreements, the Master Administrator provided various
administrative services and paid the compensation of officers of Fund II, who
are affiliated persons of the Master Administrator. State Street paid occupancy
and certain clerical and accounting costs of Fund II. Fund II boar all other
costs and expenses.
Certain trustees of BAI and Fund II, who were not interested parties, were
paid a fee, which was split ratably between BAI, Fund II, BlackRock Fund
Investors I and BlackRock Fund Investors III, for their services in the amount
of $22,000 each for the period plus telephonic meeting fees not to exceed $500
annually and certain out-of-pocket expenses.
NOTE 3. NOTES
Fund II held a note with a principal amount of $21,000 from BAI. The note
paid 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 had 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
Fund II.
Both the notes held and issued were redeemed on September 10, 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 ASSET INVESTORS (IN LIQUIDATION)
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1999 THROUGH
SEPTEMBER 27, 1999 (DATE OF LIQUIDATION)
<PAGE>
Logo of
Deloitte &
Touche
- ---------- ------------------------------------------------------
DELOITTE & TOUCHE LLP Telephone: (212)436-2000
Two World Financial Center Facsimile: (21 2/436-5000
New York, New York 10281-1414
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 statements of operations and of
cash flows of BlackRock Asset Investors (In Liquidation) ("Trust") for the
period January 1, 1999 through September 27, 1999 (date of liquidation), the
consolidated statements of changes in net assets for the period January 1, 1999
through September 27, 1999 (date of liquidation) and for the year ended December
31, 1998, and the consolidated statements of financial highlights for the period
January 1. 1999 through September 27, 1999 (date of liquidation), 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 results of operations and cash flows of BlackRock Asset
Investors (In Liquidation) for the period January 1, 1999 through September 27,
1999 (date of liquidation), the changes in their net assets for the period
January 1, 1999 through September 27, 1999 (date of liquidation) and for the
year ended December 31, 1998 and their financial highlights for the period
January 1, 1999 through September 27, 1999 (date of liquidation), 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 Trust was liquidated on September 27, 1999 and
distributed its net assets to its shareholders. The liquidating distribution
included investments valued at $45,998,227, whose values were estimated by the
Trust's Board of Trustees in the absence of readily ascertainable market values.
We reviewed the procedures used by the Board of Trustees in arriving at its
estimate of value of such investments and respected 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 have differed significantly from the
values that would have been used had a ready market for the investments
existed, and the differences could be material.
/s/ Deloitte & Touche LLP
- -------------------------
New York, New York
September 30, 1999
- ---------------
DELOITTE TOUCHE
TOHMATSU
- ---------------
<PAGE>
BLACKROCK ASSET INVESTORS (IN LIQUIDATION)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1999 THROUGH
SEPTEMBER 27, 1999 (DATE OF LIQUIDATION)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET INVESTMENT LOSS
<S> <C>
Income (loss)
Net investment loss earned from BCF $ (29,831,306)
Interest (net of interest expense of $11,383) 630,849
---------------
Total loss (29,200,457)
---------------
Expenses
Performance fee 25,180,745
Investment advisory 280,461
Professional services 40,590
Accounting 35,179
Administration 24,036
---------------
Total operating expenses 25,561,011
---------------
Net investment loss (54,761,468)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY
TRANSACTIONS (NOTE 1)
Net realized gain (loss) on:
Investments 53,785,699
Foreign currency and forward currency contracts 529,470
BCF investments (12,292,418)
---------------
Net realized gain 42,022,751
---------------
Net change in unrealized depreciation on:
Foreign currency and forward currency contracts (9,484)
BCF investments (2,517,334)
Other investments (1,842,468)
-----------
Net change in unrealized depreciation (4,369,286)
---------------
Net realized and unrealized gain 37,653,465
---------------
NET DECREASE IN NET INVESTMENT ASSETS
RESULTING FROM OPERATIONS (NOTE 1) $ (17,108,003)
===============
</TABLE>
<PAGE>
BLACKROCK ASSET INVESTORS (IN LIQUIDATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1999 THROUGH
SEPTEMBER 27, 1999 (DATE OF LIQUIDATION)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
<S> <C>
Cash flows used for operating activities:
Net investment income $ 1,078,781
Expenses paid (26,379,398)
Payable to affiliates (1,564,351)
Net realized gain from forward currency contracts and transactions 529,470
---------------
Net cash flows used for operating activities (26,335,498)
---------------
Cash flows provided by investing activities:
Net sale of investments * 134,763,494
Sale of repurchase agreements 2,091,000
---------------
Net cash flows provided by investing activities 136,854,494
---------------
Cash flows used for financing activities:
Redemption of preferred stock (1,020,000)
Redemption of notes payable (192,500)
Payment of distributions* (109,871,463)
---------------
Net cash flows used for financing activities (111,083,963)
---------------
Net decrease in cash (564,967)
Cash, beginning of period 564,967
---------------
Cash, end of period $ -
===============
RECONCILIATION OF NET DECREASE IN NET
ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS USED FOR
OPERATING ACTIVITIES
Net decrease in net assets resulting from operations $ (17,108,003)
---------------
Increase in unrealized depreciation 4,369,286
Net realized gain on investments (41,493,281)
Net investment loss from BCF 29,831,306
Decrease in accrued expenses and other liabilities (942,145)
Decrease in due to affiliates (1,564,351)
Decrease in interest receivable 571,690
---------------
Total adjustments (9,227,495)
---------------
Net cash flows used for operating activities $ (26,335,498)
===============
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
* Excludes a non-cash liquidating distribution in the amount of $45,998,227.
<PAGE>
BLACKROCK ASSET INVESTORS (IN LIQUIDATION)
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, 1999 THROUGH
SEPTEMBER 27, 1999 FOR THE YEAR ENDED
(DATE OF LIQUIDATION) DECEMBER 31, 1998
------------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ (54,761,468) $ 14,719,023
Net realized gain (loss) 42,022,751 (4,352,049)
Net change in unrealized appreciation
(depreciation) (4,369,286) 2,627,956
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations (17,108,003) 12,994,930
--------------- ---------------
Dividends and distributions:
To common shareholders from:
Net investment income - (14,637,831)
Return of capital (155,869,690) (68,362,169)
To preferred shareholders from:
Net investment income (60,060) (81,192)
Return of capital (1,020,000) -
--------------- ---------------
Total dividends and distributions to
common and preferred shareholders (156,949,750) (83,081,192)
--------------- ---------------
Net decrease (174,057,753) (70,086,262)
NET INVESTMENT ASSETS
Beginning of period 174,057,753 244,144,015
--------------- ---------------
End of period $ - $ 174,057,753
=============== ===============
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
<PAGE>
BLACKROCK ASSET INVESTORS (IN LIQUIDATION)
CONSOLIDATED STATEMENTS OF FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 29,
JANUARY 1, 1999 FOR THE FOR THE FOR THE 1995
THROUGH YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
SEPTEMBER 27, 1999 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DATE OF LIQUIDATION) 1998 1997 1996 1995
--------------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value per common share,
Beginning of period $ 237.07 $ 333.09 $ 741.42 $ 765.99 1,000.00
------------ ----------- ----------- ----------- ----------
Net investment income (loss) (a) (75.03) 20.16 224.83 262.06 (150.13) **
Net realized and unrealized gain (loss) (a) 51.59 (2.36) (17.90) 14.05 (83.88) **
------------ ----------- ----------- ----------- ----------
Net increase (decrease) from investment operations (23.44) 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 (213.55) (93.66) (401.18) (112.68) --
To preferred shareholders (0.08) (0.11) (0.10) -- --
------------ ----------- ----------- ----------- ---------
(213.63) (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 (B) (9.98)% 5.34% 27.91% 50.00% (23.40)%
RATIOS TO AVERAGE NET ASSETS
OF COMMON SHAREHOLDERS:
Operating expenses (d) 0.34% (c) 0.51% 0.54% 1.15% 10.78% (c)**
Net investment income (loss) (d) (49.55)(c) 6.64% 31.04% 33.17% (13.15)(c)**
SUPPLEMENTAL DATA:
Average net assets of
common shareholders (in thousands) $149,417 $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>
* Commencement of investment operations.
** Restated to conform to 1996 presentation.
(a) Calculated based on average shares.
(b) The Fund is not a publicly traded entity, therefore, total investment
return is calculated assuming a purchase of a common share at net asset
value per share on the first day
and a sale at net asset value per share on tha last day of the period
reported. Total investment return for periods of less than one full year
are not annualized.
(c) Annualized.
(d) The ratio of expenses, including performance fee, to total average net
assets is 23.13%, on an annualized basis, for the period January 1, 1999
through September 27, 1999 (date of liquidation). The ratio of expenses,
including performance fee, and net investment income to total investor
capital commitments of $560,267,692 is 6.17% and (13.21)%, respectively,
for the period January 1, 1999 through September 27, 1999 (date of
liquidation). 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 period March 29, 1995* through December 31, 1995.
Contained above is the audited operating performance based on an average
common share of beneficial interest outstanding, total investment return,
ratios to average net assets and other supplemental data, for the period
indicated. This information has been determined based upon financial
information provided in the financial statements.
See Notes to Consolidated Financial Statements.
<PAGE>
BLACKROCK ASSET INVESTORS (IN LIQUIDATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1999 THROUGH
SEPTEMBER 27, 1999 (DATE OF LIQUIDATION)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
BACKGROUND: BlackRock Asset Investors ("BAI" or the "Trust") prior to its
liquidation as described below, was 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 permitted the Trustees to create a
limited number of series (or "Funds"), each of which issued a separate class of
shares. The Trustees established BlackRock Fund Investors I, BlackRock Fund
Investors II, and BlackRock Fund Investors III. The Trust sought 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., a
Delaware limited partnership ("BCF"), and other mortgage affiliates, which were
engaged 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 and for sale in capital
markets. In addition, BCF worked out distressed commercial and residential
mortgage loans. Prior to its liquidation, BAI owned a 99.8% general partnership
interest in BCF and 100% of Asset Investors Inc. ("AII") and AII owned a 0.2%
limited partnership interest in BCF. BAI consolidated AII under generally
accepted accounting principals.
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 ran
approximately two years from the Adoption Date. The Plan required the Trustees
to oversee the complete and orderly liquidation of BAI and wind-up the Trust.
The liquidation of BAI in accordance with the Plan resulted in distributions
paid subsequent to the adoption date being characterized for tax purposes first
as a return of capital until a shareholder's basis was reduced to zero, and then
as capital gain. The character of distributions paid prior to the adoption date
were determined in accordance with income tax regulations which differed from
generally accepted accounting principles.
On September 20, 1999 and September 27, 1999, BAI transferred certain of its net
assets, including its ownership of BCF and AII, to BAI Liquidating, LLC ("BAIL")
for all of the ownership interests in BAIL. On September 27, 1999 (date of
liquidation), BAI distributed all of its net assets with a value of $69,869,690
to its shareholders, consisting of $23,871,463 of cash and its ownership
interest in BAIL valued at $45,998,227 and concurrently the Funds distributed
their net assets, including BAIL, to their shareholders ("Liquidation"). As part
of the Liquidation, the Funds' shareholders each had an option to receive cash
for their share of their ownership interest in BAIL, either from other Funds'
shareholders or from an affiliate of the Advisor.
INVESTMENT VALUATION: In valuing the Trust's assets upon distribution,
quotations of foreign securities in a foreign currency were converted to U.S.
dollar equivalents at the then current currency value. The Trust valued
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
used 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 mortgage loans acquired as distressed or
nonperforming were valued at current cost from the date of acquisition to the
date on which a significant event occured, such as
<PAGE>
revaluation of the collateral, resolution of legal impediments, bankruptcy of
the borrower or restructuring of the loan. When a significant event affecting
valuation occured, the mortgage loan was revalued on the basis of such event
and, if possible, was thereafter, valued on an analytical basis rather than at
cost basis.
Any securities or other assets for which current market quotations were not
readily available, were 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 matured in 60 days or less were 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 were valued at current market quotations until maturity.
In connection with transactions in repurchase agreements, the Trust's
custodian took possession of the underlying collateral securities, the value of
which at least equaled the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeded one business day, the value of the collateral was marked to market on a
daily basis to ensure the adequacy of the collateral.
FOREIGN CURRENCY TRANSLATION: The books and records of the Trust were maintained
in U.S. dollars. Foreign currency amounts were translated into U.S. dollars on
the following basis:
(I) market value of investment securities distributed to its
Shareholders, 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 isolated that portion of gains and losses on investment
securities which were due to changes in the foreign exchange rates from that
which were due to changes in market prices of such securities.
The Trust reported certain foreign currency related transactions as
realized gains for financial reporting purposes, whereas such components were
treated as ordinary income for federal income tax purposes.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions were
recorded on the trade date. Realized gains and losses were calculated on the
identified cost basis. Interest income was recorded on the accrual basis and the
Trust amortized premium or accreted discount on securities purchased using the
interest method. Net investment income and loss and net gain and loss realized
by BCF were recorded on a flow through basis by the Trust.
TAXES: The Trust met the requirements of the Internal Revenue Code applicable to
regulated investment companies and distributed substantially all of its taxable
income to shareholders. Therefore, no federal income or excise tax provision was
required for the Trust, prior to the liquidation.
INVESTMENT ADVISORY, ADMINISTRATION AND OTHER EXPENSES: Investment advisory,
administration and other expenses were recorded on the accrual basis.
Performance fees of $47,324,750, of which $25,180,745 was recorded by BAI and
$22,144,005 was recorded by BCF were included in the consolidated statement of
operations. The performance fees were determined in accordance with the
Termination Date provisions of the Amended and Restated Investment Advisory
Agreement dated January 1, 1996. The provisions require that a significant
portion on the performance fee be recognized upon the Trust's termination,
September 27, 1999. The net increase in the Trust's net assets prior to the
recognition of the performance fee was $30,216,747.
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 in the financial statements during
the reporting period. Actual results could differ from those estimates.
<PAGE>
NOTE 2. AGREEMENTS
The Trust had an Investment Advisory Agreement with BlackRock Financial
Management, Inc. (the "Advisor") which provided that during the Commitment
Period the Trust would 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 was 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 paid 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, September 27, 1999, a performance fee
based on certain performance criteria, as described in the Trust's Investment
Advisory Agreement.
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 would 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, was reduced to .25% of the weighted
average capital invested during the relevant period on an annualized basis and
the performance fee would be allocated between BCF and the Trust as determined
by the Trust.
The Trust had also entered into an Administration Agreement with State
Street Bank and Trust Company ("State Street") which provided that State Street
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 provided continuous supervision of
the investment portfolio and paid the compensation of officers of the Trust, who
are affiliated persons of the Advisor. State Street paid occupancy and certain
clerical and accounting costs of the Trust. The Trust boar all other costs and
expenses.
Certain trustees of the Trust and the Funds, who are not interested
parties, were paid a fee, which was split ratably between BAI and the Funds, for
their services in the amount of $22,000 each for the period plus telephonic
meeting fees not to exceed $500 annually and certain out-of-pocket expenses.
NOTE 3. NOTES
The Trust had issued notes in the aggregate principal amount of $192,500 to
the Funds. The Notes paid 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. The notes were redeemed on September 10,
1999.
NOTE 4. CAPITAL
There were 200 million shares of $.01 par value common stock authorized.
The Trust could classify or reclassify any unissued shares of common stock into
one or more series of preferred stock. The common stock was redeemed pursuant to
the liquidation on September 27, 1999 (see Note 1). On December 26, 1996 the
Trust reclassified and issued 2,040 shares of preferred stock. The preferred
stock had a liquidation value of $500 per share plus any accumulated but unpaid
dividends. Dividends were cumulative and were paid annually at a rate which is
equal to the treasury bill rate as of the preceding December 1 plus 3.5%. The
accumulated unpaid dividends were paid and the Preferred Stock redeemed pursuant
to the liquidation on September 27, 1999 (see Note 1).
<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 BAI shares.
BLACKROCK ASSET INVESTORS
Two Heritage Drive
North Quincy, MA 02171
