BlackRock Fund Investors III
- --------------------------------------------------------------------------------
Annual Report
December 31, 1996
<PAGE>
BlackRock Fund Investors III
Statement of Assets and Liabilities
December 31, 1996
- --------------------------------------------------------------------------------
Assets
Investment in BlackRock Asset Investors, at estimated
fair value (cost $165,602,612) (Notes 1 and 3) $ 162,914,905
Cash 292,293
Notes receivable (Note 4) 107,501
Deferred organization expenses and other assets (Note 1) 114,790
-------------
Total assets 163,429,489
-------------
Liabilities
Notes payable (Note 4) 107,500
Payable to BlackRock Asset Investors 45,855
Directors fee payable 42,236
Other accrued expenses 55,932
-------------
Total liabilities 251,523
-------------
Net Assets $ 163,177,966
=============
Net assets were comprised of:
Shares of beneficial interest, at par (Note 5) $ 2,223
Paid-in capital in excess of par 165,961,610
-------------
165,963,833
Distributions in excess of net investment income (98,160)
Net unrealized depreciation on investment companies (2,687,707)
-------------
Total net assets $ 163,177,966
=============
Net asset value per share $ 733.89
=============
Total shares outstanding at end of year 222,347.48
=============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors III
Statement of Operations
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
Net Investment Income
Income
Interest (net of interest expense of $9,618) $ 1,808
Dividend income 28,523,560
-----------
Total income 28,525,368
-----------
Expenses
Directors 63,000
Amortization of deferred organization expenses 33,899
Audit 18,758
Legal 11,298
Transfer Agent 5,248
Custodian 5,000
Amortization of prepaid insurance 2,690
Miscellaneous 9,137
-----------
Total expenses 149,030
-----------
Net investment income 28,376,338
-----------
Realized and Unrealized Gain (Loss)
on Investments (Note 3)
Net realized gain 3,372,520
Net change in unrealized depreciation on investment companies 794,762
-----------
Net realized and unrealized gain 4,167,282
-----------
Net Increase In Net Assets
Resulting from Operations $32,543,620
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors III
Statement of Cash Flows
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
Cash flows provided by operating activities:
Dividends and interest received $ 31,888,170
Expenses paid (243,899)
-------------
Net cash flows provided by operating activities 31,644,271
-------------
Net purchase of investments (116,559,229)
-------------
Cash flows used for financing activities:
Proceeds from Fund shares issued 135,569,519
Dividend and distributions to shareholders (50,362,268)
-------------
Net cash flows used for financing activities 85,207,251
-------------
Net increase in cash 292,293
Cash beginning of year --
-------------
Cash end of year 292,293
=============
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 $ 32,543,620
-------------
Decrease in unrealized depreciation (794,762)
Increase in deferred organization expenses and other assets (134,338)
Decrease in payable to BAI (12,482)
Increase in accrued expenses and other liabilities 42,233
-------------
Total adjustments (899,349)
-------------
Net cash flows provided by operating activities $ 31,644,271
=============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors III
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 29, 1995*
For the Year Ended through
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income (loss) $ 28,376,338 $ (139,225)
Net realized gain 3,372,520 --
Net change in unrealized depreciation
on investment companies 794,762 (3,482,469)
------------- -------------
Net increase (decrease) in net assets resulting
from operations 32,543,620 (3,621,694)
------------- -------------
Dividends and distributions to shareholders from:
Net investment income (28,237,113) --
In excess of net investment income (129,199)
Net realized gain (3,372,520)
Return of capital (18,623,436) --
------------- -------------
Total dividends and distributions to shareholders (50,362,268) --
------------- -------------
Fund share transactions:
Proceeds from shares issued 135,569,520 49,048,788
------------- -------------
Net increase in net assets resulting
from fund share transactions 135,569,520 49,048,788
------------- -------------
Net increase 117,750,872 45,427,094
Net Assets
Beginning of period 45,427,094 --
------------- -------------
End of period $ 163,177,966 $ 45,427,094
============= =============
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of investment operations. See Notes to Financial Statements.
See Notes to Financial Statements.
<PAGE>
BlackRock Fund Investors III
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 29, 1995*
For the Year Ended through
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $ 755.60 $ 1,000.00
----------- -----------
Net investment income (loss) (a) 236.65 (10.91)
Net realized and unrealized gain (a) 34.75 (233.49)
----------- -----------
Net increase (decrease) from investment operations 271.40 (244.40)
----------- -----------
Less dividends and distributions:
Net investment income (164.34) --
In excess of net investment income (0.75) --
Net realized gain (19.63) --
Return of capital (108.39) --
----------- -----------
(293.11) --
----------- -----------
Net asset value, end of period $ 733.89 $ 755.60
=========== ===========
TOTAL INVESTMENT RETURN (b) 53.84% (24.44)%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.16%(d) 0.85% (c)(d)
Net investment income (loss) 30.37%(d) (0.85%)(c)(d)
SUPPLEMENTAL DATA:
Average net assets (in thousands) $ 93,437 $ 21,529
Portfolio turnover -- --
Net assets, end of period (in thousands) $ 163,178 $ 45,427
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of investment operations.
(a) Calculated based on average shares.
(b) Total investment return is calculated assuming a purchase of a share of
beneficial interest at net asset value per share on the first day and a
sale at net asset value per share on the last day of the period reported.
Dividends are assumed, for purposes of this calculation, to be reinvested
at the net asset value per share on the payment date. 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 $253,239,514 on an annualized basis is 0.06% and 11.21%,
respectively, for the period 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
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 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 (45.25% at
December 31, 1996). 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 Financial Statements which are included elsewhere in this
report.
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.
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.
Dividends and Distributions: Fund III declares and distributes dividends at
least annually first from net investment income, then from realized short-term
capital gains and other sources. Fund III also expects to pay distributions in
the form of return of paid-in capital. Net long-term capital gains, if any, in
excess of loss carryforwards are distributed at least annually. Dividends and
distributions are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for mortgage-backed
securities.
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 lilt These costs have been deferred and are being
amortized ratably over a period of 60 months from the date Fund III commenced
investment operations.
<PAGE>
Reclassification of Capital Accounts: The Trust accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies. For the year ended
December 31, 1996, the Trust increased distributions in excess of net investment
income by $31,039 and decreased paid in capital in excess of par by $31,039 as
the result of a net operating loss in 1995 that is not deductible for tax
purposes.
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
Purchases and proceeds from sale of investment securities other than
short-term investments for the year ended December 31, 1996 aggregated
$115,964,693 and $0, respectively. The federal income tax basis of the
investments of Fund III at December 31, 1996 was substantially the same as the
basis for financial reporting.
Note 4. Notes
Fund III has issued and sold notes in the aggregate principal amount of
$117,500 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.
Note 5. Capital
Fund III has obtained capital commitments from investors in the form of
subscription agreements to engage in the real estate debt investment activities
described herein. When notified by Fund III, in accordance with the Declaration
of Trust, the investors shall make capital contributions as are required to
satisfy their outstanding capital commitments. Fund III must give fourteen days
advance notice before contributions are due. As of December 31, 1996, the total
capital commitments from the Funds was $253,239,514 of which $167,805,230 had
been called and received. In addition, $18,623,436 representing capital returned
to shareholder is available for subsequent capital calls.
Note 6. Subsequent Events
On January 7, 1997 and February 3, 1997, the Trust made additional capital
calls of $22,668,761 and $42,163,896 on the Fund's investors, respectively,
which settled on January 21, 1997 and February 18, 1997, respectively.
<PAGE>
BLACKROCK FUND INVESTORS III
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 as of December 31, 1996 and the related statements
of operations and cash flows for the year then ended and the statement of
changes in net assets and financial highlights for the year then ended and for
the period March 29, 1995 (commencement of investment operation) 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 audit.
We conducted our audit 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 audit provides 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, 1996, and the results of its operations and its cash flows for the year then
ended, and the statement of changes in its net assets and the financial
highlights for the year then ended and for the period March 29, 1995
(commencement of investment operation) to December 31, 1995, in conformity with
generally accepted accounting principles.
As explained in Note 1, the financial statements include investments in
BlackRock Asset Investors valued at $162,914,905 (99.8% 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.
/s/ Deloitte & Touche LLP
New York, New York
February 20, 1997
<PAGE>
BlackRock Fund Investors 111
Additional Tax Information
- --------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of dividends and
distributions paid by Fund III during its fiscal year ended December 31, 1996.
During the fiscal year ended December 31, 1996, 56.32% of the total
distributions paid by Fund III is taxable as ordinary income, 6.70% is taxable
as long-term capital gain and 36.98% is a non-taxable return of capital. For
federal income tax purposes, the aggregate of any dividends and short-term
capital gains distributions you received are reportable in your 1996 federal
income tax return as ordinary income. Further, we wish to advise you that your
income dividends do not qualify for the dividends received deduction.
For the purpose of preparing your 1996 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 1997.
<PAGE>
Trustees
Laurence D. Fink, Chairman
John C. Deterding
Donald G. Drapkin
Wesley R. Edens
Charles Froland
James Grosfeld
William J. Kennett
Laurence E. Hirsch
Kendrick R. Wilson. III
Officers
Ralph L. Schlosstein, President
Wesley R. Edens, Chief Operating Officer
Robert I. Kauffman, Managing Director
Randal A. Nardone, Managing Director
Erik P. Nygaard, Managing Director
Henry Gabbay, Treasurer
Susan L. Wagner, Secretary
James Kong, Assistant Treasurer
Master Administrator
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
Administrator, Custodian and Transfer Agent
State Street Bank and Trust Company
Two Heritage Drive
North Quincy, MA 02171
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1431
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
BlackRock Fund Investors III
Two Heritage Drive
North Quincy, MA 02171
<PAGE>
BlackRock Asset Investors
- --------------------------------------------------------------------------------
Annual Report
December 31, 1996
<PAGE>
BlackRock Asset Investors
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name of Issuer
and title of Issue Par (000) Value
------------------ --------- -----
<S> <C> <C>
Commercial Mortgage Pass-Through Certificates - 4.1%
BCF L.L.C. Series 1996 A- Interest Only 51,560 $ 811,442
BCF L.L.C. Series 1996 B- Interest Only 7,646 207,705
BCF L.L.C. Series 1996 C- Interest Only 5,734 153,795
BCF L.L.C. Series 1996 D- Interest Only 6,690 153,783
BCF L.L.C. Series 1996 E 9,079 8,548,118
BCF L.L.C. Series 1996 F 2,390 2,048,695
BCF L.L.C. Series 1996 G 6,690 2,981,415
-------------
Total Commercial Mortgage Pass-Through Certificates (Cost $13,471,953) 14,904,953
-------------
Warrants - 0.8%
Annington Finance 16,065 2,752,270
-------------
Total Warrants including unrealized gain of $120,824 (Cost $2,631,446) 2,752,270
-------------
Fixed Income Securities - 31.3%
Annington Finance, 11%, 10/21/2002 65,540 112,283,707
-------------
Total Fixed Income Securities including
unrealized gain of $4,447,215 (Cost $107,836,492) 112,283,707
-------------
Partnership Investments - 74.4%
BlackRock Capital Finance 267,356,392
-------------
Total Partnership Investments (Cost $266,668,066) 267,356,392
-------------
Total Long Term Investments - (cost $390,607,957) 397,297,322
-------------
Short Term Investment - 0.1 %
Repurchase agreement dated 12/31/96
with State Street Bank and Trust, Co. 5.00%
due 1/02/97, collateralized by United States Treasury
Note 6.00% due 5/31/98 (market value $358,145)
(repurchase proceeds $350,097) (cost $350,000) 350 350,000
-------------
Total Investments - (cost $390,957,957) - 110.7% 397,647,322
Liabilities in Excess of Other Assets - (10.4)% (37,391,277)
Liquidation Value of Preferred Stock- (0.3)% (1,020,000)
-------------
Net Assets Applicable to Common Shareholders - 100.0% $ 359,236,045
=============
</TABLE>
<PAGE>
BlackRock Asset Investors
Statement of Assets and Liabilities
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments, at estimated fair value (cost $390,607,957) $ 397,297,322
Repurchase agreement (cost $350,000) 350,000
-------------
Total investments ($390,957,957) 397,647,322
Cash including cash held in foreign banks of $14,708 363,105
Interest receivable 1,921,298
Deferred organization expenses and other assets (Note 1) 305,714
Due from BlackRock Fund Investors I, II, and III 137,269
-------------
Total assets 400,374,708
-------------
Liabilities
Line of credit payable (Note 5) 29,000,000
Unrealized loss on forward currency contracts 8,017,435
Investment advisory fee payable (Note 2) 2,101,005
Tax payable 300,000
Payable to BCF 260,682
Notes payable (Note 6) 192,500
Interest on line of credit payable 78,316
Directors' fee payable 42,236
Administration fee payable 13,401
Other accrued expenses 113,088
-------------
Total liabilities 40,118,663
-------------
Net Investment Assets $ 360,256,045
=============
Net assets were comprised of:
Common shares of beneficial interest, at par (Note 7) $ 4,845
Paid in capital in excess of par 364,871,197
Preferred stock, at par (Note 7) 1,020,000
-------------
365,896,042
Accumulated net investment income 926,111
Distributions in excess of net realized gains (5,238,532)
Net unrealized depreciation on investments,
forward currency contracts and foreign currency (1,327,576)
=============
Total Net Investment Assets $ 360,256,045
=============
Net assets applicable to common shareholders $ 359,236,045
=============
Net asset value per common share ($359,236,045 divided by 484,525
common shares issued and outstanding) $ 741.42
=============
Total common shares outstanding at end of year 484,525.00
=============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Asset Investors
Statement of Operations
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
Net Investment Income
Income
Net investment income earned from BCF $ 69,445,671
Interest (net of interest expense of $1,234,961) 1,698,815
------------
Total income 71,144,486
------------
Expenses
Investment advisory 2,101,005
Administration 25,877
Directors 63,000
Custodian 60,000
Amortization of deferred organization expenses 37,500
Legal 25,000
Audit 20,750
Transfer agent 5,250
Miscellaneous 29,361
------------
Total operating expenses 2,367,743
------------
Net investment income before income taxes 68,776,743
Income tax provision (Note 1) (300,000)
------------
Net investment income 68,476,743
------------
Realized and Unrealized Gain (Loss)
on Investments, Futures Contracts,
Forward Currency Contracts and
Foreign Currency Transactions (Note 4)
Net realized gain on:
Futures contracts 145,776
Foreign Currency and Forward Currency Contracts 1,845,741
BCF investments 2,506,340
------------
Net realized gain 4,497,857
------------
Net change in unrealized appreciation (depreciation) on:
Foreign Currency and Forward Currency Contracts (8,016,941)
BCF investments 1,188,393
Other investments 6,001,235
------------
Net change in unrealized depreciation (827,313)
------------
Net realized and unrealized gain 3,670,544
------------
Net Increase In Net Investment Assets
Resulting from Operations $ 72,147,287
============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
BlackRock Asset Investors
Statement of Cash Flows
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
Cash flows provided by operating activities:
Net investment income and realized gain received from BCF $ 71,952,011
Interest received 1,012,478
Interest paid (1,156,645)
Expenses paid (691,195)
Reimbursement received for expenses paid
on behalf of affiliates 836,630
Net gain from futures contracts 145,776
Net gain from forward currency contracts and
foreign currency transactions 1,845,741
-------------
Net cash flows provided by operating activities 73,944,796
-------------
Cash flows used for investing activities:
Purchases of repurchase agreements, net (350,000)
Net purchase of investments (283,258,746)
-------------
Net cash flows used for investing activities (283,608,746)
-------------
Cash flows provided by financing activities:
Payment of distributions (112,813,000)
Line of credit borrowing 23,000,000
Proceeds from preferred stock 1,020,000
Organization expenses paid (162,500)
Redemption of notes payable (10,000)
Share subscriptions 298,911,137
-------------
Net cash flows provided by financing activities 209,945,637
-------------
Net increase in cash 281,687
Cash, beginning of year 81,418
-------------
Cash and foreign currency, end of year $ 363,105
=============
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 $ 72,147,287
-------------
Increase in unrealized depreciation 827,313
Increase in accrued expenses and other liabilities 2,094,540
Decrease in due from affiliates 836,630
Increase in deferred organization costs and other assets (1,960,974)
-------------
Total adjustments 1,797,509
-------------
Net cash flows provided by operating activities $ 73,944,796
=============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
* Excludes non cash items in the amount of $13,555,470.
<PAGE>
BlackRock Asset Investors
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 29, 1995*
Year Ended through
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income (loss) $ 68,476,743 $ (4,734,494)**
Net realized gain on BCF investments, futures
contracts, forward currency contracts and foreign
currency transactions 4,497,857 (2,278,375)**
Net change in unrealized depreciation on BCF
investments, forward currency contracts, foreign
currency transactions and other investments (827,313) (500,263)**
------------- -------------
Net increase (decrease) in net assets resulting
from operations 72,147,287 (7,513,132)
------------- -------------
Dividends and distributions to common shareholders from:
Net investment income (63,077,204) --
Return of capital (42,277,782) --
Net realized gains (2,219,482) --
In excess of net realized gains (5,238,532) --
------------- -------------
Total dividends & distributions to
common shareholders (112,813,000) --
------------- -------------
Fund share transactions:
Proceeds from common shares issued 298,911,137 108,503,753
Proceeds from preferred shares issued 1,020,000 --
------------- -------------
Total fund share transactions 299,931,137 108,503,753
------------- -------------
Net increase 259,265,424 100,990,621
Net Investment Assets
Beginning of period 100,990,621 --
------------- -------------
End of period $ 360,256,045 $ 100,990,621
============= =============
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of investment operations.
** Restated to conform to 1996 presentation.
See Notes to Financial Statements.
<PAGE>
BlackRock Asset Investors
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 29, 1995*
For the Year Ended through
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value per common share
beginning of period $ 765.99 $ 1,000.00
----------- -----------
Net investment income (loss) (a) 262.06 (150.13)**
Net realized and unrealized gain (loss) on
investments, futures contracts, forward currency
contracts and foreign currency transactions (a) 14.05 (83.88)**
----------- -----------
Net increase (decrease) from investment operations 276.11 (234.01)
----------- -----------
Less dividends & distributions to common shareholders:
Net investment income (168.12) --
Net realized gains (5.92) --
In excess of net realized gain (13.96) --
Return of capital (112.68) --
----------- -----------
(300.68) --
----------- -----------
Net asset value per common share, end of period $ 741.42 $ 765.99
=========== ===========
TOTAL INVESTMENT RETURN (b) 50.00% (23.40)%
RATIOS TO AVERAGE NET ASSETS
OF COMMON SHAREHOLDERS:
Operating expenses 1.15%(d) 10.78% (cd)**
Net investment income (loss) 33.17%(d) (13.15)%(cd)**
SUPPLEMENTAL DATA:
Average net assets of
common shareholders (in thousands) $ 206,466 $ 47,282
Portfolio turnover -- 27%
Net assets of common shareholders,
end of period (in thousands) $ 359,236 $ 100,991
Asset coverage per share of preferred stock,
end of period (in thousands) $ 176 --
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of investment operations.
** Restated to conform to 1996 presentation.
(a) 1996 is calculated based on average shares.
(b) Total investment return is calculated assuming a purchase of a common share
of beneficial interest at net asset value per share on the first day and a
sale at net asset value per share on the last day of the period reported.
Dividends are assumed, for purposes of this calculation, to be reinvested
at the net asset value per share on the payment date. 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 $560,267,692 is 0.90% and 12.22%, respectively, for the
period 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 Financial Statements.
<PAGE>
BlackRock Asset Investors
Notes to Financial Statements
- --------------------------------------------------------------------------------
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. As of December 31, 1996 the
Trustees have established BlackRock Fund Investors I, BlackRock Fund Investors
II, and BlackRock Fund Investors III. The Trust was formed on December 21, 1994
and had no operations through March 29, 1995 other than those related to
organizational matters and the sale and issuance of 274.108 shares of beneficial
interest to 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 acquiring, 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 acquire and 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. BAI owns
100% of the outstanding shares of AII.
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.
Investment Valuation: In valuing the Trust's assets, quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
then current currency value. The Trust values mortgage-backed and other debt
securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Trustees. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships observed in the
market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business. A
futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades, unless the Trust's Board of Directors
determines that such price does not reflect its fair value, in which case it
will be valued at its fair value as determined by the Trust's Board of
Directors.
The Trust's investment in BCF is valued based on the equity of such entity
which entity reports on a fair value basis (see Note 4). BCF generally invests
in mortgage loans acquired as distressed or nonperforming loans which are valued
at cost from the date of acquisition to the date on which a significant event
occurs, such as revaluation of the collateral, resolution of legal impediments,
bankruptcy of the borrower or restructuring of the loan. When a significant
event affecting valuation occurs, the mortgage loan shall be revalued on the
basis of such
<PAGE>
event and, if possible, shall thereafter, be valued on an analytical basis
rather than at cost basis.
Any securities or other assets, held by the Trust, for which current market
quotations are not readily available are valued at fair value as determined in
good faith under the Valuation Policy and Guidelines established by and under
the general supervision and responsibility of the Trust's Valuation Committee.
Short-term securities which mature in more than 60 days are valued at
current market quotations. 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, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity from date of purchase exceeded 60
days.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked to market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
Option Selling/Purchasing: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. As writer of an
option, the Trust may have no control over whether the underlying securities may
be sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Option selling and purchasing is used by the Trust to effectively hedge
positions. In general, the Trust uses options to hedge a long or short position
or an overall portfolio. A call option gives the purchaser of the option the
right (but not the obligation) to buy, and obligates the seller to sell (when
the option is exercised), the underlying position at any time or at a specified
time during the option period. A put option gives the holder the right to sell,
and obligates the writer to buy, the underlying position at the exercise price
at any time or at a specified time during the option period. Put options can be
purchased to effectively hedge a long position or a portfolio against price
declines. In the same sense, call options can be purchased to hedge short
positions or a portfolio against price declines. The Trust can also sell (or
write) covered call options and put options to hedge portfolio positions.
The main risk that is associated with purchasing options is that the option
expires without being exercised. In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego the opportunity for a profit
if the market value of the underlying position increases and the option is
exercised. The risk in writing put options is that Trust may incur a loss if the
market value of the underlying position decreases and the option is exercised.
In addition, the Trust risks not being able to enter into a closing transaction
for the written option as the result of an illiquid market.
Financial Futures Contracts: A financial futures contract is an agreement
between two parties to buy or sell a financial instrument for a set price on a
future date. Initial margin deposits are made upon entering into futures
contracts and can be either cash or securities.
<PAGE>
During the period that the futures contract is open, changes in the value of the
contract are recognized as unrealized gains or losses by "marking-to-market" on
a daily basis to reflect the market value of the contract at the end of each
day's trading. Variation margin payments are made or received, depending upon
whether unrealized gains or losses are incurred. When the contract is closed,
the Trust records a realized gain or loss equal to the difference between the
proceeds from (or cost of) the closing transaction and the Trust's basis in the
contract.
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities, or securities the Trust
intends to purchase, against fluctuations in value caused by changes in
prevailing market interest rates, or for risk management, or other portfolio
management purposes. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts, interest
rates and the underlying hedged assets. The Trust may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The Trust is also at risk of not being able to enter into a closing transaction
for the futures contract because of an illiquid secondary market.
Forward Currency Contracts: The Trust enters into forward currency contracts
primarily to hedge foreign currency risk. A forward contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Risks may arise as a result of the potential inability of the counterparts
to meet the terms of their contract.
Forward currency contracts, when used by the Trust, help to manage the
overall exposure to the foreign currency backing many of the investments held by
the Trust. Forward currency contracts are not meant to be used to eliminate all
of the exposure to foreign currency, rather they allow the Trust to limit its
exposure to foreign currency.
Details of open forward currency sell contracts at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Value at Value at Unrealized
Settlement Contract Settlement December 31, Appreciation/
Date to sell (000) Date 1996 (Depreciation)
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Dec. 23, 1997 C$ 6,500 $ 4,841,713 $ 4,839,655 $ 2,058
Dec. 13, 1999 GBP 78,622 $ 121,000,000 $ 129,019,493 $ (8,019,493)
------------- ------------- ------------
$ 125,841,713 $ 133,859,148 $ (8,017,435)
============= ============= ============
</TABLE>
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.
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.
<PAGE>
Taxes: It is the Trust's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income or excise tax provision is required for the Trust. A provision
for estimated income taxes of $300,000 has been made for AII.
Dividends and Distributions: The Trust declares and distributes dividends at
least annually first from net investment income, then from realized short-term
capital gains and other sources, and lastly from paid-in capital. Net long-term
capital gains, if any, in excess of loss carryforwards are distributed at least
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Investment Advisory, Administration and Other Expenses: Investment advisory,
administration and other expenses are recorded on the accrual basis. Performance
fees, if any, are determined and recorded annually.
Deferred Organization Expenses: A total of $187,500 was incurred in connection
with the organization of the Trust. These costs have been deferred and are being
amortized ratably over a period of 60 months from the date the Trust commenced
investment operations.
Reclassification of Capital Accounts: The Trust accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies. The Trust increased
accumulated net investment income by $261,066 and decreased paid in capital in
excess of par by $261,066 as the result of a net operating loss in 1995 that is
not deductible for tax purposes. Differences between financial statement income
and gains and taxable amounts generally arise due to different methods of
accounting for the basis of real estate owned upon foreclosure, recognition of
market discount, cash vs. accrual reporting and timing differences in the
recognition of gains and losses on foreign currency contracts, futures contracts
and options.
Note 2. Agreements
The Trust has an Investment Advisory Agreement with BlackRock Financial
Management, Inc. (the "Advisor") which provides that during the Commitment
Period the Trust will pay to the Advisor for its services a semi-annual fee, in
arrears, in an amount equal to .75% of the aggregate Capital Commitments, on an
annualized basis. Subsequent to the Commitment Period, the semi-annual fee
payable in arrears to the Advisor is reduced to .50% of the weighted average
capital invested during the relevant period on an annualized basis. In addition
to its management fee, the Trust will pay to the Advisor as of the first
anniversary of the commencement of the Trust's operations, as of each December
31 thereafter and as of the Trust's termination date a performance fee payable
only if certain criteria, as described in the Trust's Investment Advisory
Agreement, are met.
On December 6, 1996, the Board of Directors approved an amendment
(approved retroactive to January 1, 1996) to the Investment Advisory Agreement
which provided that during the Commitment Period the Trust will pay to the
Advisor for its services a semi-annual fee, in arrears, in an amount equal to
..375% of the aggregate Capital Commitments on an annualized basis and that
subsequent to the Commitment Period, the semi-annual fee payable in arrears to
the Advisor is reduced to .25% of the weighted average capital invested during
the relevant period on an annualized basis and the performance fee will be
allocated between
<PAGE>
BCF and the Trust as determined by the Trust. On December 6, 1996 BAI approved
an Investment Advisor Agreement with the Advisor which provides that during the
Commitment Period BCF will pay to the Advisor for its services a semi-annual
fee, in arrears, in an amount equal to .375% of the aggregate Capital
Commitments, an annualized basis and that subsequent to the Commitment Period,
the semi-annual fee payable in arrears to the Advisor is reduced to .25% of the
weighted average capital invested during the relevant period on an annualized
basis and the performance fee will be allocated between BCF and BAI as
determined by BAI. For the year ended December 31, 1996, BAI allocated 100% of
the performance fee of $3,314,000 to BCF. The cumulative net distributions
attributable to cumulative net investment income and cumulative net realized
gains as of December 31, 1996 is $66,279,985.
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 .08% of Trust's average net asset value up
to $225 million, .06% of the next $225 million and .04% thereafter. Effective
May 1, 1996 the Administration Agreement was amended to provide that State
Street will receive an annual fee equal to .06% of Trust's average net asset
value up to $225 million, .04% of the next $225 million and .02% thereafter,
subject to certain minimum requirements.
Pursuant to the agreements, the Advisor provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust, who
are affiliated persons of the Advisor. State Street pays occupancy and certain
clerical and accounting costs of the Trust. The Trust bears all other costs and
expenses.
Certain trustees of the Trust and the Funds, who are not interested
parties, are paid a fee, which is split ratably between BAI and the Funds, for
their services in the amount of $40,000 each on an annual basis plus telephonic
meeting fees not to exceed $500 annually and certain out-of-pocket expenses.
Note 3. Strategic Coinvestor
Neither the Trust nor BCF will be permitted to acquire any commercial or
residential mortgage asset unless a strategic coinvestor in the relevant asset
class coinvests in such asset. Accordingly, the Trust and BCF will be prohibited
from investing in any asset with respect to which its strategic partner in the
relevant asset class has declined to coinvest, unless the Trust and BCF have
received the approval of a majority of the BAI Trustees and all of the BAI
Investor Trustees with respect to the identity of and arrangements with an
alternative strategic coinvestor with respect to such asset. In addition, if the
coinvestment agreement with a strategic coinvestor is terminated, prior to
acquiring any additional assets in the relevant asset class, the Trust and BCF
will be required to obtain the approval of a majority of the BAI Trustees and
all of the BAI Investor Trustees with respect to the identity of and
arrangements with an alternative strategic coinvestor. Any strategic coinvestor
must, with respect to the relevant asset class, (i) possess the requisite real
estate and servicing capabilities, (ii) commit professional resources to its
efforts with the Trust and BCF, including loan underwriting, work-out and
servicing, and (iii) agree to make coinvestments of at least 10% with the Trust
or BCF, pursuant to the terms of a coinvestment agreement with such strategic
coinvestor, and agree to provide requested servicing functions with respect to
the related assets. All coinvestments will be concurrently with and on the same
terms as the Trust and BCF.
BlackRock Financial Management, Inc. ("BFM"), the investment advisor of
BAI, sold its minority interest in Brazos Advisors, L.L.C. ("Brazos") at cost
during the year ended December 31, 1996. Brazos is an affiliate of Brazos
GenPar, Inc. which is a strategic coinvestor formed for the purpose of providing
primary, master and special servicing with respect to commercial and multifamily
mortgage loans and related real estate properties.
<PAGE>
Note 4. Investments
Purchases and proceeds from sales of investment securities, other than
short-term investments, for the year ended December 31, 1996 aggregated
$213,476,984 and $0, respectively. The federal income tax basis of the
investments at December 31, 1996 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, 1996 the Trust's direct and indirect investment
in BCF of $267,356,392 is illiquid.
BCF's summary financial information as of December 31,1996 and for the year
then ended is as follows:
ASSETS:
Performing and distressed real estate
and related assets $239,218,630
Cash, deposits and other real estate
related assets 60,254,071
Other assets 2,391,819
------------
Total assets 301,864,520
LIABILITIES:
Accounts payable and accrued expenses 34,508,128
------------
PARTNERS' CAPITAL $267,356,392
============
REVENUE:
Net investment income $ 80,939,744
EXPENSES:
Expenses 11,494,073
------------
NET INVESTMENT INCOME 69,445,671
NET REALIZED GAIN 2,506,340
NET CHANGE IN UNREALIZED GAIN 1,188,393
------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 73,140,404
============
Note 5. Line of Credit
The Trust has available an unsecured line of credit agreement with
NationsBank N.A. under which funds may be borrowed at either the prime rate or
the one-month Eurodollar rate plus 1 3/8%. The average daily loan balance was
$6,214,481, at a weighted average interest rate of 7.41 %. The maximum loan
outstanding during the year ended December 31, 1996 was $57,500,000. The balance
outstanding at December 31, 1996 was $29,000,000.
A line of credit was also available to the Trust, which funds were borrowed
at the London InterBank Offer Rate (LIBOR) + 175 basis points. The average daily
loan balance was $5,464,481, at a weighted average interest rate of 5.72%. The
maximum loan outstanding during the year ended December 31, 1996 was
$40,000,000. No loan was outstanding as of December 31, 1996. The line of credit
has been terminated.
<PAGE>
Note 6. Notes
The Trust has issued notes in the aggregate principal amount of $202,500 to
the Funds. The Notes pay interest at a per annum rate of 2.50% over the yield of
the one-year constant maturity Treasury, redeemable annually by the holder and
due on dissolution of the Trust.
During the year ended December 31, 1996, $10,000 principal was redeemed,
leaving an aggregate principal amount of $192,500.
Note 7. Capital
The Trust has obtained capital commitments from the Funds in the form of
subscription agreements to engage in the real estate debt investment activities
described herein. When notified by the Trust, in accordance with the Declaration
of Trust, the Funds shall make capital contributions as are required to satisfy
their outstanding capital commitments. The Trust must give fourteen days advance
notice before contributions are due. As of December 31, 1996, the total capital
commitments from the Funds was $560,267,692 of which $407,414,890 had been
called and received. In addition, $42,277,782 representing capital returned to
shareholder is available for subsequent capital calls.
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 on November 30 of each year at a rate which is
equal to the treasury bill rate as of the preceding December 1 plus 2.5%.
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 subclassification as a closed-end
investment company or changes in its fundamental investment restrictions.
Note 8. Subsequent Events
On January 7, 1997 and February 3, 1997, the Trust made additional capital
calls of $50,000,000 and $93,000,000, respectively, which settled on January 21,
1997 and February 18, 1997, respectively. Approximately $121,000,000 of which
was contributed to BCF to fund the purchase of five additional investments, two
of which consist primarily of single family mortgage loans, and three of which
consist primarily of multi-family and commercial mortgage loans.
<PAGE>
BLACKROCK ASSET INVESTORS
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Trustees
of BlackRock Asset Investors:
We have audited the accompanying statement of assets and liabilities of
BlackRock Asset Investors as of December 31, 1996 and the related statements of
operations and cash flows for the year then ended and the statement of changes
in net assets and financial highlights for the year then ended 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of BlackRock Asset Investors as of December 31,
1996, and the results of its operations and its cash flows for the year then
ended, and the changes in its net assets and the financial highlights for the
year then ended 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
$397,297,322 (110.3% 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.
/s/ Deloitte & Touche LLP
New York, New York
February 20, 1997
<PAGE>
BlackRock Asset Investors
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, 1996.
During the fiscal year ended December 31, 1996, 55.91% of the total
distributions paid by the Trust is taxable as ordinary income, 6.61% is taxable
as long-term capital gain and 37.48% is a non-taxable return of capital. For
federal income tax purposes, the aggregate of any dividends and short-term
capital gains distributions you received are reportable in your 1996 federal
income tax return as ordinary income. Further, we wish to advise you that the
income dividends do not qualify for the dividends received deduction.
<PAGE>
Trustees
Laurence D. Fink, Chairman
John C. Deterding
Donald G. Drapkin
Wesley R. Edens
Charles Froland
James Grosfeld
William J. Kennett
Laurence E. Hirsch
Kendrick R. Wilson. III
Officers
Ralph L. Schlosstein, President
Wesley R. Edens, Chief Operating Officer
Robert I. Kauffman, Managing Director
Randal A. Nardone, Managing Director
Erik P. Nygaard, Managing Director
Henry Gabbay, Treasurer
Susan L. Wagner, Secretary
James Kong, Assistant Treasurer
Master Administrator
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
Administrator, Custodian and Transfer Agent
State Street Bank and Trust Company
Two Heritage Drive
North Quincy, MA 02171
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1431
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
BlackRock Asset Investors
Two Heritage Drive
North Quincy, MA 02171
