FUND III
2/27/98
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DRAFT
BlackRock Fund Investors III
(In Liquidation)
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Annual Report
December 31, 1997
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BlackRock Fund Investors III (In Liquidation)
Statement of Assets and Liabilities
December 31, 1997
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Assets
Investment in BlackRock Asset Investors, at estimated
fair value (cost $116,208,615) (Notes 1 and 3) $110,653,913
Repurchase agreement dated 12/31/97
with State Street Bank and Trust, Co. 5.50% due 1/2/98,
collateralized by $270,000 United States Treasury Note
6.25% due 03/31/99 (market value $275,995)
(repurchase proceeds $270,083) (cost $270,000) 270,000
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Total investments (cost $116,478,615) 110,923,913
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Cash 2,182
Notes receivable (Note 4) 107,500
Deferred organization expenses and other assets (Note 1) 103,310
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Total assets 111,136,905
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Liabilities
Notes payable (Note 4) 107,500
Other accrued expenses 110,892
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Total liabilities 218,392
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Net Assets $110,918,513
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Net assets were comprised of:
Shares of beneficial interest, at par (Note 5) $ 3,354
Paid-in capital in excess of par 116,469,861
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116,473,215
Net unrealized depreciation on investment companies (5,554,702)
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Total net assets $110,918,513
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Net asset value per share $ 330.70
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Total shares outstanding at end of year 335,401.95
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See Notes to Financial Statements.
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BlackRock Fund Investors III (In Liquidation)
Statement of Operations
For the Year Ended December 31, 1997
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Net Investment Income
Income
Interest (net of interest expense of $7,969) $ 37,307
Dividend income 70,863,579
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Total income 70,900,886
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Expenses
Directors 63,000
Amortization of deferred organization expenses 33,900
Audit 22,600
Legal 22,600
Amortization of prepaid insurance 14,502
Transfer Agent 5,250
Custodian 5,000
Miscellaneous 24,080
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Total expenses 190,932
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Net investment income 70,709,954
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Unrealized Loss
on Investments (Note 3)
Net change in unrealized depreciation on investment companies (2,866,995)
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Net Increase In Net Assets
Resulting from Operations $ 67,842,959
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See Notes to Financial Statements.
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BlackRock Fund Investors III (In Liquidation)
Statement of Cash Flows
For the Year Ended December 31, 1997
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Increase (Decrease) in Cash
Cash flows provided by operating activities:
Dividends and interest received $ 70,883,584
Expenses paid (149,425)
Paid to affiliates (45,855)
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Net cash flows provided by operating activities 70,688,304
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Net sale of investments 49,123,997
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Cash flows used for financing activities:
Proceeds from Fund shares issued 83,458,947
Dividend and distributions to shareholders (203,561,359)
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Net cash flows used for financing activities (120,102,412)
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Net decrease in cash (290,111)
Cash beginning of year 292,293
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Cash end of year $ 2,182
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Reconciliation of Net Increase in Net
Assets Resulting from Operations
to Net Cash Flows Provided by
Operating Activities
Net increase in net assets resulting from operations $ 67,842,959
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Increase in unrealized depreciation 2,866,995
Decrease in deferred organization expenses and other assets 11,480
Decrease in payable to BAI (45,855)
Increase in other accrued expenses 12,725
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Total adjustments 2,845,345
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Net cash flows provided by operating activities $ 70,688,304
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See Notes to Financial Statements.
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BlackRock Fund Investors III (In Liquidation)
Statements of Changes in Net Assets
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<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996
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<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 70,709,954 $ 28,376,338
Net realized gain -- 3,372,520
Net change in unrealized appreciation
on investment companies (2,866,995) 794,762
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Net increase in net assets resulting
from operations 67,842,959 32,543,620
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Dividends and distributions to shareholders from:
Net investment income (70,611,794) (28,237,113)
In excess of net investment income -- (129,199)
Net realized gain -- (3,372,520)
Return of capital (132,949,565) (18,623,436)
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Total dividends and distributions to shareholders (203,561,359) (50,362,268)
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Fund share transactions:
Proceeds from shares issued 83,458,947 135,569,520
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Net increase in net assets resulting
from fund share transactions 83,458,947 135,569,520
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Net increase (decrease) (52,259,453) 117,750,872
Net Assets
Beginning of period 163,177,966 45,427,094
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End of period $110,918,513 $163,177,966
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</TABLE>
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See Notes to Financial Statements.
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BlackRock Fund Investors III (In Liquidation)
Financial Highlights
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<TABLE>
<CAPTION>
March 29, 1995*
For the Year Ended For the Year Ended through
December 31, 1997 December 31, 1996 December 31, 1995
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<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $ 733.89 $ 755.60 $1,000.00
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Net investment income (loss) (a) 222.80 236.65 (10.91)
Net realized and unrealized gain (loss) (a) (19.07) 34.75 (233.49)
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Net increase (decrease) from investment operations 203.73 271.40 (244.40)
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Less dividends and distributions:
Net investment income (210.53) (164.34) --
In excess of net investment income -- (0.75) --
Net realized gain -- (19.63) --
Return of capital (396.39) (108.39) --
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(606.92) (293.11) --
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Net asset value, end of period $ 330.70 $ 733.89 $ 755.60
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TOTAL INVESTMENT RETURN 27.76% 53.84% (24.44)%
RATIOS TO AVERAGE NET ASSETS:
Expenses (c) 0.08% 0.16% 0.85%(b)
Net investment income (loss) (c) 31.07% 30.37% (0.85)%(b)
SUPPLEMENTAL DATA:
Average net assets (in thousands) $227,550 $ 93,437 $ 21,529
Portfolio turnover -- -- --
Net assets, end of period (in thousands) $110,919 $163,178 $ 45,427
</TABLE>
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* Commencement of investment operations.
(a) Calculated based on average shares.
(b) Annualized.
(c) The ratio of expenses and net investment income to total investor capital
commitments of $253,239,514 on an annualized basis is 0.08% and 27.92%,
respectively, for the year ended December 31, 1997. The ratio of expenses
and net investment income to total investor capital commitments of
$253,239,514 on an annualized basis is 0.06% and 11.21%, respectively, for
the year ended December 31, 1996. The ratio of expenses and net investment
loss to total investor capital commitments of $253,239,514 on an
annualized basis is 0.07% and (0.07)%, respectively, for the year ended
December 31, 1995.
Contained above is the audited operating performance based on an average
share of beneficial interest outstanding, total investment return, ratios
to average net assets and other supplemental data, for the period
indicated. This information has been determined based upon financial
information provided in the financial statements.
See Notes to Financial Statements.
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BlackRock Fund Investors III (In Liquidation)
Notes to Financial Statements
Note 1. Organization and Accounting Policies
BlackRock Fund Investors III ("Fund III") is a non-diversified closed-end
investment company organized as a Delaware business trust. Fund III invests all
of its investable assets in BlackRock Asset Investors ("BAI" or the "Trust")
which is a Delaware business trust registered under the Investment Company Act
of 1940 as a non-diversified closed-end investment company and has the same
investment objective as Fund III. The value of Fund III's investment in BAI
reflects Fund III's proportionate interest in the net assets of BAI. The
performance of Fund III is directly affected by the performance of BAI. The
financial statements of BAI are included in this report and should be read in
conjunction with Fund III's financial statements.
The Board of Trustees of Fund III ("Trustees") approved a plan of
Liquidation ("Plan") on September 18, 1997 which was adopted by the stockholders
on October 3, 1997 ("Adoption Date"). The plan term runs two years from the
Adoption Date. The plan requires the Trustees to oversee the complete and
orderly liquidation of Fund III and wind-up the Trust. Any remaining assets and
liabilities may be deposited in a voting trust at any time before the end of the
Plan Term. The liquidation of Fund III in accordance with the Plan, will result
in distributions paid subsequent to the Adoption Date being characterized for
tax purposes first as a return of capital until a shareholder's basis is reduced
to zero, and then as capital gain. The character of distributions paid
subsequent to the Adoption Date are determined in accordance with income tax
regulations which may differ from Generally Accepted Accounting Principals
The following is a summary of significant accounting policies followed by
Fund III.
Securities Valuation: Fund III's interest in BAI common shares is valued by Fund
III at its proportionate interest in the net asset value of BAI (approximately
45% at December 31, 1997). Fund III also holds 691.56 BAI preferred shares which
are valued at cost ($345,780). Valuation of securities by BAI is discussed in
Note 1 of BAI's Notes to Consolidated Financial Statements which are included
elsewhere in this report.
Short-term securities which mature in 60 days or less are valued at
amortized cost, if their term to maturity from date of purchase was 60 days or
less. Short-term securities with a term to maturity greater than 60 days from
the date of purchase are valued at current market quotations until maturity.
In connection with transactions in repurchase agreements, the custodian
for Fund III takes possession of the underlying collateral securities, the value
of which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked to market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by
Fund III may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and Fund III amortizes premium or accretes discount on securities
purchased using the interest method. Dividends and distributions received from
BAI are recorded based on the character of the dividend or distribution
received.
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Taxes: It is Fund III's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income or excise tax provision is required.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Master Administration, Administration and Other Expenses: Master administration
and other expenses are recorded on the accrual basis.
Deferred Organization Expenses: A total of $169,499 was incurred in connection
with the organization of Fund III. These costs have been deferred and are being
amortized ratably over a period of 60 months from the date Fund III commenced
investment operations.
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 2. Agreements
Fund 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 period ended December 31, 1997 aggregated
$83,458,947 and $0, respectively.
The federal income tax basis of Fund III's investments at December 31,
1997 was $56,277,261 and accordingly, gross and net unrealized appreciation was
$54,646,652.
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Note 4. Notes
Fund III holds a note with a principal amount of $107,500 from BAI. The
note pays interest at a per annum rate of 2.50% over the yield of the one-year
constant maturity Treasury, redeemable annually by Fund III and due on
dissolution of BAI.
Fund III has issued and sold notes in the aggregate principal amount of
$107,500 paying interest at a per annum rate of 2.50% over the yield of the
one-year constant maturity Treasury, redeemable annually by the holder and due
on dissolution of the Fund III.
Note 5. Capital
As of December 31, 1997, the total capital commitments from the Funds was
$253,239,514 of which a net amount of $99,691,176 had been called and received.
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BlackRock Fund Investors III (In Liquidation)
Additional Tax Information
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We wish to advise you as to the federal tax status of distributions paid
by Fund III during its fiscal year ended December 31, 1997.
On May 6, 1997 Fund III paid a distribution of $31.01 all of which is
taxable as long-term capital gain at the 20% rate. All other distributions are
treated as a non-taxable return of capital. For the purpose of preparing your
1997 annual federal income tax return, however, you should report the amounts as
reflected on the appropriate Form 1099 DIV which was mailed to you in January of
1998.
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BLACKROCK FUND INVESTORS III (In Liquidation)
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Trustees of
BlackRock Fund Investors III:
We have audited the accompanying statement of assets and liabilities of
BlackRock Fund Investors III as of December 31, 1997 and the related statements
of operations and cash flows for the year then ended and the statement of
changes in net assets for the years ending December 31, 1997 and 1996 and the
statements of financial highlights for the years ending December 31, 1997 and
1996 and for the period March 29, 1995 (commencement of operations) to December
31, 1995. These financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of BlackRock Fund Investors III as of December
31, 1997, and the results of its operations and its cash flows for the year then
ended, and the changes in its net assets for the years ending December 31, 1997
and 1996 and its financial highlights for the years ended December 31, 1997 and
1996 and for the period March 29, 1995 (commencement of operations) to December
31, 1995 in conformity with generally accepted accounting principles.
As explained in Note 1, the Board of Trustees of BlackRock Fund Investors III
approved a plan of liquidation ("Plan") and a technical amendment to the terms
of BlackRock Asset Investors' Preferred Shares to facilitate the Plan, on the
Adoption Date, October 3, 1997.
As explained in Note 1, the financial statements include investments valued at
$110,653,913 (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.
New York, New York
February 23, 1998
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Trustees
Laurence D. Fink, Chairman
Terry Blaney
John C. Deterding
Donald G. Drapkin
Wesley R. Edens
Charles Froland
James Grosfeld
Laurence E. Hirsch
Kendrick R. Wilson, III
Officers
Ralph L. Schlosstein, President
Wesley R. Edens, Chief Operating Officer
Robert I. Kauffman, Managing Director
Randal A. Nardone, Managing Director and Assistant Secretary
Erik P. Nygaard, Managing Director
Henry Gabbay, Treasurer
Susan L. Wagner, Secretary
James Kong, Assistant Treasurer
Master Administrator
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
Administrator, Custodian and Transfer Agent
State Street Bank and Trust Company
Two Heritage Drive
North Quincy, MA 02171
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1431
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
BlackRock Fund Investors III
Two Heritage Drive
North Quincy, MA 02171
