BLACKROCK MQE INVESTORS
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1997 (UNAUDITED)
<PAGE>
BLACKROCK MQE INVESTORS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in Annington subordinated debt (United Kingdom)
at estimated fair value, which includes unrealized gain of $756,241
(cost $45,493,052)* $ 46,249,293
Investment in Annington warrants (United Kingdom) at estimated fair value,
which includes unrealized gain of $18,540 (cost $1,115,319) 1,133,859
-------------
Total investments (cost $46,608,371) 47,383,152
Interest receivable 1,254,448
Cash (Including cash held in foreign banks of $4,356) 96,797
Deferred organization expenses and other assets (Note 1) 95,579
-------------
Total assets $ 48,829,976
-------------
LIABILITIES
Unrealized loss on forward currency contracts 3,016,164
Investment advisory fee payable (Note 2) 231,233
Accrued expenses 109,222
-------------
Total liabilities 3,356,619
-------------
NET INVESTMENT ASSETS $ 45,473,357
=============
Net assets were comprised of:
Common units of beneficial interest, at par (Note 4) $ 466
Paid in capital in excess of par 6,579,534
Preferred units, at par (Note 4) 50,000
-------------
46,630,000
Accumulated net investment income 1,113,679
Accumulated realized loss on forward currency contracts,
and foreign currency transactions (51,483)
Net unrealized depreciation on investments, forward currency contracts
and foreign currency transactions (2,218,839)
-------------
Total net investment assets $ 45,473,357
=============
Net assets applicable to common unitholders 45,423,357
=============
Net asset value per common unit ($45,423,357 divided by 46,580
common units issued and outstanding) $ 975.17
=============
Total units outstanding at end of period 46,580.00
=============
</TABLE>
- --------------------------------------------------------------------------------
* This security has been partially or fully pledged as collateral in connection
with forward currency contracts.
See Notes to Financial Statements.
<PAGE>
BLACKROCK MQE INVESTORS
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
<TABLE>
<CAPTION>
<S> <C>
Income
Interest (net of interest expense of $2,480) $ 2,515,212
------------
Expenses
Management fee 231,233
Legal 12,397
Amortization of deferred organization expenses 10,909
Directors 10,909
Administration/Custody/Transfer Agent 9,917
Audit 4,215
Miscellaneous 2,480
Amortization of prepaid insurance 1,965
------------
Total expenses 284,025
Net investment income 2,231,187
REALIZED AND UNREALIZED LOSS ON INVESTMENTS,
FORWARD CURRENCY CONTRACTS, AND FOREIGN
CURRENCY TRANSACTIONS, (NOTE 1)
Net realized loss on forward currency contracts,
and foreign currency transactions (51,483)
Net change in unrealized appreciation on investments (1,359,578)
Net change in unrealized depreciation on
forward currency contracts and foreign currency transactions 745,347
------------
Net realized and unrealized loss (665,714)
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,565,473
============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
BLACKROCK MQE INVESTORS
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
<S> <C>
Cash flows provided by operating activities:
Interest received, net 2,072,806
Expenses paid (120,930)
Net realized loss from forward currency contracts and
foreign currency transactions (51,483)
------------
Net cash flows provided by operating activities 1,900,393
------------
Cash flows provided by investing activities:
Purchase of repurchase agreements, net 140,000
Capitalized expense (123,405)
------------
Net cash flows provided by investing activities 16,595
------------
Cash flows used for financing activities:
Distributions to unitholders (1,851,964)
------------
Net increase in cash 65,024
Cash, beginning of period 31,773
------------
Cash, end of period $ 96,797
============
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 $ 1,565,473
------------
Increase in unrealized depreciation 614,231
Increase in accrued expenses and other liabilities 152,350
Increase in interest receivable (442,406)
Decrease in prepaid and other assets 10,745
------------
Total adjustments 334,920
------------
Net cash flows provided by operating activities $ 1,900,393
============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BLACKROCK MQE INVESTORS
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE SIX NOVEMBER 1, 1996*
MONTHS ENDED THROUGH
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
<S> <C> <C>
Net investment income $ 2,231,187 $ 734,456
Net realized loss (51,483) --
Net change in unrealized appreciation on investments (1,359,578) 2,134,359
Net change in unrealized depreciation on
forward currency contracts and
foreign currency transactions 745,347 (3,738,967)
------------ -----------
Net increase (decrease) in net assets resulting
from operations 1,565,473 (870,152)
------------ -----------
Dividends to unitholders from net investment income (1,851,964) --
------------ -----------
Fund unit transactions:
Proceeds from preferred units issued -- 50,000
Proceeds from common units issued -- 46,580,000
------------ -----------
Net increase in net assets resulting
from fund unit transactions -- 46,630,000
------------ -----------
Net increase (decrease) (286,491) 45,759,848
NET ASSETS
Beginning of period 45,759,848 --
------------ -----------
End of period $ 45,473,357 $45,759,848
============ ===========
</TABLE>
<PAGE>
BLACKROCK MQE INVESTORS
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX NOVEMBER 1, 1996*
MONTHS ENDED THROUGH
JUNE 30, 1997 DECEMBER 31, 1996
PER SHARE OPERATING
PERFORMANCE:
<S> <C> <C>
Net asset value, beginning of period $ 981.32 $ 1,000.00
------------ ------------
Net investment income (a) 47.90 15.77
Net realized and unrealized gain (loss) on:
Investments (a) (29.19) 45.83
Forward currency contracts and
foreign currency transactions (a) 14.90 (80.28)
------------ ------------
Net increase (decrease) from investment operations 33.61 (18.68)
------------ ------------
Less dividends to unitholders from
net investment income (39.76) --
------------ ------------
(39.76) --
Net asset value, end of period $ $975.17 981.32
============ ============
TOTAL INVESTMENT RETURN (B) 3.43% (1.87)%
RATIOS TO AVERAGE NET ASSETS:
Expenses (c) (d) 1.25% 1.33%
Net investment income (c) (d) 9.71% 9.46%
SUPPLEMENTAL DATA:
Average net assets of common unitholders (in thousands) $45,685 $46,580
Portfolio turnover -- --
Net assets of common unitholders, end of period (in thousands) $45,423 $45,710
Asset coverage per preferred unit, end of period (in thousands) $455 $458
Preferred units outstanding (in thousands) $50 $50
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of investment operations.
(a) Calculated based on average units.
(b) Total investment return is calculated assuming a purchase of a common
unit of beneficial interest at net asset value per unit on the first day
and a sale at net asset value per unit 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 unit 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 $46,580,000 on an annualized basis is 1.23% and 9.66%,
respectively, for the six months ended June 30, 1997. The ratio of
expenses and net investment income to total investor capital commitments
of $46,580,000 on an annualized basis is 1.33% and 9.46%, respectively,
for the period ended December 31, 1996.
(e) Ratios are calculated on the basis of income and expenses applicable to
both the common and preferred units relative to average net assets of
common unitholders.
Contained above is the unaudited operating performance based on an average
unit 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 MQE INVESTORS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
BlackRock MQE Investors (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 Trust will elect to be treated as a
partnership for federal income tax purposes. The Units of the Trust are offered
to investors in BlackRock Fund Investors I, II, and III (the "Funds") and to
other institutional and other qualified investors. The Preferred Units are
offered only to Accredited Investors.
The Trust invests in subordinated debentures and, at the discretion of the
Trustees of the Trust, working capital financing (the "Subordinated Debt"), of
Annington Finance No. 3 Limited or its affiliates ("Annington Finance"),
warrants ("the Warrants") exercisable for common stock of Annington Homes
Limited or its affiliates (together with its affiliates "Annington") and other
securities issued in respect of such securities. The Annington companies have
been organized to acquire the Married Quarters Estate ("MQE") from the United
Kingdom Ministry of Defense in a complex transaction. MQE includes approximately
58,000 units of housing.
The Trust will seek to earn a high total rate of return through investment
in the Subordinated Debt and Warrants and other securities subsequently issued
in respect of such securities.
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. Short-term
securities which mature in 60 days or less are valued at amortized cost, if
their term to maturity from date of purchase was 60 days or less. Short-term
securities with a term to maturity greater than 60 days from the date of
purchase are valued at current market quotations until maturity. In connection
with transactions in repurchase agreements, the Trust's custodian takes
possession of the underlying collateral securities, the value of which at least
equals the principal amount of the repurchase transaction, including accrued
interest. To the extent that any repurchase transaction exceeds one business
day, the value of the collateral is marked to market on a daily basis to ensure
the adequacy of the collateral. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Trust may be
delayed or limited.
FORWARD CURRENCY CONTRACTS: The Trust enters into forward currency contracts
primarily to hedge foreign currency risk. A forward contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the settlement value
of the original and renegotiated forward contracts is isolated and is included
in net realized losses from foreign currency transactions. Risks may arise as a
result of the potential inability of the counterparts to meet the terms of their
contract.
<PAGE>
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 within a narrow band to the objectives of the fund.
Details of open forward currency sale contracts at June 30, 1997 are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Value at Value at Unrealized
Settlement Contract Settlement June 30, Appreciation/
DATE TO SELL DATE 1997 (DEPRECIATION)
---------------- ----------------- ---------------- ---------------- ---------------
Dec. 13, 1999 GBP 36,734,694 $ 55,800,000 $ 58,816,164 $ (3,016,164)
</TABLE>
FOREIGN CURRENCY TRANSLATION: The books and records of the Trust are
maintained in U.S. dollars. Foreign currency amounts are translated into
United States dollars on the following basis:
(I) market value of investment securities, other 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 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.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin,
including unanticipated movements in the value of the British Sterling relative
to the US dollar.
The exchange rate for the British Pound at June 30, 1997 was US $1.00 to
UK0.600492
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.
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 unitholders.
Therefore, no federal income or excise tax provision is required.
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.
DEFERRED ORGANIZATION EXPENSES: A total of $110,000 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.
<PAGE>
NOTE 2. AGREEMENTS
Pursuant to the Declaration of Trust ("DOT") the Trust will pay BlackRock
Financial Management, Inc., Manager of the Trust, a 1.00% allocation of all
Capital Contributions, on an annualized basis, subject to certain criteria as
defined in the DOT.
The Trust has also entered into an agreement with State Street Bank and
Trust Company ("State Street") which provides that State Street will receive an
annual fee of $20,000 in exchange for Administration, Custody and Transfer Agent
services.
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.
Trustees of the Trust, who are not interested parties, are paid a fee for
their services in the amount of $6,000 each on an annual basis plus meeting fees
of $1,000 per meeting, telephonic meeting fees of $125 per meeting and certain
out-of-pocket expenses.
NOTE 3. PORTFOLIO SECURITIES
There were no purchases or sales of investment securities, other than
short-term investments, for the period ended June 30, 1997. The federal income
tax basis of the investments at June 30, 1997 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.
NOTE 4. CAPITAL
The Trust has obtained capital commitments from unitholders 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 unitholders 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 June 30, 1997, the total
capital commitments from investors was $46,630,000 of which $46,630,000 had been
called and received.
There are 100 million common units of $.01 par value authorized and there
are 200 preferred units of $.01 par value authorized. The preferred units have a
liquidation value $500 per share plus any accumulated but unpaid dividends.
Dividends are cumulative and are paid at an annual rate of 10%. On April 16,1997
the fund declared a dividend per unit at a rate of $23.99327 per unit which
represents substantially all of the accumulated income earned by the fund for
the period beginning January 1, 1997 and ending March 31, 1997.
The holders of preferred units have voting rights equal to the holder of
common units (one vote per unit) and will vote together with holders of units of
common stock as a single class. However, holders of preferred units 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 unitholders that might
otherwise be required, the approval of the holders of a majority of any
outstanding preferred units, voting separately as a class would be required to
(a) adopt any plan of reorganization that would adversely affect the preferred
units, 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.
<PAGE>
TRUSTEES
Laurence D. Fink, CHAIRMAN
Donald G. Drapkin
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 unitholder information. This is not a prospectus intended for
use in the purchase or sale of Trust units.
BLACKROCK MQE INVESTORS
Two Heritage Drive
North Quincy, MA 02171
